Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 52392 - XK

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 4.3 MILLION Public Disclosure Authorized (US$6.74 MILLION EQUIVALENT)

AND

A PROPOSED GRANT

IN THE AMOUNT OF SDR 3.5 MILLION (US$5.5 1 MILLION EQUIVALENT)

TO THE

REPUBLIC OF KOSOVO Public Disclosure Authorized FOR A

REAL ESTATE CADASTRE AND REGISTRATION PROJECT (RECAP)

December 22,2009

Sustainable Development Department Europe and Central Asia Region Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS

(Exchange Rate Effective September 30,2009)

Currency Unit = USD SDRl = US$1.58437 US$l.OO = SDR0.6311

FISCAL YEAR January 1 - December 31

ABBREVIATIONS AND ACRONYMS

BCC Building Cadastre Construction BETA Business Environment Technical Assistance BP Business Plan CBAK Central Bank Authority of Kosovo CORN Continuous Operating Reference Network CPO Commitment and Payment Orders CR Cadastre Reconstruction DffD United Kingdom Department for International Development EA Environmental Assessment EMP Environment Management Plan EU European Union EULEX European Union Rule of Law Mission in Kosovo GOK Government of Kosovo GTZ German Technical Assistance Agency HPCC Housing and Property Claims Commission HPD Housing and Properties Directorate IBRD International Bank for Reconstruction and Development ICB International Competitive Bidding IDA International Development Association IFRs Interim Financial Report IFS Interim Financial Statement IMC Inter-Ministerial Land Administration Committee IMF International Monetary Fund INSPIRE Infrastructure for Spatial Information in the European Community IP Implementation Plan IPRR Immovable Property Rights Registry ISDS Integrated Safeguard Data Sheet KCA Kosovo Cadastre Agency KCDS Kosovo Cadastre Development Strategy KCB Kosovo Consolidated Budget KCLIS Kosovo Cadastre Land Information System KEK Kosovo Electric Corporation FOR OFFICIAL USE ONLY

KPA Kosovo Property Agency KPCC Kosovo Property Claims Commission M&E Monitoring and Evaluation MAFRD Ministry of Agriculture, Forestry and Rural Development MCO Municipal Cadastre Offices MESP Ministry of Environmental and Spatial Planning MLG Ministry of Local Government MEF Ministry of Economy and Finance MOU Memorandum of Understanding MPA Ministry of Public Administration OAG Office of the Auditor-General OP Operations Policy POM Project Operations Manual OPR Operation Procurement Review PAC Public Awareness Campaign PAD Project Appraisal Document PCO Project Coordination Office PDO Project Development Objective PID Project Information Document PIFC EU Public Internal Financial Control PISG Provisional Institutions of Self-Government POE Publicly Owned Enterprise PPA Public Procurement Agency QC Quality Control QER Quality Evaluation Review RECAP Real Estate Cadastre and Registration Project sc Steering Committee Sida Swedish International Development Cooperation Agency SIL Specific Investment Loan SOEs State Owned Enterprises SRSG Special Representative of the Secretary-General for Kosovo SSP Status Settlement Proposal TA Technical Assistance UN United Nations UNMIK United Nations Mission in Kosovo WebGIS Web-based Geographical Information System

Vice President: Philippe Le Houerou Country Director: Jane Armitage Country Manager Ranjit Nayak Sector Manager: John Kellenberg Task Team Leader: Cora Shaw

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

KOSOVO Kosovo Real Estate Cadastre and Registration Project

CONTENTS

Page

I. STRATEGIC CONTEXT AND RATIONALE ...... 1 A . Country and sector issues...... 1 B . Rationale for Bank involvement ...... 2 C . Higher level objectives to which the project contributes ...... 2 I1. PROJECT DESCRIPTION ...... 3 A . Lending instrument ...... 3 B. Project development objective and key indicators...... 3 C . Project components ...... 3 D. Lessons learned and reflected in the project design ...... 5 E. Alternatives considered and reasons for rejection ...... 6 I11. IMPLEMENTATION...... 6 A . Partnership arrangements., ...... 6 B . Institutional and implementation arrangements ...... 7 C . Monitoring and evaluation of outcomeshesults ...... 7 ... D. Sustainability...... 8 E. Critical risks and possible controversial aspects ...... 9 F . Loadcredit conditions and covenants ...... 11 IV. APPRAISAL SUMMARY ...... 12 A . Economic and financial analyses ...... 12 B. Technical ...... 13 C . Fiduciary ...... 14 D. Social ...... 15 E. Environment...... 15 F. Safeguard policies ...... 16 G. Policy Exceptions and Readiness ...... 16

Annex 1: Country and Sector or Program Background ...... 17 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...... 22 Annex 3: Results Framework and Monitoring...... 23 Annex 4: Bank Lending and Implementation Support/Supervision Processes ...... 26 Annex 5: Project Costs ...... 31 Annex 6: Implementation Arrangements ...... 32 Annex 7: Financial Management and Disbursement Arrangements ...... 36 Annex 8: Procurement Arrangements ...... 46 Annex 9: Economic and Financial Analysis ...... 56 Annex 10: Safeguard Policy Issues ...... 62 Annex 11: Legal Framework ...... 63 Annex 12: Social Risk Management...... 69 Annex 13: Project Preparation and Supervision ...... 71 Annex 14: Country at Glance ...... 72 Annex 15: Documents in the Project File ...... 74 Annex 16: Statement of Loans and Credits...... 75 Annex 17: Map...... 76 KOSOVO

REAL ESTATE CADASTRE AND REGISTRATION

PROJECT APPRAISAL DOCUMENT

EUROPE AND CENTRAL ASIA

ECSSD

Date: December 22,2009 Team Leader: Cora Melania Shaw Country Director: Jane Armitage Sectors: Central government administration Sector Manager John V. Kellenberg (40%);Sub-national government administration (40%);Law and justice (20%) Themes: Land administration and management (100%) Project ID: P101214 Environmental category: Partial Assessment Lending Instrument: Specific Investment Loan Joint IFC: Joint Level:

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

For Loans/Credits/Others: Total Bank financing (US$m.): 12.25 Proposed terms: The credit will be on standard 40 years to maturity including 10 years grace Deriod. 0.75% commitment fee on credit amount.

International Development Association 5.17 1.57 6.74 (IDA) IDA Grant 2.74 2.77 5.51 Total: 9.52 4.34 13.86

Borrower: Republic of Kosovo Ministry of Economy and Finance Kosovo Tel: +38138540564

Responsible Agency: Kosovo Cadastre Agency (KCA) Kosovo Archive Bldg. 2nd Floor Kosovo Tel: (381-38) 512-353Fax: (381-38) 512-356 hamit.basholli@,ks-.izov.net - 4nnual 0.61 1.23 2.45 3.68 3.68 0.60 Zumulative 0.61 1.84 4.29 7.97 11.65 12.25

Expected effectiveness date: April 30, 20 10 Expected closing date: July 3 1, 2015 Does the project depart from the CAS in content or other significant respects? [ ]Yes [XINO Ref: PAD I.C. Does the project require any exceptions from Bank policies? Ref: PAD IKG. [ ]Yes [XINO Have these been approved by Bank management? [ ]Yes [XINO Is approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated “substantial” or “high”? [XIYes [ ]No Ref: PAD III.E. Does the project meet the Regional criteria for readiness for implementation? [XIYes [ ]No Ref: PAD IK G. Project development objective Ref: PAD II.C., TechnicalAnnex 3 The project development objective is to help develop Kosovo’s land and property markets and enhance security oftenure. Project description: Ref: PAD II.D., TechnicalAnnex 4 The proposed project will include the following components:

Component A: Municipal Land Administration supports improvements to the capacity of Municipal Cadastre Offices (MCOs) to deliver services, with two subcomponents: A1: Detailed design and rehabilitation of the MCOs; and A2: Systematic registration in the Kosovo Cadastre Land Information System (KCLIS). Component B: Kosovo Cadastre Agency (KCA) Institutional Framework. The component will support: B 1: KCA Institutional Reform; and B2: KCA Technical Infrastructure. Component C: Project Management, Training and Outreach. The component will support KCA to manage the project, monitor/evaluate the program’s effectiveness, as well build its management and other skills. The component has three subcomponents: C1: Project Management and Donor Coordination; C2: Training; and (iii)C3: Public Outreach.

Which safeguard policies are triggered, if any? Ref: PAD IKF., Technical Annex 10 Environmental Assessment 4.0 1 Significant, non-standard conditions, if any, for: Ref: PAD III.F. Board presentation: None.

Loadcredit effectiveness: (a) PCO staffing, consisting ofCoordinator, Financial Management Specialist, local .. 11 Procurement Specialist, Legal Specialist, and Cadastre Specialist, will be in place; (b) Project Operations Manual, including a Financial Management Manual, acceptable to the Bank.

Covenants applicable to project implementation:

Disbursement conditions: No disbursements for Cadastre Reconstruction until an acceptable amendment to the Cadastre law is in place.

Other Implementation Covenants:

(b) Recipient will establish the Inter-Ministerial Land Administration Committee by March 3 1, 20 10. (c) The Recipient shall, (i)not later than March 1,2010 submit to the Association an annual work plan for the remainder of calendar year 20 10 and shall agree with the Association on steps to be taken in calendar year 2010; and (ii)on December 1 of each year, starting on December 1, 20 10, submit to the Association for review and approval an annual work plan for the following calendar year, and shall agree with the Association on steps to be taken in the following calendar year. (d) The Recipient shall ensure that the Eligible MCOs abide by the terms oftheir respective MOUwith the KCA, by which the Eligible MCOs agree to use standardized workflows and procedures for cadastre and registration, in a manner acceptable to the Association.

Financial Covenants: (a) KCA, through the PCO and in collaboration with the Ministry ofEconomy and Finance, will maintain a financial management system acceptable to the Bank. (b) KCA will submit to the Bank interim un-audited financial statements (IFRs) on a quarterly basis, in the agreed content and format. (c) The projects financial statements will be audited annually by independent auditors acceptable to the Bank under terms of reference acceptable to the Bank, commencing in the year of effectiveness. The annual audited statements and audit report will be provided to the Bank within six months ofthe end of each fiscal year.

... 111

I. STRATEGIC CONTEXT AND RATIONALE

A. Country and sector issues

1. Background. Starting with the end of the conflict in 1999, Kosovo was administered by the United Nations Interim Administration Mission in Kosovo (UNMIK) headed by the Special Representative to the Secretary General. Following unilateral declaration of independence on February 17, 2008, a Constitution based on the EU- endorsed Status Settlement Proposal (SSP) was approved by the Kosovo Assembly in June 2008. The independence process also triggered significant legislative activity and led to adoption of a number of new laws. On economic matters, UNMIK has been winding down, with control of publicly-owned enterprises (POEs) and public utilities shifting to Kosovo authorities. The Republic of Kosovo became a member of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD) on June 29,2009.

2. Kosovo, with about 10,900 h2and an estimated population of2 million, is being integrated into Southeast Europe, with a possible path to European Union Accession; donors exert major influence on development in Kosovo. After the 1999 conflict, donors contributed to a rapid economic rebound. GDP growth, reflecting the massive donor- funded reconstruction effort and high public and private investment, averaged 4% in the last years and reached 5.5% in 2008, and inflation was moderate at 3.5%. The recent contraction in international trade has not substantially affected real growth due to the narrow export base and a sharp rise in public expenditures. The economy is fully integrated with the Euro, except in areas with ethnic Serb majorities, which generally use the Serbian dinar. The investment climate is weak, due to political uncertainties and the lack of widespread real estate registration, which increases the cost of finance and limits access to the banking system: potential buyers, leasers, renters, and banks hesitate to buy, lease or collateralize property since they often cannot identify owners or use-right holders with assurance, and lack confidence that the rights are securely held.

3. A functioning property market-with secure property rights, enforceable contracts and a trusted legal system-is a key to a sound market economy. Such a market needs an effective, transparent land administration system, including a cadastre that reliably identifies all properties, owners and encumbrances and a precise system of registration. Such a cadastre and registration system brings economic and social benefits, as it (a) enhances security of ownership, (b) improves access to credit for urban households, (c) reduces land disputes, (d) contributes to sustainable use of natural resources as owners lengthen their investment horizons, and (e) encourages more orderly urban and peri-urban development.

4. In Kosovo, the real estate property market is constrained by its legacy. Real property is either private, socially owned (belonging to the socially-owned Enterprises- SOEs, which are now in different stages of privatization), state- owned (belonging to municipalities and the central Government) or owned by POEs, mostly public utilities are also being privatized. In 2006, there were an estimated 600,000 buildings of all types, of which 250,000 were in rural areas. There are about 2 million parcels of land and an

1 estimated 3 50,000 property owners. Government institutions are weak, property rights transactions most often go unregistered until there is need for documentation for a procedure or loan, and then the registered owner may not be available. The decentralization process delegated cadastre records to municipalities that are often too weak to maintain them adequately. Although laws provide a basis for registering apartments, in practice they are not recorded in the automated Integrated Property Registration Records (IPRR) by the official registrars in the Municipal Cadastre Offices (MCOs).’ Residents with possession certificates of SOE apartments have been allowed to buy them, but with no system to register them2 subsequent transactions are problematic. MCOs are expected to establish new immovable property records, update and maintain them, under KCA’s technical supervision.

5. Finally, the property market is constrained by the effects ofthe 1999 conflict: (a) thousands of homes were damaged or destroyed, up to 75,000 properties were abandoned, land records were destroyed and others were removed to Serbia (to protect the rights of KOSOVO’Sdisplaced Serbians), where they remain; (b) many citizens lost access to their properties; (c) ownership/possession records are incomplete or unreliable; and, (d) vacated properties were occupied illegally (about 20,000 claims on property that was illegally occupied as a result of the conflict are still being processed by the Kosovo Property Agency - see Annex 1).

B. Rationale for Bank involvement

6. The Bank is, or has been, involved in implementing cadastre and land administration projects in much of the ECA Region. These projects have had a marked beneficial impact on real estate market development and the experiences gained elsewhere can benefit Kosovo. Furthermore, in Kosovo, the ongoing Business Environment Technical Assistance (BETA) Grant (P088045) supports the cadastre as well as enhancement of the business environment and the proposed project builds on this experience.

C. Higher level objectives to which the project contributes

7. The Bank’s Board of Directors approved the Kosovo Interim Strategy Note in November 2007. The two-pronged strategy aims to: (a) develop new sources of economic activity and spur growth; and (b) ensure macroeconomic stability through sound fiscal policies and effective management of public finances. The proposed project to develop KOSOVO’Scadastre will help achieve results in both areas, is closely linked to the two priorities, and aims to meet the EU’s standards for the sector. The FYIO-11 Interim Strategy Note to be presented to the Board in January 20 10 will continue to support these objectives.

’ The current practice in Kosovo is that the cadastre only includes land and the building over the land (when there is only one owner for the building). Apartments are not registered in the MCOs or entered in the IPRR. ’ In fact, registration practices and fees vary from municipality to municipality, in spite of the existence of Kosovo-wide norms.

2 11. PROJECT DESCRIPTION

A. Lending instrument

8. A specific investment loan (SIL) was chosen for this Project because it has been shown to effectively support land administration systems in similar Bank projects; it is particularly suited since support is needed over the long term to strengthen institutions, which would be difficult to achieve with an adjustment operation.

B. Project development objective and key indicators

9. The project development objective is to help develop KOSOVO’Sland and property markets and improve tenure security.

10. Key indicators will cover a broad set of outcomes and outputs, including specifically: (a) a percentage increase in the number of transactions registered (10%); (b) reduction of the average number of days to register the sale of a residential property (from 30 days to 10 days); and (c) an increase in the percentage of the population in target areas with registered rights from 30% to 80% (See Annex 3).

C. Project components

11. The project will include the following components: A. Municipal Land Administration; B. KCA Institutional Framework; and C. Project Management, Training and Public Outreach. A detailed description of the project is contained in Annex 4.

Component A: Municipal Land Administration [Approximately 64% of Project costs]

12. The component supports improving the capacity of MCOs to deliver services, with two subcomponents: Al: Detailed design and rehabilitation of the MCOs; and A2: Systematic registration in the Kosovo Cadastre Land Information System (KCLIS). The KCLIS is the central country-wide registry database replacing the IPRR.

13. Al: Detailed design and rehabilitation of the MCOs enhances MCOs’ service . deliveryyhere are 33 MCOs in Kosovo, and with decentralization, 5 new municipalities are to be established. The project will reengineer up to 20 MCOs by funding building renovations, furniture, equipment and archives. The goal is to improve client services and apply new back office/front office layouts and standardized procedures in order to make transactions more systematic, efficient and transparent. Only municipalities that sign a Memorandum of Understanding (MOU) agreeing to abide by standardized procedures will be eligible for reengineering. MCOs are beneficiaries of these activities but must participate by providing inputs for the office redesign, and implementing the new workflows and procedures, as well as migrating data from the IPRR to the KCLIS. KCA’s Project Coordination Office (PCO) staff will be responsible for overseeing MCOs inputs and handle the procurement. The MCO Needs Assessment study carried out

3 during project preparation confirmed the MCOs’ interest in participating in reengineering activities.

14. A2: Systematic registration supports MCOs in updating and completing their real estate cadastre and registration records into the KCLIS. MCOs will integrate the systematic registration data into their records, after KCA approves the quality of the data. The activities would consist of:

(a) Building cadastre construction (BCC): the project will support the collection of complete documentation for registration of all SOE or privatized former SOE buildings, apartments, and properties, and other buildings that meet the requisites for registration, thus enabling apartments to be used for mortgage purposes and encouraging the residential real estate market.

(b) Cadastre reconstruction (CR): the project would support completing the 25 cadastre zone pilots that were started under BETA and collecting data in about 80 additional cadastre zones (6.5% of 1300 cadastral zones in country) provided there is legal framework acceptable to the Bank. An amendment to the Cadastre Law (see paragraph 40) is a condition of disbursement of the CR activities (about $2.2 m of credit funds),

(c) Quality control (QC): quality control would be carried out on all data collection prior to integration in official records or payment to contractors.

Component B: KCA Institutional Framework [Approximately 14% of Project costs]

15. This component supports two subcomponents: B 1: KCA Institutional Reform and B2: upgrading KCA technical infrastructure.

16. a:The Institutional Reform will support KCA’s overall reform, based on the Kosovo Cadastre Development Strategy (KCDS), the Business Plan (BP), and its Implementation Plan (IP). This means upgrading the legal and normative framework3 in several aspects: legislation and operational manuals for front officehack office operations, BCC, CR and QC will be refined and updated as needed. A definitive compilation and assessment of laws on property rights in Kosovo will be prepared to be disseminated to KCA staff, judges, MCO local officials and legal professionals. Other areas of support would be organizational and mandate changes in the current law, and to promote greater financial self-sufficiency for KCA.

17. B2: KCA Technical Infrastructure. The project will finance the establishment and maintenance of a Continuous Operating Reference Network (CORN) to provide a single source of reference points to surveyors. In addition, the project will support a KCA Hotline for MCOs and clients to connect to KCA for queries to have an authoritative source of information on legal and technical questions.

3 In local usage, the term “normative framework” refers to administrative instructions, guidelines and other instruments issued officially by the responsible ministry or agency for the implementation of a law.

4 Component C: Project Management, Training and Public Outreach [Approximately 21% of Project costs]

18. Component C will support KCA to manage the project, monitor/evaluate the program’s effectiveness, as well as build its management and other skills. Three subcomponents will support these efforts:

19. C1: Project Management and donor coordination: KCA’s project coordination office (PCO) will be strengthened to ensure project due diligence in procurement and financial management, monitor/evaluate the project’s progress, coordinate donor inputs, report to the GoK and donors, and organize events (e.g., conferences). The PCO will be staffed to fulfill its fiduciary obligations, with a minimum staff consisting of the Project Coordinator, the Financial Management Specialist, Legal Officer, Cadastre Specialist and local Procurement Manager. This will be a condition of effectiveness. The PCO will prepare a Financial Management Manual as part of the Project Operations Manual (POM), satisfactory to the Bank, as a condition of effectiveness.

20. C2: Training: Supports the design and implementation of a comprehensive training program for KCA and MCO managers and staff, the PCO, private surveyors and other key stakeholders in management, planning, legal, technical and administrative subjects; and

21. C3: Public Outreach to include social assessments, public awareness campaigns (PAC), and client surveys.

D. Lessons learned and reflected in the project design

22. Over the past decade, the Bank has supported land administration projects throughout the ECA Region and has found it challenging to reform the outdated, time- consuming and expensive approaches used. At program initiation, public agencies have had limited numbers of skilled staff needed to adopt the new systems and staff without the needed management and other (IT) skills. Thus, the Bank learned the most successful effort is to help implementing agencies to concentrate on improving services and to make gradual, steady changes that enable them to adopt best practice models from other European countries; this approach has been incorporated in the proposed project.

23. Pilot work under the BETA project has shown that contracting out cadastre survey works should only be done when the agency has the capacity to manage the contracts, check the quality of work and integrate the data generated by vendors into existing systems. Thus, RECAP will help build in-house Quality Control4 technical capacity, simplify procedures, establish benchmarks, apply cost-effective online systems, and standardize processes, so that routine transactions can be conducted by staff at the municipal level. This also includes retaining a small core ofKCA’s highly trained staff to monitor, maintain, upgrade, and provide training on new systems and standards.

4 GTZ is also supporting building QC capacity in KCA.

5 24. Many MCOs neither adhere to nor understand regulations, nor utilize approved procedures. Reengineering under subcomponent A 1 will require the signing of MOUs between KCA and the MCO requiring the use of standard procedures and this will be followed with a substantial training program.

25. The BETA project included BCC and CR in areas of Serbian ethnicity, but there was unwillingness on the part of two cadastre zones to participate in these activities. Although it is likely to prove difficult to conduct activities in the three Serb majority municipalities in the North (Zubin Potok, Zvecan, and Leposavic), the RECAP project will continue efforts to work in Serb and ethnically mixed zones across the country. The implementation stage social assessment and public awareness activities planned for the implementation of systematic registration will help with these efforts, but only sites where there is strong public support for BCC and CR will be involved in systematic registration (see paragraph 43).

E. Alternatives considered and reasons for rejection

26. The team considered a single agency model approach: The Bank's "best practice" model is one where a central agency integrates the legal (registration) and graphic (cadastre) data, at one location and has automated (web based) outposts in municipalities, other public buildings or banks (which are major users of registration data for mortgage and collateral purposes). This was also the model that donor partners supported in 2000 with the creation of KCA. But the SSP called for delegated responsibility to MCOs to maintain the cadastre records instead of centralizing services within KCA. Therefore, the KCA and MCOs must delineate their roles and responsibilities in accordance with the law, with KCA setting the standards and training MCOs to carry out transactions according to those standards.

27. The Bank considered a comprehensive donor-coordinated approach as the best option to ensure a long-lasting positive impact on the system's evolution. Given the scope of the issues identified by the KCDS, strengthening donor coordination by supporting a single KCA-driven strategy and BP, and providing resources in.a coordinated fashion seems to be the most appropriate approach to support such a comprehensive program.

111. IMPLEMENTATION

A. Partnership arrangements ,- 28. Norway, Sweden and Switzerland have been involved in KOSO~~~~land administration since 2000 and the proposed project will substantially build on shared experience (see Annex 2). KCA was established in 2003 with the support of Norway (about US$3.7 million since 2000 and US$3 million for 2009-2011), Sweden (about US$2 million during 2006-2009 and potentially US$1.5 million for 2010-2012), Switzerland (about US$0.9 million 2005-2007), and since 2005, the World Bank under the BETA grant (US$3.5 million). GTZ also started providing support in 2007 (US$3.0 million and already has plans for the 201 1 -2013 period). Donor coordination is now based on the KCDS and BP, and it is managed at the Ministerial level during semi-annual

6 Steering Committee (SC) meetings chaired by the Minister of Public Administration (MPA), with participation from all donors and... Donor activity runs in parallel but close coordination is maintained by KCA, providing uniform and consolidated progress reporting to all donors.

B. Institutional and implementation arrangements

29. The KCA’ will implement the five-year project. The Governance arrangements include KCA as the main implementing agency. According to the BP, an advisory Inter- Ministerial Land Administration Committee (IMC) to guide and coordinate land policy will be formally established in early 2010:6 it will include the Ministries of Public Administration (MPA), Environment and Spatial Planning (MESP), Local Government (MLG), Internal Affairs, and Economy and Finance (MEF). The PCO-located in KCA-will provide IMC with secretariat support. Establishment of the IMC will be a dated covenant for March 3 1,20 10.

30. The Project Coordination Office (PCO), a fully staffed unit within KCA, will help KCA implement the project. It will: (a) plan, manage and supervise overall activities; (b) provide technical secretariat services to the IMC (when established) and SC meetings, (Le., organize logistics, set agendas, and disseminate minutes); (c) prepare annual plans, budgets, and procurement plans; and (d) coordinate with the municipalities and other government institutions.

3 1. Municipal Cadastre Offices (MCOs) are part of the municipal structures and main beneficiaries of component A. They generally have a Property Rights office in charge of registering transactions in the IPRR and have geodetic specialists in charge of maintaining the cadastre. There is now a policy that private licensed cadastral surveyors carry out cadastral surveys and some of the MCO staff has left for the private sector. This provides more competition for clients and improved quality standards. Although KCA will maintain the national digital database in KCLIS (and currently maintains the IPRR), MCOs have access to enter data into their database. MCO and municipal staff will provide inputs to office designs, supervise on-site works, and MCOs will migrate data from the IPRR to the KCLIS. PCO contract managers will oversee MCO inputs, procurement and payments. For standardization ofprocedures, MCO staff will be trained and overseen by KCA.

C. Monitoring and evaluation of outcomes/results

32. Monitoring and evaluation (M&E) is a key tool for project implementation as it provides data on key outputs and outcomes to managers and decision makers. Results

“The Kosovo Cadastral Agency (hereinafter: Agency) shall be responsible for the cadastre and have the authority to constitute and maintain the overall official evidence on immovable properties pursuant to the recorded dates ofcensus and land cadastres. It also has the authority to supervise all cadastral activity as well as issue regulation related to cadastral activity” (Cadastre Law 2003125).

The government decision to establish the IMC was taken in October, 2009 and the IMC is expected to have its first meeting before the end of2009.

7 will be monitored by the PCO. The project will finance an M&E specialist at the PCO, who will design a relatively simple monitoring system based on the framework designed for measuring results (see Annex 3). The IPFW provides transaction data and the KCLIS will provide gender disaggregated data as well as enhanced transaction data. The Project Operations Manual will include formats for quarterly reports and a regular schedule for KCA to submit them. All donors will receive the same reports. Customer surveys will be conducted periodically to assess the public’s response to the changes in MCOs’ quality of customer services.

33. Indicators have been designed based on available data and reports, and many can be provided automatically to the PCO by MCOs on a quarterly and annual basis, or as needed. Given municipalities’ varying capacities, the PCO may provide training and technical assistance where needed for data collection and reporting.

34. An implementation stage social assessment will be conducted in the first year of the project and repeated in the final year. In three municipalities the social assessment will include customer surveys during the same time periods. The results of the final year social assessment and customer surveys will assess performance at project end, and provide inputs to identify lessons learned. The surveys will be contracted out with terms of reference developed by the PCO and agreed with the Bank and other donors.

D. Sustainability

35. KCA’s recurrent funding from the central Government has remained the same over the last 2-3 years, in spite of the increase in transaction revenues at the MCOs; now, only 5% of those revenues revert to KCA. In terms of investment budget execution, in the past two years KCA executed €lmillion worth of scanning of all of MCO and KCA’s paper records, to prevent losses.

36. Both the municipalities and the central Government should benefit from the project. KCA and the MCOs’ low revenues and limited number of transactions stem from the MCOs’ minimal services, uneven procedures and lack of public awareness of the rights, rules and advantages of registering property. In addition, buildings that are not registered have an enormous negative impact on revenues because income and property taxes, infrastructure fees and fees for services are dramatically lower than they would otherwise be. Therefore if buildings are registered, each municipality will increase its income and be able to offer better services. Poorer municipalities that now have difficulty providing services will be better able to perform if they have access to a more complete real estate cadastre and registry. The project will help complete the real estate cadastre and registry, thereby affording the central and municipal governments with a more complete base for providing services, making investments, and collecting revenues. In addition, under the Decentralization Trust Fund (TF091136) the Bank will conduct a review of KCA’s options for achieving financial self-sufficiency.

8 E. Critical risks and possible controversial aspects

37. The overall risk for this Project is considered substantial. General sectoral and institutional risks are substantial, and social risks are moderate.

38. The major risk to successful implementation is the general sectoral weakness within an overall context of governance in Kosovo. Weak sectoral institutions at both central and municipal level include relatively small numbers of trained cadastre and legal staff. These collectively present a substantial risk. To address this risk, both this Project and a very broad program of coordinated bilateral assistance will train large numbers of Kosovars in the needed skills, and will provide a substantial number of needed international technical specialists to the PCO to help implement the project. The same alliance of donors (including IDA) has supported development of KCDS Business Plan (BP), which should help protect the Agency and Project from undue political interference.

39. Another set of risks relates to the legal and institutional framework. Although current laws provide a generally appropriate legal foundation for project activities and objectives, there are continuing areas of weakness and ambiguity in the legal framework (described in Annex 11). The most important of these for purposes of project implementation concerns provisions in the Laws on Cadastre and IPRR which, as currently interpreted, require judicial process for minor changes to the cadastre. Municipal Court verification is needed if area discrepancy (of current survey results as against old maps) exceeds 3%, even if the current results are agreed with current owners and confirmed with standard measurements. Involvement of Municipal Courts in what are essentially technical corrections will lead to serious inefficiencies in the implementation of the CR. Hence appropriate amendments to the Cadastre Law and IPRR Law will be required as a condition for disbursement for CR activities (this risk does not affect BCC activities).

40. Another risk concerns the widely prevalent problem of recent construction without permits in Kosovo. Absence of permits impedes inclusion of such buildings in the IPRR, although KCA will include them in the cadastre for purposes of completeness and for information pending resolution of their status. A bill on legalization of buildings without permits has been drafted and is awaiting government approval. Its eventual adoption could allow many properties that are now not recorded in the IPRR, to be formally and legally registered. The timing and final form of this legislation remains uncertain, as does the capacity of central and municipal institutions to implement the law efficiently once it is adopted. This uncertainty, however, will not affect project efforts to register large numbers of apartments in formerly socially-owned buildings or other buildings that meet the requisites for registration as part of the BCC.

41. A further legal and institutional risk relates to a widespread lack of knowledge of the laws and regulations affecting property among relevant professional groups (e.g., judges, lawyers, land administration and other officials) and other stakeholders, which could impede effective achievement of the project objectives. This is potentially most problematic from the Project’s perspective at the level of MCOs and Municipal Courts,

9 where gaps in basic knowledge of the Laws on Cadastre and IPPR, and associated regulations and guidelines, is often weak. More generally, weak understanding of property-related laws in Kosovo reflects the unsettled state of the body of law itself, which comprises an often confusing and overlapping inheritance of laws of Austro- Hungarian, Yugoslav, UNMIK and recent Kosovo originsS7A related risk concerns the potential for fraud and abuse in property transactions, a risk which exists in Kosovo as it does in all countries with weak land administration systems, particularly those operating in a post-conflict setting. The vulnerability ofthe system to fraud has been highlighted in several analyses, including a recent OSCE' report which, again, underscores legal confusion and the weak knowledge and application of existing laws and regulations as contributing factors, particularly at Municipal Court level. The project will address these risks in three ways: first, by supporting the compilation, review and dissemination of the entire body of laws relating to real property and its administration in Kosovo; second, by conducting in-depth training on legal issues for key actors in the land administration system, particularly MCO and Municipal Court staff; and third, by completing and standardizing the normative framework through the development of detailed, robust and standardized regulations and guidelines, which will help enhance transparency and improve governance throughout the system. These efforts will complement and benefit ongoing or imminent interventions from other agencies and donors focusing on reforms in the property sector (EC, GTZ), on strengthening judicial administration (EULEX) and on resolution ofoutstanding property claims related to the conflict (KPA).

42. The main technical .risk arises from high-level decentralization decisions which gave the detailed execution of land administration to the MCOs, whereas a more centralized approach might have better capitalized on a small critical mass of skilled staff, and prioritization processes. Still, the law clearly gives technical and policy leadership in this field to KCA and the MCOs recognize this. Municipal involvement in the project will require signing of a MOU committing each MCO to adopt the project's new standards. It is judged that these and other factors (such as the development of procedure manuals and the technical assistance provided by donors) reduce this risk to moderate levels.

43. The final risk to project success is the social risk arising from the possible exclusion of ethnic minorities from project activities due to perceived difficulties in serving these communities or lack of awareness among members of those communities. As noted above and described in greater detail in Annex 1, approximately 70,000 cases related to unauthorized occupation of apartments and land during the conflict - predominantly involving claims brought by Serbs - have been or are in the process of being resolved by the Kosovo Property Agency (KPA) and its predecessor, the Housing and Property Directorate. Ofthese, approximately 20,000 remain to be concluded. Only when the KPA process has been completed will such properties be eligible for

7 Recent efforts to systematize this body of law have resulted in the adoption of the new Law on Property and Other Real Rights in June 2009, which appears to be a significant attempt to clarify and harmonize norms and practices related to real property rights and their administration. However, this law has not been widely disseminated and still lacks implementation regulations. It is too early to tell how successful it will be in practice. * OSCE, Litigating Ownership of Immovable Property in Kosovo, March 2009.

10 registration. In rural areas, a limited number of Serb and mixed ethnicity cadastre zones have in the past demonstrated reluctance to engage in systematic registration activities. This is especially the case in the three Northern Serb Majority municipalities where the Municipal Government does not recognize the authority or procedures of the KCA, making it impossible to conduct systematic registration. However, should the political climate change by the time of implementation, the Project will be responsive to demands from the North, and has already identified potential cadastre zones for inclusion. In the rest of the country, the potential for including ethnically mixed zones is considered to be quite positive. The KCA has already identified zones for inclusion in the project based on objective criteria, and many Serb or ethnically mixed zones are included in this group. An implementation stage social assessment (see paragraph 60) will mitigate the risk of Serb or ethnically mixed communities being excluded from the project.

F. Loadcredit conditions and covenants

44. Board Conditions: None.

45 I Effectiveness Conditions:

a. PCO staffing, consisting of Coordinator, FM, Cadastre Specialist, Legal, and Procurement staff, will be hired (see para. 19 and 30); and b. Project Operations Manual, including a Financial Management Manual, acceptable to the Bank (see para. 19).

46. Disbursement condition: a. No disbursements for Cadastre Reconstruction will be made until an acceptable legal framework is in place (see para.39). b.

47. Loan Covenants: a. The Recipient will only reengineer MCOs of municipalities that sign MOUs agreeing to follow standardized procedures (see para. 13 and 24); b. The GoK will establish the IMC by March 31,2010 (see para. 29) C. The Recipient shall carry out the Project in accordance with the Environmental Management Plan and the Project Operations Manual, and shall not amend, suspend, abrogate, repeal or waive any provision of the Environmental Management Plan or the Project Operations Manual without prior approval ofthe Association. d. The Recipient shall, (i)not later than March 1, 20 10 submit to the Association an annual work plan for the remainder of calendar year 2010 and shall agree with the Association on steps to be taken in calendar year 2010; and (ii)on December 1 of each year, starting on December 1, 2010, submit to the Association for review and approval an annual work plan for the following calendar year, and shall agree with the Association on steps to be taken in the following calendar year.

11 e. The Recipient shall ensure that the Eligible MCOs abide by the terms of their respective MOU with the KCA, by which the Eligible MCOs agree to use standardized workflows and procedures for cadastre and registration, in a manner acceptable to the Association.

48. Financial covenants:

a. KCA, through the PCO and in collaboration with the Ministry of Economy and Finance, will maintain a financial management system acceptable to the Bank. b. KCA will submit to the Bank interim un-audited financial statements (IFRs) on a quarterly basis, in the agreed content and format no later than 45 days after the end of each quarter. c. The Project’s financial statements will be audited annually by independent auditors acceptable to the Bank under terms of reference acceptable to the Bank, commencing in the year of effectiveness. The annual audited statements and audit report will be provided to the Bank within six months of the end of each fiscal year.

IV. APPRAISAL SUMMARY

A. Economic and financial analyses

49. International experience shows that a functioning cadastre and real estate registration system can lead to significant increases in the value of property assets. As confidence in the market increases with better security of tenure and more efficient legal registration systems, so property becomes a more attractive asset class, increasing investors’ demand and the market value.

50. An economic analysis was performed based on property sales and mortgages (see Annex 9). The economic analysis in the economic model described in Annex 9 assumes that there is a half percentage point difference (50 basis points) between the ‘with project’ and ‘without project’ scenarios. Calculations based on this very conservative estimate on the evolution of market values, sales and mortgages are summarized below.

Summary of Economic Analysis Parameter I Unit I Symbol 1 Level Economic Rate of Return I Percent I ERR 121% Net Present Value €M NPV 5.14 Net Present Value of Benefits €M NPV(B) 19.36 1 Net Present Value of Investment Costs I€M INPV(C) 111.67 I I Cost-Benefit Ratio I C/B I 1.66

5 1. Financial and Fiscal Analysis: Based on the model, and with very conservative assumption that fee and tax levels will not change in the next 10 years, the financial

9 €20 m from IDA funds and other donors (i.e. Norway, Sida, and GTZ).

12 analysis indicates that incremental (with and without project) KCA and MCO fees for the registration of sales and mortgages (€80 and €40, respectively) amount to €7.8 m. and €21.3 m. for the 5 and 10-year periods. The fiscal analysis calculates the incremental transaction taxes (€1 50 per transaction) and municipal court taxes (€50 per registration) collected over the 5 and 10-year periods are €1.7 m. and €8.8 m respectively."

B. Technical

52. Legal Framework. Subject to the exception described below concerning cadastral reconstruction (CR), the current legal framework is generally sufficient for the implementation ofthe project. An integrated property registry and cadastre model (under KCA) is in place and registration occurs on a parcel-based system that links the object in the real estate cadastre to the rights held over the property. The Law on Cadastre and Law on IPPR both provide a coherent procedural framework for the systematic and sporadic registration of land and buildings (including apartments). Under BETA, the technical guidelines to register buildings have been issued and can be used for BCC activities. There remain, however, some weaknesses and ambiguities in the legal framework related to property rights and administration, which are described in paragraphs 39-41 above and further detailed in Annex 11. These weaknesses will be the focus of support during the course of the project under components A and B. An immediate priority will be the drafting and adoption of amendments that will facilitate the implementation of CR by clarifying that Municipal Court approval is not needed for technical corrections to the cadastre (see paragraph 4 l),and as noted this will be a condition for disbursement for CR activities under the project.

53. The KCA have now put in place the necessary guidelines for the BCC work and arranged for adequate acceptance and quality control procedures for both the BCC and CR work. The draft manuals produced will be further improved and refined during the course of the project. The cost and time taken to complete BCC and CR work will be reduced once the Continuously Operating Reference Network (CORN) is put into place, and further cost reduction is expected as works will be tendered locally utilizing the growing Kosovar private sector. The initial design of the CORN has been completed and the business plan and technical specifications for the CORN are under preparation. The project will support systematic registration in at least 7 cities for the BCC and 80 cadastre zones for CR.

54. An automated registration system for textual parts (IPRR) is operational in many MCO offices and the graphical part is covered through separate software. Although these systems are operational the new Kosovo Cadastre Land Information System (KCLIS), funded by the Swedish government, is under preparation and likely to be completed in 2010. Along with the office refurbishment and process reengineering planned for the project, the KCLIS will help to greatly improve customer services once it is ready for use.

10 See also the Excel sheet in project files.

13 C. Fiduciary

55. The financial management arrangements at the KCNPCO for the implementation of the project meet Bank requirements. A financial specialist dedicated to the project has been recruited and a draft Financial Management Manual prepared documenting procedures, systems and controls for project implementation. Project accounting, reporting and auditing arrangements for other grants managed by the MEF are acceptable and it has been agreed that these arrangements will be replicated for the proposed project

56. Unaudited Interim Financial Reports (IFRs) will be prepared quarterly by the PCO and submitted to the Bank no later than 45 days after end ofeach quarter. The audit of Project Financial Statements will be conducted annually by independent auditors under TORS acceptable to Bank. The audit report accompanied by audited Project Financial Statements and Management Letter will be submitted to the Bank within six months of the end of each fiscal year audited.

57. At the country level, the country financial management environment has its weaknesses, mainly due to capacity issues. The Kosovo government introduced important reforms in the area of public financial management and governance. Nevertheless, the implementation ofthese reforms represents a challenge.

58. At the proiect level, the system through which Commitment and Payment Orders (CPOs) flow to ensure authorization of payments is well regulated. The Treasury authorizes commitments and payments based on proposals and supporting documentation by implementing agencies. The Treasury pays from a single account in the Central Banking Authority of Kosovo (CBAK). Specific procedures are developed by MEF to secure proper financial accountability for the Project.

59. Procurement. In June 2004, the Bank conducted an Operation Procurement Review (OPR) which rated Kosovo as a high risk country from the procurement point of view. The OPR identified the following major weaknesses: (i)the current Law on Public Procurement is sound but implementation is weak; (ii)the PPA and other procuring entities, including ministries, lack capacity and independence to conduct procurement; (iii)auditing of procurement does not exist institutionally; and, (iv) corruption seem to be significant but no programs to tackle it are in place. In light ofthis, procurement under the project would be carried out in accordance with the Bank Procurement “Guidelines: Procurement under IBRD Loans and IDA Credits” published May 2004 and revised in October 2006 and Consultants “Guidelines: Selection and Employment of Consultants by the World Bank Borrowers” published May 2004 and revised in October 2006, and in accordance with provisions stipulated in the Financing Agreement. The Borrower would be required to appropriately build the implementing agency’s capacity. Procurement risk under the Project is rated as “Substantial” (S) and after its mitigation would be “Moderate” (M).

14 D. Social

60. A preparation stage social assessment has been carried out in order to determine stakeholder perceptions of Cadastre Services by means of focus groups and interviews. The study found that overall users are satisfied with Cadastre services but that the processes are too lengthy and require many visits to the MCO. Due to the inclusion of systematic registration component an implementation stage social assessment (which will involve a social survey and focus groups) is also planned for the first and final year of project implementation. Further details on the results of the preparation stage social assessment and plans for the implementation stage social assessment are presented in Annex 12.

61. The Project will not trigger OP/BP 4.12, as it does not result in the “taking of land” as defined by the policy.

E. Environment

62. The project has been assigned as Environmental Category B. A partial Environmental Management Plan (EMP) has been prepared and disclosed in order to ensure that the MCO’s building rehabilitation and modernization works will be carried out in an environmentally acceptable manner with minimum damage to the environment. The EMP includes an environmental and social screening list, where specific activities and potential environmental issues for each rehabilitated officebuilding can be reviewed.

63. Other than the renovation ofoffice space, the project will not support civil works, land conversion, resource extraction, or any activities that could potentially damage the environment. Each contract for civil works under the Project will be subject to screening for environmental impacts by the responsible environment entity. All bidding documents will include measures to minimize or mitigate environmental damage. Standard operating procedures will include measures applying to construction in general, such as measures to control dust, noise, and traffic at construction sites and guidelines for controlling erosion and clean-up after construction.

64. The proposed project is expected to be positive from an environmental standpoint. Registration and cadastre mapping would induce a series of behavioral changes among property owners, and many of these would be environmentally positive. Nonetheless any adverse impacts such as intensive use of agricultural input and increase in urban development would be more than adequately compensated by the environmental benefits generated by the Project.

15 F. Safeguard policies

Safeguard Policies Triggered by the Project No Environmental Assessment (OP/BP 4.01) 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) Indigenous Peoples (OP/BP 4.10) Forests (OP/BP 4.36) Safety of Dams (OP/BP 4.37) Projects in Disputed Areas (OP/BP 7.60)* Projects on International Waterways (OP/BP 7.50)

G. Policy Exceptions and Readiness

65. None.

16 Annex 1: Country and Sector or Program Background KOSOVO: Real Estate Cadastre and Registration Project (RECAP)

Country Background

1. Starting with the end of the conflict in 1999 Kosovo was administered by the United Nations Interim Administration Mission in Kosovo (UNMIK) headed by the Special Representative to the Secretary General (SRSG). In that period there was a gradual and progressive transfer of powers from UNMIK to the Kosovo Provisional Institution of Self-Government (PISG) along with a steady decentralization process. Following unilateral declaration of independence on February 17, 2008, a Constitution based on the EU-endorsed Status Settlement Proposal (SSP) was approved by the Kosovo Assembly in June 2008. The independence process also triggered massive legislative activity and led to adoption of a number of new laws since February 2008. Kosovo authorities have progressively resumed powers in various sectors that used to be UNMIK reserved competencies, such as fiscal policies, central banking, judiciary, etc. The EU- sponsored International Civilian Office (ICO) was created to monitor the implementation of the SSP which reinvigorated the push towards further decentralization in the institutional set up. On economic matters, UNMIK has been winding down, with control ofpublically-owned enterprises (POEs) and public utilities shifting to Kosovo authorities. At the same time, the European Union Rule of Law Mission in Kosovo (EULEX), under the United Nations (UN) umbrella, has been set up to support the Kosovo judiciary, customs and policing; its deployment and take-over from UNMIK has been on-going. The last two years’ events led to the change of political leadership and state administration of Kosovo. These developments caused a number of interruptions and delays in project implementation ofpublic investment. The Republic ofKosovo became a member of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD) on June 29,2009.

2. Kosovo, with about 10,900 km2 has an estimated population of 2 million; 90% are Albanian and the rest are Serb (6%), Roma, Turks, Egyptians and Gorani. Kosovo is being integrated within southeast Europe (SEE), with a possible path to EU Accession and donors still exert major influence on development in Kosovo. After the 1999 conflict, donors contributed to a rapid economic rebound. GDP growth, reflecting the massive donor-funded reconstruction effort and high public and private investment, averaged 4% in the last years and reached 5.5% in 2008, and inflation was moderate at 3.5%. Exports of agricultural goods, textiles and metals to the EU and SEE rose steadily and grew by over 18% in 2008, though they remain small in absolute terms. The recent contraction in international trade has not substantially affected real growth due to the narrow export base and a sharp rise in public expenditures. The economy is fully integrated with the Euro, except in areas with ethnic Serb majorities, which generally use the Serbian dinar.

3. According to a 2007 Kosovo Poverty Assessment, 15 percent of citizens are extremely poor, unable to meet basic nutritional needs; about 45 percent have a consumption level below the poverty line. Since many live just above or below the poverty line, a small change in income, through job-generating growth, could lift a

17 substantial number out ofpoverty. The investment climate is weak, in part because risks are higher than in other countries of the region due to political uncertainties and the lack of widespread real estate registration. This increases the cost of finance and limits access to the banking system: potential buyers, leasers, renters, and banks hesitate to buy, lease or collateralize property since they often cannot identify owners or use-right holders with assurance, and they lack confidence that the rights are securely held.

4. Real estate property is either private, socially or state owned. Socially owned property belongs to the Socially Owned Enterprises (SOEs). State land belongs to municipalities and the central Government and includes roads, schools, hospitals, administrative buildings and military and police installations. Publicly Owned Enterprises (POEs), mostly public utilities such as the Kosovo Electricity Company, may also own land.

5. In 2006, Kosovo had an estimated 600,000 buildings of all types, of which 250,000 are in rural areas. There are about 2 million land parcels owned by 350,000 owners. It is estimated that 80% of names recorded in the land registry Immovable Property Rights Registry or IPRR), and most cadastre maps, are outdated'. Although laws provide a basis for registering apartments, they are not implemented. Thus, they are not recorded in the automated IPRR by the official registrars in the Municipal Cadastre Offices (MCOs). And, while local and international banks in Pristina note strong demand for loans secured by apartments, they are hampered because the units, which serve as collateral, are not registered. Transactions are carried out by notarizing conveyancing documents at the Municipal Courts. Often Clients do not go on to register in the IPRR which further erodes the completeness of the registry database. Moreover, the Government cannot realize significant revenues from taxes on registering transactions and mortgages in present circumstances.

6. A functioning property market-with secure property rights, enforceable contracts and a trusted legal system-is a key to a sound market economy. Such a market needs an effective, transparent land administration system, which includes a cadastre that reliably identifies properties, owners and encumbrances and a precise system of registration. Such a cadastre brings economic and social benefits, as it (a) ensures secure ownership, (b) improves access to credit for urban households, (c) reduces land disputes, (d) contributes to sustainable use of natural resources as owners lengthen their investment horizons, and (e) encourages more orderly urban and peri-urban development.

7. Government institutions are still quite weak. Property rights are often undocumented and market transactions often go unregistered. The decentralization process, mandated by the SSP, which began in 2008, assigned municipalities the tasks of managing local cadastral records; but many municipalities are too weak to perform these tasks according to international, or even national, standards.

8. In addition, KOSOVO'Sproperty market goals are constrained by the effects of the 1999 conflict: (a) thousands of homes were damaged or destroyed, up to 75,000

Kosovo RECAP Social Assessment, 2008, pg. 8.

18 properties were abandoned, land records were destroyed and others were removed to Serbia (to protect the rights of KOSOVO’Sdisplaced Serbians), where they remain; (b) many citizens lost access to their properties; (c) ownership/possession records are incomplete or unreliable; (d) vacated properties were occupied, although this was not authorized; (e) about 20,000 claims on damaged or illegally occupied property in Kosovo are outstanding; and (f) the government allowed residents with possession certificates of SOE apartments to buy them, but with no system to register them12 subsequent transactions are problematic.

9. UNMIK recognized early the need to protect property rights of all Kosovars, independent of their ethnicity. The Housing and Properties Directorate (HPD) and the Housing and Property Claims Commission (HPCC) were created to resolve claims on residential property resulting from displacement during the conflict. HPD acted as an administrative entity responsible for receiving claims, conducting title searches and providing recommendations to the HPCC. HPCC served as a special court and its decisions on property claims were final. By December 3 1, 2004, around 29,000 claims on private residential properties had been submitted and virtually all had been resolved prior to the creation of the HPD’s successor agency, the Kosovo Property Agency (KPA), in 2006.

10. KPA’s task has included dealing with claims on commercial property and agricultural land, categories of property which had been excluded from HPD’s original mandate. Since 2006, KPA has received 40,233 claims (the closing date for claims was December 2007), of which 89% refer to agricultural land and 11% to commercial and residential property with buildings. Of these, KPCC (the successor to the HPCC) has resolved 56% as of September 2009; the remainder is expected to be processed and resolved by 201 1. KPCC decisions are appealable to a special panel of the Kosovo Supreme Court, comprising two international and one national judge-only 65 appeals have thus far been filed. KPA also operates a property rental program, administering property for those successful claimants who for one reason or another choose not to return to their property. Although engaged in a sensitive task, HPD and KPA have gained the respect of both the Albanian and the Serb communities, and have generally been perceived as resolving claims efficiently and impartially. They also have received, until recently, the cooperation the Serbian Governments and maintained offices in Serbia in order to ensure effective outreach and notification to potential claimants who now reside in Serbia, and to facilitate access to property records that were removed to Serbia during the conflict. (It should be noted that the substantial progress made by HPD/KPA in resolving claims of persons displaced as a result ofthe conflict this significantly reduces, but does not eliminate altogether, the possibility that future claims concerning ownership disputes stemming from the conflict could be subject to litigation in Kosovo courts.)

11. UNMIK established the Kosovo Cadastre Agency (KCA) in June 200313 to set policy and oversee the MCOs. MCOs are expected to establish new immovable property

12 In fact, registration practices and fees vary from municipality to municipality, in spite ofthe existence of Kosovo-wide norms. l3Under the Cadastre Law, Law 2003/25, December 4,2003.

19 records, update and maintain them. However, neither the KCA nor MCOs have adequate capacity to administer the registries. In 2000-2003, donors provided funds to automate and register immovable properties. The automated IPRR was launched in 2005. However, apartment mortgage registration was hampered because the system lacks some applications, including one to record apartment mortgages. Since then, to palliate these gaps, registration is done in both computerized and paper records, with the latter registering apartment mortgages and liens. In the fall of 2008, and at the request of the donors, KCA prepared the Kosovo Cadastre Development Strategy (KCDS) for 2009- 201 1, though based on a longer term vision. The Strategy’s objectives are three-fold: (i) Improvement in the legal and institutional framework for cadastre in Kosovo; (ii) Efficient operation of advanced information technology; and (iii)Improvement of the cadastral services for clients. The strategy was endorsed by the Government of Kosovo (GoK) in December 2008. Subsequently, KCA prepared a Business Plan (BP) for the period 2009 to 2014, which was approved by the Government in June 2009, and will be supported by the Kosovo Consolidated Budget (KCB) and donors. The proposed project supports activities in the BP. The implementation plan (IP) for 2009-2010 has been prepared and will be updated throughout project implementation.

12. Kosovo is one of a few countries facing three major challenges regarding property rights: It is rapidly moving to a market economy, experiencing post-conflict dilemmas, and suffering from weak government institutions. Thus, there are acute problems related to undocumented property rights and dysfunctional property markets. Further, the 1999 conflict wreaked havoc to the built environment: An estimated 300,000 homes were damaged or destroyed, and up to 75,000 properties were abandoned. Land records were also destroyed and others were moved to Serbia, where they remain. Many Serb and Albanian-vacated properties have been illegally occupied; this problem has been addressed by the Kosovo Property Agency. Now, a major challenge is building capacity to maintain the cadastre.

Country Strategy

13. Structure of Property Rights. Before the conflict, property was owned by individuals, social organizations or the State. Private property included that belonging to individuals, companies or religious entities. Socially owned property included that held by SOEs, such as the Pristina airport; Kosovo Electricity Corporation (KEK); District Heating Enterprises of Gjakova and Pristina; the Post and Telecommunication of Kosovo (PTK); and Water, Waste, and Irrigation Enterprises. State land includes that owned by the central government and municipalities, used for public facilities such as roads, schools, hospitals, administrative buildings and military/police installations.

14. Rural Areas. Kosovo urgently needs to restructure its agricultural sector: About 80% of farm holdings are under 4 ha and continue to be subdivided due to inheritance customs. Policies for transforming the sector are outlined in the Agricultural and Rural Development Plan 2007-13 and a National Strategy on Land Consolidation is being prepared. However, the institutions needed to clarify responsibilities between the MAFRD and the Municipalities, and the normative framework is not yet developed, so this aspect of land administration will not be covered in the project. Suffice it to say that

20 consolidation schemes devised in the 1980s have been tabled and farmers have no titles reflecting already consolidated lands. Further, conflicts arise when inheritances involve land transfers and obstacles surface given the poor functioning of land markets and credit arrangements.

15. In 2007, the United Nations drafted a Comprehensive Proposal for the Kosovo Status Settlement (SSP). It addresses basic provisions for the rights ofthe various ethnic communities and their members, obligations for Kosovo, and the participation of communities and their members in public life and decision-making. In the Social Assessment, surveys found that cadastre users are generally pleased with the treatment they received from the cadastre officials and appreciate the fact that the process has been completed. There was no major difference reported from any particular target group, as level of satisfaction was about the same in all of them. In particular, all females participating in the survey reported adequate and fair treatment by the MCO officials, and no discrimination was reported. Minority communities in general, as well, have experienced fair and equal treatment while communicating with the cadastre service officials.

21 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies KOSOVO: Real Estate Cadastre and Registration Project (RECAP)

1. Various donors have been involved in the land administration sector since 2000, and the proposed project will build substantially on this work. From 2000-2003, Sweden, Norway, Switzerland, and the United Nations Centre for Human Settlements supported land administration. From then on, Sweden has been mainly supporting land registration efforts and the establishment of the automated text-based Immovable Property Rights Register (IPRR) and the subsequent upgrade to Kosovo Cadastre Land Information System (KCLIS) which will allow the integration of textual and digital data into a single national database. Switzerland financed topographical mapping, WebGIS system development and training. Norway and IDA have been supporting cadastre reconstruction and building cadastre construction activities. IDA has successfully been supporting MCO reengineering, including Pristina, Ferizaj and Prizren. In 2007, Germany provided GTZ TA for a 3-year €2.2 million program, to finance and support the implementation of activities from the Kosovo Cadastre Strategy Development’s Business Plan 2009 - 2010. GTZ is funding an International Cadastre Advisor (together with Norway), the quality control group within KCA, the business model for CORN and support for KCA’s Legal Review. Much of the focus for the legal review is on CR. All donors participate in the Steering Committee. It is expected that Norway and Switzerland will continue support for KCA in the fall of 2009, by financing activities in the Business Plan.

2. Norway has financed the new 2008/09 aerial photography of the whole country for the purposes of the KPA, but sharing the digital information with KCA. Therefore the project does not finance the acquisition of digital mapping information, but rather the production of cadastre maps as needed for BCC and CR.

3. The EU likewise supported land related projects, including an Agriculture Land Utilization Project (2006-2008), which focused on land reform by improving the regulatory framework for agricultural land management, land consolidation techniques, spatial planning, and land market development. Based on this EU-financed project, the Ministry of Agriculture, Forestry and Rural Development is implementing pilot land consolidation activities. The EU has also programmed into their Instrument for Pre- Accession 2009 financial support for Street Addressing by municipalities.

4. The Bank funded BETA project (P088045) includes a component for Immovable Property Rights Enhancement ($3.3 million) and many of the lessons learned and current project design are derived from the activities piloted under that project. The BETA project is due to close in February 2010.

22 Annex 3: Results Framework and Monitoring KOSOVO: Real Estate Cadastre and Registration Project (RECAP)

Results Framework

e f Proj come Infor The project aims to develop Registered transactions will Government at all levels land and property markets grow by 10% a year. will use records to monitor and improve tenure security. real property markets and improve the efficiency of real estate registration; citizens will improve their real estate transactions.

Component A : Municipal I nd Administration (a) Improved Average number of days to Evaluate the efficiency of cadastrehegistration services complete the registration of service provision. for customers (Core) a standard purchase/sale of a typical residential property in the land administration system. (b) Increased coverage of Percent of target population Evaluate the improvement land administration services with use or ownership rights in completeness of land for all (Core) registered. registration before and after project . (c) Increased access to Land Percent of women with use Evaluate the improvement administration services for or ownership rights in acceptance ofproperty women registered (both joint and rights among men and individual). women

CORN reference points are Percent ofprivate licensed CORN reference network in utilized. firms and individual Kosovo. surveyors using CORN.

customer satisfaction. performance changes.

23 z0 bi4

+g e 2 X3 .IC b .IcC E ; cU I I E b In b E (u m cU m E i 8 E c b b 8 d .9 w -0 $0 EE;-

x D

Lv) 0 ci 3 -0 Y aE 8 3 .-m i eM c,8 5 ci V % i? z -7- Annex 4: Bank Lending and Implementation Support/SupervisionProcesses KOSOVO: Real Estate Cadastre and Registration Project (RECAP)

Project development objective

1. The project objective is to help develop KOSOVO’Sland and property markets and improve tenure security.

Project Components

2. The project will include the following components: A. Municipal Land Administration; B. KCA Institutional Framework; and C. Project Management, Training and Public Outreach. The MCOs are responsible for delivering client services in cadastre and registration to the public at the local 1e~el.l~The project will provide resources to the MCO in terms of building renovations, equipment and cadastral data under the first component; assistance to review and improve the legal framework and develop the ‘normative framework’ in the second component; and to develop capacity within, and provide training to, KCA, MCOs and the public in the third component.

COMPONENT A: MUNICIPAL LAND ADMINISTRATION

3. The component supports improving the capacity of MCOs to deliver services with two subcomponents: A1: Detailed design and rehabilitation of the MCOs; and A2: Systematic registration in the Kosovo Cadastre Land Information System (KCLIS). The KCLIS is the central country-wide registry database replacing the IPRR.

4. -Al: Detailed design and rehabilitation of the MCOs subcomponent enhances MCOs’ capacity to deliver services. There are 33 MCOs in Kosovo and as a result of decentralization, 5 new municipalities are to be established. The project will reengineer up to 20 MCOs. “Reengineering’ involves improvement of client services by improving workflows, working conditions and record storage (including fire protection). The new back office/front office layout and standardized procedures make transactions more systematic and transparent. Clients submit their documentation at a front desk, documents are scanned to prevent losing them, and the services are processed in the back office without contact with the client. A back office/ front office manual has been prepared during the BETA project (currently in a final draft form) and this is to be used as the standard for each office. The office layout and improved workflows help to prevent interruptions and reduces opportunities for outside interference in decision making. Two successful pilots were completed in the Ferizaj and Pristina MCOs, and one is ongoing in Prizren, under BETA. Only municipalities that sign an MOU to this effect will be eligible for reengineering, as has been done under the BETA Project. MCOs are beneficiaries of these project activities but must participate by providing inputs for office redesign, and implementing the new workflows and procedures. KCA will be responsible for overseeing MCO inputs and will handle the procurement. The MCO needs assessment confirmed the MCOs high demand to

l4 According to the relevant legislation they act under guidance provided by KCA. The guidance is provided in a series of ‘administrative directions’ and ‘guidelines’ issued officially by the Ministry of Public Administration and the KCA respectively. These regulations and guidance notes are referred to as the ‘normative framework’ locally

26 be included in the reengineering program. Finally, the subcomponent wiil also finance migration of data from the IPRR to the KCLIS.

5. The project will also fund data migration from existing systems into the Kosovo Cadastre Land Information System (KCLIS). The KCLIS is an automated cadastre and registration system developed by KCA with assistance from Sweden. The KCLIS is currently being tested and the contract for completing the national roll out ofthe system is likely to be completed in 2010. Data from existing paper and automated systems will be entered into the new system using locally recruited individuals at each MCO. MCOs are in charge ofmigrating data from the IPRR to the KCLIS

6. -A2: Systematic registration subcomponent supports MCOs in updating and completing their real estate cadastre and registration records into the KCLIS. The subcomponent consists of three activities: (a) Building cadastre construction (BCC); (c) Cadastre reconstruction (CR); and (c) Quality control (QC). Approximately 350 zones have been identified as priority zones on the basis of (a) real estate market activity; (b) age and completeness of existing cadastral records; and (c) planned infrastructure development locations. KCA have plans for the full 350 zones to be completed utilizing funds from the Bank, Norway and the government, but not all funding is yet committed. The process of systematic registration is coordinated with the public awareness campaign (PAC), social survey and a census to identify properties with issues (for example, claims related to dispossession during the conflict being reviewed by KPA or lack of municipal building permits) that would prevent registration. The PAC and other studies are covered under Component C. The cadastre and legal data needed for area-based mapping and registration into the KCLIS is to be gathered and any survey work required to identify properties is to be completed under this subcomponent. The process involves analyzing documentation and evidence to ensure registration reflects property ownership, servitudes, encumbrances and liens accurately, and finally conducting Quality Control on the data before it is integrated in the official records. The project does not support any land management or land planning activities. The BETA project supported pilots for all three activities but they have not yet been completed as the pilots identified gaps in the legal and normative framework (see Annex 11).

(a) BCC: The project will support the collection of complete documentation for of all SOE or privatized former SOE buildings, apartments, and properties, and other buildings that meet the requisites for registration, thus enabling apartments to be used for mortgage purposes

I and encouraging the residential real estate market. According to KCA guidelines, data on properties without construction permits will be recorded and evidenced only for KCA internal use and presentation does not have juridical effect.” A bill of law for Legalization of Constructions without PermitsI6 has been submitted to the GoK and if this is approved and the necessary conditions are met by the applicants wishing to legalize their buildings, these properties can be quickly registered. Under the BETA project BCC work has been piloted but not completed. The initial pilot work identified problems with the normative framework, which has now been corrected and guidelines issued by KCA (June 2009). A separate contract to complete the BCC pilot work is now being tendered under BETA and manuals for the BCC and quality

l5 As per KCA guideline 7.3 and 7.4. h~p:llwww.kca-ks.org/download/Guidelines%2ONo,%2OKCA%2O2OO9- 0 1.pdf l6 Presented to the GoK on July 13,2009.

27 control of the BCC are under preparation. GTZ are providing support to KCA for this work. The manuals will be included as an integral part of the bidding documents for BCC work under the project. It is important to note that BCC work will only be completed for areas where there is public support to do so. The first stage of BCC work is to conduct an awareness campaign and public meetings to describe what needs to be done. For example, under BETA, in North Mitrovica, area with majority Serbian population, the local authorities did not participate in the BCC pilot. However, there are no limitations that would prevent any minority group from benefitting from the project.

(b) CR: The project would support completing the 25 cadastre zone pilots under BETA and collecting data in about 80 additional cadastre zones (6.2% of 1,300 cadastral zones in country) provided the Cadastre Law is amended to enable completion of the work. Currently each change in area recorded that is greater than 3% of the area in existing documents has to be referred to the courts. This effectively prevents completion of CR and it is a condition of disbursement for the CR activities (about $1.7 m) that the law is amended to deal with this problem. As with the BCC work, there are no restrictions preventing any minority group from participating in the project, but public support is required before work commences. There is also a CR manual and a CR quality control manual under preparation (again with assistance from GTZ), which will be attached to bidding documents for this work. The work will be tendered in batches of several cadastre zones to local companies.

(c) QC would be carried out on all data collection prior to integration in official records, as well as payment to contractors. Quality control of systematic registration is the responsibility of the KCA. GTZ have agreed to train and fund six staff members and to assist with their activities until the end of 2010 when their current support ends. Further support (including funding of the six staff members) is included in their program of support for 20 1 1 - 20 13. The proposed project has included funds to continue with support beginning in the third year of the project. (See also Annex 11).

COMPONENT B: KCA INSTITUTIONAL FRAMEWORK

7. This component supports two subcomponents: B1: KCA Institutional Reform and B2: upgrading KCA technical infrastructure.

8. B 1: The Institutional Reform subcomDonent will support KCA’s overall reform, based on the KCTS, the BP, and its IP. Much of the institutional development is supported through parallel funding under the existing and future GTZ projects, and additional support to be provided through Norwegian and Swedish assistance. This subcomponent provides financing for additional technical expertise, both local and international, to support KCA as they develop, and with their inter-donor coordination role. The project will also take steps to address gaps in knowledge among key actors in the system about the applicable legal framework. Such knowledge gaps result in the risk of uninformed and uneven application of the law. The project includes funding the compilation, revision and dissemination of laws related to property rights and administration and to supplement these where it is needed. The normative framework (including back office/ front office manuals, CR and BCC manuals) will need to be continuously updated as lessons are learned during the project. The outreach and dissemination of the legal

28 and normative framework as needed for project implementation is included under this subcomponent and any amendments, including those mentioned under A2, will be developed under subcomponent C2.

9. Laws and the normative framework are continuously changing and resources need to be available to deal with policy changes, new laws and issues as they arise during the course of the project. For example, on June 25, 2009 the Law on Property and Other Real Rights was promulgated, but this Law needs regulations to be developed followed by their dissemination. Currently, the Cadastre Law requires judicial process for minor changes: Municipal Court verification is needed if area discrepancy (of current survey results as against old maps) is above 3%, even if current results are agreed by property owners and confirmed with standard measurements. Changes to the law are expected within a few months and this will then entail some changes to the normative framework. Other needs for support relate to organizational and mandate reflected in the recently approved BP, and to promote greater financial self-sufficiency for KCA. It is a goal for KCA to become autonomous and financially self-sufficient, Donor funded technical assistance will assist KCA to achieve this goal and the progress will be constantly monitored during regular project supervision from the Bank team. The legal and normative framework and institutional development issues will also be included within the training program under Component C.

10. B2: KCA Technical Infrastructure. The project will finance the establishment and ongoing maintenance of a Continuous Operating Reference Network (CORN). Modern survey work utilizes signals received from satellites circling the Earth to find position through equipment such as GPS (Global Positioning System) simply and quickly. Such systems have become standard internationally and the Kosovar system is planned to be connected to existing Montenegrin, Macedonian and Albanian systems. A CORN is used for all sorts of survey work whether involved in engineering, map making, agriculture, cadastre, popular tourism or in-car navigation systems. It also negates the need to maintain a costly series of trigonometric stone pillars and thousands of additional markers around the country. The Swiss government funded consultants to complete a feasibility study in 2006 and GTZ have recently been working on a business plan to demonstrate how the system can be built and maintained. The business plan and technical specifications for the system are due to be completed by the end of October 2009. The proposed project will fund the purchase of the reference stations (probably six), a central processing center and such servers, software, rovers, broadband and radio connection as are needed. Recurrent costs include the requirement to have a three person maintenance team, spare parts and annual software licensing fees. Recurrent costs will be covered until KCA is in a position to levy and collect self-financing fees, in accordance with the CORN business plan.

1 1. The project will also support a KCA Hotline for MCOs and clients to connect to KCA for technical questions, to have an authoritative source of information on legal and technical questions.

29 COMPONENT C: PROJECT MANAGEMENT, TRAINING, AND PUBLIC OUTREACH

12. Component C will support KCA to manage the project, monitor/evaluate the program’s effectiveness, as well build its management and other skills. It will also support training and public outreach on key issues. Three subcomponents will support these efforts:

13. C1: Project Management and donor coordination: KCA’s project coordination office (PCO) will be strengthened to ensure project due diligence in procurement and financial management, monitor/evaluate the project’s progress, coordinate donor inputs, report to the GoK and donors, and organize events (e.g. conferences). The PCO will be properly staffed to fulfill its fiduciary obligations, with a minimum staff consisting of the Project Coordinator, the Financial Management Specialist, Legal Officer, and local Procurement Manager will be a condition of effectiveness. The Financial Management Specialist shall prepare a financial management manual satisfactory to the Bank as a condition of effectiveness. A Project Operations Manual will be adopted by KCA, as a condition of effectiveness.

14. C2: Training: to support the design and implementation of a comprehensive training program for KCA and MCO managers and staff, as well as private surveyors, in management, planning, legal, technical and administrative subjects. Training on key legal issues will also be provided to other key stakeholders such as municipal judges and lawyers. Under the BETA project, a planning strategy has been prepared and the actual training program will be coordinated with technical assistance provided through GTZ and proposed Norwegian and Swedish funding.

15. C3: Public Outreach to include public awareness campaigns (PAC) and client surveys. The project would support training KCA staff on designing PAC and hiring services as part of the PACs themselves. The purpose is to provide both internal communications to ingrain service provision in MCOs and KCA staff, as well as educate the public about rights with respect to land/property registration and expectations of property owners with respect to MCOs’ services and standards. This was one of the recommendations of the preparation stage social assessment. Also, implementation stage social assessments which will include customer surveys will enable the PCO to assess the new regimen and quality of MCO services after reengineering.

16. The component will finance consultant services to hire technical, administrative, and fiduciary staff to mount public awareness campaigns, social assessments, customer surveys, studies, training, logistics for conferences and meetings, to fund one vehicle and some IT equipment, and to implement training for KCA, MCOs and other land administration practitioners. It will also finance recurrent costs for the PCO, including supplies, travel, per diems for travel days and training, office space and utilities.

30 Annex 5: Project Costs KOSOVO: Real Estate Cadastre and Registration Project (RECAP)

Project Cost By Component and/or Local Activity US$ million

A. Municipal Land Administration Strengthening the Capacity of the MCOs 2.69 1.76 4.45 Systematic Registration 2.34 0.59 2.93 Sub-Total Component A 5.03 2.34 7.38

B. KCA Institutional Framework Institutional Reform 0.18 0.21 0.39 KCA Technical Infrastructure 0.62 0.68 1.30 Sub-Total Component B 0.80 0.89 1.69

C. Project Management, Training and Public Outreach Project Management and Donor 1.17 0.25 1.42 Coordination Public Outreach 0.21 0.03 0.24 Training 0.77 0.19 0.96 Sub-Total Component C 2.15 0.47 2.62

Total Baseline Cost 7.98 3.70 11.68 Physical Contingencies 0.80 0.37 1.17 Price Contingencies 0.75 0.26 1.01 Total Project Costs' 9.53

Total Financing Required 13.86

31 Annex 6: Implementation Arrangements KOSOVO: Real Estate Cadastre and Registration Project (RECAP)

1. The KCA will be the implementing agency carrying out the five-year project. The PCO within the KCA will continue to be responsible for project management (see para. 6 below). Project specific roleshesponsibilities include the following:

2. Kosovo Cadastre Agency.17KCA will be the main implementing agency. As an agency under the MPA, it was created under the Cadastre Law, from the beginning as a transitional entity with a long term objective to eventually become an autonomous, self-financing institution, though this will not be achieved during the life of this Project. The vision was revisited with the Comprehensive Status Settlement which designated keeping cadastre records as a delegated responsibility to be carried out by the municipalities, precluding merging KCA with MCOs. KCA is currently responsible for cadastre and property registration and its long-term objective is to establish an updated real estate cadastre in municipalities throughout the country. KCA is also responsible for cartography, photogrammetry, geodesy, aerial photography, international border demarcation, and the licensing and supervision of surveyors. It employs 47 full-time staff (down from 59 in 2007), of which fewer than five have university degrees. At the donors’ request, KCA prepared the Kosovo Cadastre Development Strategy for 2009-201 1 that lists the steps needed to complete the cadastre and other investments. The strategy was endorsed by the GoK in December 2008. A full Business Plan for the KCA covering the period 2009 to 2014 was approved by the government in June 2009. In spite of its understaffing, in 2008 KCA implemented an investment project for scanning of registry and cadastre documents, funded by the Kosovo Consolidated Budget, of €0.7 million, in addition to other donor supported activities.

3. KCA’s current organizational structure no longer serves its institutional development needs. The main office is in Pristina in rented space within the National Archives, and it has no branch offices. The MCOs are part of the municipal structures, so revenues from land administration services remain with the municipalities. This means that although KCA is responsible for land registration and cadastre services, the revenues are not significant to contribute to KCA’s capacity (5% of MCO fee revenues). Further, KCA still lacks the technical staff and managerial capacity to implement its strategy.

4. An example of current staffing profiles is KCA’s Geographic Information System (GIS) Section, under the Department for Planning, Analysis and GIs. At present, 13 experts work in the Section, two of whom are only temporarily assigned there for the final phase of their education. With the new amendments to the Law on State Survey and Real Estate Cadastre (requiring licensing of private surveyors), the GIS Section acquired added responsibilities and a new organizational structure is being prepared to meet the requirements of licensing private

17 The Kosovo Cadastral Agency (hereinafter: KCA) shall be responsible for the Cadastre and have the authority to constitute and maintain the overall official evidences on immovable properties pursuant to the recorded dates of census and land cadastres and has the authority to make the overall supervision of cadastral activity as well as issuing of the other sub normative acts regarding to cadastral activity (Cadastre Law 2003/25).

32 surveyors. It is expected that the number of GIS staff must be increased to 20 full-time specialists.

5. Through the Business Plan, KCA will identify the financial and human resource requirements consistent with its long-term estimated revenue, which will be partly derived from the Kosovo Consolidated Budget (KCB) and from other fees and sale of products, including surveyors’ license fees, marketing and packaging of geographic information, and eventually fees for support to MCOs.

6. Project Coordination Unit (PCO). A PCO within KCA will manage the implementation of all project-supported activities. The work will include:

a. Providing secretariat services to the IMC, when it is established (e.g., convening meetings, establishing the agenda, preparing minutes);

b. Preparing annual plans, budgets, and procurement plans;

C. Coordinating the work of Component A with all participating municipalities and conducting their regular needs assessments for producing land registration and cadastre documents, as well as for training;

d. Coordinating activities under Component B that require input from outside agencies (e.g., legislation, norms and procedures to be harmonized with other stakeholders);

e. Managing public awareness efforts and customer survey contracts;

f. Conducting the implementation stage social assessments;

€5 Managing training programs, including preparing them in consultation with KCA, municipalities and other stakeholders (e.g., surveyors, municipal courts);

h. Monitoring/evaluating project activities, including preparing formats, collecting data from KCA and MCS, contracting with consultants to carry out public awareness activities and customer surveys;

i. Preparing technical specifications and TORS for project activities in consultation with staff in the KCA and municipalities; establishing and participating in procurement selection committees, and evaluating project completion reports;

j- Following-up with management on all signed contracts, together with the PPA;

k. Carrying out the project’s fiduciary aspects (Le., disbursement, financial reporting, and auditing);

1. Preparing quarterly and annual monitoring reports to be sent to the GOK and IDA, and other donors.

33 7. Financed by donors and the proposed project, PCO staff will include:

i. A PCO coordinator, who reports to the KCA's CEO; .. 11. A financial management specialist; ... 111. A procurement specialist (supported by an international/regional procurement consultant at the beginning of the project);

iv. A cadastre specialist for supervising implementation of sub-component A2;

v. A coordinator responsible for implementing the public awareness programs and customer surveys;

vi. A human resource development/training specialist;

vii. Two technical specialists responsible for supervising implementation of sub- component A 1;

viii. A legal specialist;

ix. An M&E specialist;

x. An administrative assistant; and

xi. An interpreter/translator.

8. Inter-Ministerial Land Administration Committee (IMC)". The BP envisages the establishment of this Committee, by early 2010, to include key stakeholders, such as representatives from the Ministries of Public Administration (MPA), Local Government (MLG), Agriculture (MAFRD), Environment and Spatial Planning (MESP). This Committee will have a policy advisory role. Its functions will include:

Providing strategic guidance for decision-making on policy issues; Identifying broad policy and strategic issues for implementing policy reforms; Coordinating and building consensus among stakeholders on policies related to project implementation; Receiving/approving annual reports and ensuring coordination among the different entities.

9. The proposed timing of the establishment of the IMC early 2010 is appropriate because its role is not critical for project effectiveness or early stages of project implementation.

'* IMC, please refer to page 42-43 of the Business Plan.

34 10. Municipalities. Kosovo has 33 municipalities and five more will be established as a response to the SSP. Municipalities are the local government units below the national level and include both urban and rural areas. Their populations range from about 400,000 (Pristina) to less than 10,000. The municipalities, which are self-financing, obtain their revenues from municipal taxes, fees and compensations and block grants from the Central Government (to supplement the budgets of the poorer municipalities) and conditional subsidies from the State Budget to finance capital projects (such as large infrastructure investments). They are also responsible for day to day land administration services, including cadastre records, as well as local spatial planning and urban planning. Their involvement is a key to all the project activities, especially for Component A. Each municipality will provide inputs for renovation design, prepare the technical specifications for the civil works, evaluate bids, supervise the winning contractors and be responsible for issuing construction permits and inspecting buildings/structures within their territories; the results from the municipal staff will be checked by KCNPCO contract supervisors prior to contract payments.

11. Municipal Cadastre OfJices (MCOs) are part of the Municipal structures and main beneficiaries of subcomponent A and training activities. They generally have a Property Rights office in charge of registering transactions in the IPRR and a Geodetic office in charge of maintaining the cadastre. With the requirement that licensed surveyors carry out the surveys, some of their technical staff has left for the private sector, allowing for more competition for clients and improved quality standards. KCA maintains the national digital database in KCLIS and MCOs have access to write to their part of it. To ensure consistency of services across municipalities, only munici alities that sign MOUs (approved by the Municipal Councils) are eligible for reengineeringI! MCOs are beneficiaries of these project activities but must participate by providing inputs for office redesign, and implementing the new workflows and procedures as well as migrating data from the IPRR to the KCLIS. KCA will be responsible for overseeing MCO inputs and will handle the procurement. KCA will be responsible for training and overseeing MCOs staff in the use of new standard workflows and procedures. After the systematic survey data is checked for quality, MCOs will integrate the data into their records under KCA’s supervision.

A sample MOU will be included in the Project Operations Manual.

35 Annex 7: Financial Management and Disbursement Arrangements KOSOVO: Real Estate Cadastre and Registration Project (RECAP)

A. Financial Management Arrangements

1 Executive Summary and Conclusion. An assessment of financial management arrangements for implementation of the proposed Real Estate Cadastre and Registration Project (RECAP) was carried out during project preparation. The objective of the assessment was to review adequacy of financial management systems and controls in place at the Kosovo Cadastre Agency (KCA) which is supported by a Project Coordination Office (PCO) both under the Ministry of Public Administration. The KCNPCO would be responsible for overall financial management arrangements for project implementation. Such systems reviewed include budgeting and funds flow, project accounting, financial reporting, internal controls, staffing and auditing arrangements as outlined in this Annex.

2. Conclusion derived is that the arrangements in place at KCA/PCO for project implementation meet Bank requirements. A financial specialist at the PCO dedicated to the project has been recruited and draft Financial Management Manual prepared, documenting procedures, systems and controls for the implementation of the project. The Single Treasury System through which Commitment and Payment Orders flow, would ensure proper authorization of payments. The centralized system would be applied for accounting and financial reporting for the project. The internal control processes are well regulated and monitored by the Grant Unit within the Ministry of Economy and Finance (MEF). The client is in compliance with financial management and auditing covenants on ongoing Business Environment Technical Assistance (BETA) project. Project level financial management risk is rated as ‘Moderate’.

3. Although the project financial management risk is assessed as ‘Moderate’, overall financial management risk level is rated as ‘Substantial’, due to perceived corruption risks, and need for further strengthening of public financial management in the country. The risk is reduced to ‘Moderate’ level after mitigation measures which are designed into the proposed project and in the Public Sector Modernization Project, including strengthening project management, donor coordination and provision of training. Other donors, such as EC, are supporting the Borrower strengthen internal and external audit function and related capacity building. Financial management risks are summarized below.

Table 7.1: Summary of Financial Management Risk Rating

Risk Risk Risk Mitigation Measures Residua I Rating Risk Inherent Risk

Country financial management risk. H External audit would be done by auditors S The overall fiduciary risk in the public acceptable to the Bank. Also, Bank sector in Kosovo is still high due to supervision will be intensified to ensure

36 perceived corruption risks and general that agreed activities are the ones actually capacity issues in internal and external implemented in the way they were audit. Internal control and internal audit planned. at all levels of government are in their infancy. Considerable time and effort will be required to make them filly operational. External audit is undeveloped and, as with internal audit, it will need sustained external support for its development. Entity Level. Risk of political S Any changes to the structure and key M interference in entity’s management. staffing in the Project Coordination Unit in KCA will require agreement with the Bank Project Level. See below M Adequate control mechanisms for M payments have been agreed and included in the project. OVERALL INHERENT RISK S M Control Risk Budget. KCA has experience with M No additional measures needed M planning and budget for Bank financed projects. Accounting. M PCO FM Specialist recruited for the M project. Internal audit. The audit S The Bank will request IA to provide S recommendations may be neglected or specific reports on the project transactions. political interference narrow the scope Supervision missions will enquire into the of the audits responses by KCA to the internal audit reports. No reliance will be placed on IA at this stage. M There will be a Financial Management M Manual for the project to document the internal control procedures on financial management. In addition, internal audit will monitor the compliance with the procedures agreed. Funds flow and disbursement M M Financial Reporting. KCA has some M Content and timing of submission of M experience with the preparation of IFRs quarterly IFRs agreed at negotiations. having implemented the Cadastre Reconstruction sub-component of the ongoing BETA project. Auditing M External audit will be done by private M auditors acceptable to the Bank on terms of reference expanded in scope to ensure full compliance with internal control Drocedures M Proiect FM Risk M

37 B. Country Issues

4. The latest Public Expenditure and Financial Accountability Report (PEFA - April 2007) and Operational Financial Accountability Report (OFAR - May 2005) concluded that the overall legal framework for budgeting and budget management is largely compatible with internationally recognized standards. However, there is room for improving the current administration’s capacity.

5. The Treasury System represents a major strength as it is comprehensive and is able to produce timely and adequate analytical reports. The centralized budget execution, accounting and payments system linked to the Treasury Single Account (TSA) substantially reduces the risk of funds being misappropriated. Although the TSA is a prerequisite for good cash management, there is still work to be done to improve it, including developing a better policy for and a capacity to manage short-term liquidity and medium-term and longer-term public debt, when the Kosovo Government will have the authority to borrow. In order to address these issues, the Government introduced a new legislation on Public Financial Management and Accountability effective from July 2008 and circulated a new draft Debt Law for comments in June 2008. The implementation of the legislations will be monitored closely by the Bank.

6. The system through which Commitment and Payment Orders flows, ensures proper authorization of payments. The internal control processes are well regulated. The Treasury authorizes commitments and payments based on requests and supporting documentation by budget organizations and municipalities. The Treasury pays from a single account in the Central Banking Authority of Kosovo (CBAK).

7. The Kosovo Government has undertaken significant reforms in the past several years to establish a modern framework for public internal audit. Internal audit departments have been established in most Budget Organizations, including Ministry of Public Service and Ministry of Economy and Finance. The existing regulations are largely compliant with EU requirements. There is still room for improving the capacity of internal auditors, the Internal Audit Central Harmonization Unit and the existing training and licensing arrangements, as well as for improving the understanding of the managers of the public administrations on internal audit. The Government also aims to address another weakness of the system, which seem to have limited impact on the compliance with rules and regulations by the budget entities by the establishment of Audit Committees in each ministry and municipality. The role of these committees would be to act as a bridge between the management and auditors and ensure that the audit recommendations are implemented. The committees are established in some 30% of the public administrations.

8. Corruption remains a concern in Kosovo. The UN Review of Standards identified corruption as “a widespread phenomenon where efforts to assess its extent by international police, prosecutors and intelligence officers has been unsuccessful, due to clan solidarity, codes of silence, language problems and inexperienced local law enforcement institutions”. A World Bank survey of Kosovo enterprises found that 35 percent of surveyed firms consider corruption as a severe constraint to doing business. Kosovo has made some initial progress in the fight against corruption in the passing of a corruption law, and the recent reforms of public expenditure management also lay the foundation for improved transparency, but much more

38 remains to be done. Positively, the media and civil society are increasingly active in promoting accountability. In relation to this Project, adequate mitigation measures are incorporated in the project which can be summarized as follows: (a) enhanced disclosure and transparency of project-related information, (b) regular/annual operational reviews as integral part of the annual audits to confirm the validity and legitimacy of the grants payments made and to verify that internal control mechanisms are effective, and (c) institute appropriate complaints handling mechanism.

9. The Project will rely extensively on the various elements of KOSOVO’Spublic financial management system, including:

0 Budgeting: the project budgets will be prepared and approved in accordance with existing regulations; 0 Internal controls: the project will use the existing internal control framework within the Ministry with some additional procedures developed for the Project; 0 Flow of funds and payments: the project will use the Treasury system; 0 Accounting and reporting: the project will rely extensively on the public accounting and reporting systems with some additional reporting requirements for the Project.

C. Strengths

10. The significant strengths that provide a basis of reliance on the project financial management system include: (i)the experience of MEF in implementing previous projects and (ii)the experience of the Kosovo Cadastre Agency (KCA) in the implementation of the cadastre component of the Business Environment Technical Assistance project.

D. Weaknesses and Action Plan

1 1. KCA has some prior implementation experience, but it is the first time that it will have direct financial management responsibility for a project. Accordingly, the financial management environment of KCA has some weaknesses with respect to handling the project accounting and preparing the financial reports as required by the Bank. The following action plan is proposed to address the deficiencies in the KCA financial management environment.

Issue Action Deadline Operational Manual (includes *TheOperational Manual adoption. Prior to 1 Financial Management Manual). I I Effectiveness 1

E. Implementing Entity

12. The KCA operating under the Ministry of Public Administration will be responsible for the implementation of the proposed Project. KCA is created under the Cadastre Law as an arm of the MPA and is responsible for cadastre and property registration. KCA is a budget institution and thus is funded from the Kosovo Consolidated Fund. KCA is currently implementing one

39 component of the Business Environment Technical Assistance Project financed by the Bank. There is a PCO in place to coordinate the project activities. KCA is not able to recruit new staff to meet the requirements of the new project. Therefore, the existing PCO within KCA will be strengthened to support the agency in implementing of the upcoming project’s activities. The PCO also serves as a secretariat to the IMC, which is composed of representatives of the Ministries of Public Administration; Local Government; Agriculture, Forestry and Rural Development; and Environment and Spatial Planning. The general implementation arrangements are described in Annex 6.

13. The risk associated with the implementing entity is assessed as moderate,

F. Budgeting

14. A separate code under the MPA and later the MESP will be created for this particular project. The KCA will be preparing the budgets for the project based on the procurement plan. These budgets will form the basis for allocating funds to project activities, and when expenditures are paid, for requesting funds from the Bank. The KCA has experience with .planning and budgeting for Bank’s financed operations.

The risk associated withplanning and budgeting is assessed as moderate.

G. Accounting

15. StafJing. All Commitment and Payment Orders (CPOs) produced by KCA will be submitted to the MEF. Although the project will use KOSOVO’Sown internal control procedures for most processes the KCA has hired one additional staff, who works under the PCO, to deal with financial management issues of the project in collaboration with the Financial and Administrative Department of KCA, including and not limited to production of withdrawal applications and quarterly and annual financial statements for the project. The MEF will assign a staff member in the Grant Unit to be the focal point for processing and control of payments related to the project. The Financial Management Specialist at the PCO will work closely with the Grant Unit at the MEF to ensure that financial information required from the Free Balance system is available on time to prepare required interim and annual reports. The Financial Management Specialist has been recruited and will be retained by KCA PCO until the end of the implementation of the Project. The Financial Specialist of the PCO, to avoid any delays in project implementation, will coordinate closely with KCA, MPA, MEF and other relevant ministries, government agencies and MCOs. The risk associated with stafJing is assessed as moderate.

16. Information Systems and Accounting Procedures. The project will mainly use the Kosovo Financial Management Information System. This system was assessed in both the Operational Financial Accountability Report and the latest Public Expenditure and Financial Accountability and found to be acceptable for the purpose of registering the necessary financial information. As KCA falls under the umbrella of the Kosovo Consolidated Budget, all project related payments would be made via the Single Treasury Account (STA) or via direct payments by the Bank. The

40 accounts would be maintained as part of the MEF's accounting system, which generates adequate reports ofthe accounts. The risk associated with information systems is moderate.

17. Accounting policies and procedures. The accounting books and records will be maintained by MEF on a cash basis based on the documentation provided by KCA. Quarterly and yearly project financial statements will be presented in Euros. Relevant procedures, arrangements relating to the division of responsibilities and work and document flows will be documented by KCNPCO in the Financial Management Manual.

18. The risk associated with accounting is moderate.

H. Internal Audit

19. Internal audit in Kosovo is at an early stage of development. In 2000, the role of the internal audit in the PFM process was recognized, and an Internal Audit Department (IAD) was created in the MEF. Its task was to catalyze internal audit in the Budget Institutions. Additionally, the Law on Public Financial Management and Accountability provides the legal basis for the internal audit. The internal auditors report directly to their top management. A manual reflecting the approach promoted through the application of the International Standards for the Professional Practice of Internal Audit has been developed and its use is mandatory for all Internal Audit Units. Nevertheless most auditors are not sufficiently experienced at this stage to carry out full system audits.

20. MPNMESP internal audit unit would audit the project activities as a normal part of their work. Internal auditors are appointed and they will submit regular reports to the MPNMESP management. The KCA will officially request the MPNMESP internal auditors to include the project activities in their audit plan and submit a separate report for these after effectiveness. Internal audit reports would be shared with the Bank supporting the project and follow-up actions would be monitored as part ofthe overall monitoring ofthe project.

21. The European Agency for Reconstruction (EAR) provided extensive support to strengthen internal audit function. Apart from providing staff training, it has recently helped to draft a separate law on internal audit, based on the EU Public Internal Financial Control (PIFC) model and also prepared a country internal audit strategy paper.

22. The risk associated with internal audit is substantial. The project will not rely on internal audit at this stage, but the internal audit activities and implementation of the auditors' recommendations will be closely monitored.

D. Internal Controls

23. General government regulations for processing transactions and approving contracts exist. Also at the level of the treasury, procedures for controls and release of all types of expenditures do exist and are followed. Compliance with rules is fairly high and commitment controls appear also to be effective. The KCA and the Grant Unit at the MEF will maintain an

41 effective internal control system to ensure that project expenditures are properly authorized; supporting documents are maintained; accounts are reconciled periodically; and project assets, including cash, are safeguarded. The Financial Management Manual sets out the financial management and internal controls policies and procedures, and is intended to guide staff and minimize the risk of errors and omissions, as well as delays in recording and reporting. These written standards also clarify responsibilities, including level of authority, clear control over assets, cash, and bank accounts, and it ensures timely and accurate financial reporting.

24. The risk associated with internal control is moderate.

J. Funds Flow and Disbursements

25. Total project costs of US$13.86 would be financed with IDA Credit of SDR 4.3 million, IDA Grant of 3.5 million, with the remainder as a Recipient contribution to finance civil works, technical services, consultant’s services, goods, training and incremental operating costs.

26. The Bank funds from IDA Credit (55%) and IDA Grant (45%) would be disbursed using the reimbursement method from borrower’s own funds documented by Statement of Expenditures (SOEs) or by making direct payment requests to the Bank. Special Commitments disbursement method would also be available to the borrower to finance project expenditures. No Designated Account will be required. Based on the documents prepared by KCA, all relevant documents will be processed by the Grant Unit in MEF, either to be paid by treasury or by direct payments. Supporting documentation for all payments made, including completion reports and certificates will be retained by the Borrower and made available to the Bank during project supervision, and to external auditors.

27. Statements of Expenditures (SOEs). Disbursements on basis of Statements of Expenditures (SOEs) will be used for contracts valued at less than US$lOO,OOO equivalent for goods, less than $50,000 equivalent for consulting firms, less than US$25,000 equivalent for individual consultants and training, and incremental operating costs. Payments against contracts above these limits will be fully documented. Full documentation in support ofthe SOEs will be retained in the KCA/PCO for at least two years after the project closing date. This information will be available for review by Bank missions during project supervisions and by the project auditors. SOEs will be audited in conjunction with the annual audit of the project financial statements. Table 7.2.1 Allocation of IDA Credit Proceeds

Expenditure Category Amount in US$ Financing Percentage thousands Works and Technical Services for 1 Components Al, A.2 (a) and A.2(c) 3,148 75% Goods, Technical Services, Consultants’ Services and Incremental Operating Costs 2 for Part A.2(b) ofthe Project 1,681 75% Goods, Consultants’ Services, Training and Incremental Operating Costs for Parts A. 1, 3 A.2(a), A.2(c), B and C of the Project 1,908.5 100% Total 6,737.5

42 Table 7.2.2: Allocation of IDA Grant Proceeds

Expenditure Category Amount in US$ Financing Percentage thousands Goods, Consultants’ Services, Training and Incremental Operating Costs for Parts A.l, A.2(a), A.2(c), B and C of the 1 Project 5,512.5 100% Total 5,512.5

28. Government and MCO Contribution. Counterpart funding to finance project activities would be provided through budget allocations, in amount of US$1.61 m. to finance eligible project expenditures. This amount includes MCO’s contribution of 25% of the cost of civil works and the Government’s contribution of25 % ofthe costs ofthe systematic registration.

The risk associated withfundsflow and disbursement is moderate.

K. Financial Reporting

29. Both the Operational Financial Accountability Report and the latest Public Expenditure and Financial Accountability Report indicated that the Treasury System is comprehensive and is able to produce timely and reasonable analytical reports. The centralized accounting system, facilitates preparation of detailed quarterly as well as yearly reports. All reports are presented according to cash-based IPSAS and broken down according to the budget structure.

30. KCA will produce all financial reports for the Bank based on the information received from the treasury system (Free balance). These reports will be supported with more detailed expenditure and contract monitoring tables that will be prepared by KCA. The formats of the quarterly interim un-audited financial reports (IFRs) which. will be agreed during negotiations will be used for project monitoring and supervision and the formats of these will be included in the FM manual. KCA will produce a full set of interim un-audited financial reports on a quarterly basis throughout the life of the project. The content and timing of submission of the quarterly IFRs was discussed and agreed during negotiations.

3 1. The risk associated withjnancial reporting is moderate.

L. External Audit

32. The UNMIK Regulation of 2002/18, amended by Regulation 2005/33, established the Office of the Auditor-General (OAG) with universal and standard powers and responsibilities. For lack of sufficiently trained staff, only about 50 percent of the Government’s operations are audited annually. From time to time the OAG receives requests from the Special Representative of the Secretary General and the Assembly to audit specific Government agencies or public enterprises where special problems are known to exist. There is little evidence of active follow- up by the MEF or individual Budget Organizations of the audit observations. The same types of errors and mismanagement repeat themselves year after year despite being repeatedly criticized

43 by the OAG. Furthermore, there is no reporting to the Assembly on the action taken in relation to the previous year’s audit observations.

33. Current project financial statements and auditing arrangements for the previous projects managed by MEF and KCA are acceptable and it has been agreed that these arrangements will be replicated for the proposed project. Annual audits of the project financial statements will cover all aspects of the project. The audits will be performed by independent auditors acceptable to the Bank, and in accordance with International Standards on Auditing (ISA), and the Bank’s guidelines on auditing. The annual audit reports will consist of a single opinion on the financial statements of the project, incorporating the project accounts, including Statement of Expenditures (SOE); as well as a Management Letter. The auditors’ TOR will be prepared by the KCA and cleared by the Bank before the engagement of the auditor.

34. The cost of the audits will be eligible for financing from the Credit/Grant. KCA and the Grant Unit at the MEF will provide the auditor with full access to project-related documents and records and with the information required for the purpose ofthe audit.

35. The following chart identifies the audit reports that will be required to be submitted by the project implementation agencies together with the due date for submission.

Audit Report Due Date Entity financial statements NIA Project financial statements (PFS), including also Within six months of the end of each fiscal Statement of Expenditures (SoE). The PFS include year and also at the closing ofthe project sources and uses offunds by category, by components and by financing source; SoE, and notes to financial statements.

The risk associated with external audit is moderate.

M. Financial Covenants

36. The Borrower will be required to maintain a financial management system, including accounts and records sufficient to monitor sources and uses of funds for project implementation. Un-audited interim financial reports will be submitted to the Bank no later than 45 days after end of each quarter. The project financial statements will be audited annually by independent auditors and under terms of reference acceptable to the Bank, and report submitted to the Bank no later than six months after end of such year audited. Financial management covenants will be discussed and agreed at negotiations.

N. Supervision Plan

37. During project implementation, the Bank will supervise the project’s financial management arrangements in two main ways: (i)review the project’s quarterly interim un- audited financial reports, internal audit reports, as well as the project’s annual audited financial statements and auditor’s management letter including findings and recommendation related to

44 the operational review; and (ii)during the Bank’s supervision missions, review the project’s financial management and disbursement arrangements (including interim reports (IFR)) to ensure compliance with the Bank‘s minimum requirements. As required, a Bank-accredited Financial Management Specialist will assist in the supervision process. The first mission will be 6 months after the first disbursement.

45 Annex 8: Procurement Arrangements KOSOVO: Real Estate Cadastre and Registration Project (RECAP)

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" published May 2004 and revised in October 2006; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" published May 2004 and revised in October 2006, and the provisions stipulated in the Credit Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, estimated costs, prior review requirements, and time frame are agreed between the Recipient 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. The projected procurement will be advertised in a General Procurement Notice (GPN) on Octoberl6,2009. Specific Procurement Notices (SPN) will be published for all ICB procurement and Consulting services contracts as per corresponding bidding documents and Requests for Proposals (RFPs) become ready and available.

B. Assessment of the agency's capacity to implement procurement 3. In June 2004, the Bank conducted an Operation Procurement Review (OPR) which rated Kosovo as a high risk country from the procurement point of view. The OPR identified the following major weaknesses: (i)the current Law on Public Procurement is sound but implementation is weak (ii)the PPA and other procuring entities, including ministries, lack capacity and independence to conduct procurement, (iii)auditing of procurement does not exist institutionally; and (iv) corruption seem to be significant but no programs to tackle it are in place. In light of this, procurement under the project would be carried out in accordance with the Bank Procurement and Consultants Guidelines and in accordance with the provisions stipulated in the Credit Agreement and the Borrower would be required to appropriately build the implementation agency's capacity.

4. An assessment of the capacity of the i) Public Procurement Agency (PPA); (ii) Municipality Urban Directorate MUD and Procurement Department in Ferizaj and Pristina cities; (iii)PCO established in Kosovo Cadastre Agency (KCA), to implement procurement actions for the Project was carried out in September 2008. The assessment included a review of the organizational structure of these institutions that will be involved in the implementation of the Project as well as the interaction among the PPA, KCA and municipalities that would benefit from the Project. Procurement activities will be carried out by the KCA. Given its weak procurement capacity, the KCA will hire an internationalhegional procurement consultant who will assist the KCA for at least the first year of the project; this expert, in addition to providing procurement support to KCA/PCO, shall provide on-the-job training for local procurement officer who will also be hired under the project. The PCO in KCA is staffed currently by the Project Coordinator, a training coordinator, legal specialist, and an administrative officer. The PCO is expected to be staffed with other local experts such as M&E specialist, financial

46 management specialist, international procurement expert, local procurement officer, communication specialist and an interpreter.

5. The PCO in KCA, which will be responsible for technical matters, is staffed currently by the Project Coordinator, two cadastral experts and one secretary/translator. The PCO is expected to be staffed with other local experts such as training coordinator, M&E specialist, financial management specialist, a legal expert, communication specialist. The PCO/KCA has gained modest experience on implementation of on-going BETA Project. The procurement manager of PPA is experienced with Bank’s procurement procedures and will provide guidance to the PCO procurement manager.

C. Procurement Risk Assessment

6. The overall procurement risk assessment of the implementing agencies for the project is rated as Substantial (S) before mitigation measures and Moderate (M) after mitigation measures are implemented. The risks associated with procurement and the mitigation measures are identified in the procurement capacity assessment report and summarized in table below:

Table 1: Summary Risk Assessment

Note: H=High; S=Substantial; M= Moderate: and L=Low.

Description of Risk Rating Mitigation Measures Rating 0, of Risk residual risk Weak procurement capacity of S KCA/PCO will hire an internationalhegional procurement M the PCOiKCA and inadequate expert on or before project effectiveness; he/she will assist knowledge of Bank’s the KCA for at least the first year of project procurement procurement and consultant and will provide on the job-training for local procurement guidelines may delay officer, to be hired also within the project. The PCO selectionhidding process and coordinator along with local procurement officer will contract management. increase their procurement capacity by attending procurement training courses. The PCO coordinator along with procurement officer will attend the ECA Regional procurement seminars when conducted by ECA. In order to ensure for proper selection procedure, the PPA will assist and guide the KCA on selection process of international/regional procurement consultant. In case of delay on recruitment of internationaliregional and local procurement specialists, the PPA will provide procurement support to KCAPCO. Lack of competition due to lack S In order to optimize participation in procurement of both M of local suppliers/ contractors/ international and domestic firms, PCO/KCA under Bank’s consultants, which may supervision will package/combine contracts carefully in undermine the bidding process light of the possibilities of the supply side. for NCB and Shopping contracts.

47 Potential interference by high H Discuss anticorruption guidelines with the KCAPCO at S officials in the procurement negotiations and further at project launch workshop. process, including selection and Include provisions related to disclosure of conflict of contract award. interests, code of ethics for evaluation committee into Operational Manual. Close supervision by the Bank of prior and post review contracts. Average S M

D. Procurement implementation and arrangements

7. Procurement activities will be carried out by PCO in KCA. The PCO will have a full time procurement officer who will be supported by the international/regional procurement expert for at least the first year of the Project. The PPA shall provide procurement support to KCA for recruitment of international/regional procurement expert as well as for local procurement officer. In case of delay on recruitment of international/regional and local procurement specialists, the PPA will provide procurement support to KCNPCO. KCA/PCO will maintain complete procurement files which will be reviewed by supervision missions.

8. Procurement of Goods and services (other than consultant services): Goods procured under this Project would include IT equipment, office furniture, vehicles, etc. The Project includes also technical services contracts for systematic registration for inputting in the KCLIS (technical services). Goods and equipment estimated to cost USD 100,000 or more will be procured through International Competitive Bidding (ICB). Technical Services (TS) contracts estivated to cost USD 300,000 or more will be procured following the ICB procedures; TS contract estimated to cost less than USD 300,000 and more than USD 100,000 may be purchased following the National Competitive Bidding (T\rCB); for TS contracts estimated to cost less than USD 100,000 shopping procedures will be used.

9. Readily available off-the-shelf goods estimated to cost less than USD 100,000 each may be procured through Shopping on the basis of three written quotations obtained from qualified suppliers. The procurement will be done using the Bank’s SBD for all ICB and ECA Regional documents for shopping procedures. The PCO would solicit quotations from at least three (normally 5-6) suppliers from eligible source countries. In case of Shopping for procurement of IT equipment (hardware, software, etc.) the PCO will follow the procedures set forth in the Bank IT Regional website. When soliciting quotations, the PCO will include in the shortlist the authorized firms which are recommended in the Bank’s website; in addition, other firms or local dealers may be added to the shortlist, upon checking their credentials with respective manufacturers.

10. Direct Contracting: When certain goods are available only from a particular supplier or in case where compatibility with existing equipment requires that goods must be procured under Direct Contracting (in accordance with para. 3.6 of Procurement Guidelines) and the Bank’s prior approval is obtained with due justification.

1 1. Procurement of Works: Works procured under this Project would include civil works for reconstructions of MCOs. Works contracts estimated to cost USD 500,000 or more will be procured following the ICB procedures. Works contracts estimated to cost less than USD

48 500,000 and more than USD 100,000 may be purchased following the National Competitive Bidding (T\ICB). The Sample Bidding Documents will be prepared by the PPA and will be reviewed and agreed with the Bank, including additional provisions listed below for NCB procedures (refer to para. “E. Procurement plan” below) for works and TS contracts.

12. Small works contracts estimated to cost USD 100,000 and less will be procured following the shopping procedures, on basis ofthree written quotations obtained from qualified contractors. Procurement will be done using the Bank’s ECA Regional bidding documents for shopping.

13. Selection of Consultants: Consulting services under the Project would include design for related to civil works contracts, public awareness survey, assistance updating KCA’s business plan and strategy, local individual consultants for KCA, training services and workshops. Short lists of consultants for services estimated to cost less than USD 100,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions ofparagraph 2.7 of the Consultant Guidelines. The applicable selection methods will be as follows: Consulting services to be provided by firms estimated to cost normally USD 100,000 or more per contract will be procured through Quality and Cost Based Selection (QCBS) method; this method would be used also for smaller value contract which are of complex nature. Consulting services to cost less than USD 100,000 equivalent each may be procured through Consultants QualiJications (CQ) method. The consulting contract for project audit may be selected through Least Cost Selection (LCS) method. Fixed Budget selection method may be used, subject to Bank’s prior approval, for consulting services assignments that meets requirements of para 3.5 of Consultants Guidelines. Sole source selection may be used, subject to Bank’s prior approval, for consulting services assignments that meets requirements of para 3.9-3.13 of Consultants Guidelines. Individual consultants will be selected in accordance with Section V of the Consultants Guidelines. Sole source (SS) method may be used for certain individuals with the prior approval ofthe Bank, in accordance with para 5.4 of Consultant Guidelines.

14. Training: Training will include seminars, conferences, workshops and study tours in colinection with the activities included in the Project components and reflected in the Annual Training and Study Tour Plans that would be prior-reviewed by the Bank. The Bank will clear the plans upfront, while changes and additions to the plan would be reviewed separately as they occur and would cover the list of participants, agenda for training events and estimated budget. Consultants required for preparation, facilitation or conducting training activities shall be selected under appropriate procedures for selection of the Consultants as described above. Selection of such consultants shall be included in the Procurement Plan.

15. Operating Costs: The operating costs would finance expenses for PCO operating such as office and IT supplies, recurrent expenditures for vehicles, per diems for travel outside of location of work.

E. Procurement Plan 16. The KCA at appraisal developed a Procurement Plan (PP) for project implementation for the entire project scope consistent with the implementation plan, which provides information on procurement packages, methods and bank review method. However a firm procurement plan for the first 18 months of the project should be prepared and this plan will be agreed upon between

49 the Borrower and the Bank project team at negotiations and will be available at the implementing agency (KCNPCO) project database and on the Bank’s external website. The PP will be updated in agreement with the Bank’s project team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

Frequency of Procurement Supervision 17. In addition to the prior review supervision to be carried out from Bank team, the capacity assessment of the Implementing Agencies recommends post reviews to be carried on at least 20% of the contracts subject to post review. It is expected that a supervision mission in the field will be conducted every twelve months during which post reviews will be conducted. As a minimum one post review report which will include physical inspection of sample contracts including those subject to prior review, will be prepared each year. Not.less than 10% of the contracts will be physically inspected.

Additional Provisions for National Competitive Bidding

18. In order to ensure economy, efficiency, transparency and broad consistency with the provisions of Section Iof the Procurement Guidelines, the following criteria shall be followed by the KCNPCO in procurement under National Competitive Bidding procedures:

A. Generalities Open procedure shall be the default method of procurement. Procurement procedures, including methods and prior review processes cannot be changed without express consent from the World Bank. B. Registration 1. Bidding shall not be restricted to pre-registered firms; 2. Where registration is required, bidders (1) shall be allowed a reasonable time to complete the registration process, and (2) shall not be denied registration for reasons unrelated to their capability and resources to successfully perform the contract, which shall be verified through post-qualification; and 3. Bidders not from the territory of Kosovo shall not be precluded from bidding. If a registration process is required, any bidder declared the lowest evaluated bidder shall be given a reasonable opportunity to register. C. Advertising Invitations to bid shall be advertised in at least one widely circulated Albanian- language daily newspaper and in at least one widely circulated Serbian-language daily newspaper available over the territory of Kosovo allowing a minimum of 30 days for the preparation and submission of bids. D. Pre-qualification When pre-qualification shall be required for large or complex works, invitations to pre-qualify for bidding shall be advertised in at least one widely circulated daily newspaper available over the territory of Kosovo a minimum of 30 days prior to the

50 deadline for the submission of pre-qualification applications. Minimum experience, and technical and financial requirements, shall be explicitly stated in the pre-qualification documents, which shall be determined on a “pass/fail” method, not through the use of a merit point system. When pre-qualification is not used, the qualifications of the bidder recommended for contract award shall be assessed by post-qualification, applying minimum experience, technical and financial requirements, which shall be explicitly stated in the bidding documents. E. Participation by Publicly-owned enterprises Publicly-owned enterprises shall be eligible to participate in bidding only if they can establish that they are legally and financially autonomous, operate under commercial law and are not a dependent agency of the contracting authority. Furthermore, they will be subject to the same bid and performance security requirements as other bidders. F. Bidding Documents Procuring entities shall use the appropriate standard bidding documents for the procurement of works, acceptable to the Association. ECA Regional Sample Bidding Documents, modified as acceptable by the Association, shall be used. G. Bid Opening and Bid Evaluation 1. Bids shall be submitted in a single envelope containing the bidder’s qualification information, technical and price bids, which shall be opened simultaneously at the public bid opening; 2. Bids shall be opened in public, immediately after the deadline for submission of bids. The name of the bidder, the total amount of each bid and any discounts offered shall be read aloud and recorded in the minutes of the public bid opening; 3. Evaluation of bids shall be made in strict adherence to the monetarily quantifiable criteria declared in the bidding documents. No merit point system will be used; 4. Extensions of bid validity will be allowed once only for not more than 30 days. No further extensions shall be requested without the prior approval of the Association; and 5. Contracts shall be awarded to the qualified bidder having submitted the lowest-evaluated, substantially responsive bid and no negotiation shall take place. H. Price Adjustment Civil works contracts of long duration (more than 18 months) shall contain an appropriate price adjustment clause. I. Rejection of Bids 1. All bids shall not be rejected and new bids solicited without the Association’s prior concurrence. 2. When the number of bids received is less than three, re-bidding shall not be carried out without the Association’s prior concurrence.

51 J. Securities Bid security shall not exceed 3 percent of the estimated cost of the contract and performance security not more than 10 percent of this cost. No advance payment shall be made to contractors without a suitable advance payment security. These securities shall be included in the bidding documents in a text and format acceptable to the Association.

K. Confidentiality The process of bid evaluation shall be confidential until the publication of contract award has been issued.

L. Standards and Technical Specifications The Borrower shall specify internationally accepted standards whenever possible. Where such international standards are unavailable or are inappropriate, national standards may be specified. M. Right to inspect and audit Each contract financed from the proceeds of a GrantKredit shall provide that the suppliers, contractors and subcontractors shall permit the Bank, at its request, to inspect their accounts and records relating to the procurement and performance of the contract and to have said accounts and records audited by auditors appointed by the Bank. The deliberate and material violation by the supplier, contractor or subcontractor of such provision may amount to obstructive practice.

N. Fraud 8z Corruption The Bank shall declare a firm or individual ineligible, either indefinitely or for a stated period, to be awarded a contract financed by the Bank, if it at any time determines that the firm or individual has, directly or through an agent, engaged in corrupt, fraudulent, collusive, coercive or obstructive practices in competing for, or in executing, a contract financed by the Bank.

Anti Corruption measures

19. The Bank’s Anti-Corruption Guidelines (“Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by the IBRD Loans and IDA Credits and Grants”) dated Oct 15,2006 will be adopted by the Government for the implementation ofthe Project.

20. In addition the KCA/PPA will take the following measures to ensure the credit proceeds are used economically and for the purpose intended:

- Require each KCNPCO staff involved in procurement, including evaluation committee members, to certify in writing that hidher involvement does not create a conflict of interest, i.e. relationship with a supplier, contractor, consultant, etc. - To bring up to Bank’s notice each and every complaint received from any suppliers/contractor/consultant related to the procurement process and to record and dispose these complaints promptly and diligently.

52 Initial procurement plan - List of contractsfor goods, works and non consulting services and for Consulting Services assignments, with selection methods and time schedule

Description of Assignment Type of Number of Expected Expected contra contract /Contracts cl:rk Contract completiondat{ i / 1 (Prior I Post) 1 signature 1

A Component A - Municipal Land Administration Sub-component A I - Strengthening the capacity of Municipal Cadastre Offices (MCOs)

1 behabilitation works for MCOs I cw I 20 I NCB I Prior/Post I Sept2010 I Jan2014 I I I I I I I

13 Preparation of code of conduct for KCA Prior Jan2011 Jan2012 II , ICSII/cQ I I 1 1 14 Preparation and dissemination of guidelines and manuals CS 1 QCBS Prior Sept 2010 Sept 201 1 Sub-component B 2 -KCA Technical Infrasiruciure

15 Reference Stations for continuous reference operating Goods 1 ICB Prior Dec 2010 Mar 2014 network (CORN) - including warranty and annual software license costs 16 Staff for managing the CORN cs 3 Individual Prior June 2010 Jan 2016 117 IRover 1 Goods 1 1 I Shopping 1 Post I Dec2010 I Mar2014 I 11 8 PA-MCObroadband connection I Goods I 1 I ICB I Prior I Jan2011 I Jun2011 I

19 a) Consulting firm to establish system (KCA cs 1 CQ Prior Sep 2010 Sep 2012 Hotline). b) Expert for KCA hotline cs 1 Individual Prior Sep 2011 Sep 2013

53 11 2 131 41 5 6 7 8

Description of Assignment Type of Number of Selection Review Expected Expected contra contract 1Contracts Method by Bank Contract compktiondatj 1 1 1 (Prior I Post) 1 signature 1

C Component C - Project Management, Training and Public Outreach.

17 bblic awareness survey I CS I 1 I QCBS I Prior I Oct2010 I June2014 I

38 Annual surveys CS multiple CQ Post Aug 2010 June 2014

Sub-component C3 - TraininR Annual 40 Training TR multiple training plan 2010 2014

4 1 PCO Operating cost oc I Note: (*: The PCU coordinator, training coordinator, legal specialist, and administrative assistant were selectel competitively within the BETA Project, Cadastre component) so these assignments will be continuation of the one selected competitively. (**) The Bank wouldjnance contracts for IT equipment furniture for MCOs in four packages; For all these three kind of equipment the borrower will make all efforts to combine packages for multiple MCOs in one ICBpackage

54 1 2 3 4 5 6 7 8

:ef Description of Assignment Type of Number of Selection Review Expected Expected contra' io. contract Contracts Method by Bank Contract completion datt (Prior / Post) signature Date If such combination is impossible, than shopping will be used, respecting however the procurement thresholds foi these methods indicated below in the procurement plan. (***) For all TS contracts included in these two lines 7 and 8, the borrower will make all efforts to combine packages for multiple MCOs in ICB package(s). Ifsuch combination is impossible, than NCB procedures will be used, respecting however the procurement thresholds for these methods indicated below in this procurement plan The dates shown under schedule of dates belong to the first package only. Legend: Goods, Works and Technical Services (TS) ICB= International Competitive Bidding (in accordance with section 2 of Procurement Guidelines) For Goods contracts valued at or more than USD 100,000 ; For Technical Services (TS) contracts valued at or more than USD 300,000; For works contracts valued at or more than USD 300,000 NCB= National Competitive Bidding (in accordance with section 3.3 of Procurement Guidelines) For works contracts valued less than USD 500,000; For technical services contracts valued less than USD 300,000. DC= Direct Contracting (in accordance with section 3.6 of Procurement Guidelines)

SH= Shopping (in accordance with section 3.5 of Procurement Guidelines) For Goods contracts valued less than USD 100,000 ; For Technical Services (TS) contracts valued less than USD 100,000 ; For works contracts valued less than USD 100,000 Aggregate Shopping amount under the project: USD 1,530,000 for all Goods, CW and TS contracts, including lines 3,4 and 5) - to be monitored during project period Prior Review: - For Works and Technical Services contracts: All ICB contracts; All NCB contracts of USD 250,000 or more andjrst two NCB contracts, respectively for works and technical services, regardless their value; first two shopping contracts respectively for works and technical services. - For Goods: All ICB contracts; jrst two shopping contracts. All Direct contracts, regardless their value. Such contracts should be subject tojustifications in accordance with requirements under section 3.6 of Procurement Guidelines. Prequalijication: Not applicable Domestic Preference: Not applicable Legend: Consultant Services (CS) QCBS = Quality and Cost- Based Selection (in accordance with section 2.1 - 2.28 of Consultants Guidelines) ACS = Least Cost Selection (in accordance with section 3.6 of Consultants Guidelines) CQ = Consultants Qualifications (in accordance with section 3.7 of Consultant Guidelines) SSS =Single Source Selection (in accordance with section 3.9 - 3.13 of Consultant Guidelines) Individual = Individual Consultant (in accordance with section V of Consultant Guidelines) TR= Training and Study tours OC= Operating Cost Prior Review: , /For Firms: All contracts of USD 50,000 or more; first two CQ contracts regardless their value and all SSS contracts. For Individual Consultants: All contracts of USD 25,000 or more; first two contracts regardless the value and al, SSS contracts. All TOR forjrms and individuals contracts regardless the assignment value should be prior reviewed by the Bank.

55 Annex 9: Economic and Financial Analysis KOSOVO: Real Estate Cadastre and Registration Project (RECAP)

1. Project Objective: The project development objective is to help develop KOSOVO~Sland and property markets and improve tenure security.

2. According to the approved Business Plan of June 2009, the project’s investment cost is estimated at about €20 M, which will be funded mainly by the World Bank (US$12.25 M), three donors contributing bilaterally, and the Government.

3. Benefits and Beneficiaries: Real estate registration offers substantial economic and social benefits, such as (a) ensuring secure ownership, (b) improving access to credit for urban households, (c) reducing land disputes, (d) ensuring a sustainable use of natural resources as owners lengthen their investment horizons, (e) encouraging more orderly development of cities and peri-urban areas, and (0 creating employment opportunities. RECAP contributes to all of these benefits.

4. The beneficiaries of the investment will be: (a) the public living within the municipalities who will have better property data and access to the data more readily; (b) the private citizens and business community will be able to use more transparent, efficient and quicker processes to transact in the land market, and (c) the municipalities and central government. The current low- revenues and limited number of transactions stem from the MCOs’ minimal level of services, incomplete legal and normative framework, and lack of the public’s awareness of the rules and advantages of registration. In addition, buildings constructed without permits have an enormous negative impact on revenues because income and property taxes, infrastructure fees and fees for services are dramatically lower than they would otherwise be. When buildings have been registered, as the project proposes, each municipality would increase its income and be able to provide better services, while the central government tax revenues will be enhanced.

B. Business Environment and Finances for Key Institutions

5. The two key institutions involved in the project are the Kosovo Cadastre Agency (KCA), as agency of the MPA, and Municipal Cadastral Offices (MCO). These are under the jurisdictions of different levels of government.

6. Kosovo Cadastre Agency (KCA): KCA is regulated under UNMIK’s Administrative Instruction of 2006/04. KCA operates solely on allocations from the Kosovo Consolidated Budget (KCB) and does not retain any of its sales proceeds. The budget consists of three main headings which finance (a) staff salaries, (b) goods and services, and (c) capital expenditures. The agency’s 2009 recurrent budget allocation is less than €300,000, which has remained unchanged in the last three years, although they have executed a e5million capital budget in the last two years.

7. Licensing of private surveyors is expected to generate a higher demand for the information and records held by KCA. At this time, KCA’s income is limited to cadastral information, and as yet no sales have been recorded for the IPRR data. Sale of cadastral

56 information and services alone will not suffice in creating a financially self sufficient organization, as it is the registration services that generate the larger part of the revenues with any land administration system. Hence, at this time, KCA cannot aspire to be self sufficient until it is better integrated with the MCOs - as envisaged in the Agency’s strategy document. At present there is a minimal revenue sharing, with KCA receiving 5% of total MCO receipts. A review is planned to explore avenues to put the sector on a self-sufficient and sustainable footing.

C. Analysis of the Property Market - Sales and Mortgages

8. Overview: Despite recent difficulties experienced in the last quarter of 2008, the property market is already up and running. Although apartments still cannot be registered at the moment, there is no apparent legal restriction concerning the buying and selling of apartments on the market. Apartments constitute the second fastest moving items on the property market. The four property types by .market activity are: (i)construction land; (ii)apartments; (iii)houses; and (iv) shops and business premises. The real estate market is active for people planning to sell or buy urban property, though not so in the agricultural land market. Real estate agencies charge 2% ofthe value ofthe property being transacted, to the buyer.

9. The latest sample-based surveys conducted by the Statistical Office of Kosovo reveal that there are some 600,000 property objects in the country including apartments. Urban and agricultural land parcels, however, are excluded in this estimate. Property tax records show that some 382,000 properties are levied the property tax, confirming the figure from the statistical office. Hence, judging by the country’s landscape dotted with so many standalone houses, in all likelihood, the number of apartments is anywhere between 200,000 to 300,000. The proposed RECAP project will help regularize and register some of these apartments thereby raising their value and ability to transact more freely which would enhance the revenues earned by real estate agents, the sector’s registration fee income, as well as property tax collections. This activity would unleash significant market potential. In fact, economic benefits associated with the registration of apartments alone would suffice to justify considerable investments in the KCA and MCOs.

10. In 2008, prices for construction land varied from €100 to 150 per square meter in the suburbs of Pristina which are about 2 kilometers from the city center. City center land prices peaked at €1500/m2 for a prime location construction site. Old apartments command higher prices because their legal status is less controversial, and may run up to €2000/m2 and about €1000/m2 within 1.5 km from the city center. New apartments built without proper license range from €600 to 800/m2.

11. .Top Four MCOs vs. the rest of Kosovo: These figures better serve as benchmark data for the economic analysis that ensues:

57 Summary of IPRR Statistics

12. The Mortgage Market in Kosovo: Most of the current mortgage activity relates to commercial loans backed by real estate collateral. This type of credit is important to enhance user access to formal credit and spur commercial activity. The more significant mortgage category is the so-called residential mortgage loans, which are just beginning to be introduced in the country. Residential mortgage loans have longer terms and possess a distinct macro- economic character. Residential mortgage loans enhance the national income in many ways. In fact, the ratio of total residential mortgage loans outstanding2' to the national gross national product (GNP) is a very important indicator for assessing the status of the financial markets and the construction sector. Attempts will be made to explore this ratio for Kosovo.

13. Contacts with two commercial banks, Raiffeisen Bank and Procredit Bank, showed that, despite problems, the next significant business domain for the financial sector is the promotion ofthe mortgage market in the country.

14. Raiffeisen Bank, which controls some 90% of the mortgage market in the country, has already started offering residential mortgage loans for the purchasing of houses and apartments2'. The eligible apartments for loans are mostly new ones still under construction where the building permit has been issued. These apartments will be duly registered upon completion. Old or existing apartments do not qualify, because they are not or cannot be registered as yet. Other real estate related credit operations ofthe Bank consist of mortgage loans, land acquisition loans, and

20 Term used by Fannie Mae and Freddie Mac.

2' Please see web site http://www.raiffeisen-kosovo.com/mumi=2,3I

58 construction loans. For a residential mortgage loan, the interest rate for citizens of Kosovo is 11%.

15. As for collateral requirements, the bank requires up to 150% guarantee. The beneficiaries must use as collateral both the property purchased and other landed property. The two biggest constraints facing the sector now is the lack of sufficient earning capacity by borrowers and the deficient state ofthe cadastral records and registers, especially for existing apartments. The loan amount covers about 80% of the value of property being purchased. Coverage may go up to 100% if and when additional collateral can be offered.

16. Operational targets for residential mortgage loans by Raiffeisen were €32 million last year and about €60 million in 2009. These amounts roughly correspond to 1 and 2% of the national GNP, estimated in the order of Euro 3 billion. Despite the late start of the residential mortgage loan activity, these percentages are significant, and the sole hurdle at the moment seems to be the improvement of cadastral records and institution of clear and secure property rights for all types of properties in the country. Monthly installments on loans seem to be within the reach of middle to high income Kosovars.

17. Procredit Bank residential mortgage loans22 are available to finance long-term mortgage loans for up to 15 years. Private individuals and companies can apply. As is the case with the Raiffeisen Bank, only houses and landed property qualify for these loans. Like all banks, Procredit Bank needs assistance from the KCA and municipal courts to function properly and as other Banks is awaiting resumption to apartment registration.

D. The Methodological Approach

18. Key Analytical Tools: It is expected that interventions planned and funded under Components A and B above will help raise incomes for the Kosovars. In addition to improving cadastral and registration services, asset values and property management at municipal level will be facilitated once the municipalities have developed a full record of their own properties. This would help curb illegal construction in the country23. As a result of improvements brought about by the project, there will be increased activity in the property market which would be manifest in terms of increased number oftransactions and induced growth rates for properties transacted and mortgages undertaken. For the sake of simplicity, the economic analysis to be performed for RECAP is based on two types oftransactions: sales and mortgages, where changes occurring in these two sectors are believed to reflect most ofthe economic impact associated with the project.

19. Economic Repercussions of Property Transactions: The incremental market growth (measured as the difference between the with- and without-the-project scenarios) is driven by property transactions which occur as a consequence of people transactions or mortgaging property. The incremental income (benefit) that will be generated as a result of increased sales and mortgages will involve, e.g.:

0 Fees for service organizations such as realtors and assessors,

22 Please see the financial product description on http://www.procreditbank-kos.~om/?cid=2,102 *’ Point raised by Association of Municipalities in Kosovo.

59 0 Capital gains accessed by sellers ofproperty, 0 Renovations and repairs performed by new owners ofproperty, 0 Profits earned by users offormal mortgage backed commercial loans, and Profits earned by Banking system as a result of extending mortgage services.

20. The Types of Analysis Undertaken: The analyses performed for RECAP consists of three parts: (a) economic analysis - targeting on the gains of the general public or ordinary people, (b) financial analysis - looking into how the KCA and MCO finances would be impacted, and finally, (c) fiscal impact - investigating the anticipated incremental collection of public revenues resulting from implementing the proposed project. The economic analysis offers an economic rate of return on the investments package of €20 million from the Bank and other donors. Fiscal and financial analyses offer only monetary estimates of expected incremental gains over 5 and 10 year periods.

Kosovo RECAP Economic Analysis Assumptions

Key Analytical Parameters I Unit 1 Without Project 1 With Project MORTGAGES

Number of Registered Sales Number 27,500 27,500 Assumed Growth Rate - Number Percent 9 yo 11%

Average Value of a Property in Base Year € 30,000 30,000

Assumed Growth Rate - Value of Property I Percent I 7% 8 Yo

Number of Properties Property 1 500,000 500,000

Net Economic Benefits as % of Incremental Value of Sales and Mortgages Percent N/A 0.50% Opportunity Cost of Capital Percent N/A 12% Project Investment Costs €M 0 20 Project Implementation Period Years N/A 5 Project Operational Period Years N/A 5

60 2 1. These assumptions represent a conservative view of the potential incremental project benefits, because we assume that the net benefits will amount to only half a percent (0.5%) of the incremental value of sales and mortgages resulting from the underlying transactions. This is an exceedingly conservative estimate.

E. Results and Conclusions

22. Economic Rate of Return: The baseline for the average value of a mortgage is € 80,000 and the average value of a property is €30,000. The number of transactions for mortgages and sales in the base year is 7,300 and 27,500, respectively. It is believed that only a small fraction (perhaps 2 to 3%) of the mortgages is residential mortgages, while the rest are for mortgage- backed loans for commercial purposes. The assumed planning horizon for the analysis is 10 years: five for project implementation, and five for the so-called operational period. The assumed opportunity cost of capital is 12%.

23. Projections from this conservative economic analysis indicate that the combined incremental value of mortgages and sales would be around €574 million in the final project year (year 5), and they would reach about €2.43 billion at the end of the 10th year. Similarly, at the end of the 10th year, the incremental number of sales would be about 13,000 properties and the incremental number of mortgages would be 2,420. Assuming that only 0.5 % of the value of incremental transactions 24 from sales and mortgages would represent real and disposable income, the project would yield a C/B ratio of 1.66. If one were to quantify all the economic benefits, the project’s ERR would certainly exceed 21%.

(*) Project investment costs of €20 M were assumed distributed over 6 years.

24. Financial and Fiscal Analysis: Based on the model, and with very conservative assumption that fee and tax levels will not change in the next 10 years, the financial analysis indicates that incremental (with and without project) KCA and MCO fees for the registration of sales and mortgages (€80 and €40, respectively) amount to €7.8 m. and €21.3 m. for the 5 and 10-year periods. The fiscal analysis calculates the incremental transaction taxes (€1 50 per transaction) and municipal court taxes (€50 per registration) collected over the 5 and 10-year periods: the incremental taxes collected for those periods are €1.7 m. and €8.8 m.

24 This is a very conservative estimate. The real percentage corresponding to the GNP contribution arising from incremental market growth from sales and mortgages may vary from 1 to 5%, depending upon the country.

61 Annex 10: Safeguard Policy Issues KOSOVO: Real Estate Cadastre and Registration Project (RECAP)

1. The Kosovo RECAP project development objective is to help develop KOSOVO’Sland and property markets and improve tenure security.

2. This Annex provides information about the safeguard policies triggered by the project, measures to be taken to address risks, and procedures for ensuring the measures are achieved during project implementation. As indicated below, the project has been designed to promote sound environmental management and mitigate potentially negative effects.

Environment (OPBP 4.01) 3. The project has been assigned as Environmental Category B. A partial Environmental Plan (EMP) has been prepared to ensure that the MCO’s building rehabilitation and modernization works will be carried out in an environmentally acceptable manner and cause no or minimum damage to the environment. The EMP includes an environmental and social screening list, where specific activities and potential environmental issues for each rehabilitated office/building can be reviewed.

4. Other than construction and renovation of office space, the project will not support civil works, land conversion, resource extraction, or any activities that could potentially damage the environment. Each contract for civil works under the project will be subject to screening for environmental impacts by the responsible environment entity. All bidding documents will include measures to minimize or mitigate environmental damage. Standard operating procedures will include measures applying to construction in general, such as measures to control dust, noise, and traffic at construction sites and guidelines for controlling erosion and clean-up after construction. The project will not support land acquisition and associated involuntary resettlement.

5. The proposed project is expected to be positive from an environmental standpoint. Registration and cadastre mapping would induce a series of behavioral changes among property owners, and many ofthese would be environmentally positive. Nonetheless any adverse impacts such as intensive use of agricultural input and increase in urban development would be more than adequately compensated by the environmental benefits generated by the project. Social Safeguards

Social (OPBP 4.12) 6. The Project will not trigger OP/BP 4.12, as it does not result in the “taking of land” as defined by the policy. The project, which will focus only on defining the spatial location of existing buildings and the registration ofthose buildings that meet the legal requisites, will not be involved in activities associated with the enforcement or implementation of construction laws and will have no direct implications concerning the status of buildings with respect to their legality or illegality under those laws. Thus the project will not contribute in any way to the potential demolition of illegal properties. Additionally, there will be no new construction involved in this Project which will only support the rehabilitation ofexisting office facilities.

62 Annex 11: Legal Framework KOSOVO: Real Estate Cadastre and Registration Project (RECAP)

1. The legal framework governing real property and its administration in Kosovo has been extensively reviewed during the preparation of this Project and during the implementation of BETA.*’ There have also been separate reviews by other donors involved in supporting KCA, by OSCE and by UNMIK.

2. The main conclusion to be drawn from these reviews is that current laws provide a generally adequate legal foundation for project activities and objectives. The principal laws governing the activities of KCA and the MCO’s - the Law on Cadastre and the Law on Immovable Property Rights Register, along with their amendments and regulations - create a coherent procedural framework for the systematic and sporadic registration of land and buildings (including apartments), as well as encumbrances and other interests affecting the property. An integrated property registry and cadastre model is in place and registration occurs on a parcel based system that links the object in the real estate cadastre to the rights held over the property.

3. However, experience in implementation of these laws, particularly under BETA, has revealed continuing areas of weakness and ambiguity that will warrant attention and improvement during implementation. Some of these weaknesses have already been addressed through legal amendments or issuance of guidelines. Some remain to be addressed and will be the focus of legal activities under the project. The most important of these concerns restrictions on the power of KCA to correct cadastral information without a court decision, which could impede the efficient implementation of cadastre reconstruction (CR). Legal amendments sufficient to address this problem satisfactorily are a condition for disbursement of funds for cadastral reconstruction activities under Component A2.

4. The following Table summarizes key legal issues, the steps that have been taken so far to address them, and where applicable, expected next steps. The Table is indicative and is not intended to be exhaustive. It should also be noted that as the project progresses, additional legal issues are likely to come to light as a result of implementation experience and the continued analysis of experts2‘> which the project legal team will need to monitor continuously and proactively and address as needed.

25 See Annex 12. 26 For example, a new comprehensive review of the legal framework and accompanying regulations and technical guidelines is nearing completion by GTZ.

63

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on .-e mx c 4 w Annex 12: Social Risk Management KOSOVO: Real Estate Cadastre and Registration Project (RECAP)

1. During project preparation an initial Social Assessment was carried out to determine stakeholder perceptions of Cadastral Services by means of focus groups with users27 of five MCOs, applicants with a ending transaction, non-users, municipal cadastral employees and professional cadastral usersP* . Focus group participants (96 in total) were interviewed regarding their perceptions about the land registration process and dealing with MCOs. The study found that overall users are satisfied with Cadastre services but that the processes are too lengthy and require many visits to the MCO. It was also noted that procedures are complicated. Furthermore, many non-users did not register property because they find it redundant, having notarized documents in the Court and not understanding the benefits ofthe IPRR.

2. According to the Social Assessment, it was found that minorities served by those five MCOs did not feel they had been discriminated in the cadastral registration process but requested to have registration documents (e.g. registration forms) in their native language. It was explained by the KCA that all registration forms in all three languages should be available in all MCOs. It was noted that MCO officers often provided verbal explanations in the relevant language. The project supports making these registration documents more accessible to minorities.

3. The initial social assessment conducted could not consider the implications of the systematic registration activities (BCC and CR) which were included in the project prior to appraisal. One potential risk associated with these activities is that Serb majority cadastral zones or municipalities would not be included in the systematic registration process planned. This concern arose out of the experience with the BETA project where systematic registration was implemented in 25 cadastral zones. During this process, three zones refused to participate. Two of these zones were Serbian enclaves (the third was Albanian but had undergone land consolidation, meaning that systematic registration was the responsibility of the Ministry of Agriculture).

4. During the appraisal mission it was determined that KCA had already selected the priority 80 cadastral zones to be covered by the project. The criteria for selecting these zones included (i)the quality of existing cadastral infonnation-the older the information, the more important it will be to include the zone in the project activity; (ii)the level of public infrastructure investment (e.g. road construction) in the Cadastral zone-which will create demand for updated cadastre information; and (iii)the number of property transactions (e.g., sales, inheritance, etc.) taking place in the zone. These criteria are the only basis for selecting cadastral zones. There was no attempt to exclude zones in Serbian or other ethnically mixed enclaves on the assumption that they would prove too difficult or politically sensitive to work in. Indeed, one of the cadastral zones selected was in the Northern Serb majority municipality of

27 Throughout the report, all participants in the survey, people who have completed a transaction with the Municipal Cadastral Office have been categorized with this term. ’*Professional users group consist of officials from other public and private institutions, who are considered heavy users of the cadastral data and services, such as real estate property officials, lawyers and construction companies.

69 LeposaviC. A number of other cadastral zones which are still believed to be characterized by a Serb majority were also selected for inclusion.

5. It is also important to understand that the current political situation in the Northern Serb majority municipalities (LeposaviC, Zubin Potok and ZveCan) makes it difficult for the project to support systematic registration activities there, even though there may be popular support for such activities; the project will need the MCOs to recognize the authority and procedures of KCA, and this is currently not the case. It is possible that the political climate in these municipalities may change before the implementation of the relevant components, and if that is the case the project will be responsive to demand coming from these zones. Furthermore, the PCO was optimistic that demand for project activities will be strong in Serbian and ethnically mixed enclaves in other parts of the country, and that the project will be in a strong position to meet these demands.

6. In order to mitigate the risk of excluding Serb majority municipalities or cadastral zones, additional social assessment activities are planned during implementation. Accordingly, a nationwide social survey will be conducted on the following issues: public awareness of cadastre services; potential demand for property registration; and reasons citizens might have for not registering property or participating in systematic registration, as well as their socio-economic characteristics. This survey will take samples from cadastral zones known to be characterized by a Serbian majority (as well as other ethnic minority groups such as Roma, Gorani, and Turks), and will contain additional questions targeted to the concerns of these groups (e.g., language, lack of awareness, fear of discrimination, political objections). If this survey reveals an unwillingness to participate in registration activities in cadastral zones that are ethnically mixed or characterized by ethnic minorities, follow up focus groups and stakeholder meetings will be conducted locally to examine the reasons behind this unwillingness. These meetings will also identify possible responses to help overcome these concerns such as building in additional targeted activities into the public awareness campaign or building the capacity of MCO staff to respond to the needs of ethnic minorities. This task will be performed by a qualified research firm hired by the PCO with experience in conducting social surveys and focus groups in Kosovo, and an ability to mobilize both Serbian and Albanian speaking researchers.

7. Women’s property rights are subject to formal laws that provide good protection and also a customary system that places women’s rights at a major disadvantage to men. The formal system does not operate well in Kosovo, resulting in women’s property rights not well protected. Women are culturally encouraged to give up their inheritance rights in favor of male relatives, and even where they own property, it is often recorded in the name of their husband. The proposed project aims to formalize existing rights, so as a first step it will raise awareness of women’s property rights, which should slowly lead to acceptance of such rights and their incorporation in the formal registry. The social survey will pay particular attention to the unique needs of women, with additional focus groups being organized to explore in more depth their unique concerns about the registration process and the use of the cadastre service; it will help inform how to better target the public awareness campaign to address the needs of women, and what additional training is required by MCO staff on how to recognize women’s rights and record them.

70 Annex 13: Project Preparation and Supervision KOSOVO: Real Estate Cadastre and Registration Project (RECAP)

Planned ActuaUPlanned now PCN review 11/20/2006 11/09/2006 Initial PID to PIC 11/22/2006 11/17/2006 Initial ISDS to PIC 11/22/2006 11/28/2006 Appraisal 10/17/2008 8/3 1/2009 Negotiations 0 1/30/2009 10/5/2009 Board/RVP approval 03/30/2009 1/28/20 10 4/3 0/20 10 7/3 1/20 15

Key institutions responsible for preparation ofthe project: Kosovo Cadastre Agency.

Bank staff and consultants who worked on the proiect included: Name Title Unit Cora Melania Shaw Task Team Leader ECSSD Gavin Adlington Lead Land Administration Specialist ECSSD Irene Bomani Program Assistant ECSSD Joanna de Berry Social Development Specialist ECSSD Kirsten Burghardt Propst C ouns e 1 LEGEM Vito Intini Operations Officer ECSPF Sharifa Kalala Program Assistant ECSSD Zeynep Lalik Financial Management Specialist ECSPS Tony Lamb Land Registration Lawyer Consultant Martin Lenihan Social Development Specialist ECSSD Paula Lytle Senior Social Development Specialist ECSSD Jonathan Lindsay Senior Counsel LEGEN Arben Maho Procurement Analyst ECSPS Alexandra Montealegre Junior Professional Associate ECSSD Ida Muhoho Senior FM Specialist ECSC3 Suha Satana Economist Consultant FA0 Anu Saxen Senior Land Administration Specialist ECSSD Rumyana Tonchovska IT Specialist Consultant FA0 Natasa Vetma Operations Officer ECSSD Bank funds expended to date on project preparation: 1. Bank resources: $380,000 2. Trust funds: none 3. Total: $380,000 Estimated Approval and Supervision costs: 4. Remaining costs to approval: $45,000. 5. Estimated annual supervision cost: $100,000.

71 Annex 14: Country at Glance KOSOVO: Real Estate Cadastre and Registration Project (RECAP) Kosovo at a glance Europe 8 Lower- POVERTY and SOCIAL Kosovo Central middle. (est.) Asla Income 2006 Population, mid-year (millions) 2.1 473 2,475 GNi per capita 1,383 4,796 2,037 GNI (US$ bllionsj 0.00 2,421 4,813

Average annual growth, 2000-06

Population (%) 1.5 0.0 0.9 Labor force (%) 0.6 1.4

Most recent estlmate (latest year available, 2004-06)

Poverty (% of population below national poverty line) 37 36 Urban population (% of fotal population) 37 36 47 Life expectancy at birth (years) 74 69 71 Infant mortality (per 1,000 live births) 35 28 31 Child malnutrition (% of children under 5) 5 13 Access to an improved water source (% ofpopulation) 92 81 Illiteracy (% ofpopulation age 15+) 6 3 11 Gross primary enrollment (% of school-age population) 93 '1 03 112 Male 93 104 113 Female 93 102 110

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1985 1995 2007 2008

GDP (US$ billions) 4.6 5.6

Gross domestic investmentfGDP 25.5 26.6 Exports of goods and services/GDP 10.4 Gross domestic savings/GDP 13.2 16.6 Gross national savings/GDP 1.3 -2.8

Current account balanceiGDP -18.6 -23.6 Interest paymentslGDP 0.0 0.0 Total debtfGDP 0.0 0.0 Total debt servicelexports 0.0 0.0 Present value of debVGDP 0.0 0.0 Present value of debVexports 0.0 0.0

1985- 1995-05 2007 2008 95 (average annual growth) GDP 3.9 5.4 GDP per capita 2.6 3.6 Exports of goods and services 12.9 13.5

72 STRUCTURE of the ECONOMY

1985 1995 2007 2008 (% of GDP) Agriculture 11.0 12.0 Industry 20.0 20.0 Manufacturing Services 69.0 68.0

Private consumption 94.9 General government consumption 18.7 Imports of goods and services 49.6 49.5

1985- 1995-05 2007 2008 95 (average annual growth) Agriculture Industry Manufacturing Services

Private consumption 6.9 5.3 General government consumption Gross domestic investment 28.1 19.9 Imports of goods and services 19.8 5.7 Gross national product

73 Annex 15: Documents in the Project File KOSOVO: Real Estate Cadastre and Registration Project (RECAP)

1. Kosovo Cadastre Development Strategy (2009-201 l),2008. 2. Kosovo Cadastre Development Strategy - Business Plan. Approved June 2009. 3. Gender and Land Titling in Kosovo. 2008. T. Lamb. 4. Real Estate Cadastre and Registration Project Summary ofthe Quality Enhancement Review Meeting. July 2008. 5. Environmental Management Plan (EMP) with Checklist for the Real Estate Cadastre and Registration Project (RECAP). 6. RECAP: Addressing in Kosovo. 2008. L. Godin. 7. Needs Assessment for Kosovo Municipal Cadastre Offices. 2008. Prism Research. 8. Social Assessment, Qualitative Survey Findings. 2008. Prism Research. 9. Land and Property Rights in Kosovo: A Background Note. 2006. World Bank.

Legal Documents 10. Summary of Legal Issues to the Land Component of the BETA Project and to Future Land Projects. 2008. J. Lindsay. 11. Law No. 03/L-79 Amending UNMIK Regulation No. 2006/50 on the Resolution of Claims Relating to Private Immovable Property, Including Agricultural and Commercial Property. 2008. 12. Law No. 03/L-40 On Local Self-Government. 2008. 13. Legal Framework Issues for BETA. 2007. J. Lindsay. 14. Administrative Instruction No. 2007/04 MPS for Licensing of Geodesy Companies and the Geodesists. 2007. 15. A Review of the Legal Framework for Immovable Property Rights in Kosovo. 2007. V. Mosoti. 16. Regulation No. 2007/30 Amending UNMIK Regulation No. 2000/45 on Self Government of Municipalities in Kosovo. 2007. 17. Law on Amendments and Additions to Law No. 2003/25 on Cadastre. 2007. 18. Inception Report of Land Law Advisor of the Business Environment Technical Assistance Project. 2006. R. Shepard. 19. Progress Report of Land Law Advisor of the Business Environment Technical Assistance Project. 2006. R. Shepard. 20. Regulation No. 2005/27 on the Promulgation of the Law on an Amendment to Law No. 2003/2 and 2003/2 1 on Public Financial Management and Accountability Adopted by the Assembly of Kosovo. 2005. 21. Law No. 2004/2 on Gender Equality in Kosovo. 2004. 22. Regulation No. 2003/13 on the Transformation of the Right to Use Socially-Owned Immovable Property. 2003. 23. Law on Cadastre 2003/25.2003. 24. Regulation No. 2003/27 on the Promulgation of the Law adopted by the Assembly of Kosovo on Amendments and Additions to Law No. 2002/5 on the Establishment of an Immovable Property Rights Register. 2003. 25. Regulation No. 2002/21 on the Promulgation of the Law Adopted by the Assembly of Kosovo on Mortgages. 2002.

74 Annex 16: Statement of Loans and Credits KOSOVO: Real Estate Cadastre and Registration Project (RECAP)

Difference between expected and actual Original Amount in US$ Millions disbursements Ptoiect ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Oria. Frm. Rev’d PI02174 2008 Inst. Devt. for Education 0.00 10.00 0.00 0.00 0.00 9.69 0.29 0.00 P108080 2008 Financial Sector TA 0.00 2.00 0.00 0.00 0.00 1.92 2.70 0.00 PO97635 2007 LIGNITE POWER TECHNICAL 0.00 10.50 0.00 0.00 0.00 7.72 4.15 5.91 ASSISTANCE PI02165 2007 AVIAN FLU - XK 0.00 3.00 0.00 0.00 0.00 2.14 2.01 0.64 PO9618 1 2006 CLEAN UP & LAND RECLAMATION 0.00 10.50 0.00 0.00 0.00 9.20 2.79 0.00 PO88045 2005 BUS ENV TA 0.00 7.00 0.00 0.00 0.00 4.42 4.10 0.00 Total: 0.00 43.00 0.00 0.00 0.00 35.09 16.04 6.55

Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d P102174 2008 Inst. Devt. for Education 0.00 10.00 0.00 0.00 0.00 9.69 0.29 0.00 P108080 2008 Financial Sector TA 0.00 2.00 0.00 0.00 0.00 1.92 2.70 0.00 PO97635 2007 LIGNITE POWER TECHNICAL 0.00 10.50 0.00 0.00 0.00 7.72 4.15 5.91 ASSISTANCE P102165 2007 AVIAN FLU - XK 0.00 3.00 0.00 0.00 0.00 2.14 2.01 0.64 PO96181 2006 CLEAN UP & LAND RECLAMATION 0.00 10.50 0.00 0.00 0.00 9.20 2.79 0.00 PO88045 2005 BUS ENV TA 0.00 7.00 0.00 0.00 0.00 4.42 4.10 0.00 Total: 0.00 43.00 0.00 0.00 0.00 35.09 16.04 6.55

KOSOVO STATEMENT OF IFC’s Held and Disbursed Portfolio In Millions of US Dollars

Committed Disbursed IFC IFC 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

IBRD 37048 KOSOVO

OPŠTINA/KOMUNA CAPITALS* MAIN ROADS OKRUG/RRETH CAPITALS** RAILROADS NATIONAL CAPITAL OPŠTINA/KOMUNA BOUNDARIES RIVERS OKRUG/RRETH BOUNDARIES INTERNATIONAL BOUNDARIES * The first name is in Serbian and the second one is in Albanian. ** Names of the Okrug/Rreth are the same than their capitals.

20°00’ E 20°30’ E ToTo 21°00’ E 21°30’ E

Ibar RaškaRaška This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information 051020 Kilometers shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. 01020 Miles

Ibar SERBIASERBIA Leposavic/LeposavLeposavic/ic´/ LeposaviqLeposaviq

ToTo ProkupljeProkuplje SERBIASERBIA 43°00’ N ToTo KOSOVASKAKOSOVASKA MMITROVICAITROVICA 43°00’ N NoviNovi Lab PazarPazar MITROVICAMITROVICA

Zvecan/Zveˇcan/ Ibar ZubinZubin Potok/Potok/ ZveçanZveçan Podujevo/Podujevo/ ZubinZubin PotokPotok PodujevëPodujPodujevëevë Klina Mitrovica/Mitrovica/ MONTENEGROMONTENEGRO MitrovicMMitrovicëitrovicë Reka

ToTo Vucitrn/Vucˇitrn/ ToTo H BeraneBerane o r VushtrriVushtrri Tularska LeskovacLeskovac a g Sitnica j o d Istok/Istok/ l a P IstogIstog PRIŠTINAPRIŠTINA Srbica/Srbica/ SkenderajSkenderaj PRISHTINAPRISHTINA Obilic/ObiliObilic/c´/ PECP E C´ ObiliqObiliq PRIŠTINA/PRIŠTINA/ PePPec/ec/c´/ PRISHTINPPRISHTINËRISHTINË PEJAP E J A KosovoKosovo PPolje/olje/ PejëPejë Glogovac/Glogovac/ FushFFushëushë KosovaKosova Gracanka Klina DrenasDrenas NovoNovo Brdo/Brdo/ Klina/Klina/ NovobërdëNovobNovobërdëërdë KlinëKlinKlinë Kamenica/Kamenica/ KamenicKKamenicëamenicë Sitnica Decani/Deˇcani/ Beli Drim GNJILANEGNJILANE DeçanDeçan Miruša Drenica DaravicaDaravica Lipljan/Lipljan/ LipjanLipjan 42°30’ N (2656(2656 m)m) GJILANIGJILANI Binacka 42°30’ N Mališevo/Mališevo/ MalishevëMalishevMalishevë Gnjilane/Gnjilane/ ÐAKOVICAÐ A K O V I C A GjilanGjilan ToTo Štimlje/Štimlje/ BujanovacBujanovac Orahovac/Orahovac/ ShtimeShtime GJAKOVAG J A K O VA RahoveciRahoveci Ðakovica/Ðakovica/ Uroševac/Uroševac/ Binacka GjakovGGjakovëjakovë SuvaSuva Reka/Reka/ FerizajFerizaj Topluga TherandaTheranda UROŠEVACUROŠEVAC Vitina/Vitina/ Beli Drim PRIZRENP R I Z R E N VitiViti FERIZAJIFERIZAJI ALBANIAALBANIA PRIZRENIP R I Z R E N I Štrpce/Štrpce/ Kacanik/Kaˇcanik/ ShtSShtërpcëhtërpcëërpcë Prizren/Prizren/ KaçanikKaçanik PrizrenPrizren

Bistrica ToTo Drini i Bardhë TetovoTetovo ToTo KukësKukKukësës n a Dragaš/Dragaš/ n i l a DragashDragash P

42°00’ N KOSOVO r ToTo 42°00’ N

a SkopjeSkopje Š FYRFYR OOFF MACEDONIAMACEDONIA

20°00’ E 20°30’ E 21°00’ E 21°30’ E JULY 2009