IMPLEMENTATION COMPLETION REPORT DEMOCRATIC AND …

Document ofThe World Bank

FOR OFFICIAL USE ONLY

Report N° 19050

IMPLEMENTATION COMPLETION REPORT

DEMOCRATIC AND POPULAR REPUBLIC OF ALGERIA

HOUSING COMPLETION AND SECTOR DEVELOPMENT PROJECT

(Loan 3561-AL)

March 31, 1999

Infrastructure Development GroupMaghreb and Iran DepartmentMiddle East and North Africa Region

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

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CURRENCY EQUIVALENTS(As of January 1993)

Currency Unit = Algerian Dinar (AD)US$1.00 = AD 21.60AD 1.00 = US$0.046

FISCAL YEAR OF BORROWER

January 1-December 31

ABBREVATIONS AND ACRONYMS

AADL Agence nationale de l'Amelioration et du Developpement du Logement(National Agency for Housing Development)

AGL Aide ge'neralisee au loyer (Global Subsidy for Rent)APL Aide personnalisee au loyer (Personalized Subsidy for Rent)BAD Banque Algeirienne de developpement (Algerian Development Bank)CNEP Caisse nationale d'epargne et de prevoyance (National Savings Fund)CNL National Housing Fund (Caisse Nationale du Logement)EFF Extended Fund Facility (Mecanisme Elargi de Credit)EPLF Entreprise de Promotion et de Logement Familial

(Real Estate & Housing Development Fund)FONAL Fonds National du Logement (National Housing Fund)GDP Gross Domestic Product (Produit Interieur Brut)GOA Government of Algeria (Gouvernement d'Algerie)HCSDP Housing Completion and Sector Development Project (Projet de Finition des Logements

et de Developpement du Secteur de l 'Habitat)H-SAL Housing Sector Adjustment Loan (Pret d 'Ajustement Structurel a l 'Habitat)MOH Ministry of Housing (Ministere de l'habitat)OPGI Office de promotion et de gestion immobiliere

(Real Estate & Housing Management Fund)PCC Project Coordination Committee (Comite de Coordination du Projet)SAL Structural Adjustment Loan (Pret d'Ajustement Structurel)SNC Societe Nationale de Comptablilite (National Accounting Agency)SHPS Social Housing Program for Sale

(Programme de Logement Sociaux destines aj la Vente, PLSV)SME Small and Medium Enterprises (Petites et Moyennes Entreprises)SRH Secondary Mortgage Facility (Societe de Refinancement Hypoth&caire)TA Technical Assistance (Assistance technique)

Vice President: Kemal Dervi,Country Director: Christian DelvoieSector Director: Jean-Claude Villiard

Team Leader: Fran,ois L. Amiot

FOR OFFICIAL USE ONLY

Table of Contents

Page No.

PREFACE ................................................................................................................................... i

EVALUATION SUMMARY .................................................................... ii

PART I. PROJECT IMPLEMENTATION ASSESSMENT .1A. Background .1B. Project Objectives .3C. Achievement of Objectives .3D. Implementation Record and Major Factors Affecting the Project .11E. Project Sustainability .12F. Bank Performance .13G. Borrower Perforance .14H. Assessment of Outcome .15I. Future Operations .16J. Key Lessons Learned .17

PART II. STATISTICAL TABLES .................................................................... 29Table 1: Summay of Assessment .30Table 2: Related Bank Loans .31Table 3: Project Timetable .32Table 4: Loan Disbursements: Cumulative Estimated and Actual .33Table 5: Indicators for Project Implementation .33Table 6: Key Indicators for Project Operation .33Table 7: Studies Included in Project .34Table 8A: Project Costs .35Table 8B: Project Financig .35Table 9: Economic Costs and Benefits .35Table 10: Status of legal covenants .36Table 11: Compliance with Operational Manual Statements .39Table 12: Bank Resources: Staff inputs .39Table 13: Bank Resources: Missions .40

APPENDIX: Borrower's Contribution to ICR .................................................................... 41

MAP: IBRD 24534

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

Algeria - - Implementation Completion ReportHousing Completion and

Sector Development Project




(Loan 3561-AL)

PREFACE

This is the Implementation Completion Report for the Housing Completion and SectorDevelopment project in the Democratic and Popular Republic of Algeria, for which Loan 3561-AL in theamount of US$200 million equivalent was approved on March 17, 1993 and made effective on September9, 1993.

The loan was closed on June 30, 1998 whereas the original closing date was on December 31, 1996.Final disbursement took place in October 1998, at which time a balance of US$4,656,896.02 wascanceled. There was no cofinancier, but a parallel financing from the European Union.

The Implementation Completion Report (ICR) was prepared by Francois Amiot, PrincipalEconomist, Middle-East and North Africa Region with the assistance of Alain Davet, a consultant,financial specialist and Charles-Antoine Giuliani, Project Assistant in the Infrastructure DevelopmentGroup of the Middle-East and North Africa Region. The Borrower provided comments that are includedas an appendix to the ICR.

Preparation of this ICR was begun during the Bank's final supervision/completion mission, in June1998. It is based on material in the project file. The Borrower contributed to the preparation of the ICR bysubmitting his own project assessment.

Algeria - ii - Implementation Completion ReportHousing Completion and





(Loan 3561-AL)

EVALUATION SUMMARY

Introduction

1. The Housing Completion and Sector Development Project (HCSDP) was signed on March 17,1993, and was implemented against a background of tense political and social situation, and strongstabilization and adjustment efforts. The International Monetary Fund (IMF) was involved during the1994-97 period, through a stand-by Arrangement and a three years Extended Fund Facility (EFF). TheBank financed an Economic Rehabilitation Loan in 1995, followed by a Structural Adjustment Loan(SAL) a year later. Both the EFF and the SAL supported the Project.

2. Faced with demographic pressure, the Algerian Government bad attempted to address the rapidlygrowing demand for housing by increasing the share of public investment in total housing investment.This was done mostly through the public supply of "social" housing units, either for rent or forownership. Delays of up to eight years in completing housing were typical at the start of the project, andbecame particularly acute when imports of construction materials were curtailed as a result of foreignexchange rationing.

Project Objectives

3. The main objectives were to trigger a quick housing supply response to help address the housingcrisis, and to support and enhance the medium-term objective and priorities of the market-orientedreforms of the housing sector.

4. The Bank loan (US$200 million) financed the completion of a social housing program for sale(US$130 million), an import program of critical building materials for the private sector (US$65 million),and a technical assistance program (US$5 million). The first component aimed at accelerating thecompletion of about 51,000 social units for sale, under public real estate management (EPLFs,Entreprises de Promotion et de Logement Familial). The second component aimed at supplying thehousing private sector market with imported strategic construction materials to accelerate the completionof the unfinished housing stock. The technical assistance program aimed at assisting the Government inimplementing key housing policy objectives in the following three critical areas: improving housingsupply incentives; reforming housing finance through the entry of the state owned housing institution(CNEP, Caisse Nationale d'Epargne et de Prevoyance) in the banking sector; and reforming and targetinghousing subsidies.

5. While all of the project primary objectives have been reached, albeit with some delays, the fluidityof the political and economical situation in Algeria made it necessary to adjust the contents and timeframeof the project. First, after liberalization of the trade regime, the first two components (social housing and

Algeria - iii - Implementation Completion ReportHousing Completion andSector Development Project

private housing) were combined and disbursed against customs certificates in an amount of US$86million. Accordingly, most of the loan amount went to private self-buiiders. Second, parts of theTechnical Assistance (TA) component were enlarged to include the restructuring of public developers,and parts were reduced because of the reluctance of foreign experts to apply for medium-term jobs inAlgeria during the implementation period. Third, the restructuring of CNEP was not done as planned, butnevertheless led to its transformation into a banking institution. CNEP is now under the authority of thecentral bank. Finally, important work was done to formulate the overall framework of the housing financesystem, which includes a clear separation between housing subsidies and housing finance. Suchseparation is now a key feature of the housing market in Algeria.

Implementation Experience and Results

6. Overall, the implementation of the project went well, but delays occurred from 1993 to 1995 andresulted in a temporary unsatisfactory rating in implementation. Satisfactory progress resumed after themid-term review in October 1995. The Loan was arnended on November 3, 1995 and its closing date waspostponed first to December 31, 1997 and then to June 30, 1998 to allow the financing of more TAprograms. The physical part of the loan or US$195 million was disbursed by April 1996, or almost twoyears before closing date.

7. Three factors contributed to the success of the project: (a) the assistance of the IME, which wasactive in Algeria during the January 1995-April 1998 period; (b) the issuance of a sector work paper inDecember 1995, which helped the Ministry of Housing to propose a national housing strategy for the1996-2000 period; and (c) the preparation of a Housing Sector Adjustment Loan (H-SAL), whichencompassed the reform of the construction industry sector and implementation of the new housingfinance framework, as it was designed under the project. The H-SAL was instrumental in convincing theBorrower to proceed with its housing reform agenda, even though the loan never materialized.

8. Three factors impacted negatively on project implementation: (a) the security situation whichprevented some part of the technical assistance program from being launched and complicated thesupervision missions to the point where Bank's representatives had to meet the Algerian delegationalternatively in a foreign country or in Algeria. While in Algeria the circumstances did not allow muchtravelling outside downtown Algiers; (b) the economic environment which slowed down the importcampaigns, particularly when foreign banks were hesitant to confirm letters of credits issued by Algerianbank; and (c) the critical financial situation of most of public housing institutions, including distresseddevelopers, construction enterprises, and, more importantly, the CNEP. The latter was audited under theproject and the financial report concluded that CNEP was undernined by, inter alia, the extremeweakness of its accounting system, a lack of transparency, a lack of operating procedures, an unreliablemanagement informnation system, a rapid turnover of managing directors, and a very large (3,600) andgenerally ill-trained staff that was disseminated throughout CNEP's 160 branches. The rate of loanrecovery was low and rapidly deteriorating. The auditor refused to certify CNEP's accounts.

9. Against this negative background, all the efforts of the Government and the Bank focused on thesetting-up of a reliable housing financial framework which was also able to address the CNEP issues.Several scenarios were tested and discussed, and a final proposal was elaborated, and then approved bythe Government of Algeria (GOA). Its basic feature was a clear separation between housing subsidiesand housing finances, involving a redefinition of the role of the CNEP as the former main financier of thepublic housing program for rent; and the direct involvement of the Treasury for the financing of socialhousing projects, through the transfer of subsidies and investment budgets to the Caisse Nationale duLogement (CNL), acting as agent for the government. CNL has also been made responsible fordistribution of the subsidies designed to promote owner-occupied housing by low-income householdsthrough up-front grants. The other related aspects of the reform consisted of: (a) transforming CNEP into

Algeria - iv - Implementation Completion ReportHousing Completion andSector Development Project

an autonomous financial institution competing on a level playing field with other financial institutions inthe provision of bank services to households, particularly in the housing loan market; (b) establishing ahousing credit refinancing institution accessible to all eligible institutional participants, to increase thesupply of housing credits and facilitate the entry of commercial banks and other financial institutions intothe housing finance market; (c) developing a mortgage insurance fund through insurance premiums basedon the loan loss experience of each institutional participant, to reduce the credit risk exposure and capitalrequirement of real estate loans for primary lenders as well as for the refinancing institution; and (d)reforming housing credit and savings instruments. Toward the end of the project, this institutional settingwas in place.

10. Several other key reforms supported the above financial framework. First, a new housing subsidyscheme was set-up with two basic features: explicit up-front grants for the acquisition and construction ofcore housing units geared toward low-income families; and personalized rental grants above a cap set at15 percent of the tenant's income. Second, new legislation was enacted with the aim of facilitating thedevelopment of the private rental market, facilitating the maintenance of housing units under co-ownership, and opening-up competition among real estate developers. Third, the public developers incharge of managing the public housing program for rent (the OPGIs, Offices de Promotion et de GestionImmobiliare) were physically and financially restructured. Their number was progressively scaled backfrom 53 at the beginning of the project to 25 at the end. Part of the OPGIs functions, such as rentcollection and maintenance activities, have been progressively sub-contracted to the private sector or toentities emerging from their physical restructuring. Last but not least, public construction enterprises havebeen restructured or liquidated and more and more housing construction activities are now being carriedout by private small and medium-size enterprises. During this restructuring program, and for the first timein Algeria, public employees have been laid off and the principle of lifetime employment has beenabandoned.

Summary of Findings, Future Operations and Key Lessons Learned

11. Despite a very difficult environment, the physical goals were broadly reached and fundamentalpolicy changes have occurred during project implementation, allowing the Algerian housing sector todevelop within a sound framework and according to large efficiency gains.

12. The institutional development impact is satisfactory. The implementation of the new subsidyscheme has been reflected by the 1996-98 budget laws and the CNL is now in charge of distributing thehousing grants. A large part of the public housing stock in on sale while the management andmaintenance has been partly contracted with the private sector. CNEP is now operating as a bank and hasnearly completed a massive cleaning operation of its balance sheet. A housing mortgage financingfacility (SRH, Societi de Refinancement Hypothecaire) was set up and should facilitate the involvementof commercial banks in housing finance.

13. The expected follow-up project was the H-SAL, which has been under discussion with thegovernment during the second half of 1996, but was rejected after the issuance of the new governmentprogram in July 1997 which announced the launching of a massive and unsustainable program of publichousing for rent. However, most of the reforms continued within the HCSD framework and according toAlgerian authorities, 70 percent of the measures which would have been taken under the first phase of theH-SAL have been implemented.

14. Without a housing sector not quite adjusted, the logical continuation of the Bank's involvement inthe sector was to address the urgent need of the urban poor. The Low-Income Housing Project waslaunched in FY98 with the basic objective of improving the living and housing conditions of poor

Algeria - v - Implementation Completion ReportHousing Completion andSector Development Project

families living in selected urban slums. Since the launching of the project, its objectives have beenprogressively scaled-up into a national program aiming at providing basic urban services for all existingslums. Subject to a quick disbursement of planned operations, a follow-up project may be soonconsidered, with a stronger focus on the cost recovery issue. Another potential project would be ahousing finance loan to help develop the mortgage market, as well as the involvement of morecommercial banks into the sector.

15. The State is still playing an important role in the housing sector but it is, however, very unlikely ifnot impossible for Algeria to step back at the point where the project started, since all of the componentsof the new financial framework are already under implementation. The sharp drop of overall completiondelays, from an average of eight years at the beginning of the project, to less than two years at the end ofthe project, the emergence of efficient private operators on the housing market, the related sharp drop inreal term of construction prices, the fairness of the new subsidy scheme are powerful indicators for anynew Government to carry on the housing strategy.

16. The main lessons learned were the following: (a) Separating housing subsidies from housingfinance is a key requirement in reforming housing finance, since it allows a better definition of the role ofthe State, as well as a better integration of the housing market into the financial market. In Algeria, thisdecision was made possible through several initiatives: (i) the launching of a comprehensive study on allexplicit and implicit housing subsidies; (ii) the design of an institutional framework for the housingfinance system which highlighted the advantage of such a separation; (iii) the adoption of the frameworkby the Government; and (iv) the issuance by the Treasury of AD 82 billion (equivalent to US$1.6 billion)of bonds to replace the entire portfolio of debt accumulated in CNEP's balance sheet by the OPGIs; (b) aslong as all housing subsidies are not funded from explicit fiscal sources, the reform of the housing marketis not completed, and may lead to important quasi-fiscal deficit or may delay budget arbitration;(c) political and social constraints are important factors which may impede the speed of the reform. Suchis the case in Algeria where the public sector still manage an important housing stock, along withnumerous claims to house a large portion of the population; and (d) against this background, atransparent, fair and well targeted housing subsidy system may accelerate the reform while preserving thepoorest segment of the population. Efficiency gains, both on completion time and construction costsshould also allow a larger multiplier effect of public funds.

17. The next steps recommended over the medium-term to allow the Algerian housing market to workmore efficiently are the following: (a) prompt processing of land titles, particularly in urban areas, so as tobase mortgage credits on well-defined property titles; (b) improve the legal framework to increaseeffectiveness of foreclosure and loan recovery procedures; (c) limitation of the public housing programfor rent to the poorest households, along with a more transparent and leaner budget allocation for thepublic housing stock which should be partly privatized; (d) improve the primary mortgage infrastructureby strengthening the mortgage collateral and commercial banks willing to enter into the housing mortgagemarket; (e) develop the activities of the secondary mortgage facility (SRH) along a realist five-yearbusiness plan which take into account all constraints related to its issuance capacity (Treasury Bonds,contractual savings scheme etc.); and (f) accelerate the full privatization of viable public constructionenterprises.

Algeria - 1 - Implementation Completion ReportHousing Completion and





(Loan 3561-AL)

PART I

PROJECT IMPLEMENTATION ASSESSMENT

A. Background

General Background

1. The current economic structure of Algeria emerges from a centrally planned model of growth basedon heavy industrialization financed by hydrocarbon revenues, and from a series of structural reforns thatstarted after the sharp fall of oil prices in 1986 and triggered a gradual transition to a market economy.Today, Algeria remains an oil-dependent, state-controlled economy in which the share of the public sectoris estimated at around 60 percent and slowly decreasing. The country's budgetary equilibrium andbalance of payments viability are largely dependent on the performance of the hydrocarbon sector, whichaccounts for 20 percent of Gross Domestic Product (GDP), 60 percent of fiscal revenues, and 95 percentof exports.

2. In 1992, during the preparation of the project, stabilization efforts of the five previous years wereabandoned and the Government backtracked from its program of liberalization as social discontent, partlyfueled by the cancellation of parliamentary elections and an acute housing crisis, sharply increased. TheGovernment adopted an expansionary fiscal policy, widening the deficit by more than 7 percent of GDPin 1993. Import controls were implemented in order to ration foreign exchange and to generate resourcesfor servicing the external debt. Despite these efforts, arrears began to appear and access to foreign creditbecame more and more difficult.

3. By 1994, the widening of macroeconomic imbalances, the increased difficulty to access externalfinancing, and the deteriorating political and social situation reached an unsustainable level. Whileconflicts and violence became more widespread despite a crackdown on fundamentalist activities andpublic revulsion against terrorist acts, economic growth remained sluggish. Average annual GDP growthwas negative over the 1986-94 period, and combined with population growth, led to a cumulative declineof 21 percent in GDP per capita. Unemployment and inflation jumped from 17 percent and 12.4 percent,respectively, in 1986 to 25 and 29 percent in 1994. In parallel, the shock caused by the 50 percent declinein Algeria's terms of trade in 1986 led to a significant increase in its external debt, from an outstandingamount of US$17.1 billion at the end of 1985 to US$28 billion (68 percent of GDP) by the end of 1994.



4. A renewed and deeper adjustment program was introduced by a new Government in 1994; it wassupported in 1994/95 by an IMF standby arrangement totaling about US$1 billion. This support wasfollowed by a World Bank Economic Rehabilitation Loan (US$150 million, approved in January 1995), afirst Paris Club rescheduling agreement, a further IMF three-year EFF program of US$1.8 billion in May1995, and finally, in April 1996, a World Bank Structural Adjustment Loan of US$300 million.

5. Between 1994 and 1997, the Algerian economy was stabilized and the process of structural reformsdeepened. The budget was placed on balanced track, external trade was liberalized, the exchange ratedepreciated by 54 percent during the standby program, and price restrictions were removed. The socialsafety net was improved and measures were taken to facilitate labor shedding by public enterprises.

6. Both the EFF and the SAL supported the housing reforms introduced by the Housing Completionand Sector Development Project (HCSDP), while the Bank started a dialogue with the Algerianauthorities to launch a specific H-SAL aimed at accelerating the shift from a supply-driven, public-dominated housing sector to a demand-driven, market-oriented sector. The loan never materialized,primarily because the launching of an important new program of public housing for rent by the newlyappointed Government in 1997 was considered by the Bank to be a major deviation from the policycontent of a potential H-SAL. Against this background, however, most of the planned reforms have beenlaunched by Algerian authorities, and Bank support materialized in FY98 in the form of a Low IncomeHousing Project (4361-AL) that targets the poor in urban slum areas through implementation of a newhousing subsidy scheme set up under the framework of the HCSDP.

The Housing Crisis

7. Faced with demographic pressure, the Algerian Government had attempted to address the rapidlygrowing demand for housing by increasing the share of public investment in total housing investment.This was done mostly through the public supply of "social" housing units, either for rent or forownership. Delays of up to eight years in completing housing were typical at the start of the project, andbecame particularly acute when imports of construction materials were curtailed as a result of foreignexchange rationing. The housing program was temporarily halted after the oil shock in 1986, but resumedin 1992 and reached a peak in 1995, when the construction of 115,000 rental units in urban areas waslaunched despite the collapse of the housing finance system.

8. Housing finance in Algeria was based on the quasi-monopoly of the state-owned household savingsinstitution (CNEP), whose financial liabilities included private savings deposits of AD 155 billion (US$3billion) at the end of 1995, by far the largest part of all household deposits in the financial system. Interms of assets, this institution, with more than 4 million household savings accounts, a network of morethan 160 branches, and more than 3,600 employees, was equal to about 30 percent of the total balancesheet assets of the five state-owned commercial banks.

9. The legacy of heavy state intervention at all stages of housing supply and financing resulted inmounting quasi-fiscal deficits at the level of construction enterprises, public developers (OPGIs andEPLFs), and the state-owned CNEP. Construction enterprises incurred large losses due to administratedprices, long completion delays, and stringent construction standards. The financial situation of theOPGIs, in charge of managing the public program for rent and the public housing stock, was underminedby low levels of rent and poor rent collection, and worsened by the liberalization of construction prices in1994. As for CNEP, its solvency eroded rapidly, in large part because of its exposure to the publicprogram for rent and its inability to recover mounting loans to the OPGIs and the EPLFs, the latter beingin charge of the Social Housing Program for Sale. The growth rate differential between loans and

Algeria - 3 - Implementation Completion ReportHousing Completion andSector Development Project

deposits led to the complete liquidation of CNEP's investment portfolio by the end of 1995, while thefinancing needs associated with the public housing program crowded out direct credits to households forowner-occupied housing, and rapidly led CNEP to a situation of quasi-bankruptcy.

B. Project Objectives

10. The main objective of the Housing Completion and Sector Development project was to trigger aquick housing supply response to start address the housing crisis, and to support and enhance themedium-term objectives and priorities of the market-oriented housing sector reforms.

11. The Bank loan (US$200 million) was made to the Government for the completion of the SocialHousing Program for Sale (US$130 million), a program to import critical building materials for theprivate sector (US$65 million), and a technical assistance program (US$5 million), as follows:

(a) Social Housing Program for Sale (SHPS). This component was aimed at accelerating thecompletion of about 51,000 social units for sale, under management of the EPLFs, through:supply of strategic construction materials (cement, wood, and steel rods), finishing products,and small equipment and spare parts for the import needs of the SHPS in 1993-95;

(b) Private Housing Program. Targeted primarily to private-sector self-help builders, thiscomponent was aimed at assisting them in completing their unfinished housing stockthrough strategic imports; and

(c) TA program. This component was aimed at assisting the Government in implementing keyhousing policy objectives in the following three critical areas: improving housing supplyincentives; reforming housing finance through the entry CNEP into the banking sector; andreforming and targeting housing subsidies.

In addition, the TA program provided specific support to the Ministry of Housing and to real estatedevelopers.

C. Achievement of Objectives

12. This was the first Bank-supported housing project in Algeria. While all of its primary objectiveshave been reached, albeit with some delays, the fluidity of the political and economical situation inAlgeria made it necessary to adjust the contents and timeframe of the project. First, after liberalization ofthe trade regime, the first two components (social housing and private housing) were combined anddisbursed against customs certificates in an amount of US$86 million. Accordingly, most of the loanamount went to private self-builders. Second, parts of the TA component were enlarged to include therestructuring of public developers, and parts were reduced because of the reluctance of foreign experts toapply for medium-term jobs in Algeria during the implementation period. Third, the restructuring ofCNEP was not done as planned, but nevertheless led to its transformation into a banking institution.CNEP is now under the authority of the central bank. Finally, important work was done to formulate theoverall framework of the housing finance system, and its availability by the end of 1995 led to thecreation of new institutions two years later.

13. Three factors contributed to the success of the project. First, the assistance of the IMF, which wasactive in Algeria, including in the housing sector, during the January 1995 - April 1998 period. IMFinvolvement facilitated the restructuring of the CNEP and theOPGls, as well as the reform of the system


of public housing for rent. Second, the Bank's policy dialogue with the Government was supported underthe project by a sector work paper?, issued in December 1995, which helped the Ministry of Housing topropose a national housing strategy for the 1996 - 2000 period. Third, the preparation of H-SAL, whichencompassed the reform of the construction industry sector and implementation of the new housingfinance framework, as it was designed under the project, was instrumental in convincing the Borrower toproceed with its housing reform agenda, even though the loan never materialized.

Physical Components (US$195 million)

14. The imports, financed by the project before 1995, contributed to the removal of the bottleneck inconstruction material due to import restrictions. The Project Coordination Committee (PCC), created inMarch 1993, organized two import campaigns. The first, which started in September 1994, ended up witha disbursement of US$75.7 million, or 38 percent of the loan as of July 1995. The targeted amountcovered US$79 million of materials but some importers were disqualified.

15. A second campaign was planned in November 1994 for an amount of US$91 million. Proposalstotaling US$79 million were received. Out of this amount, only US$26.3 was allocated to selectedimporters due to the liberalization of imports at the beginning of 1995. At that time, a decision was madeby the Borrower and the Bank to disburse the remaining amount (US$86 million, excluding the SpecialAccount) upon presentation of customs certificates for the import of construction materials.

Social Housing Program for Sale

16. An amount of US$130 million was planned to complete 51,300 housing units in four years. Anamendment to the loan signed on November 3, 1995 decreased the number to 46,300 units to accord withthe new situation of the EPLFs, which lost their access to cheap credit, at the introduction of the measuresaccompanying the IMF standby arrangement. While construction materials were available on the Algerianmarket starting in 1995-96, the depreciation of the exchange rate and the sharp raise in interest ratesforced the EPLFs to wait for their customers to adjust to the new situation. Completion of the unitstherefore took more time than anticipated and was achieved as follows:

SHElPS 1993 1994 1995 1996 1996(June) (December)

Targeted units 13,000 30,000 51,300 -

(cumulative)Targeted units Amended 7,000 13,650 27,560 36,170 46,300(cumulative)IIIII Actual units (cumulative) 7,028 13,650 27,560 35,160 46,300

17. Until the liberalization of the trade regime, the tracking of imports down to the level of the localdeveloper in charge of financing the SHPS was done by the Ministry of Housing. This task implied thefollowing cumbersome procedure: selection of importers under a multi-criteria approach; signing of acontract between the selected importers and the public developers, defining the content and schedule ofthe import program on a case by case basis; launching of a simplified international competitive bidding;signing of contracts between importers and foreign suppliers; signing of a contract between importers andthe Algerian Development Bank (BAD) to allow the swap of a given amount of currency paid under theloan with an equivalent amount of Dinars at the official exchange rate, the foreign exchange risk being

Toward a Demand-based Housing Market: Constraints and Opportunities, December 19, 1995.


fully borne by the Government; and an ex-post review of all supporting documents by the Bank. Soonafter the liberalization of the trade regime, these developers were able to get import supplies directly onthe market and this procedure was cancelled. However, most of the public developers were hampered bythe CNEP crisis, and were unable to finance a large amount of construction materials to quickly completetheir program, as shown above.

Private Housing Program

18. Unlike in the EPLF program, no targeted units were predetermined but BAD entered into on-lending agreements with private importers selected by the Ministry of Housing. The terms and conditionsof these agreements were as follows: 360 days maturity, repayable in two equal installments, with interestrate based on LIBOR. Tracking of imported materials to be carried out upstream by systematicpreshipment inspections. Materials to be disseminated in the regions and their destination not monitored.

19. The November 3, 1995 amendment unified the two subcomponents with respect to the conditionsunder which importers could access the loan. At the end of the project, the private sector benefited morefrom the loan than the public sector.

Motor vehicles

20. The loan was also utilized to purchase 40 Daewoo cars for an amount of US$300.000. Theoperation was executed satisfactorily following Bank procurement procedures.

Technical Assistance Program (US$4.7 million)

21. The TA program facilitated the realization of fundamental studies and audits, which guided theauthorities throughout their decision-making process with regard to housing finance and housing subsidyreforms. Although these reforms brought about decisive changes, their implementation did not requireextensive technical assistance. This explains, in part, why the disbursement of the TA component wasslow and why more than US$2 million was still available at the closing date. The security situationprevailing in Algeria from 1993 onward and the reluctance of the foreign specialists to stay in the countryfor any period of time is another reason. Some sub-components suffered more than others, in particularthe TA program for the Ministry of Housing, for CNEP, and for the environment. Some studies weretaken over by Algerian teams with the foreign experts supporting them from abroad, such as the studieson implicit subsidies and on the rent system. But for some components, such as CNEP assistance, thereshould have been hands-on support from on-site foreign experts. The assistance materialized, however,only through consulting services from abroad, with very short missions to Algeria, to the detriment of theinstitution.

22. In order to keep the TA funds available, the loan was extended twice to June 30, 1998, at therequest of the Borrower. Only part of the available funds was disbursed to finance work and seminars inthe United States and Italy with respect to the establishment of the new Mortgage Refinancing Company,SRH. Other financing possibilities, such as the 1996 financial and institutional audit of the CNEP,received the Bank's non-objection but were not, in the end, accepted by the Ministry of Housing becauseof counterpart funding issues.

23. As indicated in the SAR, three objectives were pursued by the project: reforming housing finance,targeting subsidies, and improving housing supply incentives. Specific support to mitigate the negative


environmental impacts of the housing program under construction was also planned, but nevermaterialized due to the non-availability of foreign experts.

Reforming Housing Finance

24. The restructuring of the finance system in Algeria required substantial analysis and steps to betaken to, first, financially reorganize CNEP, the main housing finance institution; and second, define anew and operational financial framework.

25. Financial Restructuring of CNEP. The project included the preparation of two audit reports, onereflecting CNEP's financial position, and the other reflecting its institutional position as of December 31,1992. The audit reports were due not later than June 1, 1994. An amendment on September 9, 1993postponed the deadline to February 28, 1995 for the financial report and to April 30, 1996 for theinstitutional report, but kept 1992 as the reference year for the audit since works were underway.

26. The Loan Agreement, as well as the SAR, was quite specific? about the role of these audits. Theywere to help in the transformation of CNEP into an autonomous bank. The purpose of the financial auditwas to determnine the quality of CNEP's assets and liabilities; and the purpose of the institutional auditwas to detail a three-year conversion plan in which fundamental issues such as institutional leadership, thesavings network, organizational changes, and mobilization of resources would be addressed.

27. The audit prepared by the Algerian firm Societe Nationale de Comptabilite (SNC), a public firm,covered part of the financial and institutional aspects. Results were available only two years after the endof FY92. SNC's financial report presented a grim picture of the financial situation in 1992, andconcluded that it was not possible for CNEP to present a sound balance sheet due to the lack of reliabledocuments. SNC refused to certify CNEP's accounts. The financial audit also presented the complexsituation of CNEP's portfolio and the outstanding amount of advances owed by the OPGIs, and thereforeby the Treasury, since the latter was acting as a guarantor.

28. As required by the TOR, the auditors prepared a number of institutional reports analyzingCNEP'scentral procedures, computerized accounting treatmnents, internal controls, etc. The report concluded thatCNEP was undermined by, inter alia, the extreme weakness of its accounting system, a lack oftransparency, a lack of operating procedures, an unreliable management information system, a rapidturnover of managing directors, and a very large (3,600) and generally ill-trained staff that wasdisseminated throughout CNEP's 160 branches. Loan recovery was low and deteriorating.

29. A Decision of the Treasury on November 3, 1993 established the composition and mission of theBoard of Directors of the CNEP, as required in the Loan Agreement. The Board was given theresponsibility of reorganizing the institution, in whole or in part, into a commercial bank, and ofreforming the housing savings system. Several measures were taken regarding organization, designationof auditors, relationship with Treasury, lending and borrowing rates, training, computerization, creation offinancial products, and audits. The increase of the lending rate to a per annum rate equal to two percentabove the prime lending rate of the central bank was introduced in April 1994. A new housing loancontract with a clause authorizing CNEP to revise the terms of loans whenever an adjustment of itsstandard rate of interest has occurred was also instituted.

2 Loan Agreement, Schedule 5 C2; and SAR, page 19.


30. Over the 1992-94 period, the financing of social rental housing programs absorbed close to 60percent of CNEP's total savings deposit liabilities. In 1995, CNEP's loan commitments of more than AD40 billion for social rental housing programs exceeded its customer deposit liabilities and requiredexternal contributions exceeding AD 15 billion, which came from foreign debt rescheduling programs.CNEP's continued financing of social housing programs led to an extreme mismatch between assets andliabilities, since household savings accounts were sight deposits, redeemable on demand. CNEP'sfinancial situation violated the basic standards of prudential management for a deposit-taking institution,and growing pressure was put on the Treasury to address the issue.

31. After internal agreements on the new housing finance framework (see chart below), the GOAdecided to strip CNEP of its public housing program for rent in 1996. In the end, and after substantialdelays, CNEP was transformed into a commercial bank in September 1997, with the clearance of thecentral bank. Its monopoly over the housing finance system and the household saving system waswithdrawn. Discussions with the Treasury about OPGIs' debts guaranteed by the Government led to theliquidation of these debts through the transfer to CNEP of a large amount of Treasury bonds (AD 80billion, equivalent to US$1.5 billion), roughly equaling the OPGIs' debts and redeemable at a later date.

32. At the project closing date (June 30, 1998), CNEP was undertaking a massive housecleaningoperation3 , led by a foreign audit firm, with the view to achieving a balanced picture on both sides of itsbalance sheet. The audit involved all branches and all operations, including household savings accounts aswell as the non-performing debt due by the OPGIs, the EPLFs, and other debtors. This massivehousecleaning, which will be over by mid-1999, has taken a great of deal of management's energy overthe last two past years, at the expense of banking development and training. Within a short period of time,however, CNEP should be able to play a key role in the housing sector, particularly in partnership withthe secondary mortgage facility (SRH), created in November 1997.

33. Defining a New Housing Financial Framework. After having received the devastating financialaudit of CNEP, the Borrower, in agreement with the Bank, amended the contract signed with the foreignfirm in charge of CNEP's institutional audit. The amendment was aimed at defining a new andoperational financial framework for the entire housing sector, with particular focus on the potential role ofCNEP. Several scenarios were tested and discussed, and a final proposal based on the attached chart waselaborated, and then approved by GOA. One of the key features of the approved reform was a clearseparation between housing subsidies and housing finances, involving a redefinition of the role of theCNEP. As shown in this chart, the financing of social rental housing projects comes under the directfinancial responsibility of the Treasury through the transfer of subsidies and investment budgets to theCNL, acting as agent for the government. CNL is also responsible for distribution of the subsidiesdesigned to promote owner-occupied housing and to facilitate access to housing by low-incomehouseholds through up-front grants. The other major aspects of the reform consisted of: (a) transformingCNEP into an autonomous financial institution competing on a level playing field with other financialinstitutions in the provision of bank services to households, particularly in the housing loan market;(b) establishing a housing credit refinancing institution accessible to all eligible institutional participants,to increase the supply of housing credits and facilitate the entry of commercial banks and other financialinstitutions into the housing finance market; (c) developing a mortgage insurance fund through insurancepremiums based on the loan loss experience of each institutional participant, to reduce the credit riskexposure and capital requirement of real estate loans for primary lenders as well as for the refinancinginstitution; and (d) reforming housing credit and savings instruments. Toward the end of the project, thisinstitutional setting was in place.

3 This operation started in 1997.

HOUSING FINANCE IN ALGERIAState Grants c °

Yearly Subsidies ,

/~~~~~~~~~~~~~~~~~~~~~ BX2. INTERNATIONAL OR BILATERAL LENDERS o

Long Term Loans 1o

Share Equity Securities

SECONDARY INSTITUTIONAL INVESTORSMORTGAGE - Pension Funds

T H FACILITY (SRH) Funds - Insurance CompaniesNATIONAL HOUSING_

FUND (CNL)

Bond andsecurity of Refinancing: bond purchases, loans

FRONT-END mortgage loans and advances

Social Housing _ _ I Loans forfor Rent (OPGI) hare qty 1. COMMERCIAL BANKS Construction

BADR, BNA, BDL, BEA, CPA3Mortgage 2. CNEP

. f ~~~~~Guarantee ABC

~~~~~Company So

Developers -Co-Signing/Wages Mortgage LoansI -Mortgage I 0

-Loan Guarate ro t ------------- < HOUSnIN r Piate o

0

t SAVINGS J | # - Developers J

0

LOW INCOME HOUSEHOLDS HOUSEHOLDS


The new Housing Subsidy Scheme

34. As expressed in its Letter of Development Policy, the Government's objectives were toprogressively decrease the general level of implicit and explicit subsidies to the housing sector over themedium term. According to Bank estimates, this level reached 5.8 percent of GDP in 1993. At the start ofthe project, not only capital expenditures to finance the public housing program for rent were financed bythe CNEP under the Treasury guarantee; but a host of subsidies, some explicitly included in theGovernment budget and some not, were attached to the sector with the aim of making housing moreaffordable. Among these subsidies, the most pervasive were those granted to support the public housingstock managed by the OPGIs, since they reached a quasi fiscal deficit equivalent 0.8 percent of GDP.This deficit was primarily due to the low level of rents (averaging US$6.0 per month), which could notcover depreciation costs, financial costs, or even maintenance costs. This deficit was made worse byaverylow (40 percent) rent collection rate.

35. A study was produced by the Ministry of Housing in December 1993, in collaboration with aforeign consultant, to identify the flow of funds linked to subsidies. Based on its findings, the Ministry ofHousing proposed a multiyear subsidy program prepared in light of the new housing rental and purchasesystem, with the view to decreasing the Treasury's financial load. The basic system consisted of up-frontgrants for the acquisition and construction of core housing units (maison evolutive) geared towardfamilies with income less than four times the minimum national wage:

Income GrantI < 2.SNMG AD 350,0002.SNMG < I < 3.SNMG AD 300,0003SNMG < I < 4.SNMG AD 250,000

SNMG=Salaire National Minimum Garanti or National Minimum Wage.

36. Starting in 1996 and building on the Mascara Emergency Reconstruction Project (3813-AL), theMinistry of Housing introduced the up-front grant system to launch pilot operations for low-incomehouseholds. These operations led to the issuance, in December 1997, of an inter-ministerial orderlaunching the new subsidy scheme at national level. Currently, these up-front grants are first allocated toa Special Account (Fonds National du Logement or FONAL) under the Budget Law, and then transferredto CNL under a contractual agreement with the Ministry of Housing. Formerly, the FONAL was usedonly for the grants allocated to the rural housing program and the civil servant housing program. Pastevolution of FONAL is as follows:

| Year Budget (in AD million)1995 5,4501996 14,5001997 16,0001998 20,000

37. In 1998, as an example, the FONAL received AD 20.0 billion (or about US$380 million) for thefinancing of 80,000 housing grants targeted towards low income families living in shanty towns (AD 12.0billion) and in rural areas (AD 8.0 million). Urban housing subsidies averaged AD 300,000 perhousehold, or less than five times the average subsidy granted under the public housing program for rent.

Algeria -10- Implementation Completion ReportHousing Completion and


38. As for the rental subsidy system prevailing in more than 500,000 public housing units4, a newsystem was set up in 1997 after some adjustments in rents were made under IMF's extended arrangementduring the 1995-97 period, and after extensive studies by the Ministry of Housing. A law was enacted forthe provision of personalized rental grants (APL, orAide Personnalisee au Loyer) above a cap set at 15percent of the tenant's income. While the 1998 budget earmarked AD 5 billion for the starting of the APLup-front grant system, efforts were made to increase the efficiency of the OPGIs.

Housing Supply Incentives

39. New legislation was enacted on: (a) a new operating framework for real estate developers, with aview to opening up the competition among developers; (b) a new contractual relationship between ownersand renters, allowing owners to rent their house on a fixed-term basis, thus facilitating the development ofthe private rental market for all new construction; and (c) new rules governing co-ownership, thusfacilitating the proper maintenance of housing units and the sale of public real estate stock.

40. The planned assistance to developers focused on the key issue of the OPGIs. First, an action planwas designed to adjust the rents with the aim of getting tenants accustomed to the concept of an evolvingrental system. Rents increases were effectively implemented, but the percentage of increase (35 percent atthe peak in 1997) was totally insufficient to help balance the OPGIs' budgets. Then the OPGIs werephysically restructured to go along with their financial restructuring. The financial clean-up theOPGIs,which started with the 1992 audit of CNEP and then was conducted directly by the Treasury, ledeventually to the Treasury's purchase of CNEP's claims against the OPGIs in 1996, with the agreement ofthe IMF. Second, the number of OPGIs was progressively scaled back from 53 to 43 in 1997 and to 25 in1998, through either liquidation or merger, leading to large staff depletion (half the staff over two years).Third, parts of the OPGIs' functions, such as rent collection and maintenance activities, have beenprogressively subcontracted to the private sector or to entities emerging from the physical restructuring ofthe OPGIs. Fourth, any losses incurred by the OPGIs from 1997 onward should be covered by budgetaryresources. Finally, CNL took over CNEP's role of managing Treasury funds allocated to the program ofpublic housing for rent and overseen by the restructured OPGIs.

Housing Observatory

41. The setting up of the Housing Observatory as a tool for better-informed policymaking was anotheractivity undertaken as part of the technical assistance component. To support the functioning of theObservatory, a process of selecting foreign firms was launched in 1997 to assist AADL5, the institution incharge of running the Observatory, in better formulating and implementing its strategy, but this wasunsuccessful due to the withdrawal of all the selected firms. The AADL was in charge of the followingpriority studies: housing market; rental market; land market; and maintenance of the housing stock.AADL was also in charge of building an information network to assist the Ministry of Housing. The firstbulletin was issued in May 1997, but the lack of available TA and counterpart funding impeded AADL'sefforts to successfully fulfill its mission.

4 The public housing stock sheltered more than 50 percent of the urban population in 1980, but half of thisstock has been sold at bargain prices by the OPGIs since this time.

5 AADL, the Agence nationale de I 'Amelioration et du Developpement du Logement, is an existing publicautonomous body selected by the Ministry of Housing in 1994 to run the Observatory.


D. Implementation Record and Major FactorsAffecting the Project

42. Overall, the implementation of the project went well, but delays occurred from 1993 to 1995 andresulted in a temporary unsatisfactory rating in implementation. Satisfactory progress resumed after themid-term review in October 1995. The loan was amended on November 3, 1995 and its closing date waspostponed first to December 31, 1997 and then to June 30, 1998 to allow for the financing of more TAprograms. The physical part of the loan, or US$195 million, was disbursed by April 1996, or almost twoyears before closing date.

43. Three main factors impacted project implementation: the security situation, the tense economicenvironment, and the financial constraints faced by both developers and public construction enterprises.

44. The security situation slowed down or prevented some of the technical assistance programs. TheSAR envisioned a comprehensive training program, with several advisors coming to Algeria for extendedperiods of time. But the foreign experts hesitated to work in Algeria, so the technical assistancecomponent was barely active. Against this background, the Algerian team was finally able to take oversome tasks with the assistance of foreign experts, whom the team went abroad to meet. This was also thecase for the study on the flow of funds to the housing sector, which led to a fundamental change in thesubsidy system. Other tasks were cancelled. They included the 20 man-months of support byinternational consultants to autonomous developers to implement the Social Housing Program, as well as18 months of a high-level financial advisor and 30 months of other banking and training specialists for therestructuring of CNEP. Some new tasks were added to support the new direction of the housing reform,such as a study trip by the management of the Mortgage Refinancing Company to Fannie Mae inWashington and a seminar held in Rome for the same management staff. All in all, GOA did not spendthe loan funds at its disposal on technical assistance.

45. The economic environment impacted negatively the speed of the import program at the beginningof the project. Foreign banks were hesitant to confirm letters of credit issued by Algerian banks, or toconsider that the Special Account situated in Algeria fully bore the Algerian risk. The proposal to transferthe Special Account from the central bank to an appropriate foreign bank to speed up the payment wasturned down by GOA. The Special Commitment procedure, which gives a Bank guarantee on letters ofcredit, improved the situation, but the Bank's request for the original application (implying mail delivery)entailed some delay due to inefficient postal communications between Algeria and the Bank.

46. Financially distressed developers and construction enterprises were another major factor in thedelay. During the first import campaign, most importers complained that they were losing money due todelays in execution of the agreement they had with developers to deliver the imported goods. During thisperiod, indeed, claims on public developers by construction enterprises in a critical financial situation andunder pressure by the adjustment program contributed to the liquidity crisis of most developers, whichwere also facing price increases due to the currency devaluation. During the second campaign, importerswere authorized to sell materials on the market if the developers failed to get it on time. The November1995 decision to unify the disbursement conditions for both physical components allowed privateimporters to provide construction materials for the SHPS component. However, as stated previously, theCNEP crisis severely impacted the developers, and particularly the EPLFs, which had no recourse to theTreasury, as did the OPGIs, but had to rely on their own sources of funds and their borrowing fromCNEP.



E. Project Sustainability

47. Faced with a long-lasting and difficult transition period, the Government became increasinglyconvinced, during the course of the project, to shift from its historical role of housing landlord, producer,and financier to the role of enabling agent or regulator of the housing market6 . Four main goals havesupported this strategy, which was partly expressed in a Letter of Sector Development Policy attached tothe HCSDP, and subsequently revised by a housing sector strategy document7 : (a) phasing out theregressive housing subsidy system and redirecting part of total subsidies toward targeted households, withspecial consideration to a one-time, up-front grant to provide a core unit, to be further developed by theowner; (b) reforming the housing finance system through the conversion of CNEP into an autonomousbank and the development of primary market lenders, setting up a refinancing facility for mortgage loansto primary lenders, and freeing access to domestic savings for the entire financial system; (c) improvingperformance of the construction sector through restructuring, liquidating, or privatizing public enterprises,and enabling greater participation of small and medium-scale enterprises; and (d) developing propertyrights through regularizing the land market, expanding land registration, privatizing the public housingstock, and improving the cost and efficiency of supply of serviced land.

48. All of these reforms were launched during the course of the project and were supported byinstitutional changes, including: (a) the transformation of CNEP into a bank; (b) a new role for the CNLin managing the social housing sector; and (c) the reform of public developers, with the OPGIs beingfinancially restructured and reduced in number and the EPLFs being both reduced and made financiallyviable. In addition, the housing finance market was opened to all banks and a core of institutions wascreated to deal with the refinancing and guaranteeing of mortgage credit. The mortgage refinancingcompany (SRH) was created in 1997, with its capital of AD 3.2 billion held by Treasury, banks, andinsurance companies.

49. At the same time, public construction enterprises, both national or local, have been restructured andfor the first time in Algeria, a large number of public employees were laid off and their enterprisesliquidated. The restructuring measures included: (a) spinning off secondary activities (finishing works,maintenance, social services, etc.) into new subsidiaries, enabling the core enterprise to prepare itsprivatization; (b) significant labor redeployment measures; and (c) hiring new labor on fixed-termcontracts. These last two measures - staff cutbacks and abandoning the principle of lifetime employment- were first applied to the construction sector and were genuinely revolutionary changes in the Algeriancontext. These measures not only improved the performance of the construction sector, but alsocontributed to the development of a strong base of small private enterprises working as subcontractors oras sole contractors on smaller projects. More and more construction activities, and particularly finishingactivities, are now being carried out by private small and medium-size enterprises.

50. Despite these key policy measures, which have created significant progress, the State is still playingan important role in the housing sector, and the challenge of completing the shift from a public-driven to ademand-driven system still lies ahead. There is still an important public housing stock of about 500,000units and the public housing program for rent has been boosted again by a new Government in 19978 It

6 Ministry of Housing, "La reforme: pour une politique des moyens" December 1994.Ministry of Housing, "Proposition de strategie nationale de l 'habitat 1996-2000" May 1996.

8 According this program, 60,000 housing units should be launched each year during three years, starting in1998. Although a shift in terms of standard has occurred (a rental unit is now averaging 45 m2, down from 75m2), as well as a shift in terms of beneficiaries (young couples, poorest households, terrorism victims), and interms of number (the 1998 program has been downgraded to 20,000 units), the cumulative impact of the



is, however, extremely unlikely that Algeria will step back to the point where it was when the projectstarted. A new framework has been set up and all of its components are already under implementation. Itis more likely that, should the Government face an acute economic crisis due to an important drop in oilrevenues, the remaining part of the public sector housing industry will fall to the private sector or will bemore strictly targeted to the very poor. The sharp drop in overall completion delays, from an average ofeight years at the beginning of the project to less than two years at the end of the project, and the relatedsharp drop of construction prices, in real terms, are powerful indicators to any new Government that thehousing strategy should be carried out.

F. Bank Performance

51. Project Identification and Preparation. Satisfactory. This project was the Bank's first housingoperation in Algeria. In June 1992, an agreement in principle was reached to launch a "TechnicalAssistance and Critical Construction Imports Project" as the best option for assisting Algeria inovercoming its housing crisis. A first preparation mission was carried out in July 1992, during a change ofGovernment in Algeria, and it was not clear at the end of the mission what the Government's housingpolicy would be. The project design was predicated on a strong commitment by the previous Governmentto housing reform. When the new Government took power, it decided to annul the previous decision towithdraw from the housing construction sector, and proceeded to launch a "massive" housing program forrent, to be financed by CNEP. The Bank then decided to send another mission in October 1992 to assesthe new Government's commitment for reforns and to fine-tune the project

52. Against this background, the Regional Loan Committee meeting gave its clearance for appraisal inNovember 1992, under the conditions that: (a) a significant percentage of the loan amount would bedirected toward facilitating the completion of unfinished private housing stock; (b) a mid-term reviewwould evaluate project performance against agreed-upon benchmarks, to be clearly spelled out duringappraisal; (c) a policy letter, issued by GOA, would present an agenda of reforms, with particularemphasis on housing subsidies and housing finance; and (d) pre-shipment inspections would be carriedout for all strategic imports, instead of attempting to track building materials ex post.

53. Project Appraisal. Satisfactory. The appraisal was carried out in December 1992 in Algeria. Acomprehensive survey of all public developers involved in the construction of SHPS was alreadyunderway, and produced the list and the status of construction of each social housing sub-projects thatwere to be completed during the project. A Bank expert, assisted by a consultant, provided training inprocurement procedures, enabling the Borrower to use standard bidding documents and receivepreliminary approval by the Bank. In January 1993, draft copies of the Memorandum andRecommendation of the President, the SAR, and the draft Loan Agreement for the Housing Completionand Sector Development Project in Algeria were sent to senior Bank management for approval beforenegotiations. Management concerns included the conditions under which importers of building materialswould have access to the Bank loan (foreign exchange issue), and the appropriate time required for CNEPto be restructured and transformed into a commercial bank.

54. Negotiations were held at the end of January 1993. The project was supported by 14 datedcovenants covering the implementation program, as well as by a mid-term review to take place in October1994. Two specific disbursement suspension clauses were added to the list of covenants. A loan of

current program is high on the national budget: equivalent to 2% of the 1998 GDP (or 40% of the planned -and underestimated- fiscal deficit for 1999).


US$200 million was approved by the Board on March 4, 1993. The agreement was signed on March 17,1993, or 10 months after the beginning of the process.

55. Project Supervision. Satisfactory. The supervision missions were complicated by the fluidity ofthe situation in Algeria. The first mission was carried out in Algeria in May 1993. Starting in 1994, Bankrepresentatives often had to meet the Algerian delegation in a foreign country (usually France), whencircumstances did not allow much traveling beyond downtown Algiers. Due to the situation, no missionwas able to track, ex post, the completion of the 51,300 units. In its status report dated February 1995, theMinistry of Housing reported several acts of sabotage, amounting to about AD 4.1 billion during FY93and 94, thus delaying the construction process. In October 1995, at the time of the mid-termn review, lessthan half of the physical program had been completed9 As a result, an amendment was signed inNovember to scale down the number of units by 5,000 and postpone the closing date of the loan toDecember 30, 199710. The combined effect of the trade liberalization and the disbursement of theremaining loan amount against customs certificates accelerated the disbursement process. The part of theloan earmarked for housing completion was completely disbursed by the end of 1996.

56. After 1995, supervision missions were combined with the preparation of H-SAL and reports wereconsolidated and delivered in one document. Although the H-SAL was not signed, its preparation broughttogether specialists from different Bank departments and consultants in housing finance, publicconstruction enterprises, privatization, and land market reform. Thus the preparation of H-SAL helpedfacilitate implementation of the HCSD policy project and kept alive the spirit of reform within theMinistry of Finance, in charge of the restructuring of CNEP, and the Ministry of Housing, which wasfocused primarily on housing subsidies, construction enterprises, and land market reform.

G. Borrower Performance

57. Project Preparation. Satisfactory. Not only was the Ministry of Housing helpful in assisting theconsultants in charge of reviewing the status of the ongoing Social Housing Program for Sale, butimportant steps were taken to better prepare the project before effectiveness. Among them were theissuance of draft legislation on real estate development, the landlord/tenant relationship, and co-ownership; and the signing of on-lending arrangements with selected importers in an amount equivalentto US$40.0 million. This last action, however, took more time than planned, and effectiveness was notreached until six months after signing.

58. Implementation. Satisfactory, with delays. A Project Coordination Committee was created withinthe Ministry of Housing on March 22, 1993, to coordinate implementation of the program. A smallMinistry of Housing team, whose members remained for the entire time of the project, accomplished allthe work related to the physical program. This team developed a flexible and trusting relationship with theBank task manager, which helped to mitigate some of the difficulties that occurred during execution ofthe project.

59. The team had to resolve several problems, including the selection of the importers for SHPS, whichtook more time than anticipated; the timely payment of importers by the public developers; the reluctanceof foreign banks to confirm the letters of credit issued by importers due to the Algerian risk at that time;

9 Delays in implementing the housing reform agenda and the housing completion program resulted in anunsatisfactory implementation rating in June 1995. This rating was upgraded to satisfactory in November1995, after the mid-term review and the Bank's receipt of a firm commitment from the new Government toaccelerate the reform program.

10 The final closing date was June 30, 1998.


and the complex intervention of the Bank as guarantor. Difficulties of that kind resulted into a one and ahalf year delay. The first campaign was quite successful in terms of disbursement, although it wasdifficult to trace whether imported goods effectively reached end users. When the second campaignstarted, the situation had changed completely and most of the remaining part of the loan was disbursedagainst customs certificates, without the intervention of the Ministry of Housing.

60. The TA component was more difficult to carry out due to its high political content. Amendments tothe Loan Agreement were necessary to modify its content and postpone deadlines. Postponement of datedcovenants included the audit of CNEP and its conversion into a bank, the number of SHPS units to becompleted, the definition of the new subsidy scheme, the rent increase, and the financial restructuring ofthe OPGIs. Also, the terms of reference for the institutional audit of CNEP were amended to allow for theanalysis of the global housing situation and of the various instruments required to ensure its financing.CNEP was analyzed as one of these instruments.

61. Policy reforms were behind schedule until the end of 1994, but progress was made in 1995 under anew Government. In response to the Bank's request, the Government Council reached a decision on themain focus of the housing finance reform in August 1995. Simultaneously, a new subsidy scheme, moretargeted toward low-income households, was defined. The financial restructuring of more than 40 OPGIswas completed. The average completion delay for public housing units was reduced from 6 or 7 years to 3years or less. The financial and institutional audits of CNEP got underway. All of these reforns, and inparticular the housing subsidy reform, began to impact the budget law from 1996 onward.

62. While disbursement out of the Loan Account reached over 99.5 percent, the Special Account wasrelatively inactive, as were most of the Special Accounts in Algeria, and an amount of more than US$4million was cancelled in December 1998.

63. The team also provided information about project implementation, such as progress reports,maintenance of project accounts, and yearly audits.

64. Covenant Compliance. Satisfactory. All covenants were complied with, although with delays.

H. Assessment of Outcome

65. Overall rating. Satisfactory. Despite a very difficult environment, the physical goals were largelyreached and fundamental policy changes occurred during project implementation, thus enabling theAlgerian housing sector to develop within a sound framework and with the benefit of large efficiencygains. While there is still a public housing program, it is no longer financed through CNEP, but entirelyfunded by the budget. The new program targets primarily the very poor and the young, and the averagesize of a public unit is now 45 m , down from 75m2 at the start of the project. Unit costs have dramaticallydecreased in real terms; construction time has decreased as well. According to the Ministry of Housing,construction work is now mainly done by private enterprises.

66. Institutional Development Impact. Satisfactory. Basic changes during the course of the projectwere as follows.

- Implementation of the new subsidy scheme. After two years of pilot experience, an executivedecree was enacted in December 1997 to define the new subsidy scheme, based on up-front grants, withspecial consideration for targeting the very poor. The 1996-98 budget laws reflect the new scheme, and asearly as 1996, some AD 20 billion, equivalent to 80,000 grants for urban and rural households, was


explicitly allocated to the Ministry of Housing budget. On the institutional side, CNL is now in charge ofdistributing these up-front grants, which should greatly improve the efficiency and transparency of thesystem.

- Management of the public housing stock. While the OPGIs have started to contract managementand maintenance of the public stock to the private sector, the scheme for assessing the level of rent hasbeen fixed (under a cap system equivalent to 15 percent of the tenant's income), and was progressivelyimplemented during the course of 1998. A large part of the stock is also for sale, and the reform of therent policy may induce an acceleration of these sales.

- Housing finance institutions. CNEP is now operating as a bank, under the supervision of the centralbank, and has nearly completed a massive housecleaning operation, allowing its management to startfocusing on banking development, to be supported by a comprehensive training program of its staff. Ahousing mortgage financing facility, SRH, was set up in December 1997 and its general manager recentlyappointed. SRH is in the process of establishing its structure, internal rules, and necessary procedures torefinance the mortgage credits granted by the banks to their customers. In December 1998, SRH wasabout to launch a pilot operation with one commercial bank (CPA). With the broad objective offacilitating commercial banks' involvement in housing finance by providing them with long-termfinancing, SRH should also be in a position to make a significant contribution to the sector by improvingcredit selection standards. A mortgage guaranty company was also recently created, but was not yetoperational at the end of 1998.

L. Future Operations

67. The expected outcome of the present project was H-SAL, which was under discussion with theGovernment during the second half of 1996, and was planned for FY97. Unfortunately, negotiations didnot proceed favorably and the project was rejected after issuance of the new Government program in July1997 which, once again, announced the launching of a massive and unsustainable program of publichousing for rent"1 . The reforms would not have been easy because they touched upon sensitive areas suchas reduction of the public housing stock, privatization of public construction enterprises (which until 1994was considered virtually impossible), the auctioning of public land, and the final cleaning of CNEP.Nevertheless, most of the reforms proposed for the H-SAL continued under the HCSD framework and,according to Algerian authorities, some 70 percent of the measures that would have been taken during thefirst phase of the H-SAL were implemented. Once Algeria's balance of payments reached a satisfactorylevel, a Housing Sector Loan was proposed as a substitute for the H-SAL but never materialized. In bothcases, the main bottlenecks were the fate of the public housing stock, and the launching of the publichousing program along with its transparent financing through the budget.

68. Without a housing sector not quite adjusted, as it was anticipated under the H-SAL, the logicalcontinuation of the Bank's involvement in the sector was to address the urgent need of the urban poor.The Low-Income Housing Project was launched in FY98 with the basic objective of improving the livingand housing conditions of poor families living in selected urban slums. Building on the new subsidyscheme developed under the HCSDP, the Low-Income Housing Project is assisting CNL in managing theup-front housing grants to be allocated to selected families. Since the launching of the project, itsobjectives have been progressively scaled-up into a national program aiming at providing basic urban

it The new program included the launching of 60,000 housing units per year during three years. The lack offinancing, due to the public budget constraints, downgraded drastically this program.


services for all existing slums. Subject to a quick disbursement of planned operations, a follow-up projectmay be soon considered, with a stronger focus on the cost recovery issue.

69. Another potential project in line with the housing finance reforms supported by the HCSDP wouldbe a housing finance loan to help develop the mortgage market and encourage the involvement of morecommercial banks in the sector. Preliminary discussions about the project concept were held with GOA inDecember 1998.

70. The next steps recommended over the medium-term to allow the Algerian housing market to workmore efficiently are the following: (a) prompt processing of land titles, particularly in urban areas, so as tobase mortgage credits on well-defined property titles; (b) improve the legal framework to increaseeffectiveness of foreclosure and loan recovery procedures; (c) limitation of the public housing programfor rent to the poorest households, along with a more transparent and leaner budget allocation for thepublic housing stock which should be partly privatized; (d) improve the primary mortgage infrastructureby strengthening the mortgage collateral and commercial banks willing to enter into the housing mortgagemarket; (e) develop the activities of the secondary mortgage facility (SRH) along a realist five-yearbusiness plan which take into account all constraints related to its issuance capacity (Treasury Bonds,contractual savings scheme etc.); and (f) accelerate the full privatization of viable public constructionenterprises.

J. Key Lessons Learned

Separating housing subsidies from housing finance is a key requirement in reforming housingfinance.

Not only such separation should allow a better definition of the role of the State in the housing financesector, but it has also a strong potential in better integrating the housing market to the financial market.Algerian authorities started to institutionally separate housing subsidies and housing finance in 1996. Thisdecision was made possible, first by a comprehensive study on all explicit and implicit subsidies, andsecond by designing an institutional framework for the housing finance system after numeroussimulations of potential scenarios, the pros and cons of each scenario being carefully analyzed. Theadopted framework led to a re-definition of CNEP's roles vis-a-vis the public housing finance system,and ultimately allowed the long awaited transformation of CNEP into a bank.

On the negative side, such separation may turn to be costly and risky...

71. To start implementing the selected framework the Treasury issued AD 82 billion (equivalent toUS$1.6 billion) of bonds to replace the entire portfolio of debt accumulated by the OPGIs on CNEP'sbalance sheet. A key decision was then taken to fund the entire public housing program through theBudget Law, and to make progressively explicit all housing subsidies. However, to avoid a drastic impacton the budget, the 1997 public housing program for rent has been funded largely by the counterpart of theforeign debt rescheduling, in close coordination with the IMF. The main rational for the later decisionwas to use the housing sector as a locomotive for growth, without waiting the results of the adjustmentprocess. The related risk was to slow-down the adjustment by delaying the public sector divestiture fromthe housing sector, and/or to face future budget constraints after the drying up of rescheduled resources.Both events occurred, the later under the 1999 budget law'2.

12 Source: 1999 Draft Budget Law, September 1998 (in two volumes).

Algeria - 18 - Implementation Completion ReportHousing Compiettion and

Secror ^ i&e< q ^<iS Project

>.as weli s A ' n7y wen key policy decisions are iuapeded by political and social constraints;

72. As long as all housing subsidies are not funded from explicit fiscal sources, the reform of thehousing sector is not completed, and may lead to important quasi-fiscal deficit. Indeed, the virtue ofmaking explicit all housing subsidies and separate them from the finance sector is to force budgetarbitration, along wi.h efficiency gains. Algerian authorities are well aware of the remaining issuesfacing the public housing sector, both in terms of budget burden and inefficiency. Political and socialconstraints are, however, other important factors to take into account when determining the speed of thereform, particularly when the State has been faced for years with numerous claims to house a largeportion of the population, including the middle-class. Against this background, a transparent, fair andwell targeted housing subsidy system may accelerate the reform while preserving the poorest segment ofthe population. Efficiency gains, both on completion time and construction costs should also allow alarger multiplier effect of public funds.

On the positive side, it may trigger a large part of the housing reform.

73. Such is the case in Algeria, where the new housing finance framework has been quicklyimplemented: without the burden of financing the public housing program, CNEP was transforned into abank and is now in a position to progressively become a viable competitive financial institution. CNLtook over financial management of the public housing program in a transparent way, and is also in chargeof managing the personalized rental grant system and the up-front subsidy system. The Bank financedLow-Income Housing Project is currently assisting CNL in implementing its new agenda. The reform ofthe public developers (OPGIs and EPLFs) was accelerated to avoid any additional burden on theTreasury and a large part of their activities are now managed by the private sector. Finally, faced with acontraction of their preferential market, public construction enterprises have been restructured orliquidated to the benefice of private Small and Medium Enterprises (SMEs), and the performance of theconstruction sector has improved dramatically, with the average completion time dropping from sevenyears at the outset of the project to less than two years at the end. Over the medium-term period, ifefficiency gains continue to raise, housing subsidies in Algeria should reach intemational standards andrange between 2.5 to 3 percent of GDP.



PART II

STATISTICAL ANNEXES



PART II. STATISTICAL ANNEXES

Table 1: Summary of Assessment

A. Achievement of Objectives Substantial Partial Negligible Not Applicable

Macro policies El ElSector policies E IJ

Financial objectives E 0 El ElInstitutional development I El El ElPhysical objectives El 0 El E1Poverty reduction El 01 a ElGender issues Cl E E ElOther social objectives 5 0 El ElEnvironmental objectives 3 E 0 EPublic sector management El 0 E EPrivate sector development E3 El El

Other (specify) El E E ElB. Project Sustainability Likely Unlikely Uncertain

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ (v')0 ( /) (./)

0 El ElC. Bank Performance Highly Satisfactory Satisfactory Deficient

(v/) (V) (v/) 1

Identification C] 0 ElPreparation assistance El E ElAppraisal El 0 ElSupervision nl ElD. Borrower Performance Highly Satisfactory Satisfactory Deficient

(v') (/) (/)

Preparation El 0 ElImplementation O 0 ElCovenants compliance El El

Operation (if applicable) El El ElE. Assessment of Outcome Highly Satisfactory Unsatisfactory Highly

Satisfactory ($) (/) Unsatisfactory

(. ) ._ _ (1)_ _ _ _ _ _ _ ~~~~~ ~~El 0El El



Table 2: Related Bank Loans

Loan/Credit Objectives Date of Approval l Status

Preceding Operations1.3117-AL Economic To restore growth by introducing August 31, 1989 Closed on December 31,reform Support Loan of a more market-oriented economic 1991; cancellation of US$ 1.2US$300 million system million2. 3352-AL Enterprise To restore macro-balances June 21, 1991 Closed on June 30, 1995;and Financial Sector through tight fiscal and monetary fully disbursedAdjustment Loan of policy while introducing Waiver obtained with respectUS$350 million competitive structural policies to the non restructuring of

and strengthening the social CNEPsafety net

Following Operations3. 3834-AL Economic To accelerate the transition to a January 26, 1995 Closed on December 31,Rehabilitation Support market economy and mobilize 1996; fully disbursedLoan of US$ 150 the external financing necessarymillion to restore sustained growth4. 4005-AL Structural To advance reforms initiated May 3, 1996 Closed on April 30, 1998;Adjustment Loan of under the previous Economic fully disbursedUS$ 300 million Rehabilitation Support Loan and

complement the three-year IMFExtended Fund FacilityA Letter of Development Policysigned on April 3 1996 by theMOF included housing sectoractions such as the fosteringaccess to ownership, thepromotion and organization ofthe rental market, the reform ofpublic housing and the reform ofthe housing finance system.

5. 4561-AL Low To assist the Government of June 25, 1998 Not yet closedIncome Housing Project Algeria to improve the living andLoan housing conditions of the

residents of urban slums and non-serviced low-income areas in anefficient, sustainable way



Table 3: Project Timetable

Stage of Project Cycle Planned Date Actual Date/Latest EstimateIdentification (Executive Project July 1992 July 1992Summary)PreparationAppraisal December 1992 December 1992Negotiation January 1993 January 1993Board Presentation _ _ March 4, 1993Signing March 17, 1993Effectiveness June 17.1993 September 9 1993Amendrnent.1 September 9, 1993

- Amendment to postpone CNEPfinancial audit to 2/28/95 and itsinstitutional audit to 4/30/96

Amendment 2 November 4, 1994- Unification of the EPLF and PrivateHousing programs

Mid-term review October 30 1994 October 30 1995

Amendment 3 November 3, 1995-Decrease of the number of units from551300 to 46300 units;- Closing date postponed to 12/31/97

Amendment 4 April31, 1997Closing date postponed to 6/30/98

Loan Closing June 30, 1998



Table 4: Loan Disbursements: Cumulative Estimated and Actual

FY1993 FY1994 FY1995 FY1996 FY1997 FY1998Appraisal Estimate 0 75 164 200 200 200Actual 0 26.90 82.43 199.42 199.42 199.01Actual as % of Estimate 36% 50% 99.7% 99.7% 99.5%Date of Final Disbursement October 31 1998

Table 5: Key indicators for Project Implementation in SAR

N/A

Table 6: Key Indicators for Project Operation

Key Indicators for Project Objectives ActualOperation

Improvement in housing Dropping completion time from 7 According to GOA, average housingcompletion delays to 2 years completion dropped to about 1.5 years,

thanks to private sector involvement whichaverage 70% of the construction process.Price have also dropped in real terms,despite exchange rate depreciation (over54%) and four years of two digits inflationrate.

Reforming housing fnance Financial restructuring of CNEP Housing financial framework approved byleading to the transformation of GOA in 1996; CNEP transformed into aCNEP into a bank by end of 1995 bank in September 1997 (1.5 yearsSetting up a reliable housing delay);.SRH created in early 1997.financial framework (not exactlydefined at appraisal).Creation of SRH (not defined at

l ___________________________ appraisal)

Reform of the housing Assisting MOH in formulating and Up-front grants for the construction of coresubsidy scheme implementing a new housing housing units for low income households

subsidy scheme, more sustainable experimented in 1996 and 97, and officiallyon macro-economic grounds and adopted in December 1997.more targeted towards low income Macro-economic simulations available inhouseholds. New regulation on 1995 and direct budget impact starting inrent for the public housing stock 1996.(about 500,000 units). Creation of New regulation on rent issued in 1998.the National Housing Fund (CNL) CNL in charge of managing the subsidyto ensure better transparency and housing scheme.targeting

Financial restructuring of Portfolio restructuring (53 public Less than 30 OPGIs left; CNEP no longerpublic developers (OPGIs). developers) with impact on involved into the financing of the housing

CNEP/Treasury relationship. public program managed by the OPGIs;Closure of the main non OPGIs bad debt (US$1.6 billion) born byperforming OPGIs, and partial the Treasury.privatization of their activities (not

l ________________________ defined at appraisal). l



Table 7: Studies Included in Project

Study Purpose as Defined Status Impact of Studyat Appraisal/

RedefinedCNEP Financial Financial situation in Completed with delay Study highlighted CNEP's mainAudit 1992 (December 1994) weaknesses and the necessity to focus

on the housing financial framework asa whole before restructuring CNEP.Massive cleaning of CNEP's balancesheet started in 1997.

Strategic Study on To develop a reliable Completed in 1995, The selected framework led to: (i) theHousing Finance housing finance after amendment of the separation of housing subsidies from

framework in Algeria CNEP institutional housing finance, with importantstudy. Several scenarios impact on CNEP which has beenwere discussed with transformed into a bank; (ii)GOA before selecting development activities of CNL asthe final framework. agent in charge of managing

subsidies; (iii) creation of SRH, as asecondary mortgage facility; (iv)potential development of mortgageinsurance fund; and (v) level playingfield for the banks in housing finance.

CNEP Institutional Strengths & Partly completed Future role of CNEP was assessed andAudit weaknesses defined under the selected housing

finance framework. Detailinstitutional studies to be completedafter the financial cleaning of CNEP.

Flow of funds study To determine the Study on explicit and Allowed MOH to propose structuralaggregate level of implicit subsidies reforms of the housing subsidyexplicit and implicit completed by MOH; system. A report entitled :Proposalsubsidies and assess its macro assessment done for a national housing strategy wasfiscal affordability. in the framework of the issued in May 1996 and discussed at

l________________ ___________________ Housing Finance study every level of government.Feasibility study on Not included in SAR Completed Low Income Housing Project to BoardLow-income in June 1998.HousingTraining and Not included in SAR Completed Provided training sessions for theSeminar by Fannie newly created SRH.Mae



Table 8A: Project Costs

Appraisal estimate (US$) Actual estimate (US$)Local Foreign Total Local Foreign Totalcosts costs costs costs

A. Subtotal Social Housing Program for 233.0 127.8 360.8 64.1Sale, of which:1. Subtotal Strategic Products 26.4 35.0 61.4 17.5

White Wood 2.1 3.1 5.2 1.3Red Wood 3.2 4.9 8.1 4.5Ply Wood 0.2 0.4 0.6 0.5Steel rods 4.9 20.7 25.6 8.0Cement 15.9 5.9 21.8 3.2

2. Subtotal Finishing Products 200.6 82.9 283.5 41.6On-site Infrastructure 7.8 12.1 19.9 NADoors 4.4 6.6 11.1 NAFinishing Products 188.4 64.2 252.6 37.4

3. Spare Parts 6.0 9.9 15.9 5.0 l

B. Subtotal Private Housing Program, of 25.9 56.6 82.5 130.1which:

Strategic Products 25.9 56.6 82.5 _130.1

C. Subtotal Technical Housing Program, of 0.1 4.9 5.0 1.1which:

Consultants/Studies/Advisors 0.1 4.4 4.4 0.8Equipment, Software materials 0.1 0.2 0.3 0.3Uncommitted - 0.3 0.3 0.0

TOTAL BASELINE COSTS 259.0 189.3 448.3Physical Contingencies 25.3 17.4 42.7Price Contingencies 86.3 7.8 94.1

TOTAL PROJECT COSTS 370.6 214.6 585.2 195.3

Table 8B: Project Financing

Appraisal estimate (US$) Actual estimate (US$)Local Foreign Total Local Foreign Totalcosts costs costs costs

Governmentl Beneficiaries 370.6 14.6 385.2IBRD - 200 200 195.3TOTAL FINANCING 370.6 214.6 585.2 NA 195.3 NA

Table 9: Economic Costs and Benefits

N/A

Table 10: Status of legal covenants x .~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ,. etQ

Agreement Section Covenant Present Original Revised Description of covenant Commentstype status fulfillment fulfillment B

date date L

3.03 10 C 10/30/94 10/30/1994 Carry out a mid-term review no later Complied with during October Bthan October 31, 1995 to assess 1995 missionoverall progress achieved in theproject and the sector developmentprogram _

4.01 01 C Audit report, including separate Complied withopinion on SOE, no later than sixmonths after the end of each calendar

l____________ year5.01(a) 11 C 10/30/94 As a condition to continue Complied with

disbursement: satisfactory budgetaryallocation of housing subsidies forFY94 and issuance of relatedimplementing relations no later than tMarch 31, 1994

5.01(b) 10 CP 10/30/94 10/30/95 As a condition to pursue Public housing stock kept toodisbursement: satisfactory progress at high. Rents have not reachedmid-term review on the following: (i) level for OPGI's sustainabilitySHPS delivery; (ii) housing finance Housing assistance still notreform; (iii) housing subsidy reform; transparent enoughand (iv) implementation of the SectorDevelopment Program, as defined inthe Policy letter

6.01(a) 05 C As a condition of effectiveness: Complied with !:establishment of the ProjectCoordination Committee (PCC) inaccordance with Section A.2 ofSchedule 5 0

6.01(b) 03 C As a condition of effectiveness: Complied with 51signature of on-lending agreements 2with selected importers for at leastUS$40 million equivalent, under theprivate housing program - 0

, _ . . . . . ,. >~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Agreement Section Covenant Present Original Revised Description of covenant Commentstype status fulfillment fulfillment

date date

6.02 10 C 06/15/93 09/09/93 Failure date for effectiveness: 90days after the date of the Agreement(March 17, 1993), i.e. June 15, 1993

Schedule 2 09 NYD 12/31/97 06/30/98 Completion date: June 30, 1998 AmendedSchedule 41, B (1) 03 C Procurement: standard bidding All the documents were received S

documents for part A of the project " cL

Schedule 4I, B (2) 10 C Terms and conditions of on-lending Complied withagreements: maturity of 360 days;libor repayable in 2 equalinstallments

Schedule 41, C (a) 10 CD Completion of the SHPS (cumulative Complied with. Dates werebasis): December 31, 1993 = 7,000 amended as of 11/6/1995December 1994 = 13,650 December31, 1995 =27,560June 30, 1996=36,170 December 31, 1996 = 46,300

Schedule 5C 2(a) Covenant deleted DeletedSchedule 5, C, 2(a) 01 CD 06/01/94 CENP's institutional audit reports not Complied with after delay

later than June 1, 1994Schedule 5, C, 2(b) 12 C 11/01/94 Establishment of the CNEP's Complied with after delay

reorganization committee not laterthatn November 1, 1993

Schedule 5, C, 2(c) 13 C 04/30/94 CNEP to increase its lending rate 2% Covenant amended during mid-above prime rate of Banque d'Algerie term review. Compliance for

developersSchedule 5, C, 2(d) 12 C Introducing in CNEP's new loan Complied with after delay

contracts a clause authorizing CNEP CD

to revise the terms of the loanSchedule 5, C, 2(e) 12 C 4/30/96 Draft legislation providing for the Amended. CNEP has been

reorganization of CNEP, not later operating as a commercial bank 3

than April 30, 1996 since April 1997 oIbid 10 C 9/30/96 05/30/96 Adoption of new CNEP legislation CNEP has been transformed into

not later than September 30, 1996 a public stock corporation

0

Agreement Section Covenant Present Original Revised Description of covenant Commentstype status fulfillment fulfillment

date date

Schedule 5, C, 3(a) 11 C 10/31/93 Housing subsidies: carrying out, not Complied withlater than October 3 1, 1993, of thefirst phase of the flow of funds study, ElOincluding the projected level ofbudgetary allocations for the housingsector for FY94 and the management i. and targeting procedure of housing _

subsidies (implicit and explicit)Schedule 5, C, 3(b) 1 C - 04/30/96 Proposed multi-year housing subsidy Complied with

program not later than April 30, 1996Schedule 5, C, 3(c) 02 CP 06/30/95 9/97 Completion of the financial Starting in September 1997, the

restructuring of the OPGIs not later number of OPGIs will bethan June 30, 1995 reduced from 53 to 43 by the end

of December 1997, through amerger

Ibid 02 CP 02/28/96 9/97 Draft regulations requiring the In a Govt. program datedestablishment of a rent system September 1997, the decisiondesigned to achieve dull cost was explicitly made to shift fromrecovery of the SHPR not later than a general rate of subsidy systemFebruary 28, 1996 (AGL) to a targeted system

where rents are linked tohousehold's income

Schedule 5, C, 3(d) 1 C 6/30/96 Draft legislation modifying the Complied withcurrent social housing purchasesubsidy system not later than June30, 1996 El

Status: C Complied with, CD Compliance after Delay, NC = Not Complied with, SOON = Compliance expected in reasonably short time, CP = Complied with oPartially, NYD Not Yet Due 0

CD'0



Table 11: Compliance with Operational Manual Statements

N/A

Table 12: Bank Resources: Staff inputs

Stage of Project Cycle Planned Revised Actual

Weeks US$ (000) Weeks US$ (000) Weeks US$ (000)

Preparation 72 241Appraisal 1 8 63Negotiation through 7 15Board ApprovalSupervision 76 272Completion 8 29 8 29 4 19TOTAL _ 178 610

Table 13: Bank Resources: Missions m c

Stage of project Month/ Number Days Specialized staff skills represented Performance Rating Type of problemscycle year of in Implementation Development C g

persons field status objectives 9 3Through 07/92 4 Sr Eco., Sr Urb. Exp., Coun. Off., Coun. 0 r

Appraisal Eco.10/92 3 Sr Eco., Hous. Fin. Adv., Hous. Fin. Spec.

Cons., Coun. Eco., Sr Urban Exp., Con.Env. Spec. -

Appraisal through 12/92 Sr Eco., Proc. Adv., Ins. AdvBoard ApprovalSupervision 5/93 4 Sr. Eco., 2 Cons., Sr Hous. Spec. 1 NR Delays in selecting

importers due tocumbersome procedures

9/93 2 Sr Eco., Sr Fin. Ana. 1 NR4/94 1 Sr Eco.6/94 3 Sr Eco., Mun. Eng., Sr Disb. Off. 1 1 Delay in

implementation from 3to 6 months

8/94 2 Sr Eco., Mun. Eng. U o10/94 2 Sr Eco., Mun. Eng.06/95 4 Sr Eco., Hous. Fin. Adv., Hous. Fin. Spec. U S CLC, PMP, TAP, TP,

Cons., Mun. Eng., Disb. Off SP, FP, EAMid-term Review 10/95 Sr Eco., Hous. Fin. Adv., Hou. Fin. Spec. S S PMP, TAP, EA

Cons., Mun. Eng.1/96 4 8 Sr Eco., Mun. Eng., Fin. Ana. Env. Spec. S S

4/96 3 12 Sr Eco., Mun. Eng., Train. Adv. S S12/96 3 Sr Eco., Hous. Fin. Adv., Mun. Eng. S S 06/97 Sr.P. Eco, Hous. Adv, Fin. Adv. S S12/97 P. Eco, Hou. Fin. Adv S S _

03/98 1 8 P. Eco. S SCompletion/ 06/98 P.Eco., Mun. Eng. S SClosing o

Staff Skills: Sr Senior, Eco. = Economist, Urb. = Urban, Spec = Specialist, Ana. = Analyst, Coun. = Country, Off. = Officer, Adv. Advisor, Cons. Consultant, 2.0

Fin = Finance, Ins. = Institutional, Proc. = Procurement, Env = Environmental, Hous. = Housing, Exp. = Expert, Mun. = Municipal, Eng. = Engineer, Disb. =Disbursement, P. = PrincipalProblems: CLC: Compliance with Covenants; FP: Financial Performance; TAP: Technical Assistance Progress; PMP: Project Mgt Progress; PP: Procurement 0

Progress; SP: Studies Progress; EA: Environmental Aspects; TP: Training Progress


APPENDIX

Borrower's Contribution to the ICR

REPUBLIQUE ALGEIENNE DEMOCRATIQUE ET POPULAIRE

MINISTERE DE L'HABITAT

RAPPORT D'ACHIEVEMENT

(RAPPORT PRELIMINAIRE)

ALGERIE

o PROJET AIDE A LA FINTION DE LOGEMENTS ET AUDEVELOPPEMENT DU SECTEUR DE L'IABITAT )

PRET BIRD NO 3561 AL

TABLES DES MATIERES

Preface....

PARTIE: EVALUATION DE LEXECUTION DU PROJET

A. Expose des Objectifs

- Principaux objectifs- Composantes du projet

B. Experience et r6sultats de Ilex&ution

- Les objectifs mate'nels- Les objecfifs insfitutiomels (financiers)- Codt de financement du projet

C. Resume des conclusions et principales legons tirees

- Principaux facteurs affectant le projet- Passation de march6s de foumitures et services- Rvthme du d6caissement du prt

D. Performance de ta Banque

- L'identification du projet- Apres I'approbation du pr&

E. Performance de 1'emprunteurF. Rlsultats du projet

PARTIE II: TABLEAUX STATISTIQUES

.L. Rlsume de I' valuation2. Calendrier du projet3. D'aissements du pret :Cumule's, Estim's, et R6els

PREFACE

L'objet du present rapport est d'exposer les conclusions de llevaluation apres reafisationdu projet < aide A la finition de logements et an developpement du secteur de l'habitat finance par le pret BIRD NO 3561 AL d'un montant de 200 millions de USD. Il retraceles differentes phases d'execution du projet depuis la date de signature de laccord depret jusqu'a la date de sa clUture.

Le prAt de la Banque Mondiale a servi A financer une partie des materiaux importesdestin&s i la finition d'un programme cibl6 de logements promotionnels publics en coursde r6alisation durant la priode 1993 - 1995.II a egalement servi a financer : la r6alisation des etudes concernant laudit fmancier etlPaudit institutionnel de la CNEPI la fourniture de v6hicules, de mat6riel informatique etlogiciels et les actions d'assistance techniques au secteur.

RAPPORT D'AC-HEVMENT

ALGERIE

PROJET D'AIDE A LA FNITION DE LOGEMENTSET AU DEVELOPPEMENT DU SECTEUR DE LRABITAT

PrA N 3561 - AL

PARTIE I: EVALUATION DE LVEXECUTION DU PROJET

(RESUME DE L'EVALUATION)

A. Expose des objectlfs du projet

1. Les principaux objectifs du projet tels qu1ils ont ete defini dans l'accord de prgt sont:

Aider le Ministere de 1'Habitat:ka) a accle1rer l'ach6vement du PLSV et des logements du secteur prive en construction.(1) 'a appliquer les politiques de logements spe'ifiees par le Minist6re de I'Habitat dans son

progranme de d6veloppement sectoriel visant it accroltre 1'efficacite economique du secteurdu logement.

2. Pour realiser ces objectifs, le projet comprenait les composantes suivantes:

(a) Partie A: PLSV.

Importation de matriaux de construction essentiels notamment de ciment, de bois. d'acierd'armature, de petit mat6riei de construction, de pieces d6tach6es et de produits de finition,equis pour 1'ach'vement d'un minimum de 51000 unites du PLSV en cours de r'alisation.

(b) Partie B secteur privte

Importation de matenaux de construction essentiels notamment de ciment, de bois et d'acierJ'armature requis pour 'achernement d'une partie des logements du secteur prive en cours derealisation.

V Partie C assistance technique

1)- Fouiture de consiltants pour aider 1'emprunteur a effectuer diff6rentes tudes en vue derealiser les principaux objecfifs de la politique du logement dans les domaines essentielssuivants:

- amlioration du cadre incitatif de I offre du logement- creation d'un environnement favorable au developpement du financement de l'habitat- d6finition d'un nouveau systeme de subvention au logement.

(2)- Fouriture de services de consultants pour aider l'emprunteur 'a attenuer les effets su;rP'environnement des activit6s liees i la construction en renfor9ant la capacite de gestion desquestions d'environnement qui concernent le Ministere de l'Habitat et en accroissant le niveaude cooperation entre les Minist6res et les orgam'smes concemes.

(3)- Foumiture de v6hicules, de mat6riel informatique et de logiciel pour am6Iiorer la capacit6de suivi des programmes de construction.

B. Experience et resultats de lexsecution

3. R6alisation des obectifs:

Les objectifs materiels ont r6alises en totaliteL'achat de vehicules a et realise 'a 100%L'achat d'equipement iniformatique et de logiciel a ete egalement realise a 100%Les etudes ont ete re'lisees a 100%

4. Les objectifs institutionnels (Financiers) out ete realises.

5. Cofit de fmancement du projet

Le projet a et achev6 a un coat de 194.728.602,720 USD soit: 97,369 % du montant du prSt11 est observe Un reliquat de 4.657.361,840 USD dont 571.397.280 USD sur le compte depret et 4.085.498,76 USD sur le compte special soit 2.32 0/% du montant du pr8t

Ce reliquat par rapport au montant initial s'explique par le non la-ncement de certaines actionsd'assistance, notamment celles liees a:1) la mise en place d'un observatoire de l'Habitat et sa dotation en moyens matenels.2) I'tude sur la fiscalit6 locale (communes).

C. Resume' des conclusions et principales legons tirees

6. Les prmcnipaux facteuirs affectant la realisation des objectifs du programme: au niveaut dei'avancemennt pvhysique du projet il y a lieu de noter: bien que les premiers appels d&ofes aientet6 lances un moiiet demi apres la date de mise en vigueur, I'avancement g n6ral du projet asouffert de d6lais notables que ce soit pour les decaissements lies a. la premiere campagnedimportation des mat6tiaux de construction, la r6ibrme de la CNEP, les etudes et 1'assistancetechnique. Les causes majeures de ces d6lais sont:Avec la BAD en matiere d6tablissement des attestations de financement de r6ception et decontr6le des demandes d'ouverture des lettres de cre-dits etablies par les banques primaires desimportateurs et d'expedition des dossiers originaux a la BIRD pour confirmation de creditsapres levee de toute objection.Avec la BIRD en matiere de controle pour la d6livrance de la non objection a I'ex6cution desmnarches (verification des dossiers de la consultation de la s6lection des foumisseurs et la

conformite des contrats signes).Ces delais ont entraine un retard sur les objectifs a atteindre en matiere de livraison delogements.Les nouvelles conditions de liberalisation du commerce exteneur en vigueur depuis le d6but de'annene 1995 ont entraine une relative obsolescence des objectifs du projet.

Les importateurs n'6tant plus int6resses par des financements qui necessitent des engagementsde respect d'un dispositif de cahier des charges notamment pour ce qui conceme, les pnix, ledestinataire final du produit et les regions ou ces materiaux doivent etre achemin6s.Sur la base de son assiette financiere en Dinars. Fimportateur peut aceder aux importations'ibres. De ce fait. Pour certains materiaux l'acier pour le beton notamment, il a ete constat6 desstocks importants et leurs pnix a Ia baisse, resultat d'un marche concurrentiel.

7. Le projet a permis d'entamer une serie de debats sur: 1) les mecanismes de financement dulogement et de cerner les faiblesses du systeme en vigueur; 2) la necessite d'entamer desr6formes profondes du systeme de financement du logement suivant l'explicitation de1'ensemble des aides et 3) la mobilisation de 1' epargne des menages et de Ie'pargnenstitutionnelle.

En relation avec la prvparation de nouveaux projets (PAS et H-SAL; 1996-1997) pr6vus dansle programme d'aide de la Banque, le secteur a entame la mise en place des r6formessuivantes:1) la transformation de la CNEP en Banque de l'Habitat

l) a creation des soci6t6s de refinancement hypothecaire et de la societe de credit hypothecaire(instruments necessaires a la mobilisation de I'epargne institutionnelle),3) la mise en place d'une potitique d7aide A la demande (aide 'a l'accession 'a la propri6temodulee en fonction des niveaux de revenus des menages)4) la budjetisation des aides a l'Habitat.

8. Rythme de decaissement du pret

Le rythme des decaissements du pr& a souffert de certains retards cites plus haut.La mise en place d'un compte special en devises aupres de la Banque d'Algnrie n'a pascontribue efficacement 'a activer les paiements des fournisseurs.Les decaissement cumuls du pr8t sur la periode 1994-1998 sont les suivants:

1994 ............26.902.438,360 USD1995... ....... 55.532.250,030 USID1996....... 116.993.914.330 USD1997......... 0)1998 ......... 04)

TOTAL: 199.428.602,72 USD

Montant non decaisse: 571.397,28 USD

Decaissement du compte special: 4.751.964,56 USDMontant non d6caisse: 4.085.498-76 USD

D. Performances de la Banque

9. Le temps qui s'est ecoule entre l'identification, 1'estimation, la signature de I'accord de pret(17 Mars 1993) et l'entree en vigueur (09 Septembre 1993) est correcte

10. Apres I'approbation du pr6t: des missions de suivi ont ete effectu6es par les responsablesde la BIRD et des rencontres ont eu lieu a Paris et a Geneve entre ces demiers et lesrepresentants Alger.iens de diff6rents secteurs.

Ces missions et rencontres ont permis aux responsables de la BIRD de constater a chaque fois1-tat d'avancement physique et financier du projet et de prendre connaissance des problemesrencontres.TI y a lieu de noter egalement les point de situation 6labores par le Minist6re de I'Habitat et quiont permis de relever en temps reel les difficultes rencontr6es lors de la realisation du projet.

E. Performances de l'emprunteur

11. La preparation du projet par 1'emprunteur:Elle a &6 correcte sachant que les delais entre la signature de l'accord, l'entr6e en vigueur dupret! le lancement de la premiere campagne d'importation et la mise en place des premierscontrats sont minimes.L'ex6cution des contrats a connu im certain retard pour les raisons citees plus haut.

F. Resultats du projet

12. Les re'sultats du projet sont correctes du fait que les r6alisation materielles ont &6 del'ordre de 97% pour ce qui conceme le programme de livraison de logements, de 100% pource qui conceme les etudes relatives A la restructurafion de la CNEP et de 1)00% pour l'achat devehicules. de mat6riel infornatique et de logiciel.

RAPPORT D'CHEVEMENT

ALGERIE

«projet d'aide A la fintion de logements et audeveloppement du secteur de l'habitat»

( prt N° 3561 AL)

PARTIE II. TABLEAUX STATISTIQUES

Tableau 1. Calendrier du projet

Etape du cycle de projet D Date prevue [Date reelleIdentification i sans objetPr&6valuation I sans objetEvaluation sans objet iNkgociation jsans objet du 21 au 30/0111993Signature B sans objet 17 mars 1993Entree en vigueur sans objet 09 septembre 1993Amendement 1 sans objet 04/1111994 (modification des modalitis

d'acces au credit pour la categorie A etleurs unification avec celles prevues pour

.________ la cat6gorie B du programme)Amendement 2 sans objet 103/11/1995 (Actualisation de Ilaccord de

pret pour ce qui concerne les echeancesI et les termes de conditionnalites,decai,ssement retroactif du reliquat du

| pret sur presentation de documents dedouanes)

Amendement 3 sans objet | extension date de cloture 31 decembre,___ __ __ __ _ _ 1997

Amendement 4 sans objet [extension date de cl6ture 30 juin 1998Achevement projet sans objet 130 juin 1998

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