Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized 48702 PROJECT PAPER Public Disclosure Authorized ON RESTRUCTURING THE HONDURAS: LAND ADMINISTRATION PROJECT September 13,2007 Public Disclosure Authorized Sustainable Development Department Latin America and the Caribbean Region Public Disclosure Authorized Honduras Land Administration Project Proposed Restructuring and Extension Project Paper Data Sheet Date: September 13,2007 Team Leader: Enrique Pantoja Country: Honduras Sector Manager: Ethel Sennhauser Project Name: Land Administration Project Country Director: Jane Armitage Project ID: PO55991 Environmental Category: B Does the restructured Project require any exceptions to Bank policies? No Have these been approved by Bank management? n/a Is approval for any policy exception sought from the Board? da Revised Project development objective/outcomes: n/a Does the restructured Project trigger any new safeguard policies? L No Financinp Plan (US$m) Source I Local I Foreigfl I Total Others Honduras Land Administration Project Proposed Restructuring and Extension Contents I. Introductory Statement 11. Background and Reasons for Extension 111. Proposed changes IV. Analysis V. Expected Outcomes VI. Benefits and Risks List of Annexes: Annex 1 - Overview of Output Indicator Adjustments 9 Annex 2 - Project Results: Outcome and Output Indicators 13 CURRENCY EQUIVALENTS (Exchange Rate Effective September 13,2007) Currency Unit = US$ US$1.OO = Honduran Lempira 19.15 1 Honduran Lempira = US$O.OS FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS APL Adaptable Program Loan DCA Development Credit Agreement GOH Government ofHonduras ICR Implementation Completion Report IDA International Development Association IP Property Institute (Instituto de la Propiedad) NDF Nordic Development Fund PCU Project Coordination Unit PDO Project Development Objective SGJ Ministry ofInterior (Secretaria de Gobernacih y Justicia) SEFIN Ministry ofFinance (Secretaria de Finanzas y CrCdito Publico) SINAP National Property Administration System (Sistema Nacional de la Administracih de la Propiedad) SINIT National Territorial Information System (Sistema Nacional de Informacih Territorial) ' SINREC Integrated Registry Cadastre System (Sistema Integrado de Registro y Catastro) SURE Unified Registries System (Sistema Unificado de Registros) UNDP United Nations Development Program Vice President: Pamela Cox Country Director: Jane Armitage Sector Manager: Ethel Sennhauser Task Team Leader: Enrique Pantoja Honduras Land Administration Project Project Restructuring and Extension Project Paper I. Introductory Statement 1. This Project Paper seeks the approval ofthe Regional Vice President to introduce the changes described below in the Honduras Land Administration Project (the Project, P055991) and amend the Project’s Development Credit Agreement (Credit 3858-HO) and Implementation Letter. The Project is the first phase of an Adaptable Program Loan (APL) to help modernize land administration in the Republic of Honduras (the Borrower), and this would be the Project’s first restructuring and closing date extension.’ The proposed restructuring falls under the category of “second order restructuring” since it does not involve revising the Project Development Objective (PDO) or associated outcome targets. Moreover, the proposed changes do not raise the environmental category ofthe Project, do not trigger any new safeguard policies, and do not involve any exceptions to Bank policies. 2. The proposed modifications include: (i)changing implementation arrangements, including changing the project’s implementing agency; (ii)replacing references to the SINREC agreement in the Development Credit Agreement (DCA) with references to the Property Institute and its functions under the 2004 Property Law;2 (iii)eliminating the option, included in the DCA, of having an external procurement agent to manage selected international bids and contracts financed by the Credit, and introducing the use of updated ProcurementKonsultant Selection Guidelines; (iv) adjusting selected output indicators for systematic land regularization, titling and registration (Component 2 of the Project); (v) clarifying that no activities requiring resettlement will be financed under the Project; and (vi) extending the Credit Closing Date for 16 months. The proposed restructuring and extension would provide appropriate arrangements and sufficient time for successful project implementation and achievement ofthe Project Development Objective (PDO), as well as a solid foundation to continue into the next phase ofthe APL. 3. This restructuring proposal was developed while a full Inspection Panel Investigation on the Project was underway. The Panel Inspection Investigation Report was issued on June 12,2007, and the Management Response and Recommendation finalized on August 3, 2007, taking into consideration the changes included in the restructuring proposal. As detailed below, the proposed restructuring focuses on key changes on Project implementation arrangements and output targets needed to facilitate project performance A minor amendment was processed in December 2004 to increase the authorized allocation of the Project’s Special Account. ’ The SINREC (Sistema Integrado de Registro y Catastro) Agreement was signed between the executive branch (responsible at the time for cadastre administration), the judicial branch (responsible then for real estate registry), and civil society representatives, whereby the two branches committed themselves to integrate the cadastre and registry, and coordinate land administration activities in the country. Under the Property Law, the Property Institute is responsible for both cadastre and registry in an integrated manner. 2 improvement and ensure PDO achievement. The Bank’s Board will discuss the Panel’s Report and Management Response on October 4,2007. 11. Background and Reasons for Restructuring and Extension 4. Background. Total project costs were estimated at US$38.9 million at appraisal, to be financed by an International Development Association (the Association) Credit .of SDR 16.9 million (US$25 million equivalent), a Nordic Development Fund (NDF) Credit of EUR6.0 million (US$7.9 million equivalent), and Borrower’s counterpart funding. The Credit from the Association was approved by the Bank’s Board on February 26, 2004, and became effective on December 2, 2004, with a closing date ofApril 30,2008. As of June 30, 2007, the undisbursed amount of the Credit was US$5.50 million equivalent. In addition, all the funds from NDF remained undisbursed. 5. Project Design and Scope: As stated in the DCA, the PDO is to establish and operate (as part of the broader program) an integrated and decentralized land administration system, composed ofpublic and private entities, which provides users in the Project Area with accurate information on urban and rural land parcels and effective land administration services (e.g., purchases, mortgages, cadastral and registry certifications) in a timely and cost-effective manner. Three components support the achievement of the PDO: (i)development of the policy framework and institutional strengthening to support the establishment and operation of SINAP (National Property Administration System); (ii) systematic land regularization, titling, and registration in the Project Area; and (iii)project management, monitoring and evaluation. Component 1 has a national scope and supports increased transparency and improved governance of the Borrower’s main land administration institutions. Component 2 is directly benefiting the population living in the areas targeted by the Project through massive land regularization and registration. Component 3 covers the costs associated with project management and the monitoring and evaluation ofactivities. 6. Project Performance to Date: The Project is in the RVP’s and Corporate risk lists. After an initial satisfactory period, the Project has faced delays resulting in a Moderately Unsatisfactory rating for Implementation Progress (IP) and a Moderately Satisfactory rating for PDO achievement for several months3 Several output targets related to Component 2 are lagging behind. IP and PDO ratings are mainly due to: (i)insufficient allocation of counterpart funds, which affected the disbursement of the Credit and the ability of the implementing agency to execute the Project at the expected rate; (ii)slow down and political interference due to the elections period followed by the government transition after the 2006 elections; (iii)weak operational leadership, largely due to the failure of the Borrower to appoint a permanent Project Coordinator (the Project operated with an interim Coordinator from July 2006 until March 2007); (iv) weak fiduciary oversight resulting in several instances of lack of compliance with procurement and The baseline ratings correspond to the ISR no. 4 dated December 13, 2005, and the updated ratings reflect the latest ISR, dated April 20,2007. The Project ratings were downgraded for the first time in the ISR no. 5 of June 24,2006. 3 financial management guidelines, as evidenced by several fiduciary reviews undertaken by the A~sociation;~and (v) ineffective inter-institutional coordination. Disbursements slowed down significantly after a satisfactory pace in FY05, but recently picked up, amounting to US$l.94 million in FY07. 7. On January 10, 2007, the Association issued a Notice of Threatened Suspension of Disbursement in response to the non-compliance with several