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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank IMPLEMENTATION COMPLETION REPORT (TF IDA TF-26593) ON A CREDIT IN THE AMOUNT OF XDR 7.5 MILLION TO ALBANIA FOR AN URBAN LAND DEVELOPMENT PROJECT April 15, 2005 Report No: 32394

2 CURRENCY EQUIVALENT (Exchange Rate Effective April 15, 2005) Currency Unit = Albanian Lek 1 Lek = U$ U$ 1 = Lek FICAL YEAR January 1 December 31 ABBREVIATION AND ACRONYM CA Country Assistance trategy CBOs Community Based Organizations DCA Development Credit Agreement ECHO European Commission Humanitarian Office EU European Union GOA Government of Albania IDA International Development Association JDF Japan ocial Development Fund M&E Monitoring and Evaluation MOF Ministry of Finance MOTAT Ministry of Territorial Adjustment and Tourism MTR Mid-term Review NGO Non-Governmental Organizations PCU Project Coordination Unit PDO Project Development Objective PMT Project Management Team PRC Poverty Reduction tructural Credit TA Technical Assistance TTL Task Team Leader Vice President: Country Director ector Manager Task Team Leader/Task Manager: higeo Katsu Orsalia Kalantzopoulos Lee Travers Toru Konishi

3 ALBANIA Urban Land Development Project CONTENT Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 4 5. Major Factors Affecting Implementation and Outcome 9 6. ustainability Bank and Borrower Performance Lessons Learned Partner Comments Additional Information 16 Annex 1. Key Performance Indicators/Log Frame Matrix 17 Annex 2. Project Costs and Financing 19 Annex 3. Economic Costs and Benefits 21 Annex 4. Bank Inputs 23 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 25 Annex 6. Ratings of Bank and Borrower Performance 26 Annex 7. List of upporting Documents 27 Annex 8. Beneficiary urvey Results 28 Annex 9. takeholder Workshop Results 30

4 Project ID: P Team Leader: Toru Konishi Project Name: Land Development TL Unit: ECD ICR Type: Intensive Learning Model (ILM) of ICR Report Date: June 21, Project Data Name: Land Development L/C/TF Number: TF-29311; IDA-30660; TF Country/Department: ALBANIA Region: Europe and Central Asia Region ector/subsector: General water, sanitation and flood protection sector (51%); Power (17%); Roads and highways (17%); General public administration sector (10%); Other social services (5%) Theme: Access to urban services and housing (P); Other urban development (P); Municipal governance and institution building (P); Pollution management and environmental health (P); Land administration and management () KEY DATE Original Revised/Actual PCD: 05/14/1995 Effective: 09/12/ /25/1999 Appraisal: 01/19/1998 MTR: 08/31/ /12/2002 Approval: 05/12/1998 Closing: 03/31/ /31/2005 Borrower/Implementing Agency: Other Partners: Albania/Ministry of Territorial Adjustment and Tourism TAFF Current At Appraisal Vice President: higeo Katsu Johannes F. Linn Country Director: Orsalia Kalantzopoulos Arntraud Hartmann ector Manager: umter Lee Travers Margret C. Thalwitz Team Leader at ICR: Toru Konishi Toru Konishi ICR Primary Author: Toru Konishi 2. Principal Performance Ratings (H=Highly atisfactory, =atisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, U=ubstantial, M=Modest, N=Negligible) Outcome: ustainability: Institutional Development Impact: Bank Performance: Borrower Performance: L M QAG (if available) Quality at Entry: Project at Risk at Any Time: No ICR

5 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: The primary objectives of the proposed project are to provide essential infrastructure to unserviced or neglected areas in participating municipalities, including the Municipality of Tirana and the District of Tirana, and to strengthen the institutions responsible for the delivery of urban services at the national and local levels. Investment in roads, water supply, drainage, sewage, electricity, street lighting and domestic waste collection and technical assistance to local authorities and participating communities are expected to lead to: (a) enhanced productivity; (b) improved living conditions; (c) rational use of scarce urban land; and (d) improved cost recovery for services. 3.2 Revised Objective: No revision has been made. 3.3 Original Components: The project comprised the following three components: Component 1. Extension of Infrastructure Networks. This Component aimed at providing extension of essential primary and secondary infrastructure such as access roads, water supply, sanitation, power supply, street lighting and domestic solid waste collection. Access Roads were considered to be the most essential to defining the right of way in informal settlements, where settlers had randomly encroached public land. Access Roads were to define the layout of subdivisions and future locations of other infrastructure. The component aimed at establishing these access roads through careful consultation with settlement communities to avoid potential involuntary resettlement. Water upply networks were to be extended under this Component, mainly for Bathore, a very large informal settlement in peri-urban Tirana. At appraisal, an estimated 2,000 families had settled without any access to water supply. anitation (sewage and drainage) was also considered important for some areas. During the Communist regime, investment in sewage and drainage was deficient, which had serious environmental impacts in high density urban areas. Power upply networks were also planned under this Component. While power supply infrastructure was not typically on the top of the wish list of communities, investment in power supply is considered to be effective in reducing rampant illegal connections. Component 2. Institutional Development. This Component was to support the Government's initiatives for developing an institutional framework for addressing urban management and informal settlements, mainly through: (a) identification and preparation of subprojects; and (b) development of strategic investment plans for Tirana. In particular, the following three activities were planned at appraisal: Preparation of ubsequent ubprojects. This activity was designed to strengthen local and central government capacity to identify under-serviced urban areas, prioritize investment, carry out social and economic assessments, and develop a plan for robust sub-projects. trategic Infrastructure Planning for Tirana. This activity was to support the - 2 -

6 Municipality of Tirana and the District of Tirana in: (a) assessing past demographic changes in Greater Tirana and subsequent urban development; (b) developing an inventory indicating the location and conditions of existing infrastructure; and (c) preparing a strategic infrastructure plan based on the population forecast and urban development requirements. Community and NGO upport. This activity was to support the communities in: (i) forming representative groups known as Community Based Organizations (CBOs); (ii) entering into partnership agreements with the local authorities, and (iii) participating actively in the preparation of urban concept plans to regularize the informal settlements and in the prioritization of infrastructure investment. Component 3. Project Administration upport. This Component supported the essential of carrying out project implementation. It provided management support to the Project Coordination Unit (PCU) and the Project Management Teams (PMTs) based at participating local governments. The Component financed incremental operating costs including project staff, office equipment, and incremental technical assistance to guide the first phase of project implementation (construction supervision and support for community associations through Non-Governmental Organizations (NGOs)). 3.4 Revised Components: No revisions were made. 3.5 Quality at Entry: Overall, the project design was satisfactory. The following is a summary of the analysis of the quality at entry. Consistency with CA Objectives. At appraisal, the CA was under preparation. However, in retrospect, the project was fully consistent with the CA, approved by the Board on July 30, 1998, which envisaged supporting the country s post-crisis recovery through the following pillars: (a) governance and institution building (particular emphasis was placed on the development of civil society); (b) promoting private sector growth (lack of infrastructure in urban areas had been identified as a key constraint); and (c) accelerating human development and poverty alleviation. The project has contributed to all of the above mentioned pillars, through developing civil society in the informal settlements (pillar (a)), providing essential infrastructure (pillar (b)), and targeting informal settlements where most of the residents were poor immigrants from the mountainous northeastern region (pillar (c)). Appropriateness of Overall ector trategy and Project cope. Given the crisis situation in urban development in 1997, the approach chosen in the project was cost-efficient and environmentally and socially responsive by addressing issues arising from rapid urbanization, such as degradation of urban infrastructure and the emergence of large informal settlements. Extension of essential infrastructure is critical to maintaining minimum living standards in neglected urban informal settlements, and their eventual regularization is essential to an inclusive and coherent urban society. While retaining its main focus on physical investment in infrastructure (more than 85 percent of the total cost), for the short-run, the project also aimed to help the Municipality of Tirana and the District of Tirana to develop a medium-term strategy for infrastructure investment. Given the urgent needs for investment, and limited capacity of the local institutions, the project s scope was realistic and relevant. Consistency with Government Priorities: ince early 1990, there has been an acute shortage of urban - 3 -

7 housing due to massive internal migration. The Government put a high priority on increasing the supply of urban housing, and requested Bank assistance. Through policy dialogue during project preparation, the Government shifted its emphasis from housing supply (i.e., provision of public housing, site and service development) to infrastructure support so as to stimulate private investment in housing. In addition, the Government recognized the need to integrate informal settlements into the formal urban structure. Prior to the inception of the project, the Parliament had adopted a law to classify Bathore and Lapraka two major informal settlements in Tirana as formal urban areas, thus excluding these two areas from possible restitution. The project was fully consistent with the Government's priorities. Assumptions on Risk Factors. The project's main overall risk assessment was (substantial), and it is considered appropriate. Indeed, during implementation, two risk factors identified at appraisal - low cost recovery from beneficiaries, and lack of capacity of the local government - seriously affected the implementation of the project during the first two years. However, the planned mitigation measures could not be followed up (such as temporary tenure or provision of an option to purchase land), due to complex land tenure issues. More efforts could have been made to explore new ideas, such as competition among participating municipalities to raise incentives, and a more realistic target for community contributions. Project Objective and Monitoring Indicators. While overall project design was considered to be satisfactory, the monitoring indicators could have been less ambitious and more realistic. In particular, the list of indicators include those which are difficult to measure (e.g. occurrence of infectious diseases), and those which are beyond the project s control (e.g., mostly impact indicators). 4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: The overall achievement of the project objective is satisfactory. The project not only achieved the quantitative target on infrastructure development, but also had important impacts such as establishing methodologies for formalizing informal settlements and reducing illegal infrastructure connections. A detailed survey in the Bathore sub-project also indicates that the project had substantial socio-economic benefits. Physical Achievement. The project financed 19 sub-projects for infrastructure improvement, directly benefitting more than 8,000 families (or approximately 40,000 inhabitants) living in the project area, surpassing the appraisal target (approximately 7,000 families). The project also provided another 18,000 families with indirect benefits in infrastructure improvement through significant investment in primary infrastructure networks, such as water mains, sewage collectors and electricity trunk lines (U$4.8 million in total). The rapid social assessment carried out in February 2005 with Bathore residents and the local government demonstrated extremely high beneficiary satisfaction (over 90 percent). This was mainly due to the fact that the project adopted a participatory method in developing urban concept plans for regularization and subsequent prioritization of investments. ocial and Economic Impacts. Infrastructure investment in informal settlements has already had tangible economic impacts within the project area, as envisaged at appraisal. An observation of the Bathore Pilot area indicates that investment has had significant impacts on productivity, better use of urban land and investment. In particular, the land price in Bathore which is a proxy for measuring productivity, has generally reached U$40 (inland ~ 80 (close to the main road) per square meter, i.e., an increase of more than 150 percent of the price at appraisal. The land value became closer to that in - 4 -

8 formal urban areas at a comparable distance from the city center, implying that people have started to consider Bathore a formal urban area. Further, it is clearly shown that infrastructure investment has also contributed to densification, an increase in housing investment, and the development of small businesses. Table 1. Project Impacts in Bathore Pilot Area (10 hectares) At Appraisal At Completion Productivity Average Land Price ($ per m 2 ) Better use of Urban Land Number of Houses Average Number of Floors Private Housing Investment Average Investment in Housing 12,500 38,000 (2005 constant U$) mall Businesses 1 26 Note: Land prices in Bathore Pilot Area are higher than in the other part of Bathore, due to its proximity to the main national road. A rapid assessment also revealed that the project had considerable social impacts, particularly among youth and women. While quantified information was available, anecdotal evidence was also collected. For example, water supply services freed up a substantial amount of time for women, who used to spend several hours a day obtaining potable water. Improved electricity also enabled students to study at night. Improved access roads enabled residents to freely commute to Tirana for work or leisure. In collaboration with CBOs and local government, the project played a catalytic role in establishing social infrastructure such as kindergartens, community centers, and schools. From the beneficiaries own perceptions, the project helped these informal settlements integrate with the formal parts of the Greater Tirana Urban Area. The infrastructure investments had psychological impacts as well as tangible economic benefits. Methodologies for Formalizing Informal ettlements.the project established replicable procedures that can be used in regularizing informal settlements, as summarized below: Community Based Organizations (CBOs). Typically, residents in informal settlements are internal migrants from the northeastern mountain areas, and within their communities they form some informal and exclusive groups based on their places of origin. The first step towards regularization is to establish a single CBO to become a counterpart to the local and central government and participate in the process of developing urban plans and subsequent infrastructure investment. Rights-of-Way. In general, there was no defined right-of-way in informal settlements, and residents freely encroached on public land. With close support from the NGOs assigned to the - 5 -

9 areas and the local government teams, the CBOs were encouraged to find a way to coordinate among community residents to adjust their encroachments in order to ensure right-of-way for future infrastructure investment. Investment Prioritization and Beneficiary Contribution. The project also introduced participatory methods in prioritizing infrastructure investments, and in making up-front financial contributions. These methods were considered effective in preventing vandalism after completion of the investments. Confirming Occupancy. Upon completion of the sub-projects, the project helped residents prepare evidence to justify their occupancy. It was found that many residents had retained documentation of the land transactions. While title registration was not possible at the time (and to this date) due to the absence of a legal framework for legalizing informal settlements, these documents were systematically recorded as preliminary registrations and stored in the local government archives to facilitate formal registration in the future. Reducing Illegal Connections. Illegal connections to water and electricity are common in informal settlements where no services have been offered. Rampant illegal connections not only jeopardize the utility firm s operations the financially, but they also incur serious repair costs. Through infrastructure investments, the project also demonstrated the importance of having formal agreements with the utility providers. The project formalized about 530 electricity connections in Lapraka, and 1,000 water connections in Bathore. 4.2 Outputs by components: Overall project outputs are rated satisfactory. Component 1: Extension of Essential Infrastructure Networks The project financed the upgrading of 19 urban areas in 7 municipalities comprising about 8,300 hectares through the provision of primary and secondary infrastructure networks, enabling the provision of basic services for water, drainage, roads, electricity, and street lighting. Originally, the project targeted secondary and tertiary networks in neglected and/or underserviced areas for investment. However, during implementation, it was revealed that many parts of the primary infrastructure networks in the urban areas were dilapidated due to rapid urbanization and long-term neglect. It became clear that substantial investment for upgrading primary infrastructure networks would be needed to optimize the performance of secondary and tertiary networks. Among all subprojects, the achievements in the Bathore area (Bathore Pilot, 2, 3 and 4) are noteworthy. Originally, the project envisaged extending water supply networks from the western part of Tirana to Bathore. However, during implementation, the existing primary networks were found to be too dilapidated to provide adequate service to Bathore. The rapid growth of informal settlements at the site had been compounded by the influx of a large number of refugees from the Kosovo conflict in 1999, and the lack of water had precipitated a major social and political crisis. In consultation with the Government, the European Commission Humanitarian Office (ECHO) provided approximately U$2.0 million to develop a new 2.0 kilometer primary water network from the newly established Buvilla Reservoir located next to the sites. However, construction work on the network was suspended shortly after it began due to rampant illegal connections made by residents living in upstream informal settlements not covered by the project. ince ECHO's financial resources were depleted, the - 6 -

10 Government decided to use project funds to finance the repair works to ECHO's primary network, as well as connections with the new secondary networks financed under the project. In the meantime, the project area was extended to include the upstream informal settlements. These works were carried out in collaboration with CBOs in order to prevent further damage. In addition, through the project, the Government transferred operational responsibility for the water supply networks to Kamza Municipality, which committed to operating and managing them under its own municipal water company. To-date, the Municipality has fully taken over operations and has already started providing 2,000 families with water services. The project has also provided major drainage and sewage networks for Bathore and Kamza, which will eventually benefit 5,000 families. Component 2: Institutional Development A technical assistance package was contracted to an international consultant to support mainly: (a) preparation of subprojects; and (b) strategic infrastructure planning and programming for Greater Tirana. With regard to (a) subproject preparation, terms of references and a design manual were prepared and continually refined as the project progressed. With reference to (b), a series of studies were carried out to assess the infrastructure investment and its financing needs over 5 and 10 years. The findings of these studies were incorporated into the Greater Tirana trategic Infrastructure Plan (the Plan), which was presented to the National Council of Territorial Adjustment, the highest authority in approving territorial plans. To date, discussion is still on-going among the Municipality of Tirana, the Ministry of Territorial Adjustment and the National Planning Institute due to divergent views on the final approval. Nevertheless, the Plan has raised interest in and the credibility of the project among relevant stakeholders, and later triggered a request by the Municipality of Tirana for assistance in regulatory planning, and another request from the Ministry of Territorial Adjustment for formulating a National Urban trategy. In addition to the above, this component financed contracts with the local NGOs to support the beneficiaries. Their support included: (i) information dissemination and organizing the CBOs; (ii) a rapid socioeconomic survey and preparation of concept plans for project areas; and, (iii) liaison between the CBOs and local governments to ensure timely implementation and to help the residents resolve a variety of community issues such as right-of-way and the collection of beneficiary contributions. The role of NGOs changed during the life of the project. In the beginning, one NGO was assigned per area and was intensively involved in persuading people to participate. As the project progressed and expanded geographically, the role of NGOs changed to training municipality staff. A pilot study on preliminary registration of informal settlements was also financed under this component. Component 3: Project Administration and Management upport (a) Institutional upport. This sub-component mainly financed staffing of the PCU established within the Ministry of Territorial Adjustment and Tourism (originally Ministry of Public Works) and Project Management Teams (PMTs) in the Municipality of Tirana and District of Tirana (which later changed its jurisdiction and name to the Region of Tirana). The staffing arrangements evolved as the project expanded geographically. While the Project Management Team (PMT) for Tirana region remained within its geographical boundary, the PMT for Tirana Municipality merged with the PCU after the Mid-Term Review in 2002, in order to strengthen the PCU in dealing with municipalities outside Tirana and to provide support on other technical assistance activities (e.g., trategic Plan). Concurrently, the procurement function was also centralized in the PCU in order to accelerate processing. (b) Detailed Design and Construction upervision. While the PCU and the PMTs were responsible for project management, local consultants were contracted under this sub-component to ensure timely and - 7 -

11 quality implementation of civil works. The interaction between the consultants and the specialists from the PCU and the Bank served as an on-the-job learning opportunity. As the project progressed, a group of civil engineers emerged who developed a good understanding of the project s participatory concept and the required standards for construction supervision, an aspect of implementation that had not existed before the project. 4.3 Net Present Value/Economic rate of return: The main benefits of the project were increased productivity and amenities, resulting from new or improved access to urban infrastructure services. The project also induced better economic use of land through densification and the emergence of private businesses. In addition, in retrospect, the project also produced significant social benefits resulting from the integration of informal communities in peri-urban areas. In this ICR, an economic analysis, taking into account the above mentioned factors, was carried out for Bathore, where the project made substantial investments (approximately U$4.5 million). In principle, the analysis adopted a framework of an economic model that was developed at appraisal, but with updated assumptions. In the process, secondary benefits resulting from investments in primary infrastructure networks were included. In summary, the estimated economic rate of return is 31.6%, justifying the investment a posteriori. The assumptions applied and the outcome of the analysis are described in Annex Financial rate of return: Not applicable. 4.5 Institutional development impact: Overall institutional development impacts were moderate. While the project made significant impacts at the community and local government level, it has not been fully effective in supporting the central government's development of critical institutional and policy development change with regard to urban land management. At the community level, the project contributed substantially to developing cohesive and responsive urban communities in the informal settlements. Through establishment of CBOs, and improvement of infrastructure services, residents have gradually gained the sense of being a part of Greater Tirana. The amount of vandalism and number of illegal connections to public facilities (including infrastructure) has fallen dramatically. In addition, the project played a catalytic role in organizing youth and women's groups within the project areas, which have become advocates for community improvement through participation. imilarly, the institutional development impacts on the participating municipalities can be considered significant. The project's impacts were mainly gaining hands-on experience with a participatory model of urban planning and infrastructure investment. This model has been replicated by the municipalities in both informal settlements and formal ones in inner-city areas. trategic infrastructure investment planning has also helped the municipalities understand the importance of planning infrastructure investment in response to current and forecast demographic trends. In addition, the municipalities have learned the concept of 'integrated urban upgrading', which provides neglected communities with a comprehensive package of urban and social infrastructure through coordinating the concerned departments of the Municipalities and utility companies. On the other hand, the project was not fully effective in supporting the institutional and policy development at the central government level, due mainly to political and social pressures. The - 8 -

12 Government was not able to develop a strategy to legalize land tenure in the informal settlements, although it has provided residents with some assurance on the security of land tenure. The project was also not able to support the development of institutions and policies to regularize land tenure in the informal settlements. These issues remain as major challenges for future operations in the urban sector. 5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: During the early stages of project implementation, the Kosovo crisis erupted (from March to December 1999). During this period, an estimated 600,000 refugees flooded into Albania, most of whom settled temporarily in the urban areas and were hosted by Albanian families. This phenomenon had considerable impact on project implementation. For example, implementation was delayed because the Government was not able to organize a meeting of the National Council for the Territorial Adjustment, which was required to approve the urban plans for informal settlements. Bathore hosted an estimated 2,000-3,000 refugees during this period, which created a water supply crisis, eventually leading to serious damage to the primary water networks financed by ECHO (refer to ection 4.2). 5.2 Factors generally subject to government control: The following are the major factors affecting implementation and outcome: Effectiveness delay. The project took more than 6 months to become effective. This was because the Government decided to prepare and present to the Parliament the draft law to recognize Bathore and Lapraka as an urban area and protect the land tenure of residents in informal settlements by excluding these areas from restitution claims by original land owners. While at negotiations, it was confirmed that the Council of the Ministers' decision would be adequate, the Government took a more conservative approach, considering the social impacts. The Government also decided to provide the original land owners with monetary compensation as an alternative, and incorporated this into the law. However, preparation of the law and its discussion in Parliament took longer than expected, delaying a consensus on supporting the upgrading of informal settlements. Frequent changes of the administration at the MoTAT significantly slowed project implementation. This occurred because it took a considerable amount of time for each administration to come to terms with the project s overriding concept of comprehensive community-driven urban upgrading, which was different from conventional infrastructure investment projects such as water and transport. Lengthy administrative approvals of technical designs. The urban concept plans as well as infrastructure designs had to be approved by several local and national authorities (such as local and national councils of territorial adjustment), concerned municipalities and utility companies (e.g., KEH), as well as the concerned department of the Ministry of Territorial Adjustment and Tourism (MoTAT). In the early stages of the project, implementation was delayed due to the slow, drawn out administration of the technical designs, which in turn often led to the participating communities losing confidence in the project and delaying the collection of community contributions. However, the situation improved substantially over the last two years of implementation, due chiefly to the initiative taken by the municipalities in conjunction with the decentralization program

13 Weak and vacillating stance of the Government with regard to the legalization of informal settlements hindered the project's effectiveness in preparing legal and institutional frameworks for the regularization and registration of informal settlements. Along with the Poverty Reduction tructural Credit (PRC), the Bank team continued a policy dialogue with the Government on the following points: (a) early closure of restitution claims (the Law kept open the deadline for restitution claims); (b) compensation guidelines for properties affected by restitution claims; and (c) enactment of laws on regularizing informal settlements. The Law on Land Regularization and Appropriation was adopted, but it may be difficult to implement due to the lack of detailed implementation guidelines (such as valuation). 5.3 Factors generally subject to implementing agency control: The strong commitment of the Project Coordination Unit (PCU) should be noted in enabling an overall satisfactory outcome of the project, despite all the difficulties summarized above. The scope of the PCU's work was substantial. In addition to the normal fiduciary tasks and construction design and supervision, the PCU had to: facilitate the organization of CBOs; develop coordination between municipalities and CBOs for designing urban plans; prepare technical documents; coordinate with concerned public entities such as municipalities and utility companies; prepare a number of civil works contracts and documents for the National Territorial Adjustment Council. The PCU also played the role of interlocutor between communities (CBOs), local government, and the MoTAT in establishing a model of participatory upgrading. 5.4 Costs and financing: There was no financing issue with regard to the implementation of the project. The Government always provided counterpart funds in an adequate and timely manner. The project adopted a sub-project approach; therefore, the scope and coverage of the project were adjusted according to the available resources. Upon completion, seven eligible communities were not able to get financing from the project. On the financing side, the major changes after appraisal included: (a) parallel financing with ECHO (U$2.0 million) for a primary water supply network in Bathore (refer to ection 4.1); (b) a decrease in community contributions (from an estimated U$4.15 million to approximately U$2.5 million); and (c) new financing by the participating municipalities (approximately U$150,000). In line with the other IDA and internationally funded projects (appraised after this project), it was agreed that half of the community contribution could be paid by the concerned municipalities in order to strengthen the partnership between the communities and municipalities. The larger-than-expected investment needed for primary infrastructure (actual U$4.8 million compared to the estimated U$1.0 million), for which communities were not required to contribute, is also attributable to the decrease in community contributions. On the component-wise expenditures, costs for infrastructure works (Component A) increased slightly (U$7.8 million actual vs. U$7.1 million estimated) due to the large investment needs for the primary networks (refer to ection 4.1). Costs for Component C increased from the appraisal estimate of U$0.8 million to U$1.6 million due to the following factors: (a) larger operating costs due to a 12-month extension, (b) extensive need for local NGO support, particularly during the initial stages of the project, and (c) establishment of a specialized project team at the Municipality of Tirana. 6. ustainability 6.1 Rationale for sustainability rating:

14 The project impacts are very likely to be sustainable. The project investments based on priorities established by the residents have given a high level of satisfaction. ubprojects went through an extensive community participation process, and the rapid social survey (February 2005) clearly indicated a sense of ownership of the investment by the communities, and a great willingness to maintain the infrastructure. All infrastructure such as water, sewerage, drainage and electricity was transferred to the concerned municipalities and/or public utility companies to ensure proper operation. As a result, the major threat to the sustainability of infrastructure in Albania - vandalism by communities - has been greatly reduced. The survey also indicated that the residents in the project areas felt more secure of their land tenure and there is a rising sense of social cohesion in the upgraded communities. As mentioned in ection 4.1, informal land transactions have been taking place, and densification has been occurring. Without doubt, the project contributed to the establishment of responsive urban communities and to the eventual development of a formal land/housing market. However, in order to fully consolidate the project's impacts, the challenge remains with the central government and municipalities. The Government has to prepare practical documents setting out the norms and guidelines for implementing Land Regularization and Appropriation. In view of the on-going decentralization process, tenure regularization is a critical step in establishing a tax base for local governments and better management of urban development. Municipalities need to develop and enforce an appropriate urban regulatory plan in order to guide private investment and prevent further development of informal settlements in peri-urban zones. During the final two years of project implementation, the municipalities have become aware of the importance of urban regulatory plans. As the next step, the Government supports preparation of an urban regulatory plan for Tirana with the assistance of the Government of the Netherlands. imilar exercises should is planned to be expanded to other important municipalities. 6.2 Transition arrangement to regular operations: Now that the project is completed, the Government is keen to apply the same approach used in the project to expand infrastructure coverage to other urban areas such as Greater Tirana and other important secondary cities. The on-going technical assistance program for preparing and implementing Tirana Urban Regulatory Plan will continue even after completion of the project, and it is expected that the community-upgrading, infrastructure investment and regulatory planning activities embodied in the project will continue after project completion and become a model for other municipalities. This approach will assist in the transition from an urban management legacy based on static and physical urban plans to urban planning built on a dynamic process that accepts the socio-economic dimension of urban development. In order to fully realize the potential of the model and systems that the project created, there are still challenges for the central government and municipalities to overcome, as mentioned above. In addition, the transition process should go hand-in-hand with the on-going decentralization process. With the adoption of the laws on decentralization in 2000, the Government made a political decision to decentralize administrative and fiscal decisions, and the bones of institutional and legal framework have been put in place. However, the implementation of policy reforms is experiencing delay, mainly due to the weak capacity at both central and local government levels and institutional bottlenecks. In this regard, additional funding will be required to support both the central government and municipalities in building capacity, elaborating policy frameworks for better urban management, and expanding coverage to other urban and peri-urban areas deficient in basic infrastructure. The Government has requested a follow-up project on

15 urban development, and the Bank expressed its willingness to consider continuing its support for community upgrading and development of urban and social infrastructure to cope with the rapid urbanization. 7. Bank and Borrower Performance Bank 7.1 Lending: Overall performance of the Bank in lending is rated moderately satisfactory. The overall project objective was consistent with the higher objectives stipulated in the Country Assistance trategy (CA), and the project design incorporated the lessons from the Housing Project to focus public financing on infrastructure investment for neglected urban areas. Participatory principles were developed in a practical manner through intensive collaboration with local and international NGOs. However, as stated in ection 3.5, the Bank team could have elaborated more on the consistency between the project objectives and monitoring indicators. ome of the proposed indicators do not necessarily correspond to the development objectives and are not measurable. 7.2 upervision: The Bank s performance in supervision is rated satisfactory. Given the strong distrust among residents of informal settlements in any government intervention, the task team carried out intensive supervision, particularly during the first three years of implementation, with an emphasis on building trust among beneficiaries and introducing the participatory mechanism. The team also provided the Government with timely advice on critical issues. For example, when the investments in water supply in Bathore came to a standstill due to the lack of financing for repairs to the damaged primary networks and institutional bottlenecks, the team assisted the Government by organizing a meeting inviting all concerned utility companies and the ministerial departments in order to resolve the institutional issues and to prevent further damage to the primary networks. For electricity in Lapraka, the team helped the Government negotiate with KEH (state electricity company) on providing meters and cables, which were in short supply nationwide. The Bank team also played a catalytic role in obtaining additional resources for supporting informal settlement needs other than physical infrastructure. For example, in 2000, a Japanese ocial Development Fund (JDF) grant of U$180,000 was awarded for strengthening youth and women's groups and building social infrastructure. The emphasis on supervision gradually shifted to more strategic issues such as facilitation of a dialogue among related local governments and the Ministry of Territorial Adjustment and Tourism on a strategic investment plan for Greater Tirana, and participation in a policy dialogue on land regularization and decentralization. 7.3 Overall Bank performance: The Bank s overall performance is rated satisfactory. Through preparation and implementation, the Bank team was continuously engaged in intensive monitoring as well as timely advice on both project implementation and policy development. Borrower 7.4 Preparation: The Borrower s performance in preparation is rated satisfactory. In response to the policy advice from IDA, the Government shifted its focus from housing operation to support for informal settlements, and took an active role in preparing the project. As a major effectiveness condition, the Government duly facilitated the passage of a law to recognize Bathore and Lapraka as urban areas, and to protect the informal

16 settlements in Bathore and Lapraka from possible future restitution claims which could have been submitted utilizing a loophole in the Restitution Law. ince the Government was not able to amend the Law on Restitution because of political and social pressure, this was considered to be the second best solution. 7.5 Government implementation performance: The Government s implementation performance is rated satisfactory. The Borrower provided full counterpart funding throughout the implementation of the project. The policy dialogue with the Bank was also carried out smoothly. In 2001, the Ministry of Territorial Adjustment and Tourism organized a workshop inviting mayors from key municipalities to expand the project all over the country. In 2002, the Prime Minister approved the urban design in Bathore, expressed the Government s view on the regularization carried out under the project, and discussed the prospects for future legalization on informal settlements. However, it should be noted that there were some issues that caused implementation delays, as stated in ections 5.2 and 5.3. At the early stages of project implementation, the Government was not able to process the technical documents in a timely fashion due mainly to administrative procedures. Collaboration between various utility companies, particularly electricity and water, turned out to be time-consuming, as this was the first comprehensive urban upgrading project in the country. Moreover, frequent changes in the government caused delay in implementation. Nevertheless, the Government gradually learned lessons and demonstrated its full commitment by accelerating implementation of the project. The closing date of the project was extended by 12 months, and the credit was fully disbursed. 7.6 Implementing Agency: The Implementing Agency s performance is rated satisfactory. Throughout project implementation, the PCU played a catalytic role in raising awareness among government officials on informal settlements. taffed with young but fully qualified and motivated professionals with intensive education on urban development in European countries, the PCU was active in local meetings by linking community residents with local governments, processing administrative actions for regularizing informal settlements, and coordinating with local NGOs to improve legal frameworks for eventual legalization of informal settlements. 7.7 Overall Borrower performance: The overall performance of the Borrower is assessed as satisfactory. In spite of the frequent changes in the administration of MoTAT, and the consequential delays in project implementation, the Borrower remained committed to the project s development objectives and its approach. During the final two years of implementation, ministerial continuity at MoTAT helped accelerate project implementation, together with the participating municipalities. To date the credit is fully disbursed and the project's investments are complete. 8. Lessons Learned In principle, the project design, i.e., upgrading neglected urban areas in the short-term and preparing a long-term infrastructure investment plan is sound and valid. However, the project revealed the limits of the community-based approach to addressing broader urban development and management issues. Future operations should consider the following lessons to make project impacts more sustainable and replicable. Combining Local Government Capacity Building with Community Participation: The project was not able to support the local governments' ability to improve their regulatory functions nor service delivery as

17 envisaged, although it certainly helped the municipalities learn participatory infrastructure investment planning. Given the current decentralization process, the municipalities need technical assistance on all fronts in municipal operations such as resource management, infrastructure planning and operation, social service delivery and urban management. For the project to scale up its impact, a participatory investment program should be combined with a comprehensive support and capacity building program for municipalities. Future operations should expand from narrowly defined community-based infrastructure development to broader municipal operations. Particular attention should be given to strengthening urban regulatory functions, e.g., preparation of urban plans and definition of building permit procedures, all of which aim to promote, guide, regulate, and support private sector development. Infrastructure Investment to Combine Primary and econdary Networks to Address Deficiencies: The project originally aimed at improving well-being in neglected communities through community-based infrastructure investment. While the urban population has tripled during the last 10 years in almost all key municipalities, no coordinated efforts have been made by the Government or donors to comprehensively upgrade and rehabilitate the primary infrastructure networks such as electricity, drainage, solid waste, and access roads. Consequently, the pressure on some existing infrastructure networks has passed the critical point beyond which municipalities can deliver reliable services, even to formal communities. Any follow-up projects should have a substantially larger component for upgrading primary infrastructure. Integrating Youth Group and ocial Infrastructure in municipal investments: It is also important for future projects to focus more on youth and women's groups, particularly in informal settlements. pecial attention should be given to investment in social infrastructure (e.g. schools, kindergartens, parks, community centers) to allow full benefits of upgrading informal settlements to youth and women. Land Tenure: Project experience made it clear that land tenure issues in peri-urban areas are complex, and involve serious social and political implications. A study carried out under the project found ten different types of informal settlements depending on the degree of informality (such as current zoning, ownership, land with disputes between owners and occupants, etc.), and that for each type, the path for legalization is different. While land tenure and land registration in the urban and peri-urban areas remain a big issue, it is not within the jurisdiction of the municipalities, and there may be a need for a separate project specifically focusing on land tenure and land registration. Project Management to be integrated in the existing administrative structure: The project was mainly implemented by the PCU established within MoTAT and by participating municipalities. The PCU staff in particular have developed into a competent and capable unit whose skills must not be lost or diluted. It is advisable therefore that the unit be absorbed into MoTAT, preferably in the Department of Urban Planning. These staff would contribute to the Department by: (a) providing municipalities with technical support and mentoring for implementing decentralization and promoting participatory urban management for informal settlements in general, and (b) assisting in developing the documents necessary to implement the Law on Land Recognition and Appropriation. 9. Partner Comments (a) Borrower/implementing agency: The following is a summary of the Report compiled by the Borrower. The report is in the Project Files. The project was designed in 1997 to address acute urban problems; e.g., the rapid increase in informal settlements in peri-urban areas, mainly in Greater Tirana, and subsequent issues such as social disintegration and lack of access to essential infrastructure. In retrospect, the project had considerable