World Bank Document...Montenegro FY 4nnual Zumulative Real Estate Administration Department (READ) Oktobarske Revolucije br PC Celebic (V sprat) 81000 Podgorica Montenegro Fax: 382

Document o f The World Bank

FOR OFFICIAL USE ONLY

Report No: 43032-ME

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LOAN

IN THE AMOUNT OF EURO 11 MILLION (US$16.2 MILLION EQUIVALENT)

TO

MONTENEGRO

FOR A

LAND ADMINISTRATION AND MANAGEMENT PROJECT

November 10,2008

Sustainable Development Unit Southeast Europe Country Unit Europe and Central Asia Region

This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not otherwise be disclosed without World Bank authorization.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

(Exchange Rate Effective August 3 1,2008)

BEEPS CPS Dept UP DUP EA EMP EU FIAS GIS GOM GTZ GUP ICT MED MOF NSP PAC PCU PSC READ REC RPF TSU UNDP

Currency Unit = EURO US$1.47 = €1.0

US$1 = €0.68

FISCAL YEAR January 1 - December31

ABBREVIATIONS AND ACRONYMS Business Environment and Enterprise Improvement Surveys Country Partnership Strategy Department o f Urban Planning Detailed Urban Plan Environmental Assessment Environmental Management Plan European Union Foreign Investment Advisory Service Geographic Information System Government o f Montenegro German Technical Assistance Agency General Urban Plan Information Communication Technology Ministry o f Economic Development Ministry o f Finance National Spatial Plan Public Awareness Campaign Project Coordination Unit Project Steering Committee Real Estate Administration Department Real Estate Cadastre Resettlement Policy Framework Technical Services Unit United Nations Development Program

Vice President: Shigeo Katsu Country Director: Jane Armitage

Sector Manager: John Kellenberg Task Team Leader: Gavin P. Adlington

FOR OFFICIAL USE ONLY

MONTENEGRO Land Administration and Management Project

CONTENTS

Page

STRATEGIC CONTEXT AND RATIONALE .................................................................. 1 I . A . B . C .

I 1 . A . B . C . D . E . F .

I11 . A . B . C . D . E . F .

I V . A . B . C . D . E . F . G .

Country and sector issues .................................................................................................... 1

Rationale for Bank involvement .......................................................................................... 2 Higher level objectives to which the Project contributes .................................................... 2

PROJECT DESCRIPTION .............................................................................................. 2 Lending instrument .............................................................................................................. 2

Program objective and phases ............................................................................................. 2 Project development objective and key indicators .............................................................. 2

Project components .............................................................................................................. 3 Lessons learned and reflected in the Project design., .......................................................... 4 Alternatives considered and reasons for rejection ............................................................... 4

IMPLEMENTATION ....................................................................................................... 4 Partnership arrangements .................................................................................................... 4

Institutional and implementation arrangements .................................................................. 5 Monitoring and evaluation o f outcomeshesults .................................................................. 6

Sustainability ....................................................................................................................... 6

Critical risks and possible controversial aspects ................................................................. 7

Loadcredit conditions and covenants ................................................................................. 8

APPRAISAL SUMMARY .............................................................................................. 10 Economic and financial analyses ....................................................................................... 10

Technical ........................................................................................................................... 11

Fiduciary ............................................................................................................................ 13

Social ................................................................................................................................. 14

Environment ...................................................................................................................... 15

Safeguard policies .............................................................................................................. 16

Policy Exceptions and Readiness ...................................................................................... 17

This document has a restricted distribution and may be used by recipients only in the performance o f their off icial duties . I t s contents may not be otherwise disclosed without Wor ld Bank authorization .

Annex 1: Country and Sector o r Program Background .......................................................... 18

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies .................. 23

Annex 3: Results Framework and Monitoring ......................................................................... 24

Annex 4: Detailed Project Description ...................................................................................... 28

Annex 5: Project Costs ................................................................................................................ 36

Annex 6: Implementation Arrangements .................................................................................. 37

Annex 7: Financial Management and Disbursement Arrangements ..................................... 42

Annex 8: Procurement Arrangements ....................................................................................... 50

Annex 9: Economic and Financial Analysis .............................................................................. 60

Annex 10: Safeguard Policy Issues ............................................................................................. 70

Annex 11: Project Preparation and Supervision ...................................................................... 72

Annex 12: Documents in the Project File .................................................................................. 74

Annex 13: Statement of Loans and Credits ............................................................................... 75

Annex 14: Country at a Glance .................................................................................................. 76

Map IBRD 34825

MONTENEGRO

Source Local

LAND ADMINISTRATION AND MANAGEMENT PROJECT

PROJECT APPRAISAL DOCUMENT

EUROPE AND CENTRAL ASIA

ECSSD

Foreign Total

Date: November 10,2008 Country Director: Jane Armitage Sector ManagedDirector: John V. Kellenberg

Team Leader: Gavin P. Adlington Sectors: Housing finance and real estate markets (SO%);Sub-national government administration (30%);Central government administration (20%) Themes: Land administration and management (P);Municipal governance and institution building (S) Environmental screening category: Partial Assessment

Project ID: P 106906

Lending Instrument: Specific Investment Loan

[XI Loan [ ] Credit [ 3 Grant [ 3 Guarantee [ ] Other:

Borrower International Bank for Reconstruction and Development Total:

For Loans/Credits/Others: Total Bank financing (e): 1 1 .OO Pronosed terms: FSL

11.49 0.00 1 1.49 11.00 0.00 11.00

22.49 0.00 22.49

Borrower: Ministry o f Finance Stanka Dragojevica 2 8 1000 Podgorica Montenegro Fax: 382 81 224 450

Responsible Agency: Ministry o f Economic Development (MED) Rimski trg 46 8 1000 Podgorica

Montenegro

FY 4nnual Zumulative

Real Estate Administration Department (READ) Oktobarske Revolucije br PC Celebic (V sprat) 81000 Podgorica Montenegro Fax: 382 81 444 004

2009 2010 2011 2012 2013 2014 0.20 0.80 2.00 3.50 3.50 1 .oo 0.20 1.00 3.00 6.50 9.50 11.00

Estimated disbursements (Bank FY/€m)

Expected effectiveness date: January 30, 2009 Expected closing date: April 30, 20 14 Does the project depart from the CAS in content or other significant respects? Ref: PAD I.C. [ ]Yes [XINO

Does the project require any exceptions from Bank policies? Ref: PAD IKG.

I s approval for any policy exception sought from the Board? Does the project include any critical risks rated “substantial” or “high”? Ref. PAD III. E.

[ ]Yes [XINO

[ ]Yes [XINO

[ ]Yes [XINO

Have these been approved by Bank management? [ ]Yes [ IN0

.#

[XIYes [ ] N o Does the project meet the Regional criteria for readiness for implementation? Ref: PAD I K G.

.I

Project development objective Ref: PAD II.C., Technical Annex 3 To improve the efficiency o f permitting and the property registration system. The beneficiaries o f the investment will be: (a) the public l iv ing within the municipalities as more order i s brought to the built environment; and (b) the business community as more transparent and efficient processes for the establishment and operations o f a business are facilitated. By the end o f the project it should be possible for the public to easily access information about the processes required to develop a business or property and to have access to the legal situation concerning a property, the zone plans and the forms and procedures for applying to develop a property or obtain the necessary permits and licenses to establish business activity. This should result in less illegal developments and informal businesses, and greater investment through formal procedures.

Project description Ref: PAD ILD., Technical Annex 4 Component A: Real Estate Administration. This component has four subcomponents: (i) improving registration services; (ii) information system development; (iii) provision o f basic maps; and (iv) completing the real estate cadastre. Component B: Improving; Planning; and Permitting. This component will support the planning and permitting processes in all 21 municipalities and at the central level with four

subcomponents: (i) improving the planning process and support to MED; (ii) improving planning at the municipal level and completion o f plans; (iii) improving construction permitting and inspection; and (iv) support to the business environment. Component C: Proiect Management. This component will support a project coordination unit, monitoring and evaluation o f project activities and results, and procurement, disburesment and financial management.

Which safeguard policies are triggered, if any? Ref: PAD I K F . , Technical Annex 10 Environmental assessment (OP/BP 4.0 1): due to building construction and renovation. An environmental management plan has been prepared by the client.

Significant, non-standard conditions, if any, for: Ref: PAD III. F. Board presentation: None

Loadcredit effectiveness: None

Covenants applicable to project implementation: 1. The Borrower will not amend, suspend, abrogate, repeal or waive legislation affecting real estate administration, planning or business permitting in such a way that, in the opinion o f the Bank, it materially affects the performance o f the Borrower to achieve the objectives o f the Project. 2. The Borrower shall, within two (2) months from the Effectiveness Date, establish and thereafter maintain, throughout the duration o f the Project, the Project Coordination Unit. The PCU shall be responsible for overall implementation, coordination, monitoring and evaluation o f the Project, including providing guidance on ICT- related activities and procurement under the Project, and coordinating activities benefiting municipalities. To this end, the Borrower shall maintain, adequately fund and staff the PCU with qualifications and terms o f reference acceptable to the Bank. The PCU shall comprise experts to assist MED in the implementation o f Part B o f the Project, to establish, within MED, sustainable capacity in urban planning, permitting and inspection, and to coordinate activities with municipalities. READ and MED shall each appoint a coordinator in charge of, respectively, Parts A and B o f the Project. 3. The Borrower shall, by November 30 in each calendar year throughout the duration o f the Project, submit to the Bank an Annual Work Plan, in form and substance satisfactory to the Bank, including a procurement plan and a training plan for the subsequent calendar year. 4. The Borrower shall, within six (6) months from the Effectiveness Date, adopt the Operational Manual in form and substance satisfactory to the Bank. The Borrower shall carry out the Project in accordance with the Operational Manual, and shall not amend, suspend, abrogate, repeal or waive any provision o f said Manual without prior written approval o f the Bank. 5 . For purposes o f Part B o f the Project and prior to initiating any activity in relation to the preparation o f any spatial or urban plan in a municipality which has approved i t s participation in the Project and where the Project will be supporting the preparation o f said plan, the Borrower shall enter into an agreement with said municipality to include: (a) the co-financing provided by the municipality concerned; (b) the requirement for said municipality to designate a person

responsible for coordinating with the PCU; (c) that no structure constructed prior to January 1, 2008 will be demolished involuntarily until a spatial or urban plan, as the case may be, has been finalized through a consultative process in accordance with guidelines agreed upon among the municipality, the Borrower and the Bank; and (d) that the Borrower, the municipality concerned and the PCU shall review and, where necessary, formulate proposals to improve existing municipal procedures and practices regarding involuntary demolitions, with the aim o f ensuring that such procedures and practices are consistent with Agreed Principles o f Due Process, satisfactory to the Bank. 6. The Borrower shall ensure that the moratorium on involuntary demolition referred to in the preceding paragraph shall apply as well to any central government agency that may have powers to demolish buildings in said municipality. 7 . The site selected for construction o f any new office for READ will not involve land acquisition or resettlement. 8. For any site selected for building renovations or works and prior to the commencement o f works for each proposed site, the Borrower will submit to the Bank for its approval: (a) the proposed site for said works and the related site-specific environmental management plan and checklist in form and substance satisfactory to the Bank; and (b) the proposed contract for said works to ensure that the provisions o f the site-specific plan and checklist are adequately included in the contract. 9. The Borrower shall carry out the Project in accordance with the Environmental Assessment, and shall not amend, suspend, abrogate, repeal or waive any provision o f said Assessment without prior written approval o f the Bank.

I. STRATEGIC CONTEXT AND RATIONALE

A. Country and sector issues

Country Background.

1. Montenegro officially declared independence on June 3, 2006 and became a member o f the World Bank Group on January 18, 2007. Montenegro is located on the southeastern coast o f the Adriatic Sea. I t has a total area o f about 13,938 sq. km and a current estimated population o f about 675,000. Montenegro’s Mediterranean climate and natural beauty have helped the country to develop a thriving tourist industry, both along the coast and in the mountainous interior. In socialist times the economy became industrialized, but this was drastically reduced during the post-socialist period and there has been a major privatization program. Manufacturing, particularly the aluminum industry, still makes up 25 percent o f the total economy and over 50 percent o f all exports. However, the current high interest in investing in Montenegro i s primarily in the tourism sector which accounts for 15 percent o f GDP and employs almost 17 percent o f the workforce.

2. The recent Foreign Investment Advisory Service (FIAS) Report o f October 2007 and the Country Partnership Strategy (CPS) have both identified problems with the provision o f municipal licenses and permits for businesses and delays in property registration as the main constraints on investment. While Montenegro’s overall Doing Business rating i s quite strong, i t has slipped to third in the Western Balkans and 81St in the world, with a number o f indicators signaling a lack o f transparency and consistency in the excessive administrative and regulatory procedures. These procedures adversely affect business activity according to the Productivity and Investment Climate Survey (PICS, 2003); senior enterprise management spent an average o f 13.6 percent o f i t s time dealing with requirements imposed by government regulations. The situation i s further complicated by partial efforts to devolve responsibility to municipalities and a lack o f clarity on competencies and authority at different levels o f government.

3, The 2007 Doing Business survey identified licensing and permitting requirements (1 80 days to build a warehouse) and registering property (8 steps and 86 days) as among the key constraints to doing business in Montenegro. The municipalities in particular face difficulties in providing building permits and monitoring construction at a time o f a construction boom and record levels o f potential foreign and local investment. This i s partly due to a lack o f up-to-date urban and spatial plans in almost al l 2 1 municipalities. In turn the spatial and urban plans require production o f base maps and up-to-date cadastre plans.

4. Limited technical and administrative capacity at both the central and municipal levels for implementing the current regulatory framework also contributes to investors’ difficulties. There i s significant scope for reform and regulatory simplification in this area as well as improvement o f service provision at the municipal level.

5. The government o f Montenegro (GOM) has recognized these impediments to foreign and domestic investment. By signing the Stabilization and Association Agreement (SAA) with the EU in March 2007 Montenegro has committed to implementing comprehensive reforms to harmonize policies and legislation with the EU. The country now faces the considerable

1

challenge o f strengthening i t s limited administrative capacity to implement the EU compliant legal and regulatory framework. Serious resource limitations are evident in the public service at the national and municipal levels.

6. The GOM’s commitment to resolving these issues i s strong as illustrated by new laws on planning and licensing, a national spatial plan and a five year work plan for the real estate cadastre. Recent changes to the legal framework mean that the basic laws are in place to support more efficiency in the planning, cadastre and permitting sectors.

B. Rationale for Bank involvement

7. The Bank i s currently implementing many similar projects in several countries o f the former Yugoslavia and around the region dealing with land administration and these have generally progressed well. A new project in Albania i s combining improvements in land administration and urban planning. The G O M has recognized the expertise that the Bank can provide and approached the World Bank specifically for assistance in land administration and improving planning and permitting.

C. Higher level objectives to which the Project contributes

8. The f i rst CPS for Montenegro for the period FY07 to FY 10 was approved by the Board in May 2007. For this period the country has identified three key priorities: (i) enhancing sustainable economic growth, through increasing economic freedoms and strengthening the role o f the private sector; (ii) building institutions and the rule o f law; and (iii) improving the standard o f living o f citizens, through efficient education, health and social protection systems. Any proposed intervention also needs to be designed within the over-arching goal o f the government for Euro-Atlantic integration, particularly with the EU. The proposed Project i s closely linked to priorities (i) and (ii) and meeting EU standards in the sector.

11. PROJECT DESCRIPTION

A. Lending instrument

9. A specific investment loan (SIL) i s to be used as it has been shown in similar projects in the region to be more suited to building effective land administration systems. The Project will focus on improving the registration and cadastre system, preparation o f new urban plans and improving the regulatory and administrative framework for the overall planning and permitting sector. A single intervention i s suited for this task.

B. Program objective and phases

N/A

C. Project development objective and key indicators

10. The development objective o f the Project is: to improve the efficiency of permitting and the property registration system. The beneficiaries o f the investment will be: (a) the public

2

living within the municipalities as more order i s brought to the built environment; and (b) the business community as more transparent and efficient processes are facilitated. The level o f informal development should be drastically reduced, such that unsustainable and unattractive developments are curtailed, yet the business community and the private citizen will be able to develop their own assets with greater ease and security. By the end o f the Project it should be possible for: i) the public to easily access information about the processes required to develop a business or property; ii) to have access to the legal situation concerning a property; and iii) to have access to the zone plans, forms, and procedures for applying to develop a property or obtain the necessary construction permits. This should result in less illegal developments and greater investment through formal procedures. The key performance indicators will be: an increase in real estate transfer tax and property tax receipts; increased investment activity in the municipalities targeted under the project; a decrease in the time to receive a construction permit; and increased customer satisfaction with registration services.

D. Project components

1 1. The Project has three components as follows:

(A) Real Estate Administration. [Approximately 7 1 % o f Project costs]. This component concentrates on improving registration services to the public by improving the facilities at local offices, especially in Podgorica where the majority o f transactions occur. Nationally there will be improved service standards through improved technology and completion o f at least 100,000 hectares o f cadastre and registration records in selected areas. The Project will help the Real Estate Administration Department (READ) to bring al l forms o f land and property records ‘on-line’ and available to municipalities and other users, and ensure that READ will be able to provide basic maps in a timely manner to municipalities for planning and management purposes. The activities under the Project fit within the READ five year plan for 2008 to 2013, and include four subcomponents: (i) improving registration services; (ii) information system development; (iii) provision o f base maps; and, (iv) completing the real estate cadastre (REC).

(B) Improving Planning and Permitting. [Approximately 24% o f Project costs]. This component will support the Ministry o f Economic Development (MED) to improve the planning and permitting processes and strengthen the capacity o f MED to support the planning sector in Montenegro. This component will also support those municipalities that have limited funds to develop spatial and general plans in l ine with the recently approved National Spatial Plan (NSP). Podgorica municipality and the coastal municipalities can afford to develop their own urban plans, but all municipalities will benefit from the Project-sponsored planning standards and manuals, and information systems that will streamline and improve the planning and permitting process. There are four subcomponents: (i) improving the planning process and support to MED; (ii) improving the planning process at municipal level and completion o f plans; (iii) improving construction permitting and inspection; and (iv) support to the business environment.

(C) Project Management. [Approximately 5% o f Project costs]. This component will support a Project Coordination Unit (PCU) to assist MED with implementation o f

Component B and the existing Technical Services Unit (TSU) under the Ministry o f Finance (MOF) that will be responsible for fiduciary control and management. The PCU will also be responsible for monitoring and evaluation o f all Project activities and results.

E. Lessons learned and reflected in the Project design

12. There have been other projects in the former Yugoslavia and the Balkans involving real estate cadastre and i t has been extremely difficult to change the approaches used in technical disciplines, even when those approaches are outdated, time consuming, and expensive. The most successful approach has been to gradually assist the implementing agencies to make changes incrementally as they appreciate best practice models in the rest o f Europe and can accommodate improvements within their own legislation and practice. The REC and urban planning and permitting procedures in Montenegro are similar in this, respect to the other countries o f the region and this approach i s to be adopted here as well. Anther lesson i s that Information Communication Technology (ICT) has proven to be extremely difficult and time consuming to implement throughout the region and yet it i s a fundamental requirement for transparency, improving services and EU accession expectations. I C T project management procedures are integrated into the Project design to ensure that this vital activity i s successfully implemented.

F. Alternatives considered and reasons for rejection

13. The G O M was very focused on the need to improve registration and urban planning systems so few alternatives were considered. There was consideration for completing urban plans across the country rather than in just the poorer northern municipalities because the coastal towns and Podgorica are the locations where the majority o f real estate market activity, investments and illegal developments are occurring. However, these municipalities are already trying to solve their problems and they have sufficient funds. The Project will help these municipalities with technical assistance, training and monitoring and it was felt unnecessary to allocate funds to them when there are such demands in the poorer communities. There i s great potential for development (especially o f tourism) in the northern municipalities so the limited resources could be better utilized there.

111. IMPLEMENTATION

A. Partnership arrangements

14. GTZ have been involved in Montenegro over the past few years trying to help municipalities develop improved planning systems. The work has mainly been in the form o f technical assistance, but GTZ have also supplied some software and equipment to municipalities. They have supported the elaboration o f terms o f reference for the preparation o f various types o f urban plans and implementation o f a GIS for real estate taxation. They have provided some assistance to develop planning standards. UNDP has provided assistance to the housing and planning sectors since 2004. They provided assistance with the drafting o f the Law on Physical Planning and Development (May 2005) and the NSP. They will continue to provide technical and financial assistance to municipalities for preparation o f local spatial and General Urban

4

Plans (GUPs). During Project preparation there has been continual coordination with both GTZ and UNDP and l is ts o f municipalities and the plans being prepared under each project have been made in cooperation with both donors. The Project will only be developing urban plans for those areas not covered by GTZ and UNDP. The technical assistance provided by GTZ and UNDP will continue in parallel with the Project and coordination will be maintained and strengthened throughout Project implementation.

15. The Japanese government has provided assistance to READ with equipment and training in map production. This work has been for topographic rather than cadastral purposes and the scales are generally too small for Project purposes. However, the equipment and training i s applicable and the Project will supplement both. The Japanese government does plan to continue providing limited technical assistance in basic mapping.

B. Institutional and implementation arrangements

16. There are two primary implementing agencies: READ and MED. In addition the Project will work with all 21 municipalities as planning, permitting and inspections are primarily implemented at the local level. MED i s divided into departments with Deputy Ministers responsible for each department. The Department for Urban Planning i s responsible for the activities within Component B that directly support MED. The capacity within MED i s limited and a Project Coordination Unit (PCU) will be established to assist MED with implementing i t s activities under the Project and to coordinate the activities benefitting the municipalities. In order to be able to participate in the Project and benefit from the loan funds it has been agreed that the municipalities should provide some co-financing and designate a responsible person in the municipality to coordinate with the Project. These requirements will be specified in an agreement to be approved by each municipal parliamenthouncil.

17. READ reports to MOF, but i s a separate Administration with sectors and departments responsible for geodesy, photogrammetry, cartography, surveying, planning, finance, human resources, and the maintenance o f the REC for ongoing registration. There are branch offices in each o f the municipalities and two town offices that are subsidiary to the local branch office. READ has a comprehensive five year plan for 2008 to 2013 and it has the capacity to manage Component A o f the Project using existing resources.

18. A Project Steering Committee (PSC) has been established to make decisions on principle issues affecting overall Project implementation; to receive and approve annual work plans and to approve quarterly reports. The PSC includes officials from MOF, MED, READ and the Union o f Municipalities. READ and MED have appointed Component Coordinators from within their departments for Components A and B respectively in order to supervise the management o f these components. The PCU will include specialists to help MED to implement Component B and specifically to coordinate the activities that will benefit the municipalities. The PCU will also be responsible for monitoring and evaluation and I C T procurement and advice for the whole Project. One o f the goals o f the Project i s to build up sufficient capacity within MED and the municipalities for planning and permitting and to be able to carry on without additional support by the end o f the Project. The PCU therefore wil l only exist for the duration o f the Project to support the additional coordination and monitoring created by the Project and to assist in the capacity building.

5

19. The existing TSU within M O F i s already responsible for the fiduciary aspects o f World Bank projects and they will manage the financial management, procurement and disbursement for this Project. More details on all Project management arrangements can be found in Annex 6.

C. Monitoring and evaluation o f outcomeshesults

20. READ already records information relating to the establishment o f the REC, ongoing transactions and utilization o f their services by public and private organizations, and individuals. Much o f the information about their services i s available on their website. It i s much more difficult to gather information on urban planning and permitting because the information has to be gathered from municipalities and there i s no central repository. During Project preparation it was necessary to visit each municipality to gather baseline data.

21. A social assessment has been undertaken during Project preparation. In addition a customer survey will be performed early during implementation and repeated at intervals during the Project. The customer survey i s key to assessing the actual differences in public perception that occur following the improvements that wil l be made with regard to service provision under the Project. The implementing agencies are well aware o f the public dissatisfaction with the current state o f affairs and the purpose o f the initial customer survey i s to gather baseline data so that changes can be monitored.

22. One person within the PCU will be responsible for monitoring the outcomes o f the Project. The key performance indicators are listed in Annex 3 and reports based on these indicators will be produced quarterly for the PSC and Bank team to review. This will enable timely remedial actions to be taken if necessary.

D. Sustainability

23. READ i s a budget organization, but i t s income i s directly related to the services provided with the revenues going directly to the GOM. READ i s understood to be an essential organization from which a great deal o f revenue i s derived. Substantial fees are collected for registration and the information held in the REC i s a basis for property taxes. A three per cent tax on real estate transactions i s collected by the tax authorities. The direct and indirect income derived from READ’S services greatly exceeds the cost o f those services. As the Project progresses and information systems are developed the need for providing an office in all municipalities will be reviewed, however the essential functions o f READ and the data it maintains will continue to serve essential functions o f government.

24. The municipalities and central government stand to benefit most from this Project. The current chaotic situation that has driven investors to other locations or enabled buildings to be constructed without permission has an enormous negative impact because income and property taxes, infrastructure fees and fees for services are dramatically lower than the potential. Already the Podgorica and coastal municipalities are well funded from the income they receive, and apart from this, each municipality will be able to increase income and provide better services to citizens following the assistance provided under the Project. The poorer municipalities that currently have difficulties providing services to citizens will be more able to do so following successful implementation o f the Project.

6

E. Critical risks and possible controversial aspects

25. The overall risk rating for this Project i s Moderate. The main risks include the social risks associated with the planning component, corruption and institutional capacity. They are considered to be substantial before mitigation. However, these have been assessed as moderate given the mitigating measures. The paragraphs below describe these and other potential risks and mitigating measures.

26. Social There are substantial numbers o f buildings that have been erected without building permits or occupation permits. Many o f these were erected because there were no existing urban plans and therefore developers could not get building permission. In principle the G O M intends to legalize buildings wherever possible once the urban plans are made; hence the net result should be increased tenure security and improved legal standing for many buildings and property holders currently existing in a condition o f legal uncertainty. However, there will inevitably be cases o f buildings that cannot be regularized due to their location (e.g., watershed, national parks) or unsafe construction; the Project will not affect the status o f these buildings. In addition, although the legal and regulatory framework for planning has been modernized and improved in recent years, there are a number o f ways in which the criteria for dealing with illegal structures need to be further clarified and procedures improved to ensure transparency and fairness. This would include suitable provisions for assisting persons whose primary residences or livelihoods may be affected.

27. In the municipalities for which GUPs will be produced under the Project, the support will be conditional on the requirement that: (a) no structure constructed prior to January 1, 2008 will be demolished involuntarily until a spatial or urban plan, as the case may be, has been finalized through a consultative process; and (b) the municipality undertakes to review with the PCU and the Borrower, and where necessary, formulate proposals to improve municipal regulations and procedures concerning involuntary demolitions. Component B will include technical assistance to help strengthen and improve national and local policies, laws, regulations and practices relating to the treatment o f illegal structures and those who own or occupy them. Thus, a substantial risk i s mitigated to moderate risk.

28. Land and property are very high value assets. There are probably cases where developers have paid to have permits given, persuaded inspectors to ignore contraventions or obtained rapid registration o f property rights or building permits through facilitation payments. The income derived from these payments by l o w paid c iv i l servants can be considerable and there may be reluctance to change the current situation both by those who have profited from the current situation and those who have made payments in the past. The government i s serious about trying to eliminate corruption and there i s strong popular support to do so. New manuals, procedures, work flows and automation will make transparency of operations more likely. Renovation o f READ offices (especially the public reception areas), public awareness campaigns and access to records over the internet will help to bring a much greater degree o f transparency. This i s a substantial risk that i s mitigated to moderate through good project design and monitoring.

29. MED has very few staff below deputy minister level and i s severely constrained in the time staff can allocate to meet additional responsibilities. I t was made very

Corruption

MED Capacity

7

clear during Project preparation that the MED staff would need help to implement the Project and new systems that would enable them to cope with their work load. The PCU will be established to assist MED to implement the Project and to establish the necessary sustainable capacity in urban planning, permitting and inspections in both MED and the municipalities. This i s a substantial risk that i s mitigated to moderate through establishment o f the PCU and close monitoring and supervision o f the Project.

30. There i s a shortage o f private sector companies in Montenegro that are capable o f preparing urban plans or undertaking work for the REC. It has been agreed during Project preparation that tenders will be made internationally and will be designed to help build local private sector capacity. This i s a moderate risk that i s mitigated to l o w risk through establishment and use o f good tendering procedures.

31. There is a tradition in countries o f the former Yugoslavia to progress very slowly with technical work (production o f urban plans and cadastral survey in this Project) because o f overly complex and, sometimes, unnecessary regulations. This makes work both expensive and slow. There has been only limited and very gradual success in other countries o f the Balkan region in dealing with this issue. This Project will also take the gradual approach by exposing specialists to international good practice in study visits and through international tenders in order to improve methodology. This i s a moderate risk that will be reduced to l ow risk through the approach adopted in the Project.

32. Municipal Capacity and Coordination The Project will require close coordination of, and with, the 21 municipalities who will be beneficiaries o f Component B. This poses a risk for timely Project implementation as the municipalities are at various capacity levels, with some able to clearly articulate their needs and even prepare the documents for tendering the spatial plans, while others have almost no capacity for these tasks. The PCU will include at least two qualified technical staff who will support the municipalities in this work and will also be responsible for coordinating the activities, goods and training. The Project i s designed to slowly build the capacity o f the municipalities through training, technical assistance, improved procedures and detailed manuals and other activities. This improved capacity i s a key outcome o f the Project. This i s a moderate risk that will be reduced to l ow risk through capacity building and the establishment o f the PCU.

Private Sector Capacity

Technical Complexity

F. L o a d c r e d i t conditions and covenants

33. Board Conditions: None.

34. Effectiveness Conditions: None.

35. Loan Covenants:

a. The Borrower will not amend, suspend, abrogate, repeal or waive legislation affecting real estate administration, planning or business permitting in such a way that, in the opinion o f the Bank, it materially affects the performance o f the Borrower to achieve the objectives o f the Project.

b. The Borrower will maintain a Project Steering Committee (PSC) and ensure that the PSC will meet at least quarterly, with responsibility for making decisions on issues

8

C.

d.

e.

f.

h.

1.

j.

k.

relating to Project implementation and approving Annual Work Plans and Project Reports. The Borrower will establish and maintain a Project Coordination Unit (PCU) with sufficient funds and staff with qualification and TORS acceptable to the Bank. The PCU shall be established within two months o f the effectiveness date o f the Project. The Technical Services Unit (TSU) under the Ministry o f Finance shall be responsible for procurement and financial management o f the Project under arrangements satisfactory to the Bank, in accordance with the provisions o f this Agreement, the Operational Manual and the Procurement Plan and, to this end, the Borrower shall maintain, adequately fund and staff the TSU with qualifications and terms o f reference acceptable to the Bank. The Borrower will prepare an annual work program, procurement plan and training plan acceptable to the Bank by November 30 o f each calendar year for implementation in the subsequent calendar year. For purposes o f Component B o f the Project and prior to initiating any activity in relation to the preparation o f any spatial or urban plan in a municipality which has approved i t s participation in the Project and where the Project will be supporting the preparation o f said plan, the Borrower shall enter into an agreement with said municipality to include: (a) the co-financing provided by the municipality concerned; (b) the requirement for said municipality to designate a person responsible for coordinating with the PCU; (c) that no structure constructed prior to January 1, 2008 will be demolished involuntarily until a spatial or urban plan, as the case may be, has been finalized through a consultative process in accordance with guidelines agreed upon among the municipality, the Borrower and the Bank; and (d) that the Borrower, the municipality concerned and the PCU shall review and, where necessary, formulate proposals to improve existing municipal procedures and practices regarding involuntary demolitions, with the aim o f ensuring that such procedures and practices are consistent with Agreed Principles o f Due Process, satisfactory to the Bank. The Borrower shall ensure that the moratorium on involuntary demolition referred to above shall apply as well to any central government agency that may have powers to demolish buildings in said municipality. The Borrower will carry out the Project in accordance with the Environmental Assessment, and will not amend, suspend, abrogate, repeal or waive any provision o f said Assessment without prior written approval o f the Bank. The site selected for construction o f any new office for READ will not involve land acquisition or resettlement. For any site selected for building renovations or works and prior to the commencement o f works for each proposed site, the Borrower will submit to the Bank for i t s approval: (a) the proposed site for said works and the related site-specific environmental management plan and checklist in form and substance satisfactory to the Bank; and (b) the proposed contract for said works to ensure that the provisions o f the site-specific plan and checklist are adequately included in the contract. The Borrower, through the TSU, will maintain a financial management system, including accounts and records sufficient to monitor sources and uses o f funds for Project implementation.

9

1. Un-audited Interim Financial Statements (IFRs) will be submitted to the Bank no later than 45 days after the end o f each quarter.

m. The Project financial statements will be audited annually by independent auditors and under terms o f reference acceptable to the Bank, and report submitted to the Bank no later than six months after end o f such year audited. The audits will be conducted in accordance with International Standards on Auditing (ISA) as issued by the International Federation o f Accountants (IFAC).

n. The Borrower will monitor and evaluate the progress o f the Project and prepare Project Reports on the basis o f indicators agreed with the Bank. Each Project Report shall cover the period o f one calendar semester and be submitted to the Bank no later than one month after the end o f the period covered by such report.

0. The report on the execution o f the Project and related plan will be submitted to the Bank no later than six months after the Closing Date.

p. Within six months from the Effectiveness Date the Borrower will adopt the Operational Manual satisfactory to the Bank. The Borrower will carry out the Project in accordance with the Operational Manual, and shall not amend, suspend, abrogate, repeal or waive any provision without prior written approval o f the Bank.

IV. APPRAISAL SUMMARY

A. Economic and financial analyses

36. The Project objective i s to improve the efficiency o f permitting and the property registration system. Project beneficiaries will consist o f three entities: (a) the public - including the business community; (b) local government at the municipal level; and (c) central government - including the departments responsible for planning and registration. Expected benefits will accrue from: (a) increases in property market activity, including considerations o f property value and the impact o f increased numbers o f transactions o f al l types; (b) simplification and increasing efficiency o f urban planning and the improvement o f construction permitting and monitoring; and (c) increase in revenue to the government and to municipalities that arise from the improvements listed above.

37. I t i s expected that Component A (Real Estate Administration), which is planned to address the issues o f expanding REC coverage and service improvement, will be the principal driving force toward the generation o f Project benefits, while Component B (Planning and Permitting) will help add significant synergy to the process and contribute toward consolidating the Project benefits. By Project end it i s expected that, through the assistance provided under Component A: (a) the public and any investors will be able to have on-line access to information about a property and associated rights; (b) services will be provided rapidly and on-line applications for transactions will be possible; (c) up to date base maps and cadastre maps and records wil l be available to municipalities v ia the internet; and (d) requests for new base maps and cadastre maps will be answered expeditiously. This will, in turn, provide the background information needed for the municipalities and MED to fulfill their mandates to provide urban and other plans, provide building permits and complete inspections efficiently. The regulatory simplification offered under Component B wil l contribute to an improved business environment, enhance quality o f service provision, reduce regulatory compliance costs and generate

10

subsequent positive impacts on the competitiveness o f Montenegrin enterprises, employment opportunities, and government revenues.

38. An economic analysis was performed based on property sales and mortgages. I t indicates that the combined incremental value o f mortgages and sales would be around €407 mi l l ion in the final year o f the project, and that they would reach about €1.5 bi l l ion at the end o f the tenth year. Assuming that only 1% o f the value o f incremental transactions from sales and mortgages would represent real and disposable income, the project would yield an ERR o f 24% and C/B ratio o f 1.55 for an anticipated incremental investment o f €22.49 million.

B. Technical

39. The current legal framework is a sufficient basis for the Project and conforms to most requirements o f international good practice. A single agency model i s adopted and registration occurs on a parcel based system that l i n k s the object in the REC to the rights held over that property. The new Law on State Survey and Real Estate Cadastre (2007) further modernizes the system by clarifying the public and private sector roles and harmonizing the legislation with other new laws. The new Law on Physical Planning and Development o f M a y 2005 (LPPD) lays out clearly the responsibilities and approval process for both levels o f planning. A review o f the LPPD reveals that it i s quite modern in i t s approach to planning and should not impede economic development but provide for orderly development that i s in the national interest.

Legal Framework

40. The legal and institutional framework analysis prepared during preparation revealed that there are some weaknesses in the legal framework concerning how to deal with illegal constructions. There are overlapping institutional responsibilities and a lack o f clarity on what legislation i s relevant. Currently it i s not possible to legalize a construction if the urban plans do not cover the site or include zones for those constructions. With respect to the procedures for carrying out demolitions, the principle weaknesses include: (i) unclear criteria guiding decision- making and implementation increasing the potential for arbitrary application o f the demolition process; and (ii) a summary process that provides limited opportunities to object prior to demolition taking place. These weaknesses will be addressed directly by the Project by: (i) developing the spatial and urban plans needed to clarify land use and planning and allow for legal construction permitting; and (ii) improving the capacity for permitting and inspection; and by completing the legal framework (by-laws, regulations). Amendments to the LPPD are expected during the course o f the Project to further simplify the procedures and clarify the roles o f central government and the municipalities. The Project will also help strengthen the laws, regulations and practices relating to the treatment o f illegal structures and those who own or occupy them, in particular to better ensure public consultation and awareness and to establish transparent and fair criteria and procedures.

41. Cadastral Surveying and Mapping READ has completed the REC for the most economically active areas o f the country. The records are held electronically and include both legal and illegal developments. The REC has been established over a long period o f time. Many o f the maps are 20 to 30 years old. Illegal developments are included in the REC if an application i s made, but it i s estimated that about hal f have never applied. The REC s t i l l needs to

11

be created for a large part o f the country, mainly in the north and mountainous areas. There are existing records concerning the land, but few cadastral maps. The work under the Project will be completed by contracting the private sector, which will also contribute to developing private sector surveyors in Montenegro. (CORS) network that can be used as a basis for modern survey equipment using satellite based position f ixing equipment (GPS). However there i s little use o f this network because o f the small size o f the private sector, lack o f knowledge, and lack o f equipment that can utilize the signals from the system. Other government agencies tend not to utilize the system. I t is planned for the Project to combine private sector development with greater use o f modern survey methods (through training, publicity and the funds available through awarding contracts), leading to improved speed and lower cost for producing the REC. It i s also necessary to ensure that maps are continuously updated, so that municipalities and other customers can always have access to up- to-date base maps.

READ has a continuously operating reference

42. READ has facilities to provide digital cadastre maps, orthophotomaps and relief information, and it can provide full conventional topographic maps at any scale if given sufficient lead time. New aerial photography produced during 2007 through Japanese assistance i s available, and can be used to produce maps at various scales and in many places there is sufficient aerial photography to be able to develop the base maps needed by municipalities for the production o f spatial plans and GUPs. READ provides i t s services free o f charge, but there are often costs associated with contracting survey work or production that have to be covered by the municipality requesting the base maps.

43. National spatial planning i s the task o f the Department for Urban Planning within MED. Urban planning i s performed by the planning departments o f the 21 municipalities throughout Montenegro and a central unit within MED. The LPPD lays out clearly the responsibilities and approval process for both levels o f planning. The main difficulty with the spatial and urban plans, and therefore the barrier to speedy approvals for construction permits, i s that the GUPs for most municipalities are out o f date. In order to produce GUPs, base maps are required from READ, and new planning standards and manuals should be developed in l ine with the new LPPD.

44. Business owners and citizens have complained about non-transparency and confusion in the planning and permitting process. There i s a lack o f clear rules and guidelines. A planning manual to standardize planning and permitting across Montenegro would remove the ‘discretion’ o f individual municipalities or planning departments to accept or reject requests with no explanation. Production o f planning guides for citizens and businesses would provide clarity on the rules, procedures, fees and service standards for permitting in each municipality. The lack o f completed GUPs i s also contributing to the problem o f illegal construction. This i s particularly a problem in Podgorica and along the coast where there has been a dramatic growth in population since the 1990s and the opportunities for investment are most obvious. The municipalities and the national government recognize that this i s a problem and have already begun to tackle it - trying to improve the construction permitting and inspection departments and prevent further illegal development. With accurate base maps and an approved NSP, the municipalities can move to contracting for preparation o f local spatial plans and GUPs. These should be sufficient for issuing most construction permits and to recognize areas o f existing illegal construction for future legalization.

Planning. and Permitting

12

C. Fiduciary

45. Financial management arrangements for the project are assessed to be acceptable. Acceptable software to be used for project accounting and reporting has been acquired and installed. The overall financial management risk for the project i s substantial before mitigation measures, and with adequate mitigation measures agreed, the financial management residual risk i s rated moderate.

46. READ and MED will have overall responsibility for implementation o f the Project, while the TSU within M O F will be in charge o f fiduciary aspects o f Project implementation, namely financial management and procurement. The TSU has already been established and i s functioning satisfactorily. I t i s in charge o f fiduciary aspects for three ongoing projects in Montenegro. The unit i s staffed by qualified and experienced staff in al l functions, including financial management. I t i s envisaged that in the near future the TSU will be in charge o f implementing 6 or 7 projects, so it will be necessary to closely monitor their work to ensure that they retain enough resources for this additional work.

47. The annual audited Project financial statements will be provided to the Bank within six months o f the end o f each fiscal year and also at the closing o f the Project. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set o f interim un-audited financial reports (IFRs) for each calendar quarter throughout the l i f e o f the Project. The IFRs will include complete consolidated financial information on total Project funds and among other things the reports will provide details regarding sources and uses o f Project funds and movement on the Project’s designated account.

48. An adequate system o f internal controls has been instituted within the TSU for Bank funded projects under implementation. Defined controls and procedures are applied in practice and have been verified by the Bank’s financial management supervision and annual audits by private audit f i rms. Procedures and controls have been assessed as adequate for this project. Clean audit opinions on ongoing projects financial statements have been issued by the auditors.

49. Significant efforts have been made to reduce corruption by public officials, misuse o f public funds and incidence o f financial crime in Montenegro. This includes establishing the Directorate for Anti-corruption Initiative, and developing key laws and regulations that would strengthen the financial architecture and the legal framework, al l o f which ought to improve governance and reduce opportunities for corruption. Nevertheless, the 2006 Public Expenditure and Institutional Review noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a significant unfinished agenda and remaining challenges. Some o f those were described in the GRECO report for Montenegro from 2006 and included as such in the Government’s Anti-Corruption Action Plan that was finalized in August 2006. Those recommendations include studies required to gain a clearer insight into the scale o f corruption in the country, revising the Public Procurement L a w and strengthening the capacity o f the Directorate for Anti-Corruption Initiative. On the Project level measures to be taken in order to mitigate the risk o f corruption include using a separate financial management system for the Project. This includes a system o f internal controls and separate accounting software. Application o f controls and procedures in practice will be verified during Bank FM supervision. Further measures include the use o f a private audit firm for auditing the Project and supervision by the Bank’s Financial Management Specialist.

13

50. A Designated Account for administering the Project funds will be opened in a commercial bank acceptable to the Bank.

51. Procurement Responsibility for carrying out procurement will rest with the TSU. The TSU unit has long experience with Bank procurement and i s fully capable o f undertaking Bank procurement. However the TSU may need to hire an additional local procurement specialist acceptable to the Bank and this will be closely monitored throughout implementation by the Bank Procurement Specialist.

52. Procurement will be performed based on the thresholds by Procurement Method as determined for Montenegro. The Borrower has submitted updated procurement plans acceptable to IBRD, taking into account the latest cost estimates and project timeframe, covering the initial 1 8 months o f project implementation. The procurement and consultant selection process plans can be updated every six months, and should reflect the actual need for implementation o f project activities and improvement in institutional capacity. Updated procurement plans for each calendar year should be submitted to the Bank no later than January 30 o f the respective year.

D. Social

53. There has been a great deal o f construction in Montenegro since the early 1990s. Reasons given for this phenomenon in Podgorica and the coastal areas are population movements from other parts o f the country and, in more recent years, openness to foreign investment and tourism. Much o f the construction has been conducted without proper planning or building permits due to the absence o f planning documents (as already noted) and a cumbersome permitting process. Additionally, many buildings have been constructed on state owned land (both national and municipal land). Implementation o f detailed urban plans is expected by many stakeholders to result in the legalization o f the majority o f existing illegal buildings. Such buildings were constructed without the necessary documents, so legalization will consist o f obtaining the permits, possibly carrying out remedial work and paying fees. However, the government recognizes that in some cases there will be buildings that cannot be legalized, such as buildings constructed on particular categories o f state land, such as watersheds.

54. Project preparation included a social survey in the municipalities in which the Project will be supporting the development o f a GUP. The survey was commissioned to aid in determining the general socio-economic profile o f residents who may be impacted by the development o f GUPs and the key issues for those residents; and to what extent illegally constructed buildings represent primary residences, weekend houses or sources o f rental income.

55. The survey found that in the target municipalities, a majority (over 75%) o f the residents o f illegally constructed buildings were employed, and that more than hal f o f the respondents had built the residence themselves. In general, the surveyed respondents had constructed the building with the intention o f occupying it themselves, though a higher percentage o f respondents in Plav had intentions o f using i t as a place o f business. Relatively few indicated that they intended to use their building for rental income. I t i s likely, however, that owners o f weekend homes are underrepresented in the survey, due to the difficulties o f securing their participation.

56. Respondents lacking a construction permit cited the high cost o f obtaining a permit. In terms o f legalizing illegally constructed buildings, the majority expressed a preference for paying

14

the necessary fees on a monthly basis. Few respondents noted any familiarity with the urban plan, and o f those, most had received information from municipality representatives or from friends, neighbors or relatives. The findings indicate that media has played a minimal role as a source o f information.

57. Under the Project municipalities will be supported with technical assistance and public awareness campaigns during the planning process in order to increase public participation. Prior to contracting a company to produce any plans for a municipality, an agreement will be made with the municipality describing the resources and finances that the municipality will contribute to the production o f the plans. The agreement will also include a statement that no demolition will take place o f any existing illegal structures that were in place prior to January 1 , 2008 until a spatial or urban plan (as the case may be) has been finalized through a consultative process, and a commitment on the part o f the participating municipality to review (with the PCU and the Borrower) and, where needed, formulate proposals for improving existing municipal procedures concerning involuntary demolitions. The objective will be to ensure that such procedures are compatible with agreed principles o f due process, namely, that there are: (a) clear standards and criteria for the use o f demolitions; (b) clearly defined, transparent and fair procedures by which a decision to demolish i s made; (c) sufficient advance notice and a fair opportunity to challenge a decision prior to demolition; and (d) sufficient information for citizens on their rights and remedies in relation to said procedures and practices.

58. Two studies have provided additional background social data for the Project. With UNDP support, a local NGO conducted focus groups in al l municipalities on the issues related to spatial planning, illegally constructed buildings and a proposed law on legalization. The findings o f the focus groups reflected citizen concerns that there was insufficient attention to halting illegal construction in i t s early phases and that marketplace factors were stimulating the trend. Several o f the issues to be addressed by the Project were raised by focus group participants including: complicated procedures (including for obtaining o f permits); lack o f knowledge o f citizens; and the need for an updated cadastral system in which land ownership i s clear.

59. User satisfaction surveys o f the services provided by READ have been conducted in conjunction with the GTZ project. The majority o f respondents considered the process o f obtaining information from the cadastral office as more time consuming than they expected and necessitating multiple trips. There were significant variations among municipalities as to what additional information respondents needed, but documentation and duration were the most commonly raised issues for which users would l i ke more information.

E. Environment

60. The Project has been classified Category B. Activities are expected to have limited environmental impacts and most are environmentally neutral (development o f information systems; production o f base maps) or positive (completion o f spatial and general urban plans; development o f planning standards, codes, regulations). Minor and limited negative construction impacts are expected and are related to limited building renovations and construction. An Environmental Assessment (EA) has been carried out to ensure that the building rehabilitation

15

and modernization works will be environmentally acceptable and cause no, or minimum, damage to the environment.

61. The EA has been prepared by READ and publicly disclosed in Montenegro on February 28, 2008. The EA describes potential project activities and outlines the assessment and permitting processes for such investments in accordance with Government and World Bank policies and procedures. The EA also reviews the national legislative and regulatory framework and implementation/enforcement capacity to assess their compatibility and adequacy for World Bank requirements. The EA evaluates potential environmental impacts and r isks o f the Project, and describes the process for developing environmental monitoring and mitigation plans for specific investments, including the sample Environmental Management Plan (EMP) and environmental check-list.

62. Other than construction and renovation o f office space, the Project will not support c iv i l works, land conversion, resource extraction, or any activities that could potentially damage the environment. In respect to works on municipal and central READ offices, the contracts for c iv i l works under the Project will be subject to screening for environmental impacts by the responsible national environmental entity. In case it i s required according to newly enacted national legislation, the full environmental permitting process and due diligence according to relevant national legislation will be observed. Additionally, prior to the start o f the design work, the EMP and Check-List will be prepared and completed for each site location (READ office) to ensure adherence to key-elements to meet the World Bank Environmental Assessment requirements under OP 4.01. The EMP and Check-List will be subject to Bank’s approval prior to start o f any construction activity. All bidding documents and contracts will include measures to minimize or mitigate environmental impacts. Good engineering practices will include, but not be limited to, measures to minimize impact o f dust, noise and traffic at construction sites, as well as management o f the construction waste. The measures to deal with the above issues will be identified and proposed in the EMP. The activities related to civil works will require close supervision and oversight by the Bank environmental specialist, given the complexity o f potential environmental issues.

63. On balance, the proposed Project i s expected to be positive from an environmental standpoint. Registration and cadastre mapping would induce a series o f behavioral changes among property owners, and many o f these would be environmentally positive. Nonetheless any adverse impacts such as intensive use o f agriculture input and increase in urban development would be more than adequately compensated by the environmental benefits generated by the Project.

F. Safeguard policies

Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.0 1) Natural Habitats (OP/BP 4.04) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.1 1) Involuntary Resettlement (OP/BP 4.12)

16

Indigenous Peoples (OP/BP 4.10) [I [XI Forests (OP/BP 4.36) [I [XI Safety o f Dams (OP/BP 4.37) [I [XI Projects in Disputed Areas (OP/BP 7.60)' [I [XI Projects on International Waterways (OP/BP 7.50) [I [XI

64. The Project will not finance land acquisition or other activities which would trigger the Bank's policy on involuntary resettlement. The Project wi l l be providing only TA and capacity building for planning. This TAhapacity building i s not directly linked to preparation o f any specific future investments. Therefore, it was determined that, in accordance with the usual practice for projects which provide TA, OP4.12 i s not triggered by this Project, and no Resettlement Policy Framework i s required.

65. constructed or renovated under the Project wi l l not require land acquisition or resettlement.

The Legal Agreement wi l l include a provision that the site for any new office to be

G. Policy Exceptions and Readiness

None

* By supporting the proposedproject, the Bank does not intend to prejudice the f inal determination ofthe parties' claims on the disputed areas

17

Annex 1: Country and Sector or Program Background MONTENEGRO: Land Administration and Management Project

Country Background

1. Montenegro officially declared independence on June 3, 2006 and became a member o f the World Bank Group on January 18, 2007. Montenegro signed a Stabilization and Association Agreement (SAA) with the European Commission in March 2007 and the G O M has made EU accession a central priority for Montenegro’s future. The country has built on a solid record o f economic transition and reform and successfully laid the foundations o f a market economy. These efforts have encouraged a rapid increase in growth which i s now the strongest in the Western Balkans. Total GDP i s approximately $2.4 billion, with total trade making up approximately 130 percent o f GDP.

2. The republic i s located on the southeastern coast o f the Adriatic Sea. It has a total area o f about 13,938 sq. km and a current estimated population o f about 675,000. Montenegro’s Mediterranean climate and natural beauty have helped the country to develop a thriving tourist industry, both along the coast and in the mountainous interior. In socialist times the economy had become industrialized, but this was drastically reduced during the post-socialist period and there has been a major privatization program. Manufacturing, particularly the aluminum industry, s t i l l makes up 25 percent o f the total economy and over 50 percent o f all exports. However the service sector i s growing and makes up another 60 percent o f economic activity, with tourism making up a quarter o f the service sector and employing almost 17 percent o f the workforce. Tourism i s a key component o f the economy and a major source for growth particularly along the Adriatic coast, but also potentially in the mountainous north, where agriculture i s s t i l l the predominant economic activity.

3. The first County Partnership Strategy (CPS) for Montenegro for the period FY07 to FYlO was approved by the Board in May 2007. For this period the country has identified three key priorities: (i) enhancing sustainable economic growth, through increasing economic freedoms and strengthening the role o f the private sector; (ii) building institutions and the ru le o f law; and (iii) improving the standard o f living o f citizens, through efficient education, health and social protection systems. Any proposed intervention also needs to be designed within the over-arching goal o f the government for Euro-Atlantic integration, particularly with the European Union. The proposed Project i s closely linked to priorities (i) and (ii) and meeting EU standards in the sector.

4. The recent Foreign Investment Advisory Service (FIAS) report o f October 2007 and the CPS have identified problems with the provision o f municipal licenses and permits for businesses, and delays in property registration as constraints on investment. The latest Doing Business survey in 2007 identified licensing and permitting requirements (180 days to build a warehouse) and registering property (8 steps and 86 days) as among the key difficulties to doing business in Montenegro. The municipalities in particular face difficulties in providing building permits and monitoring construction at a time o f a construction boom and record levels o f potential foreign and local investment. Existing urban plans are out o f date and the necessary base maps are not provided in a timely fashion by READ. Limited capacity o f the planning sector i s also an issue.

18

The general business permitting process i s complex administratively and i s very closely related to the acquisition o f suitable premises and hence to the provision o f urban plans, building permits and occupation permits. Acquiring the necessary permits requires visits and approvals from multiple places, sometimes centrally and sometimes at local level. Overall the process o f getting general operational license and required permits i s seen as confusing and not transparent.

Background Sector Issues

5. In Montenegro cadastre and mapping issues are managed by the Real Estate Administration Department (READ) under the Ministry o f Finance. The READ has completed the real estate cadastre (REC) for the most economically active areas o f the country. The records are held electronically and include both legal and illegal developments. However, the REC has been completed over a long period o f time and only includes illegal developments if registration has been requested by the owner. This i s probably about 50% o f the cases. This causes a problem when a municipality requests basic map information for urban planning purposes because there i s no reliable evidence about the current physical situation on the ground. N e w orthophotomaps and perhaps other survey work i s required to overlay the cadastral information nationally in order to provide the basic map information for the municipalities. The READ has prepared a five year work plan for the period 2008 to 2013.

6. The REC s t i l l needs to be created for a large part o f the country, mainly in the north and mountainous areas. The existing records tend not to include cadastral maps. Creation o f the REC in these sites i s necessary because there i s a great deal o f interest in developing tourism, which provides opportunities for the lower income groups to utilize their assets for improving their living standards. The READ has a continuously operating reference network that can be used as a basis for modern survey equipment using satellite based position fixing (GPS) and this has the potential to be used by many more specialists and other government agencies than i s currently the case. READ also need to ensure that maps are continuously updated, so that municipalities and other customers can always have access to up-to-date basic maps. The READ has facilities to provide digital cadastre maps, orthophotomaps and re l ie f information quickly, and i t can provide full conventional topographic maps at any scale if given sufficient lead time. New aerial photography produced early in 2007 i s available, and can be used (sometimes with additional survey work) to make maps at various scales - as needed by municipalities for the production o f spatial plans and general urban plans.

7. READ has local cadastre offices in al l 21 municipalities and they already have software that i s being used for registration o f property rights. The number o f transactions that need to be registered i s growing rapidly - in the f i rst six months o f 2007 the number has already exceeded the figures for the whole o f 2006. This increase i s likely to continue as Montenegro improves the registration and planning systems. Registration services can be improved by improving the physical facilities at the offices, standardizing application formats and document formats and by making greater use o f technology to provide information and submit applications. Standards for the services provided can be established, perha s with the aim o f providing information or registration for standard transactions within a day. P

' This excludes the mandatory 8 day waiting period for public notice before a registration can be made legal.

19

8. Many o f the improvements in both transparency and efficiency can be achieved through better use o f technology. It will be necessary to improve the software utilized, especially at the READ, and help to develop new modules such as the inter-connection between graphic and attribute modules, address registers and dedicated l i n k s to users such as private surveyors, notaries, municipalities and banks. A greater level o f e-business should be incorporated. The work would have to be done in coordination with software currently being developed with the assistance o f GTZ.

9. There has been a great deal o f construction in Montenegro since the early 1990s. Reasons given for this phenomenon in Podgorica and the coast areas are population movements from other parts o f the country and, in more recent years, openness to foreign investment and tourism. Much o f the construction has been conducted without proper planning or building permits due to the absence o f planning documents (as noted above) and a cumbersome permitting process. Additionally, many buildings have been constructed on state owned land (both national and municipal land). Implementation o f detailed urban plans i s expected by many stakeholders to result in the legalization o f the majority o f existing illegal buildings.2 Such buildings were constructed without the necessary documents, so legalization will consist o f obtaining the permits, possibly carrying remedial work, and paying fees. However it i s recognized that in some cases, the buildings will not be subject to legalization, such as buildings constructed on particular categories o f state land, including the coastal zone. In such cases, the expectation i s that the buildings will be demolished.

10. The responsibility for dealing with illegal buildings is split between the national government - with responsibility resting with the MED - and local municipalities. The MED i s responsible for buildings over four stories, buildings larger than 1,000 m2, and those constructed in special zones, such as the coastal management zone and national parks. Municipalities are responsible for everything else. The utility companies also have responsibilities, particular in relation to illegal connection to water and electricity.

11. An institutional response to this situation has been the formation o f a national coordination committee to oversee the response to illegal buildings. I t i s comprised o f representatives o f the MED , ministries o f tourism, transport, agriculture, culture and labor, social affairs and health, the READ, police, national parks, utility companies and the coastal zone management authority. At the local level, the government has directed six coastal municipalities to form local coordination committees. The local bodies include the mayor, local and national level c iv i l engineer construction inspectors, and officers from the same organizations that are represented on the national body.

12. Based on accounts o f government stakeholders, in recent years the issue o f illegal construction has been dealt with more systematically. For many years, the government had a very limited response to illegal building. People were able to construct buildings without permits and could also build on state land without fear that they would be stopped by the authorities. However in 2004 the government began to actively stop illegal building when it issued an order to halt unauthorized construction in the coastal management zone and in national parks. In early 2007, the government and local authorities extended the campaign to six coastal municipalities.

* The percentage varies, but has been quoted between 80 and 95%.

20

13. Steps have already been taken by the authorities to demolish illegal buildings. In the coastal management zone, the MED reports that i t has stopped large illegal developments by means o f sealing and demolishing the buildings. National parks are another area o f special concern, and the MED has taken action. They have demolished at least 70 buildings over the last two years in one park (new buildings - at the construction stage), although older, completed buildings have been left. Reportedly, construction in national parks is primarily weekend houses, so people are not relocating from the urban areas to the parks.

14. In Podgorica, which i s reported to have the highest number o f illegal buildings, the authorities have been active in both regularizing illegal constructions through new detailed urban plans and demolition. Similarly in Ulcinj , a reportedly well publicized campaign that established a deadline o f April 6, 2007 was implemented and ten partially completed buildings were either sealed or demolished. In Budva, a similar campaign, beginning in February 2007, resulted in 31 partially completed buildings being sealed or demolished. In both Ulcinj and Budva, municipal authorities stressed that the demolished buildings were in the process o f construction and were not occupied at the time o f demolition. In Podgorica, the authorities have demolished buildings that were completed and were under occupancy.

15. To deal with existing illegal construction and prevent further illegal development it will be necessary to complete the local spatial and GUPs as well as to strengthen the construction permitting and inspections offices in the municipalities and MED. The planning sector in Montenegro i s governed by the LPPD approved in May 2005. The Law regulates the fundamentals o f physical planning and development; types, content and procedures for preparing and adopting planning documentation; it establishes the requirements for the preparation o f the planning documents and their enforcement; and it provides for monitoring o f the implementation o f these planning documents. National spatial planning i s the task o f the Planning Directorate within the MED and urban planning i s performed by the planning departments o f the 21 municipalities. The NSP was approved by Parliament in March 2008. The NSP now provides the overall framework based on which local planning can be done.

16. Now that the NSP i s approved the 21 municipalities will have to amend or prepare new local spatial plans and GUPs. Some municipalities are already preparing the documentation to be ready to tender their new plans and in a few cases the plans area already underway. However many o f the smaller municipalities, particularly in the north, have neither the funds nor the capacity to prepare new spatial plans and GUPs. Up to date GUPs, and in some cases detailed urban plans (DUPs), are necessary for speedy construction approvals and improved business environment in Montenegro. I t will be necessary to also complete the legal framework for the new LPPD, including necessary regulations, as well as planning standards and manuals to synthesize and clarify al l existing laws, norms, regulations, etc. for each particular aspect o f urban planning. It will also be important to strengthen the capacity o f the MED to monitor the preparation and implementation o f planning documents at the national level and to approve the planning documents at municipal level. The private sector will be required to prepare al l o f the necessary local spatial and urban plans and i t s current capacity will be stretched to the limit. The planning standards and manuals will also support the private sector to do the planning by providing clear, consistent standards for al l aspects o f planning.

21

17. The provision o f updated base maps and the preparation o f digital planning documents will also have an impact on the timing required to issue building permits. There may be possibilities for further reducing the steps required for issuing o f building and use permits in conjunction with the ongoing administrative reforms aimed at reducing the barriers for business development. The construction sector i s regulated by the L a w on Structure Construction approved in November 2000. The L a w regulates the construction and reconstruction o f structures and the procedures for issuing the building permits. Article 70 o f the law establishes that within two years from the law coming into force (Le. December 2002), municipalities had to prepare l i s ts o f structures constructed without building permit or without use permit, and initiate the proceedings to determine the possibility to issue the permits or demolish the structures (where the issuance o f the permits is not possible, Le. interfering with public interest or in protected areas). These measures were to be taken within one year from the preparation o f the l is ts (in other words the deadline was December 2003). This i s only now beginning to happen in an organized fashion and so far the focus has been on the coast. Improved capacity within the municipalities i s needed urgently to undertake this delicate task. Improved capacity will also be needed to improve the inspections service and to stop any future illegal or informal development before it begins. Further changes and modifications to the legal framework may also be required; however the GOM must first fully implement the existing laws to test their completeness.

22

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies MONTENEGRO: Land Administration and Management Project

1. GTZ has been involved in Montenegro over the past few years trying to help municipalities develop improved planning systems. The work has mainly been in the form o f technical assistance, but GTZ have also supplied some software and equipment to municipalities. They supported some municipalities in the elaboration o f Terms o f Reference and Tender Documents for the plans and assisted the municipalities during the Tendering process for preparation o f general urban plans, implementation o f amendments to existing plans and the preparation o f some detailed plans. In particular, GTZ financed the preparation of: 1 Municipal Spatial Plan (Danilovgrad); 1 GUP (Kolasin); the amendments to 4 GUPs and various DUPs, urban projects and local studies. GTZ also provided assistance in the implementation o f the GIS for real estate taxation in the municipalities. They also tried to establish planning standards and codes o f representation tying to unify the various different representation typologies currently employed.

2. UNDP i s providing assistance to the Planning and Housing sector in Montenegro since 2004. The first phase o f the activities started in 2004 with: (i) supporting the development o f the Housing Policy Action Plan (HPAP) within the Housing and Urban Management Initiative (HUMI) o f the Stability Pact for South Eastern Europe; and (ii) providing assistance to the Government in drafting the L a w on Physical Planning and Development (promulgated in May 2005). The second phase o f the assistance started in January 2007 and i s targeted to three main actions: (i) finalize the draft National Physical (Spatial) Plan; (ii) provide technical and financial assistance to Municipalities in preparing local Spatial Plans and GUPs; (iii) support the preparation o f a draft law on legalization o f illegal buildings.

3. FIAS and the IFC PEPSE technical assistance facility will be supporting regulatory simplification for business environment improvement. This work overlaps with the planning and permitting component o f the Project because many o f the permits required for the business sector rely on receiving timely construction or occupation permits. The IFC PEPSE project will support regulatory simplification along the coastal areas and the FIAS project will support the regulatory simplification at the national level. The EU I P A program will be providing support to develop ‘one-stop-shops’ at the municipal level to support public access and the simplification process.

23

Annex 3: Results Framework and Monitoring MONTENEGRO: Land Administration and Management Project

On-line service provided to municipalities and other users.

Results Framework

-All municipalities have on-line access to both legal and graphic information.

tax and property tax receipts Increased investment activity in the municipalities targeted under the project. Decrease in the time to receive a

To improve the efficiency of permitting and property registration.

Component A: Real Estate Registration Improve the services provided to customers through improved premises, workflows and procedures.

I -The Podgorica office built and

Improve efficiency o f creating and supplying base maps and cadastre updates. Reduced time for transactions to get registered

operating under improved conditions, providing improved customer services.

-Response to requests for maps or cadastre data provided within legally prescribed timeframe. -Average registration time will be reduced

Component B: Improving Plan1 Completion o f plans

Improve planning process and capacities at the municipal level

Improved construction permitting and inspections

ng and Permitting -Decrease in number o f new illegally constructed objects. -Decrease in time for MED approval o f local spatial plans and GUPs.

-Increase in level o f satisfaction from the public and regular users o f the planning systems following customer surveys. -Decrease in the time to receive a construction permit (central and municipal levels). -Increase in private investment in building construction (no. and amount)

The information will be used by the Government to monitor the status of real property markets and the efficiency o f the property registration and planning and permitting systems and policy adjustments made.

Use o f Intermediate

An example o f good practice for other offices around the country and used as a model o f good practice for renovations and service improvement using government funds. Delays may reflect over-ambitious expectations

Delays may flag over complicated procedures or weak capacity.

Monitoring will rely upon READ records. If the transaction time i s not reduced it will indicate a lack o f willingness to improve services to the public.

The data will be used to monitor overall improvements in the planning and inspections system leading to more legal construction.

Slow progress would flag lack of public participation or acceptance in the planning process.

Slow progress may flag insufficient improvements in capacity at the local level or continued needed improvements in the legal framework

24

Arrangements for results monitoring

1. Monitoring and evaluation i s an important tool for project implementation as it provides data on key outputs and outcomes to managers and decision makers throughout implementation. Results monitoring wi l l be performed for the whole Project by the PCU. A Monitoring and Evaluation specialist will be recruited for the PCU. The M&E specialist wi l l be responsible for designing a simple results monitoring system and the necessary monthly and quarterly reports based on the Project’s results framework. A section o f the Project Operations Manual wi l l include the monthly and quarterly report formats and a regular schedule for submission o f data by the relevant implementing entities.

2. The indicators have been designed to ensure that data i s available and can be provided regularly. Data wi l l be provided to the M&E specialist by READ, MED and the municipalities on a quarterly and annual basis as needed. Training for the staff o f MED and READ wi l l be provided as needed by the M&E specialist. Data wi l l also be obtained from other government sources - MONSTAT and MOF; and from periodic customer surveys. The other staff o f the PCU will also support data collection and regular reporting as needed. The Component Coordinators from READ and MED wi l l be responsible for ensuring that their departments provide the requested monitoring data in a timely manner. The planned I T development under the Project wi l l further support improved data collection and monitoring.

3. Given the different capacities within the municipalities, data collection from the municipalities will be more difficult and will require training and capacity building. The M&E Specialist wi l l provide training and technical assistance to those municipalities where it i s needed for data preparation, collection and reporting. This wi l l be determined as part o f the training needs assessment.

4. Customer surveys wi l l be designed and performed at three intervals throughout the Project: in year 1 to provide baseline data; year 3 to measure midterm performance; and year 5 for the final Project data. The surveys, as well as participatory monitoring through an NGO, will be contracted out with terms o f reference developed by the M&E Specialist and agreed with the Bank.

25

N

W

M M c Y .Y

.- 8

E

e Y 8 , 2 3 n n

3

s 00

s 2

-l

N

U 8

3 c

m s

2 d

e 8

m 5 8 2

Annex 4: Detailed Project Description MONTENEGRO: Land Administration and Management Project

1. The development objective o f the Project is: to improve the efficiency o f permitting and property registration.

2. The beneficiaries o f the investment will be: (a) the public living within the municipalities, as more order i s brought to the built environment; and (b) the business community, as more transparent and efficient processes are facilitated. The level o f new informal development should be drastically reduced, such that unsustainable and unattractive developments are curtailed, yet the business community and the private citizen will be able to develop their own assets with greater ease and security. By the end o f the Project it should be possible for the public to easily access information about the legal situation with regard to a property and the processes required to develop a business or property. The zone plans and the forms and procedures for registering property rights, applying to develop a property or obtain the necessary permits should be simplified and easily available. This should result in less illegal developments and greater investment through formal procedures. The outcomes will be measured by a reduction in percentage o f the time spent on the compliance with the regulatory requirements, reduction in the number o f steps and days required for registration or receiving permits and other documents, and better access to information.

3. The Project will be divided into two main components: the first dealing with real estate administration and the second with planning and inspections. A third component will cover project management.

Component A: Real Estate Administration

4. The Medium Term Program for 2008 to 2013 for READ has been approved and it includes 12 main tasks.

1) To establish state geodetic systems in connection with European reference systems and their standards;

2) To form the real estates cadastre on unsurveyed parts o f the Republic o f Montenegro and completion o f the existing database o f real estate cadastre;

3) To form a cadastre o f pipelines in all the larger towns; 4) To prepare topographic maps at various scales for the entire country; 5) To survey, maintain and renew international border marks; 6) To form registers o f home numbers, streets and squares and register of

space units; 7) To continue the modernization o f the existing information system

which would be an integral part and the foundation o f the information system for public authorities, and have al l data regarding the territory o f the Republic, holders o f real estate rights and other real rights, in digital form and to be available to al l interested legal and natural persons at any place and any time;

8) To continue activities on land consolidation;

28

9) To perform reorganization o f the Real Estate Administration, modernization and construction o f the buildings o f the Real Estate Administration and regional units for real estate cadastre and improve services;

10) To establish modern archives; 11)To adopt new, and revise existing, by-laws in the sphere o f state

12)To modernize the education system for personnel for jobs o f state survey and real estate cadastre;

survey and real estate cadastre.

5. The full five year plan requires a budget o f almost €53 million. The annual work plan and budget for 2008 has been approved and a budget o f €10.45 mi l l ion has been allocated. The Project f i t s within the overall 5 year strategy and can finance only a small part o f the total program. The Project will concentrate on those parts that would have the most impact on improving registration services and the provision o f information through an internet portal. The information i s required by municipalities for the production o f GUPs, and the information portal will also provide information to multiple other ministries and administrations, the business community and private individuals.

A. 1 Improving Registration Services

6. The demand for registration o f transactions for sales, mortgages and leases i s growing rapidly. The number o f registered transactions in 2006 was double the figure from 2005, and the rate o f increase continued in 2007. The most seriously affected office i s Podgorica, where staff lack space to undertake their work and there i s no suitable space for customer reception, archives or the desks and equipment needed for the staff. These conditions are mirrored across the country. The Public Works Directorate will be designing the new Podgorica and Headquarters building, with plans due to be completed by the end o f June 2008. The Project will either fund the new building, dependant on agreement with the design, or fund the renovations for multiple cadastre offices around the country. The READ budget will cover those offices that are not included within the Project budget. When designing new or improved building facilities, the work flow can be improved and corruption mitigation measures can be put in place (such as separating the front office from the back office). The sites selected for improvement using Loan funds can act as models for other locations. The sites to be renovated will be selected according to the most pressing need.

7. READ i s at the forefront o f technological development in the country and i s trying to meet the obligations that would be expected o f it at a future date when joining the EU. In the land administration sector within the EU there are a number o f initiatives and activities that are underway and these include: (a) the development o f national spatial data infrastructures (NSDI), which i s used to standardize al l graphical information supplied by government departments and other suppliers; (b) common coordinate systems using satellite based position f ixing systems; (c) the provision o f information concerning land and land use (especially environmental information) through the INSPIRE'

' The INSPIRE directive: Infrastructure for Spatial Information in the European Community from January 2007, provides guidance and instruction on the sharing o f al l spatial information, but especially in the

29

directive; and (d) a greater level o f service provision and improved transparency through e-government initiatives. Post-graduate training in this subject area i s essential for Montenegro so that the progress in these areas can be achieved competently. There are few universities in Europe that provide the training needed in this area and in the field ensuring that the legal rights established in joint registration and cadastre systems are integrated into the new technology. The Project plans to send 3 graduates per year to universities in Sweden or the Netherlands (with other possibilities not excluded) for post graduate training, starting in 2009. Up to 12 individuals will therefore receive high level education in land administration (covering legal, economic, registration and planning issues), Geographic Information Systems (GIS) and Geodesy. Funds are also allocated for other staff to participate in study visits and conferences.

8. This subcomponent will include:

0

0 Training for staff. Renovations, furniture and equipment for selected offices;

A.2. Information System Develoument

9. The GIS department at READ already has alphanumeric software (Terrasoft) and a variety o f graphical software (MAPSoft, Digit 98 I DMapBase and TerraDGP). The local and central offices are connected in a Wide Area Network, but the graphical and alphanumeric data are not automatically linked. There i s information access to the public via the READ website, but it needs to be improved and include the graphical data. The mid-term strategy outlines the program for improving the information systems and the Project will assist with: development o f the I C T strategy; user needs analysis and creation o f data standards and agreements; new data models; and the implementation o f a Geoportal for public access. The information system will include the requirements for a digital archive and the ability to make applications for official extracts and applications for transactions on-line. Software development, licenses and hardware as necessary will also be purchased and training will be provided to all staff. Improvements to the rate o f completing the registration o f transactions and access to information will largely be achieved through this subcomponent.

A.3. Provision o f Base Maps

10. Municipalities require base maps at 1:5,000 scale in order to produce GUPs. The work undertaken by READ i s free o f charge, and READ already has 2007 photography and photogrammetric capacity that can be used as a basis for producing the base maps required by municipalities for producing the GUP. This includes an orthophotomap base, re l ie f in the form o f contours and the cadastral index layer. It i s clear from comparing the orthophotomap with the cadastral index layer which buildings are legally recorded and which are not. DUPs also require additional information that has to be gathered at great

environmental sector, and directions on the access and availability o f such information. Member States must provide access to spatial data through a geoportai at no cost to the public.

30

cost, but the base map for the GUP can be produced quickly and at l i t t le cost. It just requires a request from the municipality concerned.

11. Podgorica and some o f the coastal towns have already requested basic maps for GUPs and DUPs2 and they also have the resources to pay for contractors to complete the work. There is much greater need in the mountainous areas where there i s great demand for development permission because investors have seen the opportunities for tourism, but there i s l i t t l e capacity to develop the GUPs. This Sub-component will ensure that the photogrammetric/ cartographic department has sufficient capacity (including software licenses and workstations, which are currently lacking) to produce base maps. The cartographic department will liaise with the specialists working under Component B to ensure that the base maps are produced in coordination with the sites selected for the production o f special plans or GUPs. Contracts will be issued to the private sector to ensure that the base maps are produced for the areas that spatial plans and GUPs (and possibly DUPs) are to be produced using Project financing. The subcomponent will include:

0

Provision o f software licenses and training; Production o f base maps and the cadastral index layer for selected sites in the mountainous areas.3

A.4. The Real Estate Cadastre

12. The Medium Term Program includes activities to complete the REC in selected sites. Approximately 5 1% o f the country has the REC completed and this includes 90% o f the urban and coastal areas. The cost o f completing the REC i s very high, at about €80 per hectare. Costs could be reduced through changing the methodology and experience in other countries has shown that increased use o f the private sector and international tendering can substantially reduce costs and the time for completion o f REC work. Costs are not easily comparable because o f the difference in salary levels and the amount o f work that i s included in the REC, but reductions as high as 40% have been experienced in other projects. I t was agreed to complete at least 100,000 hectares o f REC in Zabljak, Plav and Biogradski Gora Park using international tender. The remaining areas for the creation o f the REC are covered by government funding in the Medium Term Program. It i s expected that the lessons learnt and any improved methodologies can be applied to the other sites also.

Component B: Improving Planning and Permitting

13. Urban land management and planning, and construction permitting and inspection are important for the orderly development o f any country, and they should promote the general public good without presenting barriers to foreign and domestic investors to start and grow their businesses. Montenegro also plans to join the EU so orderly planning and

GUPs require a base plan at 1:5000 scale and DUPs at 1 : l O O O scale. Init ial locations are: iab l jak, Savnik, Plav, Roiaje, Berane, Andrijevica and Mojkovac, plus the sites for

which spatial plans and GUPs wil l be produced.

31

land management will be needed to meet the EU’s standards on environmental protection, ru le o f law and protection o f private property.

14. The planning sector in Montenegro i s governed by the L a w on Physical Planning and Development approved in May 2005. The Law regulates the fundamentals o f physical planning and development; types, content and procedures for preparing and adopting planning documentation; it establishes the requirements for the preparation o f the planning documents and their enforcement; and it provides for monitoring o f the implementation o f these planning documents. National spatial planning i s the task o f the Planning Directorate within the MED and urban planning i s performed by the planning departments o f the municipalities (21). The NSP for Montenegro has been approved by Parliament in March 2008. The NSP provides the overall framework based on which local planning can be done.

15. Once the NSP i s adopted the 21 municipalities will have to amend or prepare new local spatial plans and GUPs. Some municipalities are already preparing the documentation to be ready to tender their new plans immediately and in a few cases the plans area already underway. However many o f the smaller municipalities, particularly in the north, have neither the funds nor the capacity to prepare new spatial plans and GUPs. Up to date GUPs, and in some cases DUPs, are necessary for speedy construction approvals and an improved business environment in Montenegro.

16. The construction sector in Montenegro i s regulated by the Law on Structure Construction approved in November 2000. The Law regulates the construction and reconstruction o f structures and the procedures for issuing the building permits. Article 70 o f the law establishes that within two years from the law coming into force (Le. December 2002), municipalities had to prepare l ists o f structures constructed without building permit or without use permit and initiate the proceedings to determine the possibility to issue the permits or demolish the structures (where the issuance o f the permits i s not possible, i.e. interfering with public interest or in protected areas). These measures were to be taken within one year from the preparation o f the l ists (Le. December 2003). This i s only now beginning to happen in an organized fashion and so far the focus has been on the coast. Improved capacity within the municipalities i s needed urgently to undertake this delicate task.

17. The proposed Component B has four sub-components:

B. 1. Improving the Planning Process and Support to MED

18. This sub-component will focus on supporting MED to complete the legal framework for the planning law - preparation o f by-laws, planning standards and manuals, etc. The sub-component will also provide technical assistance and training for MED to support the implementation o f the planning law and monitoring o f local plans, including development o f an Urban Planning Management System to facilitate approval o f local plans by MED.

19. Specific activities planned are as follows:

32

8

8

8

8

Prepare detailed planning standards and a planning manual, regulations, data standards, to synthesize and clarify al l existing laws, norms, regulations, etc. for each particular aspect o f urban planning. This activity would also support training and dissemination o f these new standards to the municipalities, private sector and others as needed. Support to MED for monitoring o f preparation and completion o f plans. This activity would focus on strengthening the capacity o f MED to monitor the preparation and implementation o f planning documents at the national level and to approve the planning documents at municipal level. I t would include training and study tours for MED staff. It would also include the review o f existing laws and assistance in the formulation o f by-laws, regulations and others. Development o f an Information and Communications Technology (ICT) strategy; user needs analysis, further development o f the data dictionary and standards, data model, agreements for data sharing/exchange, and the development and implementation o f an Urban Planning Management System and Urban Planning Geoportal for public access. Software development, licenses and hardware, as necessary, will also be purchased and training will be provided to the staff. Process improvement and simplification for construction and use permitting based on existing legal framework as well as possible legal framework improvements. Process improvement regarding the treatment o f illegal structures, including the development o f regulations, by-laws and guidelines as appropriate to ensure greater transparency, clearer criteria, and improved grievance mechanisms for those who primary residences and livelihoods are at risk. Training for private sector planners in the new standards, by-laws and regulations. Support to the Montenegro University for further development o f the urban and spatial planning curriculum and implementation o f new curriculum. Study tours and conferences as needed.

B.2. Improving Planning at the Municipal Level and Completion o f Plans

20. The sub-component will co-finance the preparation o f local spatial plans and GUPs in those municipalities having limited financial and human resources. Local spatial plans and GUPs are the mandatory plans that must be prepared by al l municipalities. The preparation o f these plans will fol low the procedure established in the current planning law. The plans will be prepared using the base maps provided by the READ in digital, vector form. This activity will be carried out taking into account what other the donors - GTZ and UNDP - are planning in the municipalities in order to avoid overlap and duplication. If sufficient funds remain after the mandatory plans are funded and, if there i s interest, the Project may also fund some Detailed Urban Plans (DUPs).

2 1. The sub-component will also support public awareness campaign(s) to accompany the planning process and encourage public participation, particularly the involvement o f citizens in wider planning and development issues. Other activities under this sub- component include providing the planning departments in the municipalities with the necessary training and equipment to prepare and implement the municipal plans. The equipment will include computers, printers, plotters, and software (mainly AutoCAD and other common software). This activity will be carried out again in coordination with other

33

donors - GTZ and UNDP - in order to avoid overlapping and/or duplication. The specific activities planned are: . Preparation o f the local spatial plans and GUPs in the municipalities, particularly

those with limited financial means; and preparation o f some DUPs as needed and as funds are available. Review and, where needed, formulation o f proposals for improving existing municipal procedures related to involuntary demolition o f structures with the aim o f ensuring that such procedures are consistent with agreed principles o f due process. Public awareness campaign and consultation process to accompany the municipal planning process and public participation o f citizens in wider planning and development issues at the local and national level. Provide necessary equipment (printers, plotters, computers) and software for the 2 1 municipalities planning offices, and installation and networking as needed. Training in preparation o f TORS and tender documents for preparation o f plans; management o f the procurement process; new planning standards; the planning manual; how to read and maintain GUPs; and the use o f hardware and standard software as needed.

.

.

.

.

B.3. Improving Construction Permitting; and Inspection

22. The provision o f updated base maps and the preparation o f digital planning documents will also have an impact on the timing required to issue building permits. This sub-component will study the possibilities for further reducing the steps required for issuing o f building and use permits in conjunction with the ongoing administrative reforms aimed at reducing the barriers for business development. This sub-component will finance awareness campaigns for the general public on the benefits o f fighting illegal construction and the production o f brochures and online information to increase transparency o f the construction permitting and inspection processes. The personnel in the construction and inspection divisions in the municipalities will be trained and necessary equipment (hardware, software and cars) provided. This subcomponent will include: . Public awareness campaign(s) (PAC) and production o f brochures and online

information to increase the transparency o f the processes and inform citizens. The PAC will also inform the public about the benefits o f fighting illegal construction. Several pilots are underway on the coast and in the north to regularize illegal structures and fight further illegal development and these experiences will be included in the PAC. Training for municipal staff on the use o f computer hardware and software; the use o f digital plans for searching data for construction inspection; and the streamlined procedures and processes for issuing permits. Training and TA for inspections units in 2 1 municipalities. Equipment, hardware, software as needed.

.

. . B.4. Business Environment Improvement

34

23. This sub-component will support MED with technical assistance and training as needed to improve other aspects o f business licensing and permitting. The activities under this sub-component will be done in consultation with FIAS and the Department for Industry and Entrepreneurship within MED.

Component C: Project Management

24. The TSU under M O F will provide fiduciary support for the Project. Additional consultants will be hired to provide support to MED as they do not have the resources to manage the Project activities or manage the activities that will be based at the municipal level. The additional consultants will form a PCU and they will be responsible for non- fiduciary Project reporting (monitoring and evaluation) as well as technical support. Funds will be provided for the purchase o f a vehicle as there i s expected to be a great deal o f travel to municipalities and funds will also be provided for office rental, translation and general operating costs. A full description o f Project management arrangements i s contained in Annex 6.

35

Annex 5: Project Costs MONTENEGRO: Land Administration and Management Project

Government IBRD Total Project Cost By Component and/or Activity Euro Euro Euro

A. Real Estate Administration 7,97 1 7,47 1 15,442 B. Improving Planning and Permitting 2,605 2,605 5,210

thousands thousands thousands

C. Project Management 559 559 1,118

Total Baseline Cost 11,135 10,635 2 1,770 Physical Contingencies 112 106 218 Price Contingencies 244 232 476

Total Project Costs 11,491 10,973 22,464 Front-end Fee 0 27 27

Total Financing Required 1 1,49 1 1 1,000 22,49 1

36

Annex 6: Implementation Arrangements

MONTENEGRO: Land Administration and Management Project

1. The Project would be implemented through two main implementing entities: . Real Estate Administration Department (READ), which i s within the Ministry o f Finance (MOF), i s responsible for matters relating to property registration, production o f base maps and cadastral maps and related geodetic work. They will manage Component A. . Ministry o f Economic Development (MED) i s responsible for urban planning, permitting and inspections at the central level. They have to work closely with municipal authorities because most o f the urban plans, planning approvals, permitting and inspections are carried out by municipal authorities. MED i s only directly responsible for permitting for the larger developments and businesses or locations that come under special legislation. Within MED, the Department for Urban Planning will be responsible for activities under Component B.

2. Municipal involvement i s key to all the activities o f the Project, and especially for Component B. Though the municipalities wil l not be funded directly by the Project (no on-lending) it i s important that they are actively involved in the activities for which they are beneficiaries. For those municipalities that will receive financing for local spatial plans and GUPs the Project wil l request a Memorandum o f Understanding (MOU) passed by the municipal parliament or council designating a mutually acceptable amount o f co- financing (not more than 20%) by the municipality for the plans and a responsible person to coordinate with the Project (through the PCU). The municipalities through the PCU will prepare the technical specifications for the plans, evaluate the bids and supervise the winning contractors.

3. Coordination with all 21 municipalities i s a challenge and there i s no central administration to do this. In addition MED does not have the resources to implement i t s activities under the Project. A Project Coordination Unit (PCU) will be established with the prime purpose o f providing this link and coordinating with the municipalities, but also to assist MED to implement i t s parts o f the Project (sub-components B.l. and B.4). READ will implement Component A with no additional staff.

4. The existing Technical Services Unit (TSU) within M O F will be responsible for fiduciary aspects o f the Project (financial management and procurement), but the actual implementation i s the responsibility o f READ (Component A), the Department for Urban Planning within MED (Component B), and the PCU. A coordinator has been appointed for Component A and for the MED activities within Component B (B.l) to ensure the Project i s performed adequately. The PCU will coordinate the activities under Component B that are for the benefit o f the municipalities.

5. A Project Steering Committee (PSC) will provide overall guidance and direction for the Project. I t has been established in accordance with an official Government decision and includes high level representatives o f the Ministry o f Finance, the Ministry

37

o f Economic Development, the Real Estate Administration Department, the Union o f Municipalities, and others as needed. The Chairman o f the PSC has been officially appointed by Government. The PSC should meet at least quarterly and i t s responsibilities include:

To make decision on principal issues o f overall Project implementation; To receive and approve the annual work plan and targets, related annual Project budgets, and resulting annual reports, and ensure coordination among the various entities in implementing the Project; and, To approve quarterly progress reports for the WB.

6. The composition and duties o f the PSC are described above. Implementation o f Project components are the responsibility o f the implementing entities, which they will achieve with the assistance o f the PCU and the TSU. A senior official has been appointed from each entity as Coordinator to manage their respective component or sub-component and to coordinate with the PCU and TSU as needed to ensure that the work i s done with speed and quality. The Coordinators are responsible for the overall implementation o f their respective component or sub-component. The Coordinators will meet with the relevant staff o f the PCU and TSU on a regular basis to approve plans and activities and make needed policy decisions.

7. Proiect Coordination Unit (PCU) The PCU i s established to assist MED and the municipalities with implementation o f Component B. However, they will also assist READ with training programs and providing advice on IT issues when requested. The consultant responsible for the training activities will also be responsible for monitoring and evaluation under the Project and will be expected to work on both Components. The PCU staff would include the following: two technical specialists to work with the municipalities and MED on Component By a Training Coordinator/ M&E specialist and an I C T specialist. The PCU will be managed by one o f the technical specialist to be recruited under the Project and would therefore report directly to the Coordinator for Component B. The PCU will be responsible for the following:

Day-to-day Project management responsibilities for Component B. Preparation o f technical specifications and terms o f reference for the activities under Component B in consultation with the relevant staff in MED and the municipalities. Contract management o f all signed contracts under Component B. Regular communication and f low o f documents to the TSU for procurement, financial management and disbursement. Regular needs assessment o f municipalities for planning documents, equipment and training. Preparation o f annual training plan in consultation with MED , the municipalities and READ and supervision o f the training activities. Preparation o f annual workplan and budget in consultation with MED, READ and the municipalities.

38

Preparation o f quarterly and annual monitoring reports to be sent to government and the World Bank.

8. In the case o f Component A, READ will provide technical specifications and other needed instructions for procurement and financial management directly to the TSU. READ will also work with the PCU on the annual training needs assessment and training delivery and on monitoring and evaluation. The PCU I C T specialist will provide assistance to READ in development o f specifications and other I C T related issues as requested.

9. The TSU has been established within the Ministry o f Finance to support implementation o f al l World Bank financed projects. The TSU i s responsible for the following functions: (i) procurement; (ii) financial management; and (iii) disbursement and auditing arrangements. The TSU will provide these services to the implementing entities o f the LAMP. A Memorandum o f Understanding between M O F and MED will be prepared outlining the roles and responsibilities o f the TSU and the implementing entities and this i s expected to be signed before project effectiveness.

Technical Services Unit (TSU)

Implementing Entities

10. Real Estate Administration Department: READ i s an administrative agency reporting to the Ministry o f Finance. The Headquarters are in Podgorica and there are 21 Branch Offices (and two town district offices). There i s one branch office for each o f the municipalities. READ is responsible for cadastre and property registration and is in the process o f establishing the real estate cadastre throughout the country. READ i s also responsible for cartography, photogrammetry, geodesy, aerial photography, land consolidation, international border demarcation, the location o f utility lines, address and building registers, land valuation, and the licensing and supervision o f authorized surveyors. READ employs some 346 full-time staff and another 30 contract staff. READ has prepared a five year mid-term program (MTP) for the period 2008-2013 outlining required funds for completing the real estate cadastre and other investments (including information technology) in the amount o f €53 million. The M T P has been endorsed by the Government o f Montenegro and READ has an approved work program for 2008, with a budget allocation o f €1 0.45 million.

11. READ has the necessary technical staff and managerial capacity to implement Component A o f the Project with the support o f the TSU. READ has planned for advanced education for i t s staff in the M T P and has requested financing for further education for 150 geodetic engineers and 80 lawyers. Both training and advanced education will be financed through the Project. READ has a unit responsible for I C T development and implementation both for the Central and local levels. This i s the GIS Department, under the Section for Planning, Analysis and GIs. Currently 13 experts are working in the sector, 2 o f whom are temporarily assigned, as part o f their final phase o f education. With the newly approved amendments in the Law on State Survey and Real Estate Cadastre, additional responsibilities are given to the GIS Department and a new

39

organizational structure i s under preparation. I t i s envisaged the staff o f the GIS Department will increase to 20. The Project will support the GIS department with training and technical assistance.

12. Ministry o f Economic Development: MED was established in November 2006 and i s responsible physical and spatial planning; housing policy; multilateral and regional trade cooperation; foreign economic relations; industry and entrepreneurship, including small and medium enterprises; internal trade and competition; mining and geological exploration; energy industry; and many other aspects necessary for sustainable and balanced growth and development o f the Montenegrin economy, and i t s competitiveness and policy development. The mandate o f the Ministry is quite broad; the key directorates within MED for the purposes o f the Project are the Directorates for Urban Planning, Legal Affairs and Inspection, and Spatial Planning.

13. The planning issues are governed by the Law on Physical Planning and Development approved in May 2005. According to the Law, planning documents at the local level must be harmonized with the planning documents at the national level in relation to the prescribed use o f land and the development concept. The NSP has been approved by Parliament. MED i s responsible for the NSP and for plans o f national special interest (large infrastructure projects, national parks), however all local plan documents must be approved by MED to ensure that they are in compliance with the higher order plans. In addition MED has some responsibility for approving construction permits for structures that are more than 1,000 m2 or more than 4 stories above ground, and for inspection o f such structures. MED i s also responsible for al l by-laws and regulations governing planning, permitting and inspection.

14. MED has limited staff to carry out the Project and therefore the PCU will be established within MED. MED currently has no I C T Department and very limited I C T capacity. The proposed Project includes large I C T development projects, which will require the development o f institutional capacity within MED for ICT. In the past MED has hired contractors to help develop the national spatial plan, a GIS strategy, the coastal plan and other major planning documents. I t i s expected that this type o f public-private partnership arrangements will continue. The PCU i s seen as an interim measure for the duration o f the Project. Once the Project i s finalized the new procedures and the I C T systems will enable MED to function more efficiently (without additional staff), although it i s expected that they will continue with their public-private arrangements for specific activities - including management o f the I C T system.

15. Municipalities: there are 2 1 municipalities within Montenegro. The municipalities are the local government unit below the national level and include both urban and rural areas. They range in size from 200,000 to 4,000 hectares and in population from 170,000 (Podgorica) to less than 10,000. Municipalities are responsible for local spatial planning and all urban planning. They are also responsible for construction permitting and inspection for buildings and structures within their territory that are less than 1,000 m2 or less than five stories high. Though there i s a legal framework at the national level the implementation o f these activities varies greatly from

40

municipality to municipality. This i s due to different capacity levels and a lack o f clear rules and procedures leaving much to the discretion o f the municipalities.

16. The municipalities are self-financing based on their own revenues (municipal taxes, fees, compensations and other); assigned Republic revenues (revenues from personal income tax, real estate transfer tax and from concession fees for the use o f natural resources); the Equality Fund (to balance municipal budgets from the wealthier coastal and central municipalities to the poorer northern municipalities); and conditional subsidies from the State Budget for the financing o f capital projects (such as large infrastructure investments).

41

Annex 7: Financial Management and Disbursement Arrangements MONTENEGRO: Land Administration and Management Project

I s

Country Issues

modernized over the last several years but s t i l l needs

1. Progress in developing the system o f public financial management since findings o f the CFAA in 2002 has been impressive in some areas. Fiduciary review conducted in 2007 concludes that budgetary control has improved significantly through the establishment o f a fully functioning treasury system linked to al l budget users. Systems for the process o f allocating and accounting for tax revenues have been enhanced. The credibility o f revenue and expenditure forecasts has improved suggesting that the planning process has become more reliable. Elements o f a modern public sector audit function (both internal and external audit) have been established and have begun to make a difference to the quality o f the control and oversight in the country.

project implementation in order to secure use o f funds for intended purposes and safeguard o f project assets.

2. While recognizing the progress that has been made, a number o f significant challenges remain. Despite a considerable investment in the development o f program budgeting, the process has yet to have a substantial impact on policy planning and prioritization across government. In common with other countries further work i s required in order to develop a medium term expenditure framework which l i n k s policies, planning into the budgetary process. The Government also needs to build a comprehensive picture o f fiscal risks prevalent in the public sector; particularly loans, contingencies and guarantees by municipalities and public enterprises. Finally some basic building blocks o f the financial control system are missing; for example the treasury system has s t i l l to implement the commitment control system that would allow MOF to include accounts payable in the accounting system.

Risk Analysis

3. The overall financial management risk for the project i s substantial before mitigation measures, and with adequate mitigation measures agreed, the financial management residual risk i s rated moderate. Table below summarizes the financial management assessment and risk ratings o f this project:

Risk Risk Rating after mitigation

Measures

INHERENTRISK 1 I I I Country level. Perceived corruption in the country i s high. Capacity o f both State Audit Institution (SAI) and internal audit i s still relatively low. Treasury system has been

Risks described on the l e f t inhibit use o f country systems. The risk imposed by insufficient capacity o f SA1 and internal audit within the Government will be mitigated by use o f private auditor for audit o f project financial statements and by the Bank’s supervision. In addition, robust system o f internal controls will be applied during

M

42

improvements in order to accomplish measurable and specific results. Internal controls are not always applied in practice, which i s confirmed in reports o f internal audit and external audit. Sector within the MoF that performs role o f oversight over SOEs has very low capacity (1 person employed). Entity level. Although the TSU possesses substantial experience and knowledge o f Bank procedures, expanding i t s scope of work to implementation of six to seven projects which i s envisaged in the near future, imposes capacity concerns and it should be closely monitored and analyzed whether potential gaps between quantity o f work and the unit capacity have been created in order to take appropriate actions to bring scope and capacity closer together.

Project level. There are two entities in charge o f overall project implementation and TSU with fiduciary responsibilities, hence appropriate measures should be taken to ensure that the communication between different units i s efficient.

Overall Inherent Risk

2. CONTROL RISK

1 I Budgeting and Planning.

2. Accounting.

3 . Internal controls. System o f internal controls within public

M

S

S

M

S

S

Internal controls and procedures instituted for ongoing projects implemented by the TSU are assessed to be adequate for this project as well. Designated Account will be opened in a commercial bank acceptable to the Bank. Stand alone accounting system will be used for project accounting and reporting.

The Bank FMS will monitor closely financial management aspect o f implementation and corresponding performance o f this function. If any need arises, an action plan wil l be developed clearly describing what i s the gap between the capacity of the TSU and scope o f i t s tasks and which actions need to be taken in order to mitigate risk imposed by such misbalance.

Appropriate procedures clearly distinguishing lines o f responsibility and communication between different entities have been developed for project implementation.

No additional mitigation measures needed. Planning and budgeting for previous/ongoing World Bank projects implemented by the TSU proved to be adequate. The risk i s additionally reduced by acquisition o f acceptable software.

Acquisition and installing o f FMS.sys wi l l improve reliability of accounting information and mitigate risk o f omission, error or inaccuracies in project accounting and reporting. The software provides reliable accounting information and it i s automated to significant extent.

Sound system o f internal controls wil l be applied during project implementation in order to secure use o f funds for

M

M

M

M

M

M

43

relatively weak and does not provide sufficient assurance on the use o f funds for intended purposes.

4. Fundsflow.

5. Financial reporting.

M

S Acquisition and installing o f FMS.sys wil l improve

intended purposes and safeguard o f project assets. Internal controls and procedures instituted for ongoing projects implemented by the TSU are assessed to be adequate for this project as well.

M

Designated Account wil l be opened in a commercial bank I L

reliability o f accounting information and mitigate risk o f omission, error or inaccuracies in project accounting and reporting. The software provides reliable accounting information and i t i s automated to significant extent.

Private audit firm acceptable to the Bank based on audit f i r m s review wi l l perform audit o f the project. The Bank FMS wi l l monitor closely financial management aspect o f implementation and corresponding performance o f this function. In case if any need arises, action plan wi l l be developed clearly describing what i s the gap between the capacity o f the TSU and scope o f i t s tasks and which actions need to be taken in order to mitigate risk imposed by such misbalance.

M

M

6. Auditing.

7. Staflng. Considering that it i s envisaged that in the near future the TSU will be in charge o f implementation o f six to seven projects, it should be closely monitored and analyzed whether potential gaps between quantity o f work and the unit capacity have been created in order to take appropriate actions to bring scope and capacity closer together.

Overall Control Risk

OVERALL FM RISK M

S

S

S

S

Strengths

4. The TSU i s staffed by qualified and experienced staff which represents an important driver o f successful implementation. In addition, the staff has substantial prior experience in implementation o f World Bank supported projects gained during implementation o f three currently active projects. The Project has fairly simple flow o f funds and disbursement, as well as accounting and reporting.

Weaknesses

5. Without undermining strengths derived from the TSU’s experience and prior performance, potential risk o f overstretching the unit’s capacity should stay in focus and be monitored and analyzed. The TSU i s already in charge o f fiduciary area o f implementation o f three projects and expanding their scope o f work with new project may require building the TSU’s capacity by increasing the headcount with experienced and qualified professionals. Although having in mind this potential threat, the conclusion remains that pros o f assigning the TSU with fiduciary responsibilities o f the Project outweigh cons. Previously agreed action plan has been implemented since software to be

44

used for project accounting has been acquired and made fully functional. There are two entities in charge o f overall project implementation and TSU with fiduciary responsibilities, hence appropriate measures should be taken to ensure that the communication between different units i s efficient.

Implementing Entity

6. READ, a department reporting to the Ministry o f Finance and MED will have overall responsibility for implementation o f the Project, while TSU within the Government o f Montenegro will be in charge o f fiduciary aspects o f Project implementation, namely financial management and procurement. The TSU has already been established and functioning. It i s in charge o f fiduciary aspects for three ongoing projects in Montenegro. The unit i s staffed by qualified and experienced staff with experience in implementation o f World Bank supported projects in all functions, including financial management. Performance o f the TSU during implementation o f the ongoing projects was overall satisfactory.

Planning and Budgeting

7. Planning and budgeting for previous/ongoing World Bank projects implemented by the TSU proved to be adequate. Recent acquisition o f acceptable accounting software will facilitate further planning and budgeting and in particular analysis and comparison o f budgeted and actual figures. READ and MED will play an important role in the process o f planning and budgeting as well, thus good communication between those entities and the TSU i s one o f important factors.

8. It i s important that there i s sufficient capacity for planning and budgeting in order to be able to manage Project funds in an optimal manner from aspects o f funds allocation, liquidity and overall performance. Variances o f actual versus budgeted figures should be monitored on regular basis, appropriately analyzed and corrective actions taken.

Accounting

Staffing

9. Financial management function in the TSU i s staffed by an experienced and qualified specialist. The finance financial management specialist i s already performing the same role for three active projects and has gained substantial experience in working on World Bank supported projects. Other functions in the TSU are adequately staffed as well.

10. Considering that it i s envisaged that in the near future the TSU will be in charge o f implementation o f six to seven projects, it should be closely monitored and analyzed whether potential gaps between quantity o f work and the unit capacity have been created in order to take appropriate actions to bring scope and capacity closer together. Depending on the future progress o f Treasury reform, one o f the possible options to be analyzed in the case o f capacity gap could be abandoning separate accounting system for projects and placing reliance on Treasury accounting and reporting supplemented merely by compiling financial reports in the appropriate agreed form by using Excel

45

spreadsheets. This would lead to substantial time saving and would represent one o f the tools to close the capacity gap.

11. Terms o f Reference for the financial management staff with detailed descriptions o f duties have been prepared. The implementing entity i s responsible for the Project’s financial management arrangements and i t s accountant will provide supplementary expertise and time as will be required for the specificity o f World Bank procedures for accounting, reporting, disbursement, and as necessary, procurement procedures.

Information Systems

12. The TSU has acquired and installed FMS.sys accounting software to be used for project accounting for ongoing projects. The software i s acceptable to the Bank and the same accounting system will be used for this Project as well. The software provides reliable accounting information and i t i s automated to significant extent. Management information system developed for implementation o f ongoing projects i s assessed to be adequate for implementation o f this project as well, and it will be enhanced by acquisition o f FMS.sys software due to various types o f management reports that the system generates.

Accounting. Policies and Procedures

13, The accounting books and records are maintained on cash basis with additional information on signed contracts. Project financial statements will be presented in EURO. Accounting policies and procedures currently used for the projects the TSU i s involved with will serve as a basis for the new Project.

14. Additional accounting policies to be applied for the Project will include the following major assumptions:

- - - -

cash accounting as the basis for recording transactions; reporting should be done in EURO (reporting currency); consolidated IFRs should be prepared for all donors funds and al l components; counterpart funds should be reflected in the financial reports.

Internal Controls

15. Adequate system o f internal controls has been instituted within the TSU for projects under implementation and they will also be applied to this project. Defined controls and procedures are applied in practice which has been verified by the Bank’s financial management supervision and annual audits by private audit f i r m s . Clean audit opinions on ongoing projects financial statements have been issued by the auditors.

16. In general, key internal controls to be applied for the Project include:

- appropriate authorizations and approvals; - segregation o f duties; - different persons being responsible for different phases o f transaction;

46

- reconciliations between records and actual balances, as well as with third parties should be performed on regular basis; complete original documentation should exist to support Project transactions. -

17. READ and MED publish tenders and i s signatory to the contract. After receiving an invoice, it i s forwarded for verification to the technical staff and component coordinator, or other institutions as relevant, responsible for checking the quality and quantity o f the delivery covered by the invoice. Independent consultants may also be contracted to perform verification that goods, services or works have been delivered to acceptable level prior to payments.

18. After the technical staff has approved the invoice in terms o f quality and quantity o f the workhervice, the invoice i s registered by the Archives by the TSU. The invoice is then reviewed by the project accountant who registers the invoice in a simple log f i l e with name o f supplier, amount, and date o f payment. H e checks the invoice, the calculation o f the invoice, and finds the appropriate budget from which the amount will be charged (contract number, item number and program (component). The accounting codes needs to be written on the invoice by the accountant. After putting hisher initials the invoice i s given to the project procurement staff. The procurement staff checks the invoice against the relevant contract number, if necessary attaches a copy o f the relevant paragraph on which the invoice i s based from the contract and signs.

19. All relevant documentation shall be attached to the invoice enabling the Project Director to immediately evidence that the necessary checks have been performed. The invoice i s finally received again by the project accountant. The receipt o f the approved invoice i s registered in the registry mentioned above ensuring that payment can be made as per the payment terms. Payment orders and the invoice with al l designated approvals and signatories are submitted for payment.

20. Bank Statements are received daily and Treasury reports on regular basis by the TSU. Based on the Bank Statements/Treasury reports the TSU Financial Specialist will record executed payments and perform due reconciliation o f the bank balances. The TSU will prepare interim un-audited financial reports l isted above quarterly in the agreed format and submit the reports to the Bank and those reports will be responsibility o f the TSU Financial Specialist.

Reporting and Monitoring

2 1. Project management-oriented interim un-audited financial reports (IFRs) will be used for Project monitoring and supervision. The format o f the IFRs was agreed during negotiation and attached to the Minutes o f negotiation. The TSU will produce a full set o f IFRs for each calendar quarter throughout the l i f e o f the Project. They will be due 45 days after each quarter ends. The IFRs will comprise the following reports presented in the agreed format:

- Statement o f Sources and Uses o f Funds;

47

- Uses o f Funds by Activity; - Designated Account statement; - Unit o f Output by Activity; - Narratives to the reports.

Audit Report Entity financial statements Project financial statements (PFS), including SOEs and SpeciaUdesignated account. The PFSs include sources and uses o f finds by category, by components and by financing source; SOE statements, Statement o f designated account, notes to financial statements. reconciliation statement

22. The accounting for the Project i s cash basis with additional information provided for commitments on signed contracts.

Due Date N a Within six months o f the end o f each fiscal year and also at the closing o f the Project

External Audit

23. The Project financial statements will be audited in accordance with terms o f reference acceptable to the Bank by a private sector audit firm acceptable to the Bank, and the audit report will be submitted to the Bank at the latest six months after the end o f the period audited. The annual cost o f the audits o f the Project will be covered by the Project funds. The Project financial statements are prepared on cash basis. Audits should be conducted in accordance with International Standards o f Auditing.

24. The following chart identifies the audit reports that will be required to be submitted by the Project implementation agency together with the due date for submission.

25. N o reliance will be placed on audits performed by State Audit Institution as it i s assessed that, although developing fairly rapidly, the institution s t i l l lacks sufficient capacity due to existing gap between human resources within the institution and broad scope o f work, as well as need for further ski l ls improvement.

Funds Flow and Disbursement Arrangements

26. Project funds will f low from: (i) the Bank - either as an advance, via a Designated Account to be opened in a commercial bank acceptable to the Bank, which will be replenished under transaction based disbursement method, and managed as described below in the section on disbursement arrangements, or by direct payment on the basis o f direct payment withdrawal applications; or (ii) the Government o f Montenegro.

27. The TSU will be administering the Designated Account. The TSU will prepare withdrawal applications for replenishment o f the Designated Account which ought to be signed by designated signatories and will include a Government official o f at least Assistant Minister level. Payments from the Designated Account are executed by the means o f payment orders. After al l the procedures with respect to flow o f documents, verifications and authorizations described in internal controls section are applied,

48

payment orders signed by designated signatories are submitted for payments from either the Designated Account or the Budget (for Government contribution) split in accordance with eligible percentages o f financing. In the case o f Direct Payment the application form for such method payment i s submitted to the Bank with the same authorized signatories as described above.

28. The Ceiling for this Designated Account will be defined in the disbursement letter. Documentation requirements for replenishment would fol low standard Bank procedures as described in Disbursement Handbook. Monthly bank statements o f the Designated Account, which have been reconciled, would accompany al l replenishment requests.

Supervision Plan

29. During Project implementation, the Bank will supervise the Project’s financial management arrangements in two main ways: (i) review the Project’s interim un-audited financial reports for each calendar quarter, as well as the Project’s and entity’s annual audited financial statements and auditor’s management letter; and (ii) perform on-site supervisions, review the Project’s financial management and disbursement arrangements to ensure compliance with the Bank’s minimum requirements. The on-site supervision will include monitoring o f agreed actions, review o f randomly selected transactions, review o f internal controls, and other specific supervision activities. Supervision will be performed by the Bank accredited Financial Management Specialist.

49

Annex 8: Procurement Arrangements

MONTENEGRO: Land Administration and Management Project

A. General

1. Procurement for the proposed Project would be carried out in accordance with the World Bank's "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004, Revised October 2006; and "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers'' dated May 2004, Revised October 2006 and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual Project implementation needs and improvements in institutional capacity.

2. A General Procurement Notice (GPN) will be published in the January 2009 issue o f Development Business announcing goods, consulting services to be procured, and inviting interested eligible suppliers and consultants to express interest and to request any complementary information from the Borrower. Specific Procurement Notices (SPN) will be published in the on-line edition o f the Development Business for all I C B contracts, and in the printed edition at the option o f the Borrower. For goods to be procured through I C B , individual bidding opportunities would also be advertised in a major local newspaper on the same (or within 5) day(s) o f the on-line publication. The local advertisements will be in the English language and, at the option o f the Borrower, will also be in the local language. For consultants' contracts above US$200,000, SPN/Request for Expression o f Interest will be advertised in on-line edition o f the Development Business and in at least one major national newspaper o f wide circulation (in the national and English languages). Civ i l servants are eligible be hired as individual consultants or as members o f a team with financing under the Loan provided they are on leave o f absence without pay and they have not been working for any o f the Beneficiary Agencies immediately prior to taking leave o f absence.

Procurement o f Goods

3. Goods procured under this Project would mainly be Information Technology, this would comprise o f off-the-shelf hardware and software as well as the design and development o f new systems. In addition to the main IT equipment various peripherals would be procured. Other goods may include furniture, small equipment (including office equipment), communication equipment, vehicles, training and printing material. All Goods procurement wil l be done using the Bank's SBD for all I C B agreed with the Bank. The Standard Bidding Documents for procurement o f Information Systems would be used for procurements o f all IT equipment estimated to cost over EUR75,OOO per contract. The Supply and Installation o f Information Systems - Single Stage Bidding document will be used. Major contracts for IT would also include the delivery o f incidental services such as installation, commissioning and training o f beneficiaries in their use and maintenance. Where appropriate large volumes o f IT equipment bought

50

“off-the-shelf” will be procured using the Harmonized Goods SBD. In addition, the sample procurement documents and forms developed in ECA Region for small value procurement would be adapted to suit the Project needs for procurement. Al l goods will be grouped, to the extent possible, to encourage competitive bidding. The following methods o f procurement would be followed:

International Competitive Bidding (ICB). Computer equipment and software under al l Components o f the Project for contracts above EUR75,OOO equivalent per contract will be procured using ICB. This will include: all major IT items, related technology and I T developments under all components, which will comprise both system development and procurement o f off-the-shelf items will be procured using ICB procedures in accordance with the Bank’s Procurement Guidelines. Bid documentation would be prepared in using the Bank Standard Bidding Document (SBD) for the Procurement o f Goods, dated May 2007, or if considered appropriate the Harmonized version. Procurement o f large value IT systems including the development o f software will be carried out using the specialized Standard Bidding Documents for Information Systems, single stage bidding;

Shopping (SH) procedure will be used for readily available off-the-shelf goods, training and publicity materials and for al l small volumes o f computers, software and peripherals under the Project. Al l items would have standard specifications, estimated to cost less EUR75,OOO equivalent per contract. This procedure will be based on obtaining and comparing price offers from at least three suppliers from at least two different countries in accordance with a paragraph 3.5 o f Procurement Guidelines. The regional sample format for shopping “Invitation to Quote” would be used.

(iii) Direct Contracting. Where certain goods are available only from a particular supplier or in cases where compatibility with existing equipment so requires goods may be procured under Direct Contracting (Single Source) have obtained prior approval from the Bank (in accordance with a paragraph. 3.6 o f the Procurement Guidelines).

(i)

(ii)

Procurement o f Works 4. Works procured under this Project would include: civil works for the READ offices to be renovated and/or newly constructed which will be selected according to the most pressing need, To the extent possible, contracts for these works will be grouped into bidding packages estimated to cost more than: EUR750,OOO equivalent and procured following International Competitive Bidding (ICB) procedures, using relevant Bank- issued Standard Bidding Documents for procurement o f works. Contracts for works which cannot be grouped into larger bidding packages and estimated to cost less than EUR750,OOO equivalent per contract may be procured using NCB procedures and bidding documents for procurement o f works satisfactory to the Bank4

NCB will be subject to the following conditions: a point system o f evaluation wi l l not be used; domestic preference wil l not be applied; international bidders wil l not be excluded from bidding; No bids wil l be rejected at the bid opening. A l l bids submitted on or before the deadline for submission o f bids wi l l be opened and read out at a public bid opening; local bidders shall demonstrate availability o f obtaining

51

Procurement o f non-consulting services

5. Non-consulting technical services, such as Survey and mapping, digitizing and other, should the need arise during Project implementation; will be procured following the above spelled arrangements for Procurement o f Works.

Selection o f Consultants

6. Consulting services from f i r m s and individuals required for the Project will include technical assistance to participating Entities and institutions, development o f communication activities, IT / IM strategy, studies, Project management, QA & QC, Public awareness campaign, improving legal framework, TA for reduction o f administrative barriers and regulatory impact assessment, etc. Short lists o f consultants for services estimated to cost less than EUR75,OOO equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines and with the prior agreement o f the Bank.

7. The following procurement procedures will be used for selection o f consultant services:

(i) Qualig and Cost Based Selection (QCBS) procedures, as described in Section 11, paras 2.1 to 2.31 o f the Consultant Guidelines will be used if necessary for assignment under al l Components o f the Project;

(ii) Least Cost Selection (LCS) procedure would be used for selection o f an auditor to carry out audit o f the Financial Statements o f the Project. The shortlist should comprise only f i r m s selected from the Bank l i s t o f eligible f i rms;

(iii) Selection under a Fixed Budget (FBS) may be used for assignments related to Public Relations (PR). In accordance with paragraph 3.5 o f the Consultants Guidelines the RFP shall indicate the maximum available budget and a firm will be selected that offers the best quality technical proposal within that available budget.

(iv) Selection Based on Consultants ’ Qualijkations (CQ) will be used for contracting f i r m s for certain assignments under all components o f the Project for which the value o f the assignments is estimated to cost less than EUR75,OOO equivalent per contract. Shortlists will be drawn up in response to an advertisement in the national press or Development Business.

(v) Individual Consultants (IC). Many specialized activities where specific sk i l ls are needed for short period o f time at scattered intervals and which would not be practical to package with the assignments for consulting f i r m s described above, would be best served through the recruitment o f individual consultants (both foreign and national) to assist in capacity building and institutional strengthening within all components o f the Project and to assist the P C U in various tasks. Selection o f individual consultants will be carried out in accordance with Section V o f the Consultant Guidelines. Individuals will be

securities and reasonable access to credit; bid evaluation criteria shall be pre-disclosed to bidders; and technical specifications shall be clearly written. These conditions shall be discussed at the negotiations and made part o f the Financing Agreement.

52

selected based on their qualifications for the assignment by comparing the CVs obtained in response to an advertisement in the national press or Development Business.

(vi) Sole Source (SS). Consultants may be hired under sole source contracts with the prior approval o f the Bank in accordance with paragraphs 3.9 to 3.13 o f the Consultants Guidelines and following the agreed Procurement Plan.

Training Activities

8. Training i s an integral element o f the Project’s capacity building objective. The Loan will finance training programs, including training workshops, study tours and local trainings. Such training programs might be included in larger TA contracts with f i r m s to reduce administrative burden on the Technical Support Unit (TSU). The PCU would be responsible for administration o f a limited number o f local workshops (including Project launch, mid term and completion workshops) and limited number o f study tours for the beneficiary. Expenditures related to such training activities include: (a) for local training and workshops - per diems o f participants to cover transportation, lodging and subsistence; organizational expenses (stationery, handouts, training materials, coffee breaks); (b) for international study tours - international travel and visa costs, per diems (lodging and subsistence) and course-related expenses (fixed tuition or participation fee).

9. The PCU would be expected to prepare and agree a training plan with the Bank every year. This Plan will define the agreed procedures that will be used for procurement o f various training services. The estimated budget, l i s t o f participants and draft agenda for each training event will be subject to Bank prior review, however, this may be done through the Annual Plan. Expenditure items for training activities, including study tours, would be reported under SOEs. The status o f the training plan would be included as part o f the quarterly progress reports, and would be updated and/or modified as may be mutually agreed between the coordination units and the Bank.

Operating Costs 10. Incremental operating costs incurred by the TSU and PCU for communications, local travel, consumables and office supplies would be financed under the Loan for the duration o f the Project. In addition, recurrent costs related to operating and maintenance o f equipment provided under the Project for the TSU and PCU including the day-to-day operational costs for office equipment and maintenance, consumables, will be also financed out o f the Loan.

B. Assessment o f the agency’s capacity to implement procurement 1 1. Public procurement in the country i s regulated by new public procurement law (PPL) enacted in July 2006, replacing the public procurement law o f 2001. The new law harmonizes Montenegro’s law with the EU directives on public procurement, and envisages the creation o f two separate public procurement entities: (i) a Public Procurement Administrative Authority (PPAA) in charge o f the administrative functions o f public procurement and, (ii) the Public Procurement Commission (PPC) which will continue to handle complaints. However, both agencies would require proper staffing, capacity building, and the strengthening o f their institutional infrastructure to enhance the Government capacity to conduct procurement.

53

12. In late 2006 Bank staff conducted a review o f the Fiduciary arrangements in the country scanning the legislative framework, procurement practices, institutional capacity and the risks for corruption. The report issued a series o f recommendations designed to strengthen the public procurement environment / capacity in the country5, including supplementary legislative regulations, improving procurement procedures and practices, and capacity building.

13. The Ministry and the READ are staffed with professionals from different areas capable to prepare different technical specifications. Also a consultants both local and international with different expertise wil l be hired if need i s to support and/or build capacity o f the Clients.

Implementing agency risk assessment

14. The implementing agencies would be responsible for Project implementation o f their relevant components as described in Annex 6.

15. Technical Services Unit (TSU) has been established within the Ministry o f Finance to support implementation o f al l World Bank financed projects. The TSU is responsible for the following functions: (i) procurement; (ii) financial management; and (iii) disbursement and auditing arrangements. The TSU will provide these services to the implementing entities o f the L A M P through a service agreement. The TSU i s housed within the Government o f Montenegro building. The TSU has relevant prior experience in procurement under the World Bank financed Projects in Montenegro and has established satisfactory procurement management arrangements for the ongoing Project.

16. Based on the TSU's relevant prior experience in procurement under the World Bank financed Project and knowledge to carry out and manage procurement in line with the Bank procurement procedures it determines that the overall risk for procurement i s Average.

17. It i s recommended that the procurement thresholds for procurement o f goods, works and consultancy contracts are set in accordance with the latest E C A regional thresholds. The review thresholds for the Project will be determined after the procurement plan i s prepared prior to loan negotiations. In addition to the prior review supervision to 'be carried out from Bank, it i s recommended one supervision mission per year visit the field to carry out post review o f procurement actions.

18. The TSU i s going to be staffed by key staff comprising, but not limited to, a TSU Manager/ Senior Procurement Specialist, Senior Financial Specialist, and an assistant.

Main recommendations are: (i) on supplementary regulations, (ii) rules and procedures, (iii) standard bidding documents, (iv) Establishment o f effective internal and external audits, strengthening relationship between public procurement institutions ( PPAA / PPC ) and other institutions like Internal Audit / State Audit Institution / Administrative Court / Commission for Preventing o f Conflict o f Interest / Agency for Anticorruption Initiatives.

5

54

The procurement function i s going to be staffed by a single Senior Procurement Officer assisted with an assistant.

The key issues and risks concerning procurement under the Project 19. The TSU will be responsible for implementation for up to eight projects financed by the WB, al l in at different stage o f implementation and, therefore a large volume o f procurement work i s envisaged. The TSU might have to hire an additional, fully qualified and experienced local procurement specialist, but may not be able to do it in a timely manner, and this presents an ongoing issue.

20. Tender committees also might delay procurement as their members do not have any procurement training. The following measures are envisaged to mitigate these risks: (a) providing basic procurement training to the member o f the committees, and (b) by requiring that the Ministry o f Economic Development and the Real Estate Administration Department provides the Bank with the qualification o f tender committee members and seek i t s approval. Furthermore, tender committee members could be required to sign a certificate that they would withdraw themselves from any procurement action should they determine any conflict o f interest.

21. Also, a further issue exists as to reflect the cross-sectoral integrated concept project, concerning management and coordination between the (2 1) Municipalities, Ministry o f Economic Development (MED) and the Real Estate Administration Department (READ).

Action plan for building agency’s capacity 22. In order to build-in and maintain strong procurement management capacity in the TSU, the Bank recommends the following actions:

In order to get better understanding o f the Bank’s new procurement and consultant guidelines, as well as the new bidding and proposal documents, the relevant staff involved in the procurement management process to attend appropriate trainings organized by relevant institution (e.g.: I L O in Turin), or by the Bank within the region.

The Bank will carry out a brief training session on procurement during the Project launch workshop, as well as wil l provide the agency with a full set o f the most recent guidelines, bidding, proposal and evaluation documents on C D and paper.

If needed, this assessment may be updated prior to loan negotiations and additional steps for building and maintaining the capacity assessment will be indicated.

Support and Control Aspects 23. The TSU i s subject to audit by independents external auditors.

Record Keeping 24. The procurement staff o f the TSU will have responsibility for maintaining procurement records. However, a procurement filing and control system has to be organized so as to address the Project needs. All documents on procurement will be maintained in the TSU which will have a logging system. The duration o f maintenance o f the documentation in the TSU will be at least five years. After completion o f this period,

0

0

55

all documents are to be sent to the Government archives. The TSU will maintain a computerized procurement database.

C. Procurement Plan 25. The Borrower, will at appraisal, develop a procurement plan for Project implementation which provides the basis for the procurement methods. This plan has been agreed between the Borrower and the Project Team on September 24, 2008 and is available at the TSU. I t will also be available in the Project database and in the Bank’s external website. The Procurement Plan will be updated in agreement with the Project Team, as a minimum, annually or as required to reflect the actual Project implementation needs and improvements in institutional capacity.

D. Frequency o f Procurement Supervision 26. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment o f the Implementing Agency has recommended once every six months supervision missions to visit the field to carry out post review o f procurement actions, and will include informal training.

27. The TSU will maintain complete procurement f i les which will be reviewed by Bank supervision missions. All procurement related documentation that requires Bank prior review will be cleared by Procurement Accredited Staff (PAS) and relevant technical staff. No packages above mandatory review thresholds by RPA are anticipated. Procurement information wil l be recorded by the TSU and submitted to the M O F and Bank as part o f the quarterly (FMRs) and annual progress reports. A simple management information system with a procurement module would be established to assist the TSU procurement specialist to monitor all procurement information.

1 2

E. Details o f the Procurement Arrangements Involving International Competition 1. Goods, Works, and Non Consulting Services (a) List o f contract packages to be procured following I C B and direct contracting:

3 4 5 6 7 8 I I I I I I

New building

RECkIeadquar terdOther Office furniture

Ref. No.

Contract (Description)

4 3 1 1 14 Estimat

ed cost (EUR w n i

Procuremen t

Method

P-Q

Single I No 1 Prior I 05/15/09 1

Domestic Review Expected Preference by Bank Bid-

(yeslno) (Prior I Opening Post) Date

Single

56

N o Prior 0211 5/09

A.2.2 IT-Software development 1,136 lST ICB Single N o Prior 0611 5/09

A.2.3

A.3.2 A.4.1

IT-Hardware & Communicatio n equipment Licenses Survey Work for Real Estate Cadastre Software development, incl. standard licenses Hardware and other equipment at central level Hardware and

software Communicat. infrastructure

Hardware and

software Cars, other

packaged

package

equipment

B.1.5

B.1.6

B.2.3

748 ICB Single No Prior 01/15/10

162 DC Single N o Prior 0 1/30/09

6,2 15 ICB Multi No Prior 04/04/10

309 lST ICB Single N o Prior 0611 0110

256 ICB Single N o Prior 02/05/ 10

215 ICB Single No Prior 0211 0110

Single No Prior 0211 011 0

215 ICB Single No Prior 0211 011 0

ICB Single N o Prior 021 1 01 1 0

82 ICB

203

B.2.5

B.3.1

B.3.3

1 2 3 4 5 6

2. Consulting Services (a) List o f consulting assignments with a short-list o f international f i r m s :

A.2.1 Post) Date

IT-Strategy development 183 QCBS Prior 01/30/09

Ref. No.

A.2.4

Description o f Estimated Selection Review I Cost 1 Method ~ by Bank (EUR ‘000) (Prior /

Assignment

TA in project 205 QCBS Prior 0811 5/09 management, QA & QC,

Expected Proposals

Submission

B . l . l 1 Preparation ofplanning 1 204 1 QCBS Prior I 02/15/09

B. 1.4

B.2.2

standards and manuals I T Strategy Dev., Initial phase study, user 184 QCBS Prior requirements, Data Model. Dev, tech specs. for Urban Planning Management System and Urban Planning Geoportal Public Awareness

02/30/09

57

B.2.4

B.3.2

C.13

PROCUREMENT PLAN I. GENERAL 1. Agreed Date o f the procurement Plan

Original: September 24, 2008

Date o f General Procurement Notice: January 2009 2.

Campaign for planning 311 QCBS Prior 0310 111 0 and permitting Training and workshops 104 QCBS Prior 0 1 I3011 0

Training and workshops 155 QCBS Prior 0313 01 1 0

Audit 41 LCS Prior 0511 5/09

11. Goods and Works and non consulting services.

Procurement Method l l Prior Review Threshold: Procurement Decisions subject to Prior Review by Bank as stated in Appendix 1 to the Guidelines for Procurement:

Prior Review Threshold in EUR

I 1. 2.

3.

4.

5.

Comments

I C B for Goods > 75,000 All subject to Prior Review

I C B for Works / All subject to Prior Review Technical services

Shopping (Goods) < 75,000 First 2 Goods contracts subject to prior review

N C B for works / First 2 Works + 2 Technical services contracts Technical services subject to prior review

Direct Contracting* All subject to Prior Review

> 750,000

< 750,000

111. Selection o f Consultants Prior Review Threshold: Selection Decisions subject to Prior Review by Bank as stated in Appendix 1 to the Guidelines Selection and Employment o f Consultants:

58

1.

2.

3.

Selection Method Prior Review Comments Threshold in EUR

> 75,000

Any amount

> 35,000

Competitive Methods (Firms) QCBS

Competitive Methods (Firms) LCS

Al l subject to prior review

First contract subject to prior review

Al l subject to prior review Competitive Methods (Firms) CQ

* al l Contracts subject to justification

4.

5.

6.

7.

8.

Short list comprising entirely o f national consultants: Short list o f consultants for services, estimated to cost less than EUR75,OOO equivalent per contract, may comprise entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines.

Any Other Special Selection Arrangements: None

IV. Other Ex-Post Review: Al l other contracts below Bank’s prior review threshold are subject to Bank’s selective ex-post review. Periodic ex-post review by Bank will be undertaken during regular supervision missions. Procurement documents, such as bidding documents, bids, bid evaluation reports and correspondence related to bids and contracts will be kept readily available for Bank’s ex-post review during supervision missions or at any other points in time.

Competitive Methods (Firms) CQ

Individual Consultants (IC) > 35,000 Al l subject to prior review

Individual Consultants (IC)

Single Source (Firms and Individuals)*

TORS for Consulting Contracts

<35,000 First 2 contracts subject to prior review

3 5,000 First 2 contracts subject to prior review

Al l subject to prior review

All methodshalues Al l subject to prior review

59

Annex 9: Economic and Financial Analysis MONTENEGRO: Land Administration and Management Project

A. Project Overview

1. Project Objective: The Project objective i s to improve the efficiency o f permitting and property registration in Montenegro. This would help further develop the property market in the country, unleash economic benefits and elevate the living standards o f Montenegrins by raising their incomes. The estimated Project cost i s €22.49 million, which will be shared evenly by the Government and the World Bank. The innovative Project design involves two distinct but highly complementary technical components, namely:

Component A: Real Estate Registration (approximately 71%) Component B: Improving Planning and Permitting (approximately 24%)

The remaining costs are associated with project management under Component C.

2. Benefits and Beneficiaries: Project beneficiaries will consist o f three entities: (a) the public - including the business community, (b) local government at municipal level, and (c) central government - including the departments responsible for planning and registration. Expected benefits will accrue from (a) increases in property market activity, including considerations o f property value and the impact o f increased numbers o f transactions o f al l types, (b) simplification and increasing efficiency o f urban planning and the improvement o f construction permitting and monitoring, and (c) increase in revenue to the government and to municipalities that arise from the improvements listed above.

3. It i s expected that Component A (Real Estate Administration), which i s planned to address the issues o f expanding REC coverage and service improvement, will be the principal driving force toward the generation o f Project impact, while Components B (Planning and Permitting) add significant synergy to the process by contributing toward these Project benefits. Component A i s anticipated to directly and indirectly generate a major part o f the Project benefits by increasing the property market activity, Component B will induce increased investments at the local level, which will therefore help amplify and consolidate these Project benefits.

4. B y the end o f the Project i t i s expected that, through the assistance provided under Component A: (a) the public and any investors will be able to have on-line access to information about a property and the rights over that property; (b) services wil l be provided rapidly and on-line applications for transactions will be able to be made; (c) up to date general maps and cadastre maps and records will be available to municipalities via the internet; and (d) requests for new general maps and cadastre maps will be answered expeditiously. This will, in turn, provide the background information needed for the municipalities and MED to fulfill their mandates to provide urban and other plans, provide building permits and complete inspections efficiently. The regulatory simplification under Components B will have positive impacts on competitiveness o f

60

Montenegrin enterprises, employment opportunities generation, the labour market and, eventually, government revenues.

5. Principal Quantifiable Performance Indicators: Major performance indicators o f the Project consist o f the following broad categories: . . . Increase in real estate transfer tax and property tax receipts

Increase in private investment in building construction (no. and amount) Increase in annual FDI flows Decrease o f the regulatory compliance costs expressed in management time spent on dealing with the administrative requirements.

B. The Medium Term Program and LAMP

6. The key strategy o f Component A will be to support the existing Medium Term Program (MTP) which has been elaborated by the Real Estate Administration Department (READ) and adopted by the Government in 2007. The 5-year M T P covers from 2008 through 2013 and includes activities to complete the REC in selected sites for a total o f 253,000 ha. Currently, approximately 51% o f the country enjoys REC coverage. This includes 90% o f the urban and coastal areas, leaving the remaining hal f o f the country without REC for the rural and non-coastal areas, where economic development i s a priority. According to M T P estimates, the cost o f completing the REC i s very high, at about €85 per hectare. These costs could be reduced through changing the methodology and experience in other countries has shown that increased use o f the private sector and international tendering can substantially reduce costs and the time for completion of REC work. Such a cost reduction, when it materializes, would clearly represent an additional economic benefit.

7 . According to MTP, the 2008 work program for READ includes establishing REC in Niksic, Cetinje and Podgorica municipalities. With LAMP funding and assistance, over the next five years, READ will complete at least 100,000 hectares o f REC in Zabljak, Plav and Biogradski Gora Park using international tender. Part o f this target area overlaps with the planned area under MTP, while part o f it involves new and additional areas. REC creation for areas not covered via L A M P will be covered by government funding in the MTP. It i s expected that the lessons learned and any improved methodologies can be applied to those other sites also and result in cost savings to the country.

8. Montenegro measures 13,692 square kilometers, corresponding to 1.47 million land parcels and 304,000 land tit les (below table). The country has '795 cadastral municipalities. It i s expected that the Project's REC interventions will involve 45 cadastral municipalities and some 55,000 parcels (below table).

61

Cadastral Municipalities, Land Deeds and Parcels in Montenegro

Selected Municipalities

Bijelo Polje

Number of Number land deeds of parcels

Number of cadastral surface

municipalities (km’) 66 925 21,300 121,951

- Cetinje 36 900 12,663 82,336 KolaSin 38 905 8,084 59,298 NikSiC 91 2,084 27,609 130,65 1 Pl j evlja 55 1,348 16,27 1 116,013 Podgorica 82 1,394 48,422 179,690 COUNTRY TOTAL 795 13,692 304,085 1,467,488

- Cetinje 36 900 12,663 82,336 KolaSin 38 905 8,084 59,298 NikSiC 91 2,084 27,609 130,65 1 Pl j evlja 55 1,348 16,27 1 116,013 Podgorica 82 1,394 48,422 179,690 COUNTRY TOTAL 795 13,692 304,085 1,467,488

Establishment of Real Estate Cadastre on Unsurveved Areas

C. The Real Estate Market in Montenegro

9. The real estate market has been growing steadily. Following an unprecedented and spectacular boom in 2007, the value o f the real estate market (defined as the sum total of all sales) has exceeded the €2 bi l l ion threshold (please see below table), corresponding to some 315% o f central government budget and some 90% o f the GDP, which was estimated at €2.278 billion at the end o f 2007. In terms o f the number o f transactions, the market grew at an annual average rate o f 13% over the last 8 years. Whether such growth can be sustained remains to be seen. I t i s likely that there may be a slow down in growth as o f 2008. The instantaneous exponential growth schedule fitted to the READ data has the functional form of:

0.1289t N(t) = 5.056

with an acceptable coefficient o f determination o f 74%, indicating that, under existing trends, at the end o f the Project implementation period in 2013, property sales would reach 35,000 units starting from a baseline o f some 18,000 in 2007.

62

Property Transfer T a x Collections (Transaction T a x or Turnover Tax) in Euros

Year

Property Transaction Tax Revenue Number Average Government Market as

Sale Value Budget Percent of Value of

Market) (50% of Tax Sales

Transactions Transaction Total Transaction Allocated to of (Real Estate Tax Rate Tax Raised Municipal Recorded of Property (State Budget) Government

Budget Revenue)

2003 2004 2005 2006 2007

329,991,662 2% 6,599,833 3,299,917 8,890 37,119 293,126,325 113% 192,079,042 2% 3,841,581 1,920,790 7,681 25,007 337,513,046 57% 256,743,891 2% 5,134,878 2,567,439 8,136 31,557 394,767,976 65% 725,665,851 2% 14,513,317 7,256,659 12,786 56,755 499,381,749 145%

2,059,000,000 2% 41,180,000 20,590,000 17,972 114,567 653,612,045 31 5%

Source: Ministry o f Finance and Central Bank - various reports

2003 2004 2005 2006 12% 21% 35% 53%

Average Property Value

140,000

1 20,000

1 00 ,000 80,000

60,000 40,000

20,000

I 2002 2003 2004 2005 2006 2007 2008

2007 52% (estimate)

-+-Property Market

10. Foreign Direct Investments: Central Bank records show that Montenegro received some €644 mi l l ion in Foreign Direct Investment (FDI) in 2006. This i s a phenomenal figure for a country whose GDP i s about €2.2 billion. A good part o f this FDI, amounting to €338 mi l l ion or some 53%, was invested in real estate. The incoming FDI in 2007 during the f i rst 6 months was €494 million. I t i s estimated some €255 mi l l ion were invested in real estate. The real estate that i s at stake here constitutes the prime property market. The FDI inflows have had a major impact on the very steep increases in property prices in recent years. Only in 2006, property prices more than doubled. The share o f real estate in FDI by years i s shown in the table below:

Share o f Real Estate in FDI

63

11. Official data from READ reveal that properties under foreign ownership constitute 1.39% o f the country’s total area o f 13,692 square kilometers corresponding to some 19,200 hectares. In terms o f condominium ownership, foreign entities possess 8.5% o f the floor area measuring some 1,529,000 square meters. Serbs hold 85% o f the foreign owned land, and 72% o f the condominiums. The remaining foreign-owned properties are owned by persons and companies from many countries but with a visible prominence o f those from the Balkans.

D. T h e Methodological Approach

12. K e y Analytical Tools: I t i s expected that interventions planned and funded under Components A, B and C above will help attract further FDI and help raise incomes for the Montenegrins. In addition to improved registration services and extended REC, municipal level interventions, such as improved planning and permitting and compliance with spatial plans, as well as improvements in the business environment, are expected to expand the availability o f landed property and help attract further foreign investment and other land-based investments. A common feature o f all o f these changes i s that they will al l stimulate increased activity in the property market which would be manifest in terms o f increased number o f transactions and induced growth rates for properties transacted and mortgages undertaken. Due to the practical difficulties involved in making a comprehensive economic model application, the proposed method deals with a sub-set o f the potential Project benefits, albeit, trying to capture the most important ones. The below economic analysis i s hence premised on the expected dynamics and developments in the property markets only.

13. Economic Repercussions o f Property Transactions: The incremental market growth (measured as the difference between the with- and without-the-Project scenarios) i s driven by property transactions which occur as a consequence o f people buying, selling or mortgaging property in the economy. This incremental market growth i s somewhat reminiscent o f the inter-industrial transactions which i s a concept used in the so-called input-output model (1-0 model), a macro economic tool invented by Leontief. An 1-0 model i s an accounting o f inter-industrial transactions and helps us determine the magnitude and value o f linkages that economic actors (individuals, f i r m s and banks) have with the remainder o f the economy. B y looking at these linkages, one can discern the value o f occupations and economic actors as they work their way through the remainder o f the economy. Practical applications o f the 1-0 model have shown that the magnitude o f the inter-sectoral transactions may be as high as 20 times the eventual value o f the GNP. Therefore, the property transactions, being a part o f the macro-economic stream, are likewise assumed to embody some value added (incremental GNP) or additional income for the people. I t i s therefore possible to make income-related inferences by working backwards from the total value o f monetary transactions. In this process we are making inferences on the additional income that accrues to the economy and hence attempting to capture the magnitude o f the value-added (income or benefit) in order to perform a cost-benefit comparison with the amount o f the investment (cost) funds committed to the Project.

64

14. In more specific and concrete terms, as a result o f increasing the number o f sales and mortgages, the Project will stimulate economic activity and help generate incremental income. The incremental income (benefit) that will be generated as a result o f increased sales and mortgages will involve several economic sectors and will be due to but not limited to the following:

Number o f Registered Sales Assumed Growth Rate - Number

Average Value o f a Property in Base Year

Fees for service organizations such as realtors and assessors, Capital gains accessed by sellers o f property, Renovations and repairs performed by new owners o f property, Profits earned by users o f formal mortgage backed commercial loans, and

0 Profits earned by Banking system as a result o f extending mortgage services.

Number 17,972 19,800 Percent 7% 8%

€ 114,567 114,567

15. The Types of Analysis Undertaken: The economic and financial analysis contained in this Annex has three parts: (a) economic analysis - targeting on the gains o f the general public or ordinary people, (b) financial analysis - looking into how the READ and municipal budgets and finances would be impacted, and finally, (c) fiscal impact - investigating the anticipated impact on the collection and allocation o f public revenues resulting incrementally from implementing the proposed Project. The economic analysis offers an economic rate o f return on the investments package o f €22.49 million. Fiscal and financial analyses offer monetary estimates o f expected gains.

16. At the expense o f being repetitive, i t i s useful to reiterate that this economic analysis i s based upon expected changes in two key parameters for the proposed Montenegro LAMP, namely, sales and mortgages. The analysis hence relies heavily on the changes occurring in these key parameters using actual baseline levels and assumed growth rates, as shown below for the with- and without-the-Project scenarios. To enable the construction o f a workable economic model, supplementary assumptions were also added. The entire set o f assumptions used in the analysis i s summarized in the table below.

Montenegro LAMP - Economic Analvsis - Assumr>tions

Assumed Growth Rate - Value

65

Assumed Growth Rate - Value o f Property Percent 5 yo 6%

Note: 2003 census showed that there were 410 dwellings per 1000 persons, or 0.41 dwellings per person. The population of Montenegro i s 650,000. Hence, number o f properties i s 650,000 * 0.41 = 266,000. Mortgages comprise both residential mortgages and home equity loans to businesses.

Number o f Properties in Base Year (*) Annual Growth in the Number o f

Net Benefits as % o f Incremental Value Properties

o f Sales and Mortgages

17. These assumptions clearly represent a very conservative view o f the potential incremental Project benefits, because we assume that the net benefits will amount to only one percent o f the incremental value o f sales and mortgages resulting from the underlying transactions. This i s an exceedingly conservative estimate and hence imparts an indicative character to the analysis.

Property 266,000 266,000

Percent 1 Yo 1 Yo

Percent N /A 1 Yo

E. Results and Conclusions

Opportunity Cost o f Capital

Proiect Investment Costs

18. Economic Rate of Return: The baseline for the average value o f a mortgage i s €91,000 and the average value o f a property i s €1 14,500. The number o f transactions for mortgages and sales in the base year i s 3,000 and 18,000, respectively. It i s believed that a small fraction o f the mortgages are residential mortgages, while the rest are for mortgage-backed loans for commercial purposes. The assumed planning horizon for the analysis i s 10 years, five o f which will be spent for implementation, while the remaining five years are under the so-called operational period. The assumed opportunity cost o f capital i s 12%. What drives the economic analysis in the above economic model i s the 1 percentage point difference between with and without Project growth rates for sales and mortgages.

Percent N/A 12%

Million 0 22.49 e

19. Projections from this conservative economic analysis indicate that the combined incremental value o f mortgages and sales would be around €407 mi l l ion in the final Project year (year 5), and they would reach about €1.514 bi l l ion at the end o f the 10th year. Likewise. At the end o f the 10th year, the incremental number o f sales would be about 3,500 properties and the incremental number o f mortgages would be 500. Assuming that only 1 % o f the value o f incremental transactions from sales and mortgages would represent real and disposable income, the Project would yield an ERR o f 24% and

Project Implementation Period Project Operational Period (*) Excludes land

66

Years N/A 5 Years N/A 5

C/B ratio o f 1.55 for an anticipated incremental investment o f €22.49 million. If one were to quantify al l the economic benefits, the Project’s ERR would far exceed the 24% initial estimate. The following table contains the summary the economic analysis. The attached table contains the details.

Parameter Internal Rate o f Return

Net Present Value Net Present Value o f Benefits Ne t Present Value o f Investment Costs Cost-Benefit Ratio

Opportunity Cost o f Capital

Summary Economic Analysis

Unit Symbol Level Percent IRR 24% Percent OCC 12% € M NPV 9.27 € M NPV(B) 25.97 € M NPV(C) 16.71 € M CfE3 1.55

20. Financial and Fiscal Analysis: The transaction tax i s the most important element that would generate the fiscal returns. Transaction tax i s collected on sales at a rate o f 3% (raised to 3% from 2% in March 2008) o f the value o f the property value. Ha l f o f the revenue goes to the municipalities, while hal f i s kept by the central government. It i s expected that the incremental transaction tax revenue would amount to €1 07 mi l l ion over the next 10 years. Meanwhile, the municipal courts will earn incremental income o f €13.7 million. READ’S own incremental income from sales only would be about €3.5 million, not counting the cost savings afforded in REC creation under World Bank assistance. Overall, the incremental fiscal revenue expected would be around €1 78 million, o f which €51.5 mi l l ion would go to the central government and €126.5 mi l l ion will go to the municipalities. The attached table contains the details.

67

Annex 10: Safeguard Policy Issues MONTENEGRO: Land Administration and Management Project

1. The Montenegro Land Administration and Management Project seeks to improve the efficiency o f permitting and property registration throughout the country. The beneficiaries o f the investment will be: (a) the public living within the municipalities as more order i s brought to the built environment; and (b) the business community as more transparent and efficient processes are facilitated. The level o f informal development should be drastically reduced, such that unsustainable and unattractive developments are curtailed and national parks and other protected areas are not encroached, yet the business community and the private citizen will be able to develop their own assets with greater ease and security. By the end o f the Project it should be possible for the public to easily access information about the processes required to develop a business or property and to have access to the legal situation concerning a property, and the zone plans and the forms and procedures for applying to develop a property.

2. The following annex provides information as to the Safeguards Policies triggered by the Project, the measures to be taken to address the risks, and procedures for ensuring those measures are achieved during Project implementation. As indicated below, the Project has been designed to promote sound environmental management and mitigate potentially negative effects arising from Project activities.

Environment (OP/BP 4.01)

3. The Project i s classified as Category B, requiring partial Environmental Analysis, but not a full-scale Environmental Assessment. An environmental analysis (EA) which was carried out as part o f the project preparation activities to identify potential direct and indirect environmental impacts associated with the project, found that potential adverse environmental impacts o f the project are minor to negligible. In cases where the negative environmental impacts are identified adequate mitigation measures have been proposed. There are no significant, long-lasting and irreversible negative impacts associated with the project execution and implementation.

4. The project component and sub-component that could have negative impacts (if not mitigated) i s Component A, sub-component A 1 - Real Estate Administration, Improvement o f the Registration Services at the READ offices.

5. Contracts for c iv i l works under the project will be subject to screening for environmental impacts by the responsible environmental entity. In case that i t i s found applicable, the full EIA and permitting procedure according to national legislation will be observed. Additionally, prior to start o f the design work, the Environmental Management Plan and Check-List (EMP) will be prepared and completed for each site location (READ office) to ensure adherence to key- elements to meet the World Bank Environmental Assessment requirements under OP 4.01, The EMPs and check-lists will be subject to Bank’s approval prior to start o f any construction activity. All bidding documents and contracts for c iv i l engineering works will include measures to minimize or mitigate environmental damage. Standard operating procedures and good engineering practice will include measures applying to construction activities in general and in

70

particular to control dust, noise, vibrations and other physical factors, traffic at and around the construction sites as well as measures for construction waste and debris management and disposal.

6. Monitoring compliance in accordance with findings o f this Report and requirements o f EMPs, including progress monitoring on EMP’s implementation will be undertaken by READ at least twice per year. The environmental monitoring and supervision reports will be prepared twice per year. Those will be submitted to the World Bank for the review and endorsement by the Bank’s environmental specialist.

7. The Project will not support land acquisition and associated involuntary resettlement.

8. The Project will support the completion o f the real estate cadastre and local spatial and urban plans, as well as improvements to the legal framework and improved IT systems. Environmental protection will benefit from this general framework and the improved information technology systems by making data more readily available to other constituencies, e.g., to the forestry management agency, other government ministries and NGOs.

9. O n balance, the proposed Project i s expected to be positive from an environmental standpoint. Improvements to the cadastre records and improved ownership registration, and policy changes would induce a series o f behavioral changes among property owners would be environmentally positive. Any adverse impacts, such as intensive use o f agriculture input and increase in development would be more than adequately compensated by the environmental benefits generated by the Project.

Involuntary Resettlement (OP/BP 4.12) 10. The Project will be providing only technical assistance (TA) and capacity building for planning, and this TA/ capacity building i s not directly linked to preparation o f any specific future investments. Therefore it was determined that - in accordance with the usual practice for projects which provide TA - OP4.12 i s not triggered by this project, and no Resettlement Policy framework i s required.

11. The Legal Agreement will include the provision that the location o f any new office for READ and i t s construction will not require land acquisition or resettlement.

71

Annex 11: Project Preparation and Supervision MONTENEGRO: Land Administration and Management Project

Planned Actual PCN review September 2007 September 6,2007 Initial PID to PIC September 7,2007 Initial I S D S to PIC September 12,2007 Appraisal March 2008 March 10-14,2008 Negotiations July 2008 September 24,2008 BoardRVP approval September 2008 December 9,2008 Planned date o f effectiveness Planned date o f mid-term review Planned closing date

January 2008 June 201 1

December 20 1 3

Key institutions responsible for preparation o f the Project: Ministry o f Economic Development. Real Estate Administration Department.

PROJECT TEAM

Bank staff and consultants who worked on the Project included:

Name Title Unit Gavin Adlington Task Team Leader ECSSD Victoria Stanley Operations Officer ECSSD Irina Astrakhan Senior Private Sector ECSPF

Paula Ly t le Senior Social Development ECSSD

Domonique Bichara Country Lawyer LEGEM Nikola Kerleta Procurement Analyst ECSPS Aleksandar Crnomarkovic Financial Management ECSPS

Nikola I l l e Senior Rural development ECSSD

Angelo D’Urso Planning Consultant Tony Lamb Registration and Legal

Rumyana Tontchovska ICT Consultant Slaven Scepanovic Suha Satana Economic and Financial

Development Specialist

Specialist

Specialist

Specialist

Consultant

Planning and Legal Consultant

Consultant

72

Bank funds expended to date on Project preparation: 1. Bank resources: $25 1,415 2. Trust funds: $0 3. Total: $251,415

Estimated Approval and Supervision costs: 12. Remaining costs to approval: 13. Estimated annual supervision cost:

$40,000 $1 00,000

73

1.

2.

3.

4.

5.

6.

7.

8.

Annex 12: Documents in the Project File MONTENEGRO: Land Administration and Management Project

Medium Term Program, 2008 to 201 3. Real Estate Administration Department, Ministry o f Finance.

Legal and Institutional Assessment. Lamb and Scepanovic.

Situation Analysis for Montenegro Cadastre and Planning Issues. D’Urso.

Physical Plan o f the Republic o f Montenegro. Government o f Montenegro.

Elimination o f Barriers for the Development o f Entrepreneurship in Montenegro. Government o f Montenegro.

Improving the Business Environment. Focus on the Tourism Industry. Draft. FIAS.

Aide Memoires with detailed Annexes: July and October 2007, January and March 2008.

Description o f GTZ and UNDP assistance in Land Administration and Management. D’Urso.

74

Annex 13: Statement of Loans and Credits MONTENEGRO: Land Administration and Management Project

Original Amount in US$ Millions

Difference between expected and actual

disbursements

Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d

P I 06899 2008 ECSEE APL #3 - MONTENEGRO 0.00 9.00 0.00 0.00 0.00 7.71 -0.39 0.00 PO93461 2007 SUST TOURISM DEVT 0.00 10.00 0.00 0.00 0.00 1.08 -5.67 -7.55 PO84597 2005 EDUC Reform Project 0.00 5.00 0.00 0.00 0.00 0.46 -0.14 0.00 PO791 16 2004 SOLID WASTE (MESTAP) 0.00 7.00 0.00 0.00 0.00 5.47 4.58 0.00 PO82223 2004 HEALTH SYSTEM 0.00 7.00 0.00 0.00 0.00 0.94 0.35 -1.58 PO87470 2004 PENSION ADMlN 0.00 5.00 0.00 0.00 0.00 3.32 2.96 0.00

Total: 0.00 43.00 0.00 0.00 0.00 18.98 1.69 - 9.13

MONTENEGRO STATEMENT OF IFC’s

Held and Disbursed Portfolio In Millions o f US Dollars

Committed Disbursed

IFC I F C

FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic.

Total portfolio: 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic

Total pending commitment: 0.00 0.00 0.00 0.00

75

Annex 14: Country at a Glance

MONTENEGRO: Land Administration and Management Project

POVERM and SOCIAL

2007 Population, mibyear (mllions) GNi percadtafAUasmethw! US$) GNI ( A h method. US$ UllonsJ Averaae annual arowth. 2 001 0 7

Population (%I L a b force Ph) Most recert estimate Oat& year available, 2001-07)

Montenegro

POvertV f?h OfpolxlatDn bebw Mbmd Doverlv IneJ Uban populahon ph offofdppl lafon) Lfe e x c e c t ~ v a k n h (vearsl lnfarl mda l tv (pew 1 Oa, ive htthsJ Childmalnutntran (% dch lben under5) Accesstoaninpmvedwatersource(% ofpoplabon) Lteracvf% o f w u ' a b m aaa 15+1 Gross Cfii7laN enmlmem (% 0 f S C h w l - W WulebmJ

W e Female

KEYECONOMIC RATlOSandLONG-TERM T E M S 1987

GDP (US'$ bll!a?sJ Gross capla formaudGCP E x ~ o ~ ~ d a ~ a s ~ servres/GW Gross aomestic savinaslGDP Gross Mtmal savlngdGDP

Currentacmunt WancdGDP Interest paynents/GDP Tdd debVGDP T d d debt servicdextorts Presentvalued debffGDP Presentvalued debffexprts

1907-97 199707 (average annual g row) GDP .. 2.2 GDP Per capita .. 3.4 Expalsofgocds and services

0.w 5.180

3.1

-1.7

61 74 9 2

96

I 997

2006

8.6 9.9

Eurape 8 Central

Asia

445 6.052 2.694

0.0 0.5

64 69 23

95 97 97 98 96

2006 2.7

29.2 44.1 -1.1 4.8

-25.1 0.4

34.3 0.8

34.2 56.8

2007

7.5 7.6

UPPr- mldde- income

823 6.987 5.750

0.7 1.3

75 71 22

95 93 Ill 112 109

2007

3.6 29.2 41.6 -0.4 7.9

-7.4

2007-11

6.0

~ Development diamond*

Life expdancy i

GNI Per capita

Gross W primary

en m i men t

~

L

i Accesstoirrpmvedwaters~urce

I - Montenegm Upper-rnddlwnmme grwp

I Economic mtlos.

I Indebtedness

- Mmfenegm Uppe r-mdfls income gm up I

STRUCTUFE d the ECONOMY

(% d G P ) Aa nculture Industry

Services

Hwsehdd 6nd consumpion expenditure Ge nerd aov't f n d COMU mtron expen dture lmwrts of wcds and sewices

Man ufact un ng

(average annual wMhJ Aa nculture Industry

Man ufact un ng SeNlCeS

Househdd 6nd consumdion expenditure General aov'tfnal consumtrmexpendture Gross capld fwmatim lmpwts of goods and sewices

1987-97 1997-07

2006

10.0 17.6 12.6 72.4

82.9 18.2 74.4

2006

IOrowthofcapItal and GDP (Oh)

" kG2 OIOCFM 05 C6 84.1 16.3 - 71.2

-GDP

20 07

Note 2007data areprdimnalyestrnates Thistablewas produced from the Ceveloprnent Economcs LDB database "Thed iamdsshowfwr key irdcators tnthecwntrvfin bdd) compared wth tsnc~meumupaveraae lfdata are mssina the diarnmdwll

be nccmdete

76

MAP SECTION

KapaKapaMorackaMoracka(2227 m)(2227 m)

KomoviKomovi(2656 m)(2656 m)

BiocBioc(2396 m)(2396 m)

LjubisnjaLjubisnja(2238 m)(2238 m)

Sandzak

Durmitor

Sinjajevina

Cijevna

Zeta

Mor

aca

Tara

Cehotina

SvetiSvetiStefanStefanBudvaBudva

Radovi´ciRadovi´ci

Stari BarStari Bar

PlavnicaPlavnica

CetinjeCetinje

KotorKotorTivatTivat

PerastPerast

CrkviceCrkvice

GrahovoGrahovo

BajovoBajovoPoljePolje

RudiniceRudinice

GradacGradacPljevljaPljevlja

Bijelo PoljeBijelo Polje

GoranskoGoransko

VelimljeVelimlje

VilusiVilusi

RisanRisanHerceg-Herceg-NoviNovi

TuziTuzi

MedurijecjeMedurijecjev

ZabljakZabljakv

TomasevoTomasevov

RozajeRozajev

IvangradIvangrad

PlavPlav

GusinjeGusinje

AndrijevicaAndrijevica

MurinoMurino

MojkovacMojkovac

vKolasinKolasin

vMatesevoMatesevo

Lijeva RijekaLijeva Rijeka

PelevPelev

GvozdGvozd

MorakovoMorakovo

DanilovgradDanilovgrad

vBioceBiocevSpuzSpuz

SavnikSavnik˘

NiksicNiksicv ‘PetroviPetrovici

DurdevicaDurdevicaTaraTara

´

PODGORICAPODGORICA

Shkodër

Ulcinj

Sveti Nikola

Bar

Petrovac

SvetiStefanBudva

Radovi´ci

Stari Bar

Plavnica

Cetinje

KotorTivat

Perast

Crkvice

Grahovo

BajovoPolje

Rudinice

GradacPljevlja

Bijelo Polje

Goransko

Velimlje

Vilusi

RisanHerceg-Novi

Tuzi

Virpazar

Medurijecjev

Zabljakv

Tomasevov

Rozajev

Ivangrad

Plav

Gusinje

Andrijevica

Murino

Mojkovac

vKolasin

vMatesevo

Lijeva Rijeka

Pelev

Gvozd

Morakovo

Danilovgrad

vBiocevSpuz

Savnik˘

Niksicv ‘Petrovici

DurdevicaTara

´

PODGORICA

BOSNIA ANDHERZEGOVINA

SERBIA

ALBANIA

Cijevna

Zeta

Mor

aca

Tara

Zeta

Komarinca

Cehotina

Drin

a

Boja

na

- Buna

LakeScutariAdriat ic

Sea

To Foca

To Foca

To Mostar

To Dubrovnik

To Dubrovnik

To Tirane

To Kukes

To Dakovica

To Vucitrn

To Priboj

To Priboj

Sandzak

Durmitor

Sinjajevina

KapaMoracka(2227 m)

Komovi(2656 m)

Bioc(2396 m)

Ljubisnja(2238 m)

19°E

19°E

20°E

42°N

43°N

MONTENEGRO

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

0 105 15

0 105 15 20 Miles

20 Kilometers

IBRD 34825

JULY 2006

MONTENEGROSELECTED CITIES AND TOWNS

NATIONAL CAPITAL

RIVERS

MAIN HIGHWAYS

MAIN ROADS

RAILROADS

OPSTINA (MUNICIPALITY) BOUNDARIES

INTERNATIONAL BOUNDARIES