Document of The World Bank FOR OMCLAL USE ONLY Repot N P-4984-TUN N RAIDUM AND RECOMIM TION OF THE PMSIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOtNT EQUIVALET TO US$58.0 MILLION TO THE REPUBLIC OF TUNISIA FOR A FIFTH URB PROJECT APRIL 30, 1989 This dcument has a ided distribtio and may be used by recipienb only In the performoe of their offidal dudes. Its contents may not otherwise be discosed witbout World Bak authoriztion. CURRENCYE UALns The ex=hange rate for the Tunisian Dinar is floating. The rates used in this report are the ones officially quoted as of April 13, 1989. 1 Tunisian Dinar (TD) = U$* 1.07 1 US Dollar (US$) = TD 0.94 YWEIGH1 AND MEASURES Metric System ABBREVIATIONS ANID ACRONYnS ANFH - Agence Fonciere d'Habitation (Land Development Agency) BB - Banque de 1 'Habitat (Housing Bank) C?NEL - Caisse Nationale d'Spargne-Logement (Savings and Loans Fund) CPF - Conservation de la Propri6t6 Fonci&re (Land Registry) FOPROLOS - Fonde Social pour la Promotion du Logement des Salari6s (Workers Housing Fund) mmI - Ninist4re de 1 'quipement et de l'Habitat (Ministry of Equipment and Housing) OTC - Office de-la Topographie et Cartographie (Office of Topography and Cartography) SNIT - Soci6t6 Nationale Immobiliere de Tunisie (Real Estate Company) FISCAL YEAR January I - December 31 FOR OMCIAL UISE ONLY REPUJBLIC OF TUNISIA FIFTH URBAN PROJECT Loan and Project SumuMrY Borrower. Republic of Tunisia Beneiciarlies: Housing Bank (BR), Ministries of Public Works and Housing and Justice Amount: US$58 million Terms: 17 years including 5 years of grace, at the standard variable interest rate. Financing Plan: US$ Million IBRD 58.0 US AID 15.0 BB 68.0 Housing Loans' Beneficiaries 54.0 Bilateral Aid/Government 3.2 Other Public Agencies 1.8 Total 200.0 The Government would onlend the funds for the housing credit line to BR at a rate equal to at least the greater of (i) the Bank rate plus 0.5S, and (ii) the money market rate offered by the Tunisian Central Bank to the banks. Other project elements would be financed by budgetary grants to the ministries and agencies concerned. The line of credit would be used according to the following terms: TYtes of Loan Interest Rate Maturity Grace Period Land Development and ) up to 3 yrs. up to 2 yrs. Construction loans ) at least average cost of ) funds plus 2-point spread Mortgages ) up to 20 yrs. Economic Rate of Retmurn not applicable Staff Appraisl Report No. 7621-TUN mmK No. IBRD 18707 of their official duties. Its contents may not otherwise be discosed without World Bank authodzation. MEMORANDUW AND RECOMDATION OF THEPD OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBIC OF TUNIA FOR A FIFtH URBAN PROJECT 1. The following memorandum and recommendation on a proposed loan to Tunisia for US$58 million to finance a Fifth Urban Project is submitted for approval. The proposed loan would be for 17 years including a five-year grace period with interest at the Bank's standard variable interest rate. 2. Sector Issues. Tunisia is already hiphly urbanized and urbanization is expected to continue at a fast pace. Of the total population of 7 million, 4 million live in urban areas, 2.5 million being concentrated in Tunis and three other coastal cities, in which most non-agricultural economic activities are also located. By the year 2000, more than 7 million people will be living in cities. Current demand for housing is estimated at 45,000 units per year. This demand and the demand for serviced land and infrastructure will grow rapidly. Housing constitutes about 20Z of all investments. Until now, Tunisia has been successful in avoiding many of the worst features of rapid urbanization; slums and homelessness are relatively uncommon, as indicated by low average occupancy rates of 5.3 inhabitants (or 1.03 household) per dwelling. Moreover, basic utility services have improved considerably over recent years in most urban areas. 3. But the ability to meet future needs, even to preserve the achievements, is jeopardized by shortcomings in the regulatory framework, standards and institutions, as well as by a lack of appropriate financing. Until recently, urban housing and development were officially almost the exclusive the domain of the State. In keeping with the broad economic liberalization in progress in Tunisia, regulations have been modified to permit more private activity, but they remain in many other respects ill-suited to the country's conditions, as do the standards governing urban housing and infrastructure. The sector institutions also need to be overhauled to meet the needs of the emerging private activity in the sector, and to function effectively in the liberalized financial sector. 4. Much of urban housing development has slipped into the informal sector, where official standards are disregarded and utility services are often difficult to obtain. Where official standards are applied, urban housing densities are low and the cost of services correspondingly high. A severe long-term problem of land registration has emerged; ownership is assured by the Torrens system of registering rights in a land book kept by the State, but only 50% of land in use has been registered. At the present rate, registration of all plots could take decades to complete. The problem affects rural land equally and, because of its conseauences for the land information system, prevents efficient land management by hampering land-use control, establishment of boundaries, collection of taxes, and implementation of projects. The authorities are especially concerned by their inability to regulate the competition between housing and agriculture for land adjacent to towns. -2- 5. The housing sector also lacks adequate financing. The former housing finance agency (CNEI.), which financed low-income housing through a contractual saving scheme, experienced difficulties because of rigid regulations concerning savings and lending products, and the inability of the State system to supply housing, resulting in withdrawals by depositors. The desire for housing is a powerful incentive for household savings in Tunisia, wtheras long-term lending for housing by the deposit and investment banks remains very limited. These diffical1ties associated with securing collateral and the inability to make long-term mortgage loans, have led to the Government's decision to transform CNEL into a full-fledged housing bank so that the new institution can operate with greater flexibility in the liberalized finacial sector. 6. Recent Actions. In July 1988, the Government adopted a new housing policy. Its principal features are to: (a) increase the supply of land for housing by increasing densities, reserving sites. reorienting the public land development agency towards low-income households, and facilitating subdivision by private developers; (b) increase the supply of appropriate financing for land development and housing by restructuring the existing housing savings institution and removing restrictions on active participation by the banking and insurance sector; and (c) reclaim leadership in the management of urban development by defining an active policy to oversee and direct growth, setting up a land-use data base, revising outdated building and infrastructure standards, and updating the urban planning regulations. In March 1989, the Parliament passed a law authorizing the establisbment of the new Housing Bank (Banque de l'Habitat [BIR), which was accomplished on April 28 at its shareholders' meeting. Project Obiectres 7. The principal objectives of the project are to: (a) increase the supply of affordable low- and medium-income housing programs through increased mobilization of domestic savings and rationalization of resource allocation; this would be done by supporting the new Housing Bank to fulfill its role as a financial institution; (b) increase the share of the formal private sector in land and housing development, and in surveying activities; and (c) initiate the modernization of the land information management system by simplifying the procedures for land registration and exchange. Pject D 8. To support the necessary institutional and policy changes, the project would finance the following three components: (a) housinA finance, which includes the transformation of CNEL into a housing bank, BR, with such necessary accompanying measures as training and technical assistance, as well as a line of credit to the new bank of US$51 million; the line of credit would be available for land development, housing construction, acquisition, extension, and rehabilitation; (b) institutional strengthening of the Ministry of Housing to help implement and monitor Government's new housing policy adopted in June 1988, including a new regulatory framework facilitating private land and construction development, and restructuring of its parastatals SNIT (housing company) end APH (land developer); and (c) land information mana_ement including the modernization of land registration and the production of base topographical maps. -3- Rationale for Blank Iuvolvement 9. This project is a logical evolution of the Bank's involvement in the urban and financial sectors in Tunisia. Following continuous dialogue between Bank mitsions and the Government, the latter has moved towards reforming the housing sector. The proposed project is the first Bank operation in Tunisia to address critical issues in housing finance and the regulatory framework, in addition to continuing support to housing development. It comes at a time when the Government has decided to implement changes to allow the private sector to play a greater role in the provision of low-cost housing. The Government's decision to transform CNEL into a housing bank, BR, which will compete with othet financial institutions in the full range of banking activities, is a big step towards building a universal banking system. Although other banks would remain free to lend for housing, the transformed CNEL would retain a competitive advantage because of its specialization and experience. The project would thus complemeut the financial sector reform supported by the Bank under the Structural Adjustment Loan approved in June 1988. The project would also initiate action in the area of land management, which the Government and the Bank have increasingly identified as a major constraint to the implementation of many projects. Land management policies will be followed up under forthcoming operations such as the proposed Second Agricultural Sector Adjustment Project and the Municipal Development Project. Given the complexity and sensitivity of land management, the Bank can contribute the experience gained in other countries and assist the Government in its effort to overcome existing institutional constraints to a more efficient utilization of land. Lendines 10. The funds would be borrowed by the Government, which would onlend part of them to BE at the current Bank interest rate plus at least 0.5S or the money market rate offered by the Central Bank, and which reflects the supply and demand conditions in the inter-bank money market, whichever is higher. The proposed line of credit to BE would assist it over a two-year period in refinancing a share of its land development, combined construction-cum-mortgage loans for low-cost housing, including individual construction loans. Maturities of land development and construction loans would be up to three years; those of mortgages and individual construction loans would reach 20 years. The average lending rate of these subloans would assure a two-point spread over the total weighted average cost of resources- . BB would ensure that the total amount of all construction loans and mortgages for a particular subproject financed from the Bank loan would not exceed the total investment cost of that project (exclusive of land). BR would rely on borrowings and diversified savings instruments to fund its loans, in con.rast with CNEL, which relied exclusively on contractual savings. It would thus be able to raise a much wider spectrum of resources, both locally and abroad. Agtreed A4tions 11. During loan negotiations, assurances were obtained that: (a) the Government would onlend US$51 million to BR on terms and conditions acceptable to the Bank; (b) BR's financial accounts would be audited annually by an independent 1/ Currently, the mortgage loan rate is 8.25% and the construction loan rate is 11.32, compared with an inflation rate of about 7Z. - 4 - auditor satisfactory to the Bank; (c) a system, satisfactory to the Bank, regulating real estate and land development activities would be introduced by December 1990; (d) an action plan detailing further studies and technical assistance would be prepared and provided by BB to the Bank by December 31, 1989; (e) a review meeting between MER and Bank representatives would be held once a year to assess progress made in streamlining the regulatory system controlling urban planning activities and in the implementation of SNIT and AFH contrat-programmes; (f) an action plan (inclading a contrat-programme for OTC) would be agreed for the proposed institutional changes for the modernization of land registration; and (g) a review meeting between the Ministry of Plan and Fin-nce and Bank representatives would be held once a year to assess progress made in the implementation of the action plan for institutional changes for the land management component, and to agree on necessary adjustments. Jusifiatin4Benef Its and R-Isks 12. (a) Housing. The project would endow the housing sector, which accounts for one-fifth of the annual investments made in Tunisia, with an autonomous and healthy financial institution able to contribute to the sector's financing requirements. The new institution would rely on the State budget only for subsidizing housing finance targeted to low-incoLe groups. The project would thus assist the Goverament in fostering the "creditization" of the housing sector, with a view to eventually reduce the share of informal investments. The latter objective, which is a consequence of a more effective housing policy, would be achieved only in the medium-to-long term, and would be expected to be supported by further Bank projects. The main risks of this component are those inherent in any institutional restructuring. The project involves a new institution, BE, whose future effectiveness is uncertain despite all the built-in safeguards and whose institution-building efforts may be delayed by inherent resistance to change by its staff. The effects of the in-depth changes in strategies, procedures, and staff skill mix to be introduced in the three public agencies, may take longer than planned due to the extent of the retraining needed. To minimize these risks, a statement of general policy, a document of procedures, and an organization chart satisfactory to the Bank have been developed by BR, and a comprehensive technical assistance package has been included in the project. 13. (b) Land Information Management. Project benefits would come from improved security of tenure (legal aspect of cadastre) and improved knowledge of spatial development (topographical plans). The expansion of systematic and accurate mapping of urban areas would allow priority investment programs to be planned and executed more rapidly, and city plansing to be more effective. More specifically, the main benefits are the following: (i) speedier land transactions to achieve more efficient land use; (ii) expanded use of credit based on land as collateral to finance investments; and (iii) better land consolidation and land redistribution, which are essential conditions for improving the productivity of land. The main risk is related to the ability of the institutions' management and staff to implement rapidly the necessary organizational changes leading to possible delays in the expected increase of private sector involvement and in the improved overall efficiency in financial intermediation. 14. I am catisfied that the proposed project would comply with the Articles of Agrbement of the Bank and recommend that the Executive Directors approve the proposed loan. Barber Conable President Attachments Washington, D.C. -6- Schedule A REPUBLIC OF TUNISIA FIFTH URBAN PROJECT Estimated Proiect Costs and Projeet Finsncing (US$ Millions) Estimated Proiect Costs PROJECTS LOCAI FOREMIN TOTAL AS % Of COUPONENTS US S millo TOA A. HOUSM PROGRAMS 121.0 68.0 187.0 94 S. INSTITUTIGRAL SRENQTHENINa 1.5 3.4 4.0 2 % C.LAND INFORMATION M lANAEMEMY'2.4 5.1 8.1 4 s TOTAL 1_ - 124.9 75.1 200.0 - 1J00-% - incduding prim and phycal co USIOT (04113/88): 1.07 Project Financing PROJECT TOAL LOCL FOREN EXCHANE IANCI COMPONENTS Cwe Oa Hou I&ROsR.0. NOE PubHc B. 1 URWJNV V"D Blateral - *MENr Awds RJll RECr I Aid' A. HOU8WO PROGRAMS 187.0 67.0 S4,0 51.0 15.0 B. INSTITUTIONAL STRENGTHENING 4. 0.3 0.2 1.0 - 1.3 2.1* C. LAND INFORMATION MANAGEMENT 8. 1 0.6 1.6 5.7 TOTAL PROJECTSS 200.1 1.11 1.1 6. 554. 0S.01 15.0 2.1 $ US / DT (04113188) 1.07 * undw dian with baral aid; H not mrrafed. hfram Gw noen *- prk aed - conpndes -7- Schedule B REPUBIIC OF TUlNISA FIFTH URBAN PROJECT Procuremeat and Disbursement Based on the experience under the Fourth Urban Project of 1986, and other Bank lines of credit in Tunisia, the line of credit to BH would refinance civil works and acquisition of housing units constructed under the project. No contract is expected to be suitable for international competitive bidding. Public developers would be subjected to Government procurement practices for public works. Private developers tend to execute construction works either by themselves or through a variety of small contractors. The technical assistance comg2onets include the implementation of several studies and associated surveys. Contracts for which Bank financing is requested would be awarded according to Bank guidelines to qualified local and foreign consulting firms. Topographical, cartographic, and computer material and equipment would be procured through ICB in accordance with the Bank guidelines. However, a wide variety of small items of specialized equipment with individual amounts not exceeding US$150,000 and up to an aggregate total of US$1.5 million may be procured through shopping on the basis of evaluation and comparison of bid invited from a list of at least three qualified suppliers eligible under Bank procurement guidelines. Disbursement Schedue IBRD Fiscal Year Fiscal Year US$ million 1990 1991 1992 1993 1994 1995 1996 Annual 2.3 7.6 14.5 13.3 10.4 8.2 1.7 Cumulative 2.3 9.9 24.4 37.7 48.1 56.3 58.0 Schedule C REUBLE C OF TUNNSIA EIlTH URBAN PROJECT Tmetable of Xev Frocsng Events (A) Time taken to prepare: About two years (B) Prepared by: Government (C) Bank's first preparation mission: January 1987 (D) Appraisal mission departure: October 17, 1986 (g) Negotiations: March 1989 (F) Planned Date of 8ffectiveness: December 1989 (G) List of Relevant PCRa and PPARss First Urban Project - PCR Nr.5013 Second Urban Project - PCi Nr.6750 Page 1 ot 2 THE STATUS OF DAN G P PETIAS tN ImNISIA A. S?ATE~NT Of BANK LOANS AnD IDA CREDITS (As of March 31. 1989) Loan or US$ Million Amunt Credit (Less tancellatignsl Niugre Ymar iEBrrower Pure Dak ft Undiur_d Forty-seven Loans and Ten Credits Fully Disbursed 780.11 7S.16 1797 1980 office des Ports Nationaux Third Port 35.20 1.23 1961 1981 Republic of Tunisia Fourth Education 21.00 6.09 1969 1981 Republic of Tunisia Small-Scale Industry Development 30.00 3.74 1997 1981 Republic of Tunisia Northwest Rural Development 17.84 2.09 2005 1981 Republic of Tunisia Health and Population a.So 2.76 2052 1981 Republic of Tunisia Grain Distribution and Storae 33.40 1.01 2108 1982 Republic of Tunisia Fifth Highway (Rural Roads) 35.50 7.75 2157 1982 Republic of Tunisia Irriation Oevelopment 15.39 2.14 2223 1983 Republic of Tunisia Urban Development III 25.00 16.02 2230 1983 Republic of Tunisia Education V 27.00 15.59 2234 1983 Republic of Tunisia Central Tunisia Irrigation 13.70 5.08 2255 1983 Republic of Tunisia Urban Sewerage III 34.00 20.54 2289 1983 Republic of Tunisia Stax Flood Protection 22.30 .29 2346 1984 Republic of Tunisia IMining Technical Assistance 7.80 2.31 2368 1984 Republic of Tunisia Seventh Water Supply S0.00 27.54 2429 1984 Republic of Tunisia. Second Urban Transport 33.00 19.74 24SS 1984 Socidtd Tunisienne de l'Electriecti et du Gaz Fourth Power 21.52 6.25 2502 1985 Republic of Tunisia Northwest Agricultural Production 8.80 7.49 2S22 1985 Republic of Tunisia Export Industries 32.50 20.06 2554 1986 Republic of Tunisia'' Second Electrical and Mechanical Industries 32.50 22.84 2573 1985 Republic of Tunisia Irrigation Management Irovement 22.00 16.52 2605 1985 Republic of Tunisia Gabes Irrigation 21.70 12.57 2735 1986 Republic of Tunisia Energy Conservation 4.00 3.87 2736 1986 Republic of Tunisia Fourth Urban Development 30.20 24.26 2784 1986 Republic of Tunisia Agricultural Sector Adjustment 150.00 4237 2781 1987 Republic of Tunisia Industrial & Trade Policy Adjust. 150.00 50.11 2865 1987 UNT BUT IV 30.00 21.86 2870 1987 Republic of Tunisia Agriculture 20.00 17.93 2896 1987 Republic of Tunisia Highways Maintenance & Rehabilitation 63.00 62.99 2911 1988 Republic of Tunisia Second Small & Medima Scale Ind. Development 28.00 28.00 2962 1988 Republic of Tunisia --SAL I 150.00 150.00 3023 1989 Republic of Tunisia 'Petroleum Exploration /a , S.SO $.50 TOTAL 1,963.00 75.16 626.54 Of which has been repaid ,481.52 la,"A Total Now Outstanding 1,481.48 62.10 Aount Sold 34.82 of which has been repaid 2.93 7.89 Total now held by Bank and IDA 1,473.59 62.10 Total Undisbursed 626.54 /1 Not yet effective. 4798/pS 4/4/89 Page 2 of 2 S. STATiE1ET OF rFe INVESTlENTS IN tUNISIA - (as of March 31. 1989) fiscal Amount of USS Mullen faar Dblk t_ d 31Sa Lan £EUAtJ 1Al 1962 MPC Ingrass fertilizers 2.00 1.50 3.50 1966/70/76 Socidtd Nationale dInvestissumut (now B50T) Oev. Finance Co. 2.30 2.30 1969 COFIT Tourism (now MNIT) Oev. Finance Co. 8.00 2.2 10.20 1973 Socidt4 Touristique et Hotelitre RYn SA Tourism 1.60 0.3 1.90 1974 Industries Chimiques du Fluor Chemicals 0.6 0.60 1975 Soce1td d'Etudes et de Ddveloppm nt de Sousse-Nord Tourism 2.50 0.6 3.10 1985/86 Socidtd Tunisienne de Leasing Leasing Co. 3.40 0.5 3.90 1985 Socidtd Mini6re de Spath Fluor et de Barytine (Fluobar) Mining Co. 0.3 0.30 1966 Socidtd Industrielle des Textiles (SITEX) Textiles and Fibers S.0 3.2 8.20 1987 A&wya S.A. Pharmaceuticals 2.0 0.3 2.30 1987 RoWs Edilizzia Industrializzata (REtT S.A.) Prefabricated Panels 1.3 0.4 1.70 1987 COHETE Engineering Enineering Services - 0.04 0.04 1988 Socliti des Industries Textiles RAunies S.A. (SIMER) Textiles & Fibers 2.u .2.14 4.40 Total Gross Co.mtments 28.4S 14.38 42.83 Less cancellations. Terminations. Repayaments and Sales iZ .2,80 LUo Total Comitments Held by tFC JLM MJ8 of which Undisbursed L. 11 Lii 4798/p6 from IFC/04/14/89 BltERTE ;e _ Res DiW 3* IjJt~ T,BM /'El A&Ario 37 A?t / /BJ T mime < b H J E N _ ; X 7 ~~~~~~~~~~bBEUE 'e'+tz Sk ,X Gvlf of 36 36' 5.m ,A~~~~~~~~~~~~~, ~~~~~~MAHD~~~~~~IA 35- ID 35* SIDI BOUZID / S F A X , Bi, Al Bolstoh SFAX , _ 33 G e gA . ae TU N IS~ho! AlG I 25 50 *> * National Capital KILOMETERS 1 * Governorate Copitals TD W t p&b Is wowi aw*.s safti mmk"*,A - Paved Roads mfor f5 iCoiwkr 4'Of Railways r.eddw IWJt ....*. ,m 0w 0Revo,;a m 7w "of The NBI0 ,IW*I p Ports -S " Imw.tj1tw.c + Airports odpWift b ale deomtens m Sail Lakes pGE I The A S * Governorate Boundaries 3kfIw k B VA 32 ALEIIY r -*- International Boundaries of NW rwk or' , /NIGER ' CHAD