Document of The World Bank Report No: 36626 IMPLEMENTATION COMPLETION REPORT (CPL-37700 FSLT-71970) ON A LOAN IN THE AMOUNT OF US$ MILLION TO THE REPUBLIC OF LEBANON FOR TECHNICAL ASSISTANCE FOR REVENUE ENHANCEMENT AND FISCAL MANAGEMENT June 30, 2006 CURRENCY EQUIVALENTS (Exchange Rate Effective June 2006) Currency Unit = Lebanese Pound (LL) 1LL = US$ 0.00066 US$ 1 = 1,507 LL FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS DG = Director General DOLR = Directorate of Land Registration GDP = Gross Domestic Product GOL = Government of Lebanon IBRD = International Bank for Reconstruction and Development ICB = International Competitive Bidding IC = Implementation Coordinator MOF = Ministry of Finance PIT = Project Implementation Team SOE = Statement of Expenditure TA = Technical Assistance Vice President: Christiaan J. Poortman Country Director Joseph. P. Saba Sector Manager Farrukh Iqbal Task Team Leader/Task Manager: Giulio de Tommaso LEBANON LB-TA FOR REVENUE ENHAN CONTENTS Page No. 1. Project Data 2. Principal Performance Ratings 3. Assessment of Development Objective and Design, and of Quality at Entry 4. Achievement of Objective and Outputs 5. Major Factors Affecting Implementation and Outcome 6. Sustainability 7. Bank and Borrower Performance 8. Lessons Learned 9. Partner Comments 10. Additional Information Annex 1. Key Performance Indicators/Log Frame Matrix Annex 2. Project Costs and Financing Annex 3. Economic Costs and Benefits Annex 4. Bank Inputs Annex 5. Ratings for Achievement of Objectives/Outputs of Components Annex 6. Ratings of Bank and Borrower Performance Annex 7. List of Supporting Documents Project ID: P005340 Project Name: LB-TA FOR REVENUE ENHAN Team Leader: Giulio De Tommaso TL Unit: MNSED ICR Type: Core ICR Report Date: June 30, 2006 1. Project Data Name: LB-TA FOR REVENUE ENHAN L/C/TF Number: CPL-37700; FSLT-71970 Country/Department: LEBANESE REPUBLIC Region: Middle East and North Africa Region Sector/subsector: Central government administration (95%); Law and justice (5%) Theme: Tax policy and administration (P); Trade facilitation and market access (P); Personal and property rights (P); Economic statistics, modeling and forecasting (P) KEY DATES Original Revised/Actual PCD: 03/23/1993 Effective: 04/13/1995 04/13/1995 Appraisal: 07/13/1993 MTR: 10/30/1996 04/14/1997 Approval: 06/29/1994 Closing: 03/31/2000 12/31/2005 Borrower/Implementing Agency: GOVERNMENT/MINISTRY OF FINANCE Other Partners: STAFF Current At Appraisal Vice President: Christiaan J. Poortman Caio Koch Weser Country Director: Joseph P. Saba Ram Chopra Sector Manager: Mustapha Kamel Nabli Barbara Kafka Team Leader at ICR: Giulio de Tommaso Sarshar Khan ICR Primary Author: Mikhail Pryadilnikov; Giulio de Tommaso 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: SU Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S S Project at Risk at Any Time: No 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: Background A long and devastating civil war lasting between 1975 and 1990 severely weakened the Lebanese economy and society. Nearly US$25 billion of damage was inflicted on the Lebanese infrastructure with per capita income dropping by two-thirds from its prewar level. In addition, a quarter of the population of 3.5 million was displaced. Though public institutions remained resilient throughout the war, there was a severe depletion of human resources and physical infrastructure. Most Government buildings were completely destroyed or severly damaged, office equipment was either destroyed or stolen, and public employment was reduced to a bare skeleton. Fewer than 7,400 public posts were filled out of the 20,860 prescribed by the government's organizational structure, with nearly 60% of the management and mid-level posts in grades I, II and III vacant. Accordingly the first priority at the end of the conflict was to focus on rebuilding effective institutions able to effectively carry out the functions for which they were mandated. This was to be done through addressing the most basic administrative needs in every area of government activity, especially in the area of revenue collection. Improvement in basic revenue collection needed to be accompanied by strengthening of the expenditure management. In the aftermath of the civil war, the Ministry of Finance (MOF) ability to perform its basic functions was severely challenged. The taxation administration system was weak, the tax structure was too complex. Domestic taxation records were largely destroyed from the war and tax evasion was rampant. Public expenditure management was hampered by weak reporting, outdated accounting standards and lack of medium-term budget programming; the customs tariff system was excessively complex and burdensome. Customs receipts were low due to the application of lower than -the market exchange rate to determine the value of imports. Additionally, the land cadastre system required significant rebuilding. Many maps and land records were either destroyed or in extreme state of physical deterioration. The program to survey the entire Lebanese territory was interrupted by the war, and therefore remained largely incomplete and inadequate. Like most other institutions in the Lebanese public administration, by the end of the civil war the Directorate of Land Registration (under the MOF) lost personnel and facilities and was unable to keep the cadastre up to date or to record and archive real estate transactions and ownership records. Its information system was old and outmoded and it s equipments were technically inadequate. As a result, both property registration and property taxation suffered. Unless addressed, these shortcomings directly affected the ability of the government's ability to impact on private sector land-related investment for housing and restore its general ability to perform its revenue generation functions. In support of this initiative, the Bank developed the Revenue Enhancement Project (1994)- the project under review in this ICR; and the Administrative Rehabilitation Project (1995) - which focused on the physical rehabilitation of Public Administration's infrastructure including the infomration technology in most government ministries and agencies. Objective - 2 - The Project's objective was to support government efforts to enhance revenues and strengthen fiscal management by filling the gaps in key personnel, skills, equipment, and physical resources; assisting in improving systems, procedures, and data bases; and providing advice on future policy reforms. This was to be achieved by increasing the MOF's operational efficiency and building its capacity to develop and use better policies and procedures, with particular reference to departments responsible for revenue collection and fiscal management. In addition to improving operational efficiency the project supported the immediate government efforts to enhance revenues and rationalize public expenditure. 3.2 Revised Objective: The objectives of the project however remained unchanged throughout the life of the project. 3.3 Original Components: The project had three major components: 1) Reforms of Customs Administration which focused on (a) implementing a customs tariff reform with the adoption of market exchange rate for valuation, lower nominal rates, the consolidation of numbers, the concentration of tariffs, and the reduction in number of tariff positions; (b) introducing a harmonized tariff system; (c) introducing simplified customs documentation; and (d) introducing an Automated System of Customs Data Entry (ASYCUDA), starting with the Beirut Port and expanding to other entry points subsequently. The cost of the original component is US$ 3.39 million, and it targeted customs administration within the MoF. 2) Rehabilitation and Modernization Cadastre and Land Registration Systems. This component included (a) undertaking a cadastral survey of about 1500 sq. km of land; (b) preserving existing titles, maps and registration and transforming them into shareable digital maps and titles; (c) designing and implementing a transaction processing system capable of supporting information database and current and future GDLRC operations; (d) providing supporting hardware, software and necessary training to ensure the sustainability of information systems and its components. The cost of cadastre component is US$ 15.13 and was directed towards Cadastre and Land registration unit within the MoF. The component was subdivided into two separate sub-units: COMAP-1 and COMAP-2. ·COMAP-1 This turn-keykey contract sought (i) the creation of a digital coded database for all information content of title registers; (ii) the development of software to support current business processes of registry offices; (iii) providing associated training and technology transfer; and (iv) institutional upgrading. ·COMAP-2 This turn-keykey contract supported (i)the formation of a digital database - 3 - of all mapped parcels; (ii) the development of software to support Cadastre department; (iii) the necessary training and technology transfer associated with this process; and (iv) institutional upgrading. 3) Improvement of Domestic Taxation and Public Expenditure Management through (a) the establishment of a specialized unit for large tax payers; (b) broadening of the tax base and the diversification of revenue sources, emphasizing consumption taxes, simplifying procedures for tax assessment and collection, preparing proposals for broadening and diversifyin tax base, and introducing payer identification and computer systems; (c) the strengthening of the budget system by improving the budget process and reform budget nomenclature and classification, systematize the formulation of public expenditure plans and strengthen the control and oversight of such expenditure; and (d) strengthen treasury management,through procedural reforms designed to increase liquidity in government finances, erhance control ovedisbursements,and improve accounting and cash management. The original costs of PEM activities were US$ 1.47 million and involved the Tax and Expenditure management services within the Ministry of Finance. 3.4 Revised Components: The project was extended three times, in 2000, 2002 and a final time in 2003. Additionally, a US$ 5.31 Million supplemental loan to finalize work on the cadastre project was provided. Two revisions took place to the Cadastre and Land Registration component: l In late 1996, subcomponent (a), the first-time survey and registration of 1,500 square kilometer of the territory, was removed from the project. This change was made to avoid the likely implementation delays resulting from obtaining presidential decrees to authorize this activity. The amendment was made to the project following advice received from the constitutional court in late 1996. l In 2003, all the remaining activities under this component were expanded, by increasing the scope and the magnitude of the mapping and surveying exercise to include additional title registries and mapped parcels. This additional work was financed by a US$ 5.31 supplemental loan approved by the Board on This revision was the result of an accurate computerized inventory of existing mapped parcels and adjudicated properties without title registers. This inventory would not have been possible without the modern computerized methods employed to perform the inventory prior to electronic conversion of the records. In total, this constituted 400,000 additional title registers and 200,000 additional mapped parcels. This revision necessitated the development of the supplemental loan operation which was appraised in 2003 and became effective in 2004. 3.5 Quality at Entry: Quality of entry is rated satisfactory. - 4 - This ICR finds project design is appropriate for the circumstances of post- war Lebanon. It addresses several different aspects of Revenue Generation, simultaneously, which is necessary given the dire need of the government to generate revenue for reconstruction, but maintains very clear accountability lines by focusing institutional development and reforms within only one ministry and therefore the purvue of only one minister. This enabled very important and difficult reforms to be passed, without delay, and ensured prompt and systematic problem solving when difficulties arose. The program supported by the project was well targeted, and tackle timely concerns in the most important areas of government finance. The project adequately identified risks associated with the Project; namely, (i) the difficulties faced in creating a viable macroeconomic framework in the aftermath of conflict, (ii) protracted uncertainty in the region, (iii) external or domestic events which could upset the country's current political stability and adversely affecting the implementation of the Project and (iv) delays delays in project execution and shortfalls in the transfer of technical know-how, as a result of the Government's weak implementation capacity, the shortage of technicians and middle-level management, and possible lags in the recruitment of necessary staff and procurement of goods. The Project, incorporated features which greatly assisted in reducing delays in implementation. Among them, the agreement with the government of the inclusion of monitorable indicators of progress (which were not standard at the time of project preparation), the involvement of specialized multilateral agencies to assist in the implementation of customs administration, domestic taxation, and Public Expenditure Management components and the imposition of turnkey contracts to implement cadastre and land registration. The government was strongly committed to the project and has been involved closely in its preparation. The project also benefited from a well-designed training program and the work of the Institute of Finance, a leading training institution in the region. The project was underfunded with regards to the cadastre and land registration component. However this cannot be considered a flaw in design, given the limited information available on the scope of the work available in the immediate aftermath of the civil war. During the course of project implementation it became evident that the new surveying and adjudication were required and that these could not be accommodated under the allocated budget. This, however, became obvious only after significant work was undertaken to identify the reality on the ground and therefore should not be considered a flaw in quality at entry but rather an effect of a crippling civil war. At the preparation stage, the Lebanese authorities lacked the capacity and manpower to accurately assess the exact magnitude of the physical destruction of the existing infrastructure. On the negative side, the inclusion of the public expenditure management, while fairly narrow in scope, was probably inappropriate given the conditions and the situation in Lebanon. The topic is just too complicated to be addressed as one subcomponent in a project focused on other issues and would have been more appropriately addressed in a distinct operation. This however is a very small component in an otherwise very well focused project. - 5 - 4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: The ability of the project to achieve its objectives is rated satisfactory. The project has very significantly increased the capacity of the Ministry of Finance to efficiently collect and manage government revenue. The automation of government services enabled superior methods of records management and improved efficient use of government resources. The improvement of Customs procedures and the modernization and computerization of the land and registration systems have reduced corruption. The Ministry of Finance is today an area of administrative excellence in Lebanon, displaying greater transparency and higher level of accountability as a result of the measures undertaken under this project. The cadastre and land registration component fulfilled its major objective of rehabilitating and modernizing land registration systems. The project supported the reconstruction, archiving, and computerization of 75 percent of all title registers and 100 percent of survey maps. The project also supported automation of all registry and mapping offices in Lebanon. The ability to track transaction electronically has raised the accountability of the government employees to a higher level and is proving to be a very important tool against corruption. The electronic handling of land records also led to a higher quality of service delivery. The processing time for land transactions was reduced from an average of three days to a matter of minutes, and preliminary assessments indicate that revenues from land transaction increased substantial savings in time and resources needed for daily operations. It is the first project of its kind in the Middle East and is considered as a model for many other countries in the region and world wide. The project's goals of modernizing the Customs Administration were fulfilled. The customs department adopted a new system for customs clearance and control. The SYCUDA/NAJM software package for customs data entry was adopted and is now successfully utilized by all custom offices. Additional efficiency gains were made through the adoption of one clearance document (SAD) and the initiation of a four-step clearance process replacing the old and burdensome system which required 16 different signatures. As a result, the clearance time was reduced to two to three days compared to an average of eight days previously. The Tax Administration and PEM reform at the MOF included the introduction of the new Chart of Accounts at the Principal Accounting Office (PAO). The MOF strengthened its statistical capacity. Since 1998, up-to-date monthly fiscal data on budget and treasury operations is published. A new budget nomenclature was developed and approved in 1997 coupled with extensive training for all government officials involved in the budget preparation and execution process. The project had a direct and immediate impact on government revenues. Revenues increased by an average of 25 percent per year during 1995 and 1997 and 5 percent thereafter. Customs revenues contributed about half of the increase before the enactment of the VAT tax. The improvement in revenue collection went hand in hand with the consolidation of political stability and renewed economic growth. 4.2 Outputs by components: Customs - 6 - This component is rated Highly Satisfactory The reforms in customs administration improved operational efficiency, reduced transaction time and provided more reliable trade statistics. The short-term goal of increasing government revenue was also achieved. The dramatic impact of this component reinvigorated customs reforms in other parts of the region. At the beginning, the project was supported by an IMF expert and an expert from UNCTAD who trained the local team which became self-sufficient 18 months into the program. The project also benefited from the close cooperation with UNDP's Fiscal Reform and Administration Project (FRAP) which supported the project implementation team. The project was boosted by the adoption of customs reform in 1996 which simplified the tariff structure and introduced a harmonized system of classification. The new law consolidated the duties, indirect taxes, and additional charges which used to be levied on top of the standard tariff duty. The 1996 legislative changes were followed by the adoption of a new customs law in 2000. This new law conforms to the best international practices and WTO requirements such as the WTO Agreement on Customs valuation (CVA), the Agreement on Rules of Origin (ROO), and the main principles of the General Agreement on Tariffs and Trade. The legislative changes were accompanied by the broad-scale institutional reforms. Customs procedures were modified through the introduction of a new customs declaration form (Single Administrative Document-SAD) in 1997. SAD replaced 16 forms used earlier in the second year of implementation which served as an important bridge to increasing automation. The Automated System of Customs Data Entry (ASYCUDA), a UNCTAD supported operational system required for processing of all import and export declarations. The system was introduced in a gradual manner, first at the port of Beirut and Beirut International Airport in 1997 and 1998. The component introduced arabization of ASYCUDA through NAJM (Customs Information Systems), the first e-government service in Lebanon, at the port of Beirut in 1997. NAJM introduced an Arabic translation of user interface and developed an Arabic version of Single Administrative Document. Following the full automation of the airport and port of Beirut, NAJM/ASYCUDA was later extended to the Port of Tripoli. The Tripoli port ranks third in volume of transactions after Beirut. At the time of the ICR, there are still four small offices accounting for less than 3 percent of trade activity that are still not automated. Most of them are located next to the Syrian border and were subject to political interference until recently. The efforts are currently under way to modernize these offices. In 2001, an on line operation program NOOR was installed to help the traders have direct access to NAJM. NOOR initiated the first full e-government service in Lebanon. The traders are now capable of login into NAJM from their own offices and allow them to enter and track customs declarations through the internet. This reduced the burden on data-entry on staff and cut the declaration processing time by about half. In two years the program achieved 60 percent submission level for all clearance procedures through on line through direct electronic entry system. To facilitate the usage of the new on line - 7 - system among the trading community, the Ministry of Finance provided training for the new system. NOOR training at the Institute of Finance was composed of a two-week course in data entry of customs declarations in groups of 15 members. More than 400 traders received the specialized training. The latest phase of reforms included the changes in the customs control and risk management. The older inspection procedures mandated the inspection of 100 percent of all imports. This delayed the release of goods and often led to corruption. Following the changes in administrative procedures and re-focusing on post clearance audit, the customs unit currently inspects only 25 percent of all goods. As the post-clearance controls become even more efficient, there are plans to reduce the inspection ratio even further. The customs reform program was instrumental in improving efficiency and increasing government revenues. During the first months of 1998, the customs revenues were up by 23 percent in dollar terms. While the revenues from customs in 1998 increased across the board, the Beirut port which had implemented NAJM first had a higher relative increase, nearly 25 percent as opposed to 17 percent in all other cities. In light of the drastic decrease in effective customs rate, the revenues derived directly from customs dipped by 50 percent given in 1999. This decrease was compensated by the introduction of VAT and excise taxes which kept the effective tax rate relatively constant at 22 percent for all traders. Despite the fact that the effective tax rate remained relatively stable, the total revenues increased by approximately 55 percent during the same period--an increase due largely to the improved performance of customs and tax collection authorities and to some extent increase in the volume of imports associated with reconstruction activities. The program became an important model for customs reforms elsewhere in the region. Jordan, Yemen, Syria and Palestinian Authority either are currently in the process or have already adopted similar systems based largely on the reforms in Lebanon. Cadastre. This component is rated Highly Satisfactory The component supported automation of the General Directorate of Land Registration and Cadastre (GDLRC) which is responsible for all real property records in Lebanon. Through COMAP-1, all existing title registers were converted into digital database electronic format. Additonally, registry operations were automated using Oracle-based a database management system resulting in a custom-built software. The integrated registry system (IRS), with Arabic language interface, has been implemented in the registry for all nine registries. COMAP-2 supported the conversion of all map sheets legal parcel maps into digital database electronic databases plus the automated processes of work in the surveying and cadastre office. The Integrated Mapping and Surveying System (ICMSS) has been implemented in all of the eight regional cadastre offices. Overall 75 percent of title registers and 100 percent of survey parcel maps have been converted into electronic version data and at the same time are integrated with the process and work - 8 - operations through a database management system. The preservation was a one time effort and all records went through pre-screening exercise to identify the deficiencies. These achievements are all the more impressive if they are placed in a context where automation needed to be preceded by the supply of more basic needs such as getting electricity, furniture, cabinets, restoring damaged records, as well as hiring and managing temporary workers. The progress to date includes full automation of 10 registry (including 1 central office) and 9 cadastre offices (including one central office). Property affidavits such as title abstracts and map abstracts which used to take three days to process can now be issued on demand, an in a matter of minutes. All transactions are logged electronically and can be tracked on demand, leading to more transparency. The whole transaction takes minutes and is separated into 3 simple steps, entering the property number, printing affidavit title abstract, and signing it. The simplicity of the procedure, and the easy access of the registry offices has eliminated the use of a go-between (a person who is paid to actually undertake the administrative steps associated with any given transaction) and has reduced the scope for corruption. The project was a catalyst in reinvigorating the real estate market in Lebanon which now brings around ten percent of total government revenue. The volume of registered property increased by 750,000 or 50 percent over the life of the project. Part of it can be attributed to the endogenous demand, but some of it simply to the improved efficiency and modernization efforts. The total number of transactions processed by the registered properties by the GDLRC increased from 1.65 in 1994 to 2.3 million in 2003. This component faced significant delays in implementation and great cost overruns which required the processing of a supplemental loan and a third extension of the project to December 31, 2005. The nature of the problems encountered was three-fold: (a) a difficult political situation; (b) obstacle of a technical nature; and (c) procedural difficulties. At the political level, the 1996 Israeli invasion halted implementation for several months by preventing consultants to travel to Lebanon. Additionally, implementation pace was greatly reduced when, from 1998 to 2000, the Government refused and obstructed most donor funded projects underwritten by previous governments. Additionally a series of technical obstacles slowed down implementation. Nearly 400,000 title registers were found not to have been finalized during the war and required completion before they could be automated. Some title registers had tears making them unfit for scanning and some were so fragile that they could not be handled at all. Finally, regional sites hosting expected to host the cadastral documents often lacked adequate basic facilities and often were not supported by continuous electricity. Addressing these issues took approximately four years. Finally and most importantly, the implementation of this component suffered from procedural problems. For example, the identification and selection of the Project Implementation Unit for this component took over a year. Additional delays incurred in proceeding with the procurement of the large turn-key contracts and in finalizing the selection process and project signature. As a result of these delays, contract signature for COMAP-1 and COMAP-2 took place almost three - 9 - years after the loan became effective. Despite these problems and the long period of implementation, the project has made a very important impact on the economic and social infrastructure of Lebanon. Economic Management in the MOF This component is rated Satisfactory. This component benefited from broad-scale collaboration from various donor sources. The scope of the component was expanded with parallel support from Canada (CIDA grant of C$ 4.8 million) for tax reform, and France (a Fr. FR. 5 million grant) for training, the installation of a database systems and information technology training funded directly from the Loan. The component supported implementation of an integrated tax administration automated system which includes taxpayer identification and the issuance of a unique tax payer number. It supported streamlining of budget preparation and budget coverage. The new budget nomenclatures now applicable to both revenues and expenditures is fully operational. The government adopted new accounting standards which includes a new Chart of Accounts, and accounting procedures for principal and local accounting offices at the customs and Treasury departments. However, the efforts to establish a Large Taxpayer Office (LTO) initially ran into political problems. The government is currently pursuing an LTO unit implementation plan and preparing a list of large taxpayers. 4.3 Net Present Value/Economic rate of return: Not Applicable 4.4 Financial rate of return: Not Applicable 4.5 Institutional development impact: Institutional Development Impact is rated as Substantial The project has made substantial institutional development impact on GDLRC, the Customs Administration and selected units at the MOF in charge of public expenditure management and tax administration. The duration of transaction time has been cut through automation. The automated system allows for greater levels of accuracy and control. Greater transparency improved the quality of public service delivery and improved trust and accountability in government offices. The project had a directly positive effect on government finances. 5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: - 10 - Factors outside of implementing agency's control relate to the unstable post-war situation of Lebanon. The most notable events include the Israeli's bombing of Beirut in April of 1996 which delayed the project implementation for several months and similar attacks on power plants in 1999. Finally, the extremely depleted state of the civil service (devoid of most capacity) and the poor state of the infrastructure of the public sector had major impacts on the implementation of the project. Additionally, delays in implementation were suffered during the period in which the Bank changed its procedures for bidding for Information Technology. The project was asked to delay the procurement of its two large turnkey contracts until new bidding documents were developed and mainstreamed by the Bank. 5.2 Factors generally subject to government control: During the initial stages of a the project design, both the costs and legal prerequisites of the component that dealt with first time land survey mapping and registration were miscalculated and underestimated. This occurred partly because of lack of information on the available resources and partly because of the demands of various political groupings seeking to benefit from the project. The estimates were based on carrying out the work in-house while in actuality it became apparent that this capacity was not available in the short-term in-house. The legal prerequisites were also discovered to be significant only after consultations with constitutional court. After the information of additional costs came out the project had to be significantly repackaged in late 1996 and early 1997 and the scope had to be reduced. On a positive note the government provided a working institutional framework for program implementation. The program original project director was also the principal advisor to the Minister of Finance. This opened direct and open link to communication between the government and the PIU. The Ministry could be enlisted to provide political support at the Government level for necessary legislative changes, as well as to obtain resources for institutional upgrading of the land registries and cadastre departments as a precursor to the computerization efforts. The government also facilitated a close involvement of the beneficiary departments in the design phase, ensuring sustainability of the project once PIU is disbanded. 5.3 Factors generally subject to implementing agency control: The PIU design and the technical quality of the staff ensured that political interference were less of a factor. The PIU worked tirelessly to enlist support of the regular bureaucracy to increase automation and improve efficiency. When the political battles threatened to stifle the operation, the PIU set up a "real life" simulation of the new processes to promote scenario building and dialogue. Many of these successful demo sites became training sites for other units. The project's FM arrangements were rated as satisfactory throughout the project's life with respect to staffing, accounting, internal controls, flow of funds and auditing. The project faced some difficulties with respect to timely generation of Financial Monitoring reports which became a requirement under the supplemental loan. However, with the Bank's supervision and guidance, the PIU managed to generate these reports using spreadsheet applications which the Bank found - 11 - to be an acceptable arrangement. 5.4 Costs and financing: Total project cost for this project was US$29.3 million. The total loan amount was US$25.2 million, of which US$19.94 million for the original loan and US$ 5.31 million for the supplemental loan. Actual disbursement for the project is US$24.7 million. The original loan amount was underestimated at appraisal due to lack of consistent data on the number of destroyed or missing cadastral maps. Extra work was needed to complete the project. The loans were fully disbursed. The credit was made at IBRD standard variable rate, a five-year grace period with a term of 17 years. 6. Sustainability 6.1 Rationale for sustainability rating: The sustainability is rated Likely. All of the components integrated in the regular government business practices are currently in operation and remain a high priority for the government because of their high impact on efficiency and revenue. The Project Implementation Unit, responsible for managing the project in a period where capacity to do so did not exist has been dissolved and the needed competencies have been mainstreamed into the agency who will run the different programs supported by the project. New procedures were developed and have been assimilated by the Staff in all agencies. One of the significant achievements of this project is the extensive training provided to regular staff. All-mid level and upper level managers in the Cadastre unit have undergone extensive training. Non-project specific training was provided by the Institute of Finance. Training was also provided for users of the new NOOR on line system for trading. 6.2 Transition arrangement to regular operations: The agencies mainstreamed project activities into regular operations and the government commitment to these reforms remains high. In terms of the cadastre component, the project benefited from the close cooperation between the PIU and the regular bureaucracy. Both COMAP-1 and COMAP-2 were developed with a heavy participation of GDLRC top management. During the project start-up, both the PIU and the GDLRC were housed on the same floor in the Ministry to increase cooperation and interaction. Subsequently, the GDLRC moved to a new building in order to accommodate the PIU and the contractors were housed in the same building on the same floor to ensure proper monitoring and coordination. During the pilot stages the rank and file employees of GDLRC were involved in ensuring that the data conversion was administratively adequate. A two-tiered quality control system (contractual and administrative) examined the process of conversion while management oversaw its execution. This intimate involvement with the work process of the contractor promoted greater involvement of regular staff and familiarized them with the technical aspects of the job at a very early stage. - 12 - The initial resistance to automation of processes was countered by involving the staff directly in testing. This elicited extensive feedback from the staff and reduced the inherent mistrust of the new automated systems. The feedback received by employees positively contributed to changes in the system and created a supportive lobby among the regular employees. The informal interaction between the contractor and the regular employee promoted a more open approach to the new and often difficult procedures. The fact that some PIU members were GDLRC staff and that virtually all PIU members (except for the project director) were native Lebanese was helpful in avoiding the usual mistrust of strangers inherent to such situations. To ensure sustainability, the GDLRC members assigned to the PIU as early as during the design phase. The customs reform followed a similar set up, in which the PIU and the regular staff were closely involved in testing and modeling of operational innovations. Over 200 custom officials were trained in the new automated operations, and over 400 customs brokers and traders were trained in remote operations. The new system is well established in the biggest ports of entry in Lebanon. The success of future expansion into new offices is ensured by the MOF's commitment to building the capacity of the Institute of Finance. 7. Bank and Borrower Performance Bank 7.1 Lending: The Bank's demonstrated great commitment to the government of Lebanon in its wish to reactivate and modernize its agencies through long-term institution building. The Bank team was deeply involved in assisting the government in its extremely difficult task of preparing the project under harduous conditions. It provided both technical and administrative support, and were instrumental in leveraging funds from other donors such as UNDP which supported the Fiscal Reform and Administrative Project (FRAP--NDP/LEB/92/017) and the IMF. The involvement of other multilateral agencies strengthened project implementation and ensured provision of quality inputs. The Bank could have better used its experience in post conflict situation to reassess the scope of the project, given the scarcity of information available and the traditional difficulties associated in engaging the client on broad based reforms under these circumstances. This is related to overestimation of the degree of political capacity and will to carry out broad scale reforms in the area of public expenditure management. Bank performance in lending is rated satisfactory. 7.2 Supervision: The Bank is responsible for some of the delays in implementation as a result of its transition to the new standard bidding documents for Information Technology. This directly and significantly affected the implementation of the two turn-key contracts. During the whole supervision process, however, the Bank's performance was outstanding, responding practically and flexibly to the Government's requests for assistance providing practical suggestions and direct support, and providing additional financial support through a supplemental loan to complete a very important information system, and demonstrating patience by extending a project which despite its long - 13 - implementation has netted excellent results. Finally, the Bank's team also effectively assisted the borrower in monitoring the inflow of technical assistance from other sources. Bank performance in supervision is rated satisfactory. 7.3 Overall Bank performance: The overall Bank performance is considered satisfactory. Borrower 7.4 Preparation: The government was able to tap into numerous TA resources in the process of designing and implementing the project. Partnerships were developed with the UNDP and UNCTAD to provide software and project management support. The government was able to effectively anticipate and address the problem associated with weak implementation capacity by recruiting capable Lebanese professionals from outside of the country. The Government's performance in terms project preparation is considered satisfactory. 7.5 Government implementation performance: The government's commitment to reform remained steady except for twenty months from late 1998 to late 2000 when a new government signaled a new direction set of priorities for reforms and resisted moving forward on virtually all donor projects underwritten by its predecessors. The success of customs and land registration component had a ripple effect elsewhere in the region. The government offered its experience to other Arab countries. Between 1997 and 2003, Lebanese customs officials provided training to Saudi, Jordanian, Syrian, Egyptian and Yemeni counterparts. The Yemeni, Jordanian, Syrian, West Bank and Gaza, and Iraqi officials have visited the premises of GDRLC and received training in the presentations on the cadastre and land registration reforms. The Government's performance in terms of project implementation is considered satisfactory. 7.6 Implementing Agency: The GDLRC, a directorate of the Ministry, performed well over the life of the project. Additionally, the PIU was created as a temporary body assigned to the Ministry to implement the project and to disband upon its completion. For virtually all of the life of the project, the Minister of Finance and its direct advisor provided steadfast political support and guidance to ensure that the program would be carried out in a competent and efficient manner. The performance of the implementing agency is considered Highly Satisfactory. 7.7 Overall Borrower performance: Overall borrower's performance is satisfactory. - 14 - 8. Lessons Learned Project Design l Greater beneficiary agency involvement is necessary from the outset. The Revenue enhancement experience confirms the willingness and capacity of beneficiary agencies to absorb project components depends directly on them having a stake in the project. l Difficult automation project require adequate project planning, especially in terms of properly identifying accompanying reforms, human resource requirements, capacity building requirements and other peripheral issues. Putting together an administrative system that works requires this type of comprehensive planning. Doing so ahead of implementation reduces greatly delays and reduces the ability of opponents to reform to coalesce and resist. Project Implementation l There is a clear correlation between lack of capacity and length of implementation. No matter how simple the design and how well defined the activity, building capacity for institutional reforms may require a longer time frame than what is generally practiced. This is especially true for countries in post-conflict situations. The difficulty in appraising projects correctly in post-war environments and the inherent imprecision of project design in those circumstances, combined with weak capacity will inevitably lead to delays. l Donor-funded enclaves of technical excellence can and should must be mainstreamed into the traditional civil service. In this project, the systematic interaction of regular civil servants with the Project Implementation Unit, along with the limited mandate of the PIU greatly facilitated the eventual mainstreaming of the capacity into the regular civil service. Some of the PIU members were GDLRC staff and virtually all PIU members were native Lebanese which helped avoid some of the usual distrust of strangers inherent in such situations. Additionally, regular civil servants were given every opportunity to shine and take the credit for the successes achieved. This project benefited from giving senior administration officials a stake in the success of the effort and allowing them to be viewed by the minister as enlightened and internationally savvy public servants. The minister provided an excellent incentive for staff participation by acknowledging their work and providing them opportunities to be noticed. l Reform Champions Matter. They can make the difference between a successful implementation and a total failure. To enlist champions within the administration, he project focused on achieving early wins in highly visible areas to signal others that the old processes no longer represent a venue for exercising power or maintain social status (e.g. increasing transactions in the green light in the port in Tripoli or minimizing the time of processing in the Beirut customs office from days to minutes). The project also actively courted society at large as the ultimate users of the system by setting up special demonstration offices in which regular staff and clients were able to try out using the automated systems before they actually became operational. The systems were subsequently modified based on recommendations received from the users. With regards to customs reform, the project actively sought to build - 15 - partnerships with the private sector and actively involved the trading community in reform formulation from the outset. Project Supervision l There is a clear correlation between the capacity at entry and the closeness of supervision to be provided. When the Bank carries out close supervision of TA projects in post-war reconstruction situations in the early part of the project, these projects have reduced difficulties and have provided good results. Supervision responsibility should be with the country office in the earliest stages of institutional development projects when at all possible. 9. Partner Comments (a) Borrower/implementing agency: (b) Cofinanciers: (c) Other partners (NGOs/private sector): 10. Additional Information - 16 - Annex 1. Key Performance Indicators/Log Frame Matrix Outcome / Impact Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate The Project's objective was to support Achieved - Revenues have indeed been Achieved government efforts to enhance revenues and increased and substantial efforts have been strengthen fiscal management by filling the made in this area. Additionally, Ministry of gaps in key personnel, skills, equipment, and Finance operations have been greatly physical resources; assisting in improving improved. systems, procedures, and data bases; and providing advice on future policy reforms. This was to be achieved by increasing the MOF's operational efficiency and building its capacity to develop and use better policies and procedures, with particular reference to departments responsible for revenue collection and fiscal management. In addition to improving operational efficiency the project supported the immediate government efforts to enhance revenues and rationalize public expenditure. Output Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate Customs - Acquisition of office technology and - The Customs offices within MoF are fully - The Customs offices within MoF are fully communication equipment as scheduled equipped with necessary communications equipped with necessary communications and office technology and office technology - Preparation and implementation of - New customs declaration form (SAD) - New customs declaration form (SAD) recommendations about procedural and replaced 16 forms used earlier; ASYCUDA replaced 16 forms used earlier; ASYCUDA systems improvement system for data entry was introduced and system for data entry was introduced and translated into Arabic through NAJM; on line translated into Arabic through NAJM; on line NOOR operation systems installed to help NOOR operation systems installed to help traders have direct access to customs data traders have direct access to customs data entry entry - Increase in Customs Receipts, separately - in 1998, the customs revenues went up by - in 1998, the customs revenues went up by on account of (i) rate and coverage changes; 23 percent especially in places where 23 percent especially in places where and (ii) improvement in customs systems and ASYCUDA/NAJM was first implemented; ASYCUDA/NAJM was first implemented; administrative efficiency (i.e., total increase in total revenues due to improved performance total revenues due to improved performance receipts) of customs and tax administration authority of customs and tax administration authority increased by 55 percent increased by 55 percent - More than 60 percent of submission for - More than 60 percent of submission for - Improved clearance of goods clearance of goods are done on line; time clearance of goods are done on line; time Cadastre and Land Registration needed for clearance reduced following needed for clearance reduced following selective inspection procedures and selective inspection procedures and implementation of more efficient implementation of more efficient post-clearance controls post-clearance controls - General Directorate of Land Registration - General Directorate of Land Registration - Implementation of a computerized program and Cadastre (GDLRC) was automated, and and Cadastre (GDLRC) was automated, and for archiving Land Registration Journals and all existing title registers were converted into all existing title registers were converted into for establishing a property database digital database; integrated data registry digital database; integrated data registry management system (IRS) implemented in all nine registries; (IRS) implemented in all nine registries; through COMAP-2 all map sheets and legal through COMAP-2 all map sheets and legal - 17 - parcels were converted into digital database; parcels were converted into digital database; Integrated Mapping and Surveying System Integrated Mapping and Surveying System (ICMSS) implemented in all eight regional (ICMSS) implemented in all eight regional cadastre offices including the central office cadastre offices including the central office - real estate market transactions bring nearly - real estate market transactions bring nearly 15 percent of government's total revenue; the 15 percent of government's total revenue; the - Increase in the receipts of registration volume of registered property increased by volume of registered property increased by (transaction) fees and property taxes, 750,000 or 50 percent over the life of the 750,000 or 50 percent over the life of the separately for (i) rate and valuation changes; project; the total number of transactions project; the total number of transactions and (ii) improvement in records, systems, processed GDLRC increased from 1.65 in processed GDLRC increased from 1.65 in and administration 1994 to 2.3 million in 2004 1994 to 2.3 million in 2004 Domestic Taxation - Feasibility Report on the creation of ULT - Feasibility Report on the creation of ULT was completed by the MoF was completed by the MoF - Completion of the feasibility report and design of a unit for large taxpayers (ULT) - Progress on establishing ULT was slow; the - Progress on establishing ULT was slow; the government did not set up the office as of to government did not set up the office as of to - Progress of ULT (i.e. issuances of date although a decree was drafted date although a decree was drafted necessary decree, completion of staffing, purchase of computer equipment and software) Completed Completed - Preparation of proposals on (i) extending coverage of excises; and (ii) introduction of a general sales tax Achieved Achieved - Increase in domestic tax receipts, separately due to (i) rate changes in existing taxes; (ii) establishment of ULT and other improvements in tax administration; and (iii) extension of excise taxes to new products and introduction of a sales tax, when agreed and implemented, at mid-term and end of Project 1End of project - 18 - Annex 2. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Component US$ million US$ million Customs 3.38 1.49 44 Cadastre 15.13 20.16 133 Other Financial Activities 1.47 1.47 100 Project Implementation 0.90 1.58 175 Total Baseline Cost 20.88 24.70 Total Project Costs 20.88 24.70 Total Financing Required 20.88 24.70 - 19 - Annex 3. Economic Costs and Benefits Revenue from land registration constitutes around ten percent of the consolidated budget's general government revenue. This is nearly twice as much as it was before the reforms started. It is also estimated that the volume of land registration increased by 40 percent from an initial level of 1.65 million in 1994 to 2.3 million in 2004. More than half of this increase can be attributed to the improved capacity of the MOF to process land and property transactions. During the first months of 1998, the customs revenues were up by 23 percent in dollar terms. While the revenues from customs in 1998 increased across the board, the Beirut port which had implemented NAJM first had a higher relative increase, a nearly 25 percent as opposed to 17 percent in all other cities. In light of the drastic decrease in effective customs rate, the revenues derived directly from customs dipped by 50 percent given in 1999. This decrease was compensated by the introduction of VAT and excise taxes which kept the effective tax rate relatively constant at 22 percent for all traders. Despite the fact that the effective tax rate remained relatively stable, the total revenues increased by approximately 55 percent during the same period--an increase due largely to the improved performance of customs and tax collection authorities. - 20 - Annex 4. Bank Inputs (a) Missions: Stage of Project Cycle No. of Persons and Specialty Performance Rating (e.g. 2 Economists, 1 FMS, etc.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 03/1993 SR. TECH. ASSIST. OFF. (1); S S DISBURSEMENT OFF. (1); PROCUREMENT ADVISOR (1); TASK MANAGER (1); SR. INFORMATICS SPC. (1) Appraisal/Negotiation 07/1993 SR. TECH. ASSIST. OFF. S S (1); DISBURSEMENT OFF. (1); PROCUREMENT ADVISOR (1); TASK MANAGER (1); SR. INFORMATICS SPC. (1) Supervision 06/05/1995 2 SR.TECH. ASST.OFFICER (1); S S SR.INFORMATICS SPEC. (1) 11/04/1995 5 SR. TECH. ASSIST. OFF. (1); S S DISBURSEMENT OFF. (1); PROCUREMENT ADVISOR (1); TASK MANAGER (1); SR. INFORMATICS SPC. (1) 07/16/1996 2 SR. INFORMATICS SPC. (1); S S TASK MANAGER (1) 06/22/1997 2 SR. INFORMATICS SPEC. (1); S S TASK MANAGER (1) 02/14/1998 3 TASK MANAGER (1); SR. S S INFORM. SPECIALIST (1); ECONOMIST (1) 08/31/1998 2 TASK MANAGER (1); SR. S S INFORMATION SPEC. (1) 11/20/1998 1 TASK TEAM LEADER (1) S HS 06/09/1999 1 TASK TEAM LEADER (1) S HS 11/18/1999 1 COUNTRY ECONOMIST (1) S HS 04/20/2000 1 TEAM LEADER (1) S S 12/11/2000 1 TEAM LEADER (1) S S 05/18/2001 1 TEAM LEADER (1) S S 09/02/2001 2 TASK MANAGER (1); S S CONSULTANT (1) 06/12/2002 2 TEAM LEADER (1); IT S S SPECIALIST (CONS.) (1) - 21 - ICR 1 TEAM LEADER (1) S S PS Specialist (Cons) (b) Staff: Stage of Project Cycle Actual/Latest Estimate No. Staff weeks US$ ('000) Identification/Preparation 177,000 Appraisal/Negotiation 376,000 Supervision 495,000 ICR 15,000 Total 1,063,000 - 22 - Annex 5. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA - 23 - Annex 6. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU 6.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU - 24 - Annex 7. List of Supporting Documents - 25 - - 26 -