Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 11545-AL

STAFF APPRAISAL REPORT

DEMOCRATIC AND POPULAR REPUBLIC ALGERIA

HOUSING COMPLETION AND SECTOR DEVELOPMENT PROJECT

FEBRUARY 11, 1993

Infrastructure Operations DivisionCountry Department IMiddle East and North Africa Regional Office

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

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENiCY EQUIVALENTS

(As of January 1993)

Currency Unit = Algerian Dinar (DA)US$1.00 = DA 21.60

DA 1.00 US 0.046

FISCAL YEAR

January 1 - December 31

ABBRZVIATIONS AND ACRONYMS

APC = Popular Municipal AssembliesBAD = Algerian Development BankCNEP = Caisse Nationale d'Epargne et de Pr6voyanceCNL = National Housing Fund (CaiSse Nationale du Logement)CNP = National Planning CouncilCPI = Consumer Price IndexDABIS Data base and Management Information System

DUC Direction de lUrbanisme et de la ConstructionEEC = European Economic CommunityEFSAL = Enterprise and Financial Sector Adjustment LoanEPIC = Etablissements Publics a caractare Industriel et Commercial

EPLF = Enterprises de Promotion et de Logement Familial

ERSL = Economic Reform Support LoanFPC = Fonds de Participation Construction

GOA = Government of AlgeriaICB = International Competitive Bidding

LPEs = Local Public EnterprisesMOH = Ministry of Housing

OPGIs = Office de Promotion et de Gestion ImmobilierePEs = Public EnterprisesPCC = Project Coordination CommitteeSHPS = Social Housing Program for Sale

SHPR = Social Housing Program for Rent

SOEs = Statement of ExpendituresTA, = Technical AssistanceVAT = Value-added tax

FOR OmCL USE ONLY

HOUSING COMPLaTION AND SECTOR DUVULOPIKNT PROJ=cT

STAFF APPRAISAL REPORT

TABLE OF CONTENTS

I. BACKGROUND . . . <. . .0. . . . . . . . . . . . . . . . . . . . . . 1A. SOCIO-ECONMC .C.O.N.T.E.X.T. . . . . . . . . . .. 1B. MAIN PROBLMdS AFFECTING THE HOUSING IRUCT . . . . . . . . . . . 2C. GOVERNMENT ACTIONS AND POLICY . . . . . . . . . . . . . . . . . 12

II. TM PROJECT .............. . . . . . . . . . . . . . .. 15A. PROJECT OBJECTIVES *....... .... .. ........ 15B. S8KRY PROJECT DESCRIPTION . . . . . . . . . . . . . . . . . . 15

C. RATIONALE FOR BANK INVOLVEMENT .*............ ... 16D. DETAILED PROJECT DESCRIPTION *..... .. ....... 16S. PROJECT COST, AMD FINIUCING .... . . ...... . . . . . . 22F. PROCUREMEN .T ...... ... .. .. ........ .. 24G. DISBUtSEMENTS ....... .. . .. 25

III. PROJECT 0MLEUTATON AND MONITn . .. . . . . . . . . . . . . 26A. PROJECT IMPLMNTATION UNIT ................. . 26B. PROJE3CT MONITORING ..... . . . . . . . . . . . . . . .. . . 27C. EMRONTMAL ASPECTS .... . . . . . . . . . . . . . . . . . 29D. PROJECT BENEFITS AND RISKS .... . . . . . . . . . . . . . . . 31

IV. A S NWS D RCCOMNDATION .................. . 32

ANN8EAnnex 1: Housing Policy LetterAnnex 2: Eligible List of importsAnnex 3: The Construction Industry: Profile and Financial RestructuringAnnex 4: Assessment of Inputs for Housing ConstructionAnnex 5: Dettiled Cost EstimatesAnnex 6: De iled Procurement ScheduleAnnex 7; . for the Technical Assistance Envirc-mental Component

TABLESTable 1.1: Housing Public Programs in ProgressTable 1.2: Main Public Entities in Housing DevelopmentTable 1.3: Discounting of Interest Rates for the Construction or Acquisition

of HousingTable 1.4: Government Housing Assistance SchemeTable 2.1: Planning of Current SHPSTable 2.2: Matrix of Housing ReformsTable 2.3: Project Cost SummaryTable 2.4: Price ContingenciesTable 2.5: Summary of Proposed Procurement Arran;3ment

This report is based on the findiings of an aWraisat mission which visited Algeria in December 1992. Themission comprised Nessrs. FrangoIs Amiot (task manager), Vincent Laeour (Senior Housing Specialist), Jean-Louis Ginnsz (Senior Procurement Specialist), Pierre Aur6jac (Consultant, Housing Finance Specialist), andPhilippe Oliviero (Consultant, Housing Construction Specialist). Bertrand Renad (Principal Housing FinanceSpecialist), Jim Parks (Econromist), and Jear-Franeois Grillon (Consultant) assisted in the preparation ofthe project, which was prepared under the supervision of Amir Al-Khafaji, Division Chief, NIINN, andHarinder Kohl, Director, N111DR.

This document has a restricted distribution and may be used by recipients only in the performanceof their offilcial duties. Its contents may not otherwise be disclosed without World Bank authorizadon.

ALGRXA

HOUSING COMPLUTION ARID SECTOR DUVEI.OPUENT PROJVCT

STAFF APPRAISAL REPORTr

Borrower: Democratic and Popular Republic of Algeria

Dbneficiaries: For construction materials: the Social Housing Program forSale, through Bntreprises de Promotion et de LogementFamilial (BPLFs), and Offices de Promotion et de GestionIzmobiliAre (OPGIs); and the private construction sector.

For technical assistance: Ministry of Housing, CaisseNationale d'Bpargne et de Pr4voyance (CNEP), and CaisseNationale du Logement (CNL).

Amount: US$200 million equivalent

Talms: Seventeen years, including five years of grace, at the Bankstandard variable interest rate.

Description: The project includes the completion of a social housingprogram for sale, an import program of critical buildingmaterials for the private sector, and a technical assistanceprogram, as follows:

(a) Social Housing Program for Sale (SBPS). This componentaims at accelerating the completion of about 51,000social units for sale, mostly under EPLFs' management,through: supply of strategic construction materials(cement, wood and steel rods), finishing products, andsmall equipment and spare-parts, for the 1993-95 importneeds of SHPS;

(b) Private Housing Program. Targeted primarily to self-helpbuilders, this component aims at assisting the privatesector in completing its unfinished housing stock. Itwould supply the private sector with strategicconstruction materials; and

(c) TechnaLel assistance program. This component would aimat assisting the Government in implementing key housingpolicy objectives in the following three critical areas:improving the housing supply incentives; reforminghousing finance, through the entry of CNEP in thebanking sector; reforming and targeting housingsubsidies. In addition, the technical assistanceprogram would provide specific support to the Ministryof Housing to mitigate the negative environmental impactof the housing construction sector.

- fj -

Benefits: First, the project would result in immediate benefits to: (a)the economy as a whole, by reducing the annual economiclosses due to construction delays, currently about 2W of GDP;(b) low and m.edium-income households (44% of the potentialbeneficiaries have a monthly income level below US$225) whowould benefit from the anticipated availability of thetargeted 51,000 social housing for sale; and (c) self-helpprivate developers, who would be in a better position tocompete with the public sector for the acquisition of buildingmaterials. Second, the TA program would provide longer termbenefits to: (a) the housing sector as a whole, through theacceleration of key sector reforms, both on the supply sideand on the demand side; (b) the State budget, w-ich currentlyfinances, through CNEP, 100 percent of she social program forrent, and is heavily committed to subsidizing the housingsector, through restructuring of the current subsidy schemes;(c) private developers, who would benefit from incentives tobuild for the rental market; and (d) low-income households,who would be targeted under a new housing assistance program,directly linked to their income level.

Risks: In the short-term, the primary project risk lies in Algeria'spolitical and economic uncertainties, which could lead to anacceleration of social tensions, and therefore negativelyimpact the implementation of sectoral reforms, as well astheir management. Mitigation of this risk for the projectwould come from: (a) a strong Government commitment to reformthe housing sector, evidenced by the content of its policyletter; and (b) a careful implementation review of the agreedplans of action, with dated covenants. Another short-termrisk, exacerbated by the visibility of the project and itssocial impact, could come from the non-accomplishment of thetargeted Social Housing Program for Sale. A mid-term reviewwould assess this risk, and, if needed, would define specificmeasures to ensure timely project completion. In the longerterm, as far as project sustainability is concerned, the mainrisk would be the persistence of a weak supply response tohousing reforms, leading to a prolonging of the role of theSrate as a direct provider of social housing. Mitigation ofsuch a risk would come from the Government's commitment toproduce strictly social safety net units, where family incomedetermines eligibility.

DEMOCRATIC MD POPULAR REPUBLIC OF AJLGRIA

HOUSING COMPLETTON AND SECTOR DEVELOPMENT PROJECT

Estimated Costs and Financing Plan

Rounded Figures

______.__ US$ million

Local Foreign Total

ESTIMATED COSTS

A. Subtotal Social Housing Programfor Sale 233.0 127.8 360.8

of which:

1. Subtotal Strategic Products 26.4 35.0 61.4. White Wood 2.1 3.1 5.2. Red Wood 3.2 4.9 8.1. Plywood 0.2 0.4 0.6. Steel rods 4.9 20.7 25.6. Cement 15.9 5.9 21.8

2. Subtotal Finishing Products 200.6 82.9 283.5. On-Site Infrastructure 7.8 12.1 19.9. Doors 4.4 6.6 11.1. Finishing Products 188.4 64.2 252.6

3. Spare Parts 6.0 9.9 15.9

B. Subtotal Private Housing Program 25.9 56.6 82.5

of which:. Strategic Products 25.9 56.6 82.5

C. Subtotal Technical Assistance 0.1 4.9 5.0of which:

Consultants/Studies/Advisors 0.1 4.4 4.4E Equipment, Software materials 0.1 0.2 0.3

. Uncommitted - 0.3 0.3

TOTAL BASELINE COSTS 259.0 189.3 448.3Physical Contingencies 25.3 17.4 42.7

. Price Contingencies 86.3 7.8 94.1

FINANCING PLAN

Government/Beneficiaries 370.6 14.6 385.2IBRD - 200.0 200.0

3V. W. . -.. ::

X. B RM

A. SQCIO-SCONCMZC COlqTSZT

1.1 In 1987, the Government of Algeria embarked on a far-reaching reformand adjustment program, aimed at increasing economic efficiency and restoringgrowth. At its core, the adjustment and reform program has encompassed: (a) thecorrection of macroeconomic imbalances to ensure stability; (b) reform of thetrade and foreign exchange regime to encourage competition from the external andprivate sectors; (c) incentive reforms to correct price distortions and eliminateprice subsidies; and (d) financial sector reform, including the establishment ofa modern legal framework for financial intermediation; and (e) structuraltransformation of the productive sector, with particular emphasis on therestructuring of public enterprises and the development of the private sector.

t

1.2 Although it remains incomplete, economic reform has affected nearlyall aspects of the economy. The private sector is no longer subject todiscriminatory restrictions on foreign exchange and domestic credit. Legalimport monopolies have been abolished and formal import licenses eliminated.however, the allocation of official foreign exchange and external credit hasremained largely under administrative control. The foreign investment regime hasalso been liberalized, including the authorizatIon of production-aharingarrangements in the hydrocarbon sector with SONATRACH, the State-owned oilcompany. A major tax and tariff reform has resulted in the introduction of a VATand new personal and corporate income taxes, as well as a reduction in the numberof import tariffs and a 50 percent cut in the maximum rate. Recent laborlegislation has decentralized collective bargaining, dropping the centrallydetermined wage scale in favor of a single minimum wage requirement. Consumerprice subsidies have been eliminated for all but three food items (flour forbread, milk and semolina) and energy prices have been increased to better reflecteconomic costs. On the whole, deregulated prices, which accounted for about 10percent of the CPI in 1988, account for about 80 percent of the same baskettoday. The complex interest rate grid has been replaced with a unified 20percent rate ceiling. Responsibility for monetary policy and oversight of thebanking system has been formally devolved to the Central Bank, and new prudentialregulations and accounting standards have been introduced. Public enterpriseshave been granted autonomy and State farms have been broken up into privatecooperatives holding long-term usufruct rights.

1.3 Despite these reform and adjustment efforts, Algeria's economyremains hobbled by severe resource constraints. The fall in oil prices in 1986led to a rapid build up of external debt (currently about US$27 billion or 60*of GDP), with a particularly short average maturity. The economy has been unableto adjust to a debt service burden which consumed an estimated 75* of foreignexchange earnings in 1992. Between 1986 and 1992, GDP grew a scant total of 3*.Six years of economic stagnation and 2.7* annual population growth have createdan acute social crisis. Official open unemployment, already over 16 in 1986,now exceeds 20*. The 20-25 year old age group has been particularly affected,with unemployment exceeding 30*. The social stresses in Algeria are perhaps mostevident in and accentuated by the very large shortage of housing units, nowestimated at more than 2 million. This critical shortage has resulted in anaverage occupancy per housing unit of 8.5 persons, one of the highest in theworld.

1.4 In response to the economic and social crisis, the Governmentannounced a new economic program in September 1992. While the program reaffirmsthe Government's codmitment to economic reform, it also calls on the State to

increase its direct role in tile economy in an attempt to manage the process moreeffectively and cushion the social chock. The program aims to loosenprogressively the external resource constraint, specifically through a three-yearausterity program to restrain import demand and reduce external (especiallyshorter-term) indebtedness, together with major new investments to expandhydrocarbon export capacity. It also includes short-term measures to address themost pressing social problems, mainly through public spending on housing,infrastructure, special employment programs, and social safety net arrangements.

1.5 As part of the above short-term measures, the authorities arepursuing efforts to alleviate the housing shortage and promote employment. Thecurrent Government is committed to accelerating the delivery of some 360,000public housing units planned or under construction, and to launch new publichousing programs, targeted to low-income groups and fully open to privatecontractors, until the conditions for market-driven supply response are met. Theauthorities understand that generating a supply response sufficient to eliminatethe enormous housing shortfall requires extensive structural reform, and theyhave initiated a comprehensive reform program for the housing sector (Section C).In addition to stimulating housing construction, the Government is attempting topromote employment through an increase in public infrastructure investment.

1.6 Bank Strat-ov. Within the housing sector, the Bank aims to supportthe needed supply-side and demand-side reforms identified in the Bank "HousingSector Report" of April 1992 (Report No. 10435-AL). Restructuring should focuson the severe financial, technical and institutional bottlenecks found on thesupply-side in a sector that already absorbs an unusually high share of resourcesby international standards. In the very short-term, a key problem to beaddressed is the control over the large unaccounted losses associated withunfinished works. In the medium-term, major increases in productivity and alarger supply of affordable housing for rental and/or ownership can only beachieved through the development of an efficient private sector. A majorrestructuring of the role of the public sector in the four areas of regulation,production, finance and subsidy is thus needed. Both short and longer termobjectives would be supported by several Bank operations, starting with theproposed project.

B. MAIN PROBLMIS AFFECTING THE HOUSING MUBJWT

1.7 Soon after independence in 1962, Algeria experienced massive rural-urban migration whichi rapidly consumed the urban housing stock. Between 1962 and1992 the pace of urbanization continued unabated and the population more thandoubled to reach 25 million, of which 40* are urban. During the first twentyyears, most public investment was concentrated on industrial plant andinfrastructure, with minimal attention to housing. Private housing investmentwas kept to a minimum, since access to land was severely constrained and thehousing market heavily regulated. Since 1980, the Algerian Government has beenattempting to reduce the backlog and respond to the pressing demand. In itsfive- year plan (1980-1984), an annual production, with the assistance of foreigncontractors, of 100,000 public housing units was targeted, whereas the privateformal sector was to produce only about 50,000 units per year. Although thisambitious program was partially achieved by the local production system (only S7*of planned units), the subsequent five-year plan reiterated the same broadobjective, with even less success. In the early nineties, problems in both thesupply and demand sides of the housing market, as well as in the housing stock,

- 3 -

have worsened, forcing the Government to revise its housing policy. As a firststep, the Treasury put on sale the stock of publicly owned rental housing,amounting to some 800,000 units. To date, about 400,000 units have been sold atbargain prices.

The Rousing Supply Side Issue

1.8 Since 1990, the Government has refrained from launching new annualprograms, and its major objective is now to catch-up with the backlog. There areabout 265,000 units in progress by the public sector, and still over 100,000previously planned units to be launched (Table 1.1). The annual output, as wellas the number of new units which are launched each year, however, fluctuateconsiderably, in large part due to imports restriction. At the peak of itsperformance (1986), the public housing sector had been able to produce 88,000units per year. Five years later, in 1991, the public production fell to a verylow level of 24,000 units. Current estimates for 1992 put this level to about35,000 units.

Table 1.1: Housing Public Programs in Progress (9/30/92)

In Not YetPrograms Progress1 Started Total

Housing Program for Rent (HPR) 104,900 27,000 131,900

Housing Program for Sale (HPS) 74,150 11,800 85,950

Rural 26,150 8,100 34,250

CNEP Promotional 22,000 6,300 28,300

Public Enterprises 6,600 2,450 9,050

Wilaya 900 70 970

MuniLipal (A.P.C.) 28,400 19,100 47,500

Other 2,200 700 2,900

C.N.L. - 25,000 25,000

Total 265,300 100,520 365,820

1/ Programs in progress are those already committed, i.e. having financialagreement.

1.9 ComDletion Delays. Dramatic delays in housing completion areoccurring in the public production system, with damaging economic effects to themacro-economy. According to official sources, the ratio of completed dwellingsversus dwellings under completion fell from an average of 0.32 during the 1980-84period, to an average of 0.26 during the 1985-89 period, and further decreasedin 1990 (0.13), and in 1991 (0.08). Significantly, these ratios imply that,while the completion period was three years during the first period, it now takes8 to 10 years for the public sector to deliver a dwelling, in addition to thetime spent preparing and servicing the land. Assuming a completion delay of 9

- 4 -

years, on average, implying a 6 years delay with reference to standard practices,the financial loss of the slowdown for the public developers is in the order ofDA 1.0 billion a year, representing their cumulated financial charges under thecurrent preferential financing conditions (2%, 40 years). The economic cost forthe collectivity is even higher, since the value added in construction (thedifference between the value of the construction unit and the value of materialsand services purchased by the contractor) includes salaries and wages, equipmentdepreciation and rents, interest on working capital and the profit of thecontractor. Preliminary estimates indicate that the arnual loss of value addeddue to conpletion delays is in the range of DA 20.0 billion (or 2& of GDP).Completio- delays are also occurring in the private sector (mostly self-helpbuilders), where the average completion period of a family unit is estimated tobe about 6 years.

1.10 The major constraint to an immediate increase of the currer.. housingproduction, whether public or private, is the deficit of critical buildingmaterials. Until local production increases substantially, the Government has nochoice but to facilitate imports of critical building materials to complementdomestic production. However, while this production is being stimulated by recentprice liberalization (June 1992), as well as by the on-going restructuringprogram of the construction industry, the following basic constraints would alsohave to be removed to generate a quick supply response: weakness of themanagement functions of the public developers in charge of the public housingprogram for rent (SHPR); unaf fordable building and technical standards; weaknessof the production and distribution system of building materials; inhibition ofthe private formal sector and self-help construction sector, particularly withregard to access of serviced land, as well as to the rental market.

Public Developers

1.11 The OPGIs (Office de Promotlon et de Gestion Immobiliere) and theEPLF (Entreprlses de Promotion et de Logement Familial) are key and separateactors among the public entities which dominate the housing sector (see Table1.2). The OPGIs are charged with managing the 400,000 unsold units of the publichousing stock. They also act as developers for the public housing program. Inthis latter role, the OPGIs act as contracting authorities ("Maltres d'Ouvragen)in the name of the State for the construction of about 40* of the public housingprogram, including the entire social housing program for rent (SHPR). About105,000 SHPR units are currently in progress and 27,000 planned units of the1980-90 program are still to be launched.

1.12 From simple administrative agencies of the Wilaya administration, theOPGIs were transformed into autonomous sPICs (nEtablissements Publics A caractareIndustriel et Commercial") in 1991. The newly autonomous OPGIs are now facedwith operating on a commercial basis, balancing their budgets and servicing theirconsiderable long-term debt (DA 80 billion) to the Treasury, via CNEP ("CaisseNationale d'Epargne et de Pr6voyance), Algeria's primary housing financeinstitution (para 1.33). Given that current rent levels (DA 270/month onaverage) are insufficient to cover maintenance and financial costs (DA1030/month) and that the rent collection rate barely exceeds 50%, the OPGIs aresuffering a severe cash-flow shortage. This, together with the sale of half therental housing stock at bargain prices, has left the OPGIs in a precariousfinancial situation. However, as part of the autonomy process, the Governmentis preparing a financial restructuring program for the OPGIs aimed at restoringtheir financial health. This is to be complemented by an increase in rents to

-5 -

equilibrium levels and the drawing up of contracts between the OPGIs and theState. These contracts will specify what public services the OPaIs will furnishin the name of the State, as well as the level of subsidies, if any, the Statewill provide to the OPGIs.

Table 1.2: Main PubliC Entities in Housing Development

Project netDeopersRentat Units

[~~~CESatin of Pubtic|exTecute the public housing program, the s are geneally eratingundeounousing Stocd

Devetopers/APC Housing

(unicipaties)w Development ent=~~~~~~~~o . XPurchs

i Constructionos tinPoetManagemet

1.13 While most OPGes currently lack the management skills to efficientlyeicute the public housing program, the PLFs are generally operating under soundtoediversi practices, and should play a major role in the acceleration of theSocial Housing Program for Sale (SHPS). The BPLFs are regional public sectoradousing development entities, established by Wilaya councils, and responsible fordeveloping most of the social housing program for sale. Only 23 8PLFs have beenestablished to date, with development activity leading to the initiation ofconstruction of about 60,000 residential units, plus commercial opace. Most ofthe EPLFs are autonomous enterprises which must operate on a commercially viablebasis. Thiey generally act as contracting authorities for CNeP, but stand readyto diversify their real estate activity, as soon as the new legislation, recentlyadopted by the Government, an real estate development will be enacted. unlikethe OPGIs, the EPLFs achieve financial viability since they are not burdened bythe need to carry rental units at a loss.

1.14 Currently, the purchasers of HPLF units have access to subsidized 25-year CNEP mortgage financing, provided they are saving account holders (fixedinterest rates vary from St to 9* per annum, depending on the loan amount). Non-account holders have access to standard CNEP mortgage financing (15 years at 14%per annum). Based on a sampling of about 25,000 eligible households, distributed

among 15 wilayas, official sources indicate that the income distribution ofcurrent potential buyers is the following:

Monthly Income (DA) Per Cent of Households

< 5,000 44.0*

5,000 - 10,000 43.8%

> 10,000 12.2%

However, due to the strong demand for new housing, and even though a premium isallocated to households belonging to the "social" category (under 7,000 DA),fierce competition is taking place among potential EPLFs' purchasers, forcingCNEP's small savers to regroup family saving accounts, as a strategy for beingon the top of the waiting list.

Housing Standards

1.15 High construction standards, along with the tendency to over-buildcompound building material shortages, and raise the cost of housing, adverselyaffecting affordability. Apartment blocks are the more common housing typesprovided by the OPOIs and the SPLFs. Most of them are designed from typical unitplans, that are adapted again and again to different sites, leading to waste ofmaterials. In addition, anti-seismic standards remain very strict and requirelarge quantities of cement and steel. The above practices and constraints,exacerbated by an increasing shortage of skilled construction workers andexperienced site supervision staff, lead to high construction cost, averaging 8times the upper category of the low-income group. Faced with this crucialaffordability issue, aggravated by the inflationary environment, the Ministry ofHousing (MOH) recently (June, 1992) issued a directive which calls for moreaffordable standards. It is also the intention of the Ministry to launch, assoon as possible, low-cost development projects based on the sites and servicesconcept.

The Production and Distribution System of Building Materials

1.16 Due to the inefficient production system, as well as previous pricedistortions, and high consumption per physical unit, the Algerian production ofconstruction materials is well below demand, andr the construction market reliescritically on imports, either for strategic products such as cement (30*imported), wood (100l imported) and steel (60* imported), or for finishingproducts. In 1990, Algeria imported about US$700 million of strategic products,of which US$313 million for wood, and US$300 million for steel. Due to lack ofaccess to foreign exchange, however, imports of construction materials arefluctuating considerably from year to year, causing considerable repercussionson construction delays.

1.17 Most construction enterprises, either producers of materials orbuilding contractors, are public enterprises (P1s) and plagued with laborredundancy, lax management and poorly maintained equipment. Because they arevertically integrated, they carry out unprofitable activities on top of theirmain trade. They are also affected by external constraints such as the lack ofa proper social safety net, payment delays from public clients, and shortage ofmaterials and spare parts. As a result, they have a very low capacityutilization, currently well below 50 per cent. In-depth industrial restructuring

- 7 -

is needed for the construction enterprises, for which the ongoing financialrestructuring (see Annex 3, which also provides a profile of the constructionsector) is providing a breathing space to start.

1.18 The construction material distribution system has been liberalizedrecently, but with limited practical impact. Until 1990, the constructionmaterial distribution system was managed by public monopolies for most local andimported products. Since then, the producers and importers have been able tofreely build their distribution networks and distribution mark-up is free for allproducts. However, while the distribution network for strategic products (theGovernment has classified cement, wood and steel as strategic constructionmaterials) is reasonably competitive, this is currently not the case for the non-strategic products network, still dominated by former distribution monopoliesEDIMCOs2. As for the strategic products, an emerging competitive market fortheir importation is materializing through 36 certified importers; 12 of themformer state-monopolies, including 4 Algerian cement factories, and the remaining24 emerging from the private sector.

Private Housing Supply

1.19 A large imbalance in terms of outputs characterizes the actualhousing supply of the emerging private formal sector and the "self-helpconstruction" market. While the private formal sector, still inhibited by a 30-year moratorium on private real estate development, is producing less than 5,000units per year, the "self-help construction" market has been stimulated by theGovernment since 1980, and now accounts for approximately two-thirds of totalhousing production. Most of the emerging private and formal real estatedevelopers are architects, contractors or businessmen. Although formalrecognition of their role and place in the housing development process has beenrecently granted by the Government, they still lack the specific skills andprofessional networks required to be competitive, and are at present largelycrowded out by public developers.

1.20 The "self-help construction" market (small scale construction,assisted by sub-contractors) provides the bulk of the private production.According to the number of building permits ofticially granted each year (Annex4), and assuming that completion delays are averaging 6 years, there should besome 450,000 private units under construction. Self-help builders are performingtheir task under two major constraints: a shortage of building materials, andlack of access to serviced land. Despite the recent market supplyliberalization, most of the quantity of buildings materials to be supplied to theself-builder is still determined in accordance with the quantitative surveyattached to the building permit. Usually, however, the quantity required is notmade available, and recourse to the black market or to some material swapnu:rangement is the only way to escape from the building materials shortage. Suchpractices induce considerable cost or delays, and there is a large number ofunfinished owner-built houses all over Algeria. They decrease the already lowproductivity of this market, paradoxically wasteful of materials when largetraditional houses (300 m2) are being built.

2/ EDIMCOs are wilaya public enterprises which used to have the monopoly fordistribution of construction materials on the territory of their wilaya.

-8-

.c'ess to Serviced Land

1.21 Access to serviced land constitutes the other major constraint forindividual builders. Public developers only proceed on projects where the localgovernment has arranged financing -through central government grants- for theinfrastructure. However, the responsibility for the financing and provision ofinfrastructure has always been a source of conflict between central and localauthorities and individuals. Until 1979, on-site infrastructure provision wasmandatory before the sale of land by local governments to individuals, the costof infrastructure being included in the sale price. Beginning in 1979, the saleof land was authorized without the provision of infrastructure. From 1982 to1984, it was decided that in order to stimulate individual construction, theState would take full responsibility for infrastructure costs. In 1984, thispolicy was eliminated and local governments became responsible for the financingof tertiary infrastructure. Changes in regulation and the need to satisfy thedemand have, however, pushed local governments to focus their efforts on the saleof unserviced plots. Overall, more than 500,000 plots hava been made availablesince 1984, and 320,000 allocated with only 60,000 being fully serviced. Thetask ahead of servicing the plots sold without infrastructure goes much beyondthe capacity of local governments. Faced with these difficulties, the Governmentintroduced ir 1991 the principle of cost-sharing for trunk infrastructure, andthe obligation for the developer to ensure maintenance of common facilities.

The Housing Rental Market Issue

1.22 The housing stock is characterized by a low proportion of rentalunits (22k of the stock), out of which only 4* belong to the private sector. Itis also characterized by a high level of vacant units, which reflects the lowreturn on assets that the private sector would reap from renting these units.According to the 1987 census some 550,000 dwellings (or 15* of the stock) werecounted vacant, mostly rural dwellings. Three most reported factors may explainsuch vacancies in urban areas: Algerian families tend to build large dwellingsahead of time intended for their descendants or ascendants (patrimony factor);the owners may be worker-immigrants retaining a unit in reserve (mobilityfactor); and some owners have managed to be allocated several units, and arewaiting for market conditions to profit from appreciation (speculation factor).However, the main reason which cuts across all these factors is to be found inthe former rental legislation: strong tenancy rights extended to protectionagainst eviction, either for non-payment or illegitimate occupancy, and thusprevents dwellings once rented to be repossessed by the owners. This heavilyregulated rental market was, therefore, a strong deterrent to private sectorinvolvement, and chiefly explains the detrimental absence of a private sectorrental market in Algeria.

The Housing Demand Side Isue

1.23 Although less constrained than the supply side, the demand side iscurrently facing three major issues: (a) an inefficient mortgage finance systemmonopolized by one State-owned financial institution; (b) a regressive subsidysystem that is unsustainable and inequitable; and (c) a deficient system ofproperty rights registration and protection.

The Prominent Role of CNRP in Rousing Finance

1.24 Posing problems for the banking system ruled by the new Money andCredit law, as well as for the evolution of the housing finance system, the CNEPhas been the only entity, since 1971, offering home saving accounts with Treasuryguaranties and privileged access to mortgage loans. The CNEP is omnipresent inAlgeria; more than 90% of Algerian households have an account at the CNBP. Theseaccounts are managed by 143 regional branches employing nearly 3,000 staff,supplemented by a national network of 2,597 post offices, which accept depositsinto CNEP home saving accounts. Driven by these forces, the CNEP has been ableto attract more than DA 98.0 billion of household deposits by means of some 4million saving accounts, and enjoys a sound cash flow, with a gross earningsmargin of DA 1.3 billion in 1991. Out of these DA 98.0 billion, CNEP has lentonly DA 18.0 billion of mortgage loans, with most of the remaining excessliquidity balance having been invested in Treasury bonds at 7% per annum. Inaddition, the CNEP is the main provider of housing supplier credits for theOPGIs, either directly or on behalf of the Treasury', as well as for the BPLFs.Despite its financial performance, however, CNEP has a poor lending performance,as illustrated below.

1.25 Morteace Loans. The protected home-purchase savings scheme is basedon demand deposit savings accounts receiving St untaxed interest whoseaccumulation over a minimum period of two years may allow access to a mortgageat an interest rate of 14% discounted, which is highly negative in real termsgiven the current inflation rate of 30% (Table 1.3). Further conditions foraccess to mortgage loans include: a minimum capital outlay of 20%, amortizationover 25 years, and a maximum borrower age limit of 65.

Table 1.3: Discounting of Interest Rates for theConstruction or Acquisition of Housing

CNEP savings a/c holders Loan Amount Applicable ratesbased on astandard rate of14.0%

less than 400,000 5.5&

between 400,000 7.5%and 600,000

more than 600,000 9.5%

Non-savers less than 400,000 14.0%

31 Initially (1970-78) on a sharing basis principle, CNBP was sharing up to50% of the financing, then (and until 1989) 100% funded by the Treasury, withCNRP on-lending to the OPGIs at 1& per annum for 40 years with a 4-year graceperiod. Total Treasury funding during this last period amounted to DA 80.0billion.

- 10 -

1.26 Under the above scheme, the CNEP has granted only some 80,000 loansover the last decade, including 13,000 loans to refinance part of the socialhousing units sold by the OPGI. This relatively small number of loans granted(2% of household accounts) does not appear to discourage savers, since savingssurpluses continue to accumulate, albeit, at a pace below inflation rates since1989 (16* per annum, versus an accelerating inflation of 17% in 1990, 23* in1991, and 30* in 1992). Such results are worrying: first, as a housing financefund, CNBP is subsidizing the more well-off households from the savings of thelower income groups, who constitute the bulk of the savers (45% of the savingdeposits are coming from individual accounts of less than DA 500.0); second,given their limited purchasing power, the latter would never be in a position toborrow from CNEP, should they not use the strategy of grouping family accounts(para. 1.23); third, even though the main incentive to save at CNEP is linkedofficially, if not legally, to the prospect of a mortgage loan, and despite thecurrent insensitivity of households demand deposits to changes in real interestrates, savings are particularly volatile, and CNBP remains highly vulnerable toa major change of the socio-economic environment. During the last three years,the balance between deposits and withdrawals shrank from a high DA 11.8 billionin 1989 to 4.7 billion in 1991. This decline in net additional deposits isprobably the result of the increase in inflation and the decline in realhousehold incomes. On balance, it appears that CNBP, contrary to its officialpurpose, has served principally as a scheme to mobilize private savings for thefinancing of Government expenditures, through the media of Treasury anddevelopment bonds.

1.27 Credit to Surpliers. During the last decade, the Treasury has takentotal responsibility for financing the OPGIs, advancing funds to the CNBP at aninterest rate of 0.5%, up to an amount of DA 79 billion. These funds were thenon-lent to the OPGIs at 1* over 40 years with a four-year grace period. Bysubscribing Treasury bonds at a borrowing rate of 7* (about 50 billion DA in1989), CHIP has been providing the main source of these funds to the Treasury.This transfer of public/savings funds to the OPGIs came to an end in 1990 whenthe Treasury announced its withdrawal from the financing of housing production.Ongoing projects will continue to be funded until they are completed, but theCNHP has no further obligation to subscribe Treasury bonds. It is now the CNBPwhich must finance the OPGIs directly from its reserves and up to a ceiling of10 billion DA. In 1990, only half this amount had been used. Conditions foradvances to OPGI are 2.5* over 30 years with a four-year grace period.

1.28 The EPLFs receive financing (at a rate of 6.0* with no grace period)from the CHIP for their development projects. They more and more tend alsotowards taking out commercial bank loans but, currently, such loans are more anexception than the rule (only 10 to 15% of their portfolio are made of commercialloans). The EPLFs receive no assistance from the Treasury.

1.29 One of the main issues of the housing finance system in Algeria isthat CNHP is not governed by the Money and Credit Law. To satisfy the conditionof second tranche release under the BFSAL, a decision has been taken, inprinciple, to transform CNEP into a banking institution. Technical issues, suchas the privileged links with the Treasury, the financial restructuring of theOPGIs, and the CNIP's saving network - with privileged access to the postaloffices network - have been delaying the financial reorganization of CNIP. Basedon an agreed plan of action which defines a step by step approach for thetransforming of CNEP into a banking institution ruled by the Money and CreditLaw, the proposed project would help implement this critical conversion, while

- 11 -

the agreement on the plan of action would satisfy the requirements of the 8FSALconditionality related to the CNEP (para. 2.11 and 3.8).

Recent Housing Subsidy Policy

1.30 In May 1991, a new housing subsidy scheme, based on household incomelevel, was enacted by the Government. For home buyers, the new PersonalizedHousing Assistance scheme (APL) is administered by a newly created NationalHousing Fund (CNL). Depending on the level of income in relation to the MinimumNational Salary (SNXG), CNL's assistance for housing units up to DA 500,000 valueincludes either a lump sum payment, extended repayment period for mortgage loans,or an interest rate subsidy based on CNEP standard interest rate (Table 1.4).The source of the subsidies should come from an earmarked fund fed by specifictaxes. CNEP would also be involved by refinancing 20 years of the 25 to 40 yearmaturity loans, at variable but still negative real interest rates.

Table 1.4: GovernmAet Housing Assistance Scheme

Household Income |Form of Assistance (by CNL)

Income lower than twice the - Up-front lump sum financialminimum guaranteed wage. assistance

- Extension of the loanamortization period to 40 years

- Reduction of interest rates(2.5*)

Income between 2 and 3 times the - Extension of the loanminimum guaranteed wage amortization period to 40 years

- Reduction of interest rates (3*)

Income between 3 and 4, and - Reduction of interest ratesbetween 4 and 5 times the minimum which are respectively set at 4*guaranteed wage and 5%

1.31 To date, CNL is implementing a five-year program of 25,000 units peryear, targeted to low and medium income households, most of them being CNEPsaving holders. Under this program, the standard loan is averaging DA 400,000,with a maturity period of 25 years, with CNEP financing during 20 years, and aninterest rate of 4.5%. A twenty-year simulation forecast shows that the subsidyscheme would cost DA 17.2 billion, reaching a subsidy level of 70* per unit.Even though this amount could be reduced (down to DA 10.8 billion) by introducinga "double indexation" model system, the financial burden remains unsustainableand the Government is now contemplating a new reform of the housing subsidyscheme, to be defined and implemented under the proposed project. This reformwill include the current implicit rental subsidies of the OPGIs' program4.

4t The current housing subsidy scheme is accompanied by a lifting of the capon rents to enable these rents to cover at least OPGI operating expenses. Aceiling of 15* of a household's income devoted to rent is still applicable tohousing units measuring up to 70m2. Because of the on-going financialrestructuring of the OPGIs, this scheme has not yet been implemented.

- 12 -

Property Rights Development

1.32 Two decades of nationalization, the administrative allocation of landoften not recorded, and the sprawl of informal settlements have contributed toa situation of unclear property rights. Regularization efforts were launched bythe government without much success in 1985. The 1990 Lands Act ("LoLd'Orlentatlon Foncieren) again attempts to address this issue by proposing thedelivery of occupancy rights - or certificates - if proof of occupancy can begiven. However, issues of transferability and mortgageability of these rightshave to be addressed. Also, the inadequate procedures for property transfer andcompensation under the old system have generated a large backlog of unresolveddisputes and the existing judicial institutions need to be strengthened in orderto process these claims. Aware of the need to strengthen the legal base forissuing certificates for property registration, the Algerian Government isembarking on a major operation to update and extend the coverage of the nationalcadastre, with World Bank assistance.

C. GOVERNXNT ACTIONS ANID POLICY

1.33 Although the new Government has temporarily reversed, until theconditions for market-driven supply response are met, the decision of previousgovernments to withdraw from directly financing social housing for rent, thisreversal of policy does not call into question the need for structural reform ofthe housing market and construction industry sector. Major changes are beingbrought about in the legal and regulatory framework to generate a supply responseas soon as possible, and to nurture a more enabling environment to alleviatedemand constraints, with particular focus on low income households.

Supply Side Reforms

1.34 Along with the restructuring of construction PUs and OPGIs, thereform process includes the following major actions:

(a) Incouraging private sector development: (i) while privatedevelopers' activity is currently restricted to one operation ofunits for sale at a time, and requires the developer to commit aminimum of 40* of project cost in capital outlay, a new legislationis to be issued recognizing housing development as a commercialactivity, and will remove major obstacles to private developers'participation, including access to serviced land; (ii) althoughpublic contractors still enjoy comparative advantages, given theirheavy involvement in the current public housing program, new publicprocurement rules allow private contractors to compete with publicenterprises; (iii) State monopoly on materials inputs has beenbroken; and (iv) local production of building materials throughprivate investment is encouraged (Annex 4).

(b) Improving the productivity of the housing stock: (i) to address theimportant issue of vacant units, new legislation will be soon issueddefining the contractual relationships between developers/owners andrenters, with a view to reducing the need for litigation; (ii) theregulatory framework for co-ownership has also been revised, andwill allow a more active retrenchment of the OPGls in themaintenance of partially sold buildings, as well as a potential halt

- 13 -

of the rapid deterioration of the housing stock; and (iii) the saleof the public housing stock at high discounted prices is coming toan end, and the OPGIs are now willing to either sell the remainingstock at market prices, or rehabilitate the more deteriorated stock.

(c) Liberalizing the land market: the new land legislation (Lold'Orientation Fonci6re) enacted in November 1990, has abolished themonopoly of local govcenment authorities over land transactions.This legislation allows urban land owners to trade their landfreely, with local authorities maintaining a right of expropriationto be exercised in exceptional cases where land expropriation isrequired to implement projects of public interest. Also, landmanagement responsibilities related to vacant urban landnationalized in 1974 are shifted from local government to local landagencies (Agences Foncieres Locales). These agencies are alsoauthorized to buy and sell real estate on behalf of localgovernments, classify titles to land holdings and undertake landdevelopment for low-cost housing. Local governments are maderesponsible for creating and maintaining an inventory of private andpublic land and for issuing occupancy rights. Plans to update thecadastral system are underway with World Bank assistance.

(d) Rationalization of urban land-use planning and management: as statedin the 1990 land legislation, full responsibility for land-usemanagement was given to local governments. A separate Town PlanningAct passed in 1990 introduced new urban planning instruments toreplace the old, rigid and costly instruments of zoning and land usecontrols in urban areas. New standards for urban land use andbuildings were introduced in 1991, together with simplifiedprocedures for development permits. The latest legislation alsointroduced a cost sharing formula for the provision of trunkinfrastructure.

The Demand Side Reforms

1.35 To date, reforms have concentrated on: (a) the restructuring of thehousing subsidy scheme, through the setting-up of CNL and a new HousingAssistance scheme, which allows an institutional separation of the subsidyfunctions from the credit function of the CNBP, hence a more transparent subsidysystem, already better targeted towards low income households; and (b) a verylimited increase of the standard CNIP lending rate, which applies only in fullto households with income over 5 times the minimum wage. The Government is,however, willing to further address the subsidy scheme issue, given its presentunsustainability, as well as further reform the CUIP, and provide moreincentives to the banking sector to participate in the housing finance system.

Implementation of Reforms

1.36 Although the above reforms are moving in the right direction,significant actions and time are required to translate the reforms from texts toground work. In the short term, dramatic acceleration of housing production isneeded to quickly meet basic social needs and support the credibility of thereforms, as well as to reduce the devastating economic effects generated bydelays in housing completion. The deficit of building materials is, however, themost pressing constraint to rapidly increasing the current production level,

- 14 -

either by the public or the private sector. Until local production increasessubstantially, the Government has no choice but to facilitate imports of thesecritical materials.

1.37 The functioning of the housing market also needs to be strongly andgradually improved in the medium-term. As highlighted in a Sector DevelopmentLetter attached to this report (Annex 1), the Government is firmly committed tothis basic objective, and intends to further reduce constraints to supply anddeepen reforms on the demand side, through the following key policy actions:

On the supplv-side:

(a) liberalizing the regulatory framework for the rental housingmarket, through implementation of new legislation on realestate development, and landlord/tenant relationship, with aview to, inter alia, ensuring a more efficient use of thevacant housing stock in the private sector, and promotingprivate real estate development;

(b) accelerating the sale of existing public rental housing stock,currently managed by public developers (OPGIs), through, interalia, implementation of new legislation regulating co-ownership;

(c) liberalizing the land market by redefining the role of publicand private operators and institutions, organizing acompetitive land market, and defining appropriate fiscalincentives;

(d) developing housing operations more affordable to the bulk ofthe population, through the launching of sites and servicestype of operations, and revision of technical standards; and

(e) rationalization of the building industry by opening upcompetition between firms.

On the demand-side:

(a) development of property rights by accelerating theregularization of land tenure, under the 1990 National LandLaw (Loi d'Orientatlon Foncibre);

(b) ending the virtual State monopoly in housing finance, byimplementing a plan of action which calls for the completerestructuring of CNEP's portfolio, and its conversion into acommercial and housing bank under the Money and Credit Law,the gradual increase of both deposit and lending rates tomarket rates, and the launching of new lending instrumentsadapted to the inflationary environment;

(c) redesigning housing subsidy policy to ensure transparency,fiscal affordability, and social safety net targeting, througha plan of actions focusing on: a gradual decrease, during themid-term period and starting in 1994, of the average level ofhousing subsidies reached during the past three years, tofiscally sustainable levels; a more income-related subsidy

- 15 -

scheme targeting the poor; and a gradual substitution ofimplicit import subsidies, starting in 1994 for all newprojects, by explicit budgetary subsidies.

1.38 The above two pronged strategies, where short-run versus medium tolong-run actions can be clearly discerned, underline the justification for andthe structure of the project proposed for Bank support.

II. THE PROJECT

A. PROJECT OBJECTIVES

2.1 The main objective of the Housing Completion and Sector DevelopmentProject would be to trigger a quick housing supply response, and to .support andenhance the medium-term objective and priorities of the market-oriented reformsof the housing sector, through:

(a) accelerating the completion of both the public housing program underconstruction and the private unfinished stock, as well asencouraging the private sector to use the existing housing stockmore efficiently;

(b) assisting GOA in creating adequate policy and institutional sectorframework during the transitional period, by providing technicalassistance on sector policy formulation and implementation.

B. SUMMARY PROJECT DESCRIPTION

2.2 The proposed Bank loan (US$200 million) would be made to theGovernment, and would finance the completion of a social housing program for sale(US$130 million), an import program of critical building materials for theprivate sector (US$65 million), and a technical assistance program (US$5.0million), as follows:

(a) Social Housing Program for Sale (SHPS). This component (US$130million from the Bank loan) would aim at accelerating the completionof about 51,000 social units for sale, under KPUFs' management,through: supply of strategic construction materials (cement, woodand steel rods), finishing products, and small equipment and spare-parts, for the 1993-95 import needs of the SHPS;

(b) Private Rousing Program. Targeted primarily to self-help builders,this component (US$65 million from the Bank loan) would assist theprivate sector in completing its unfinished housing stock. It wouldsupply the private sector with strategic construction materials(cement, wood and steel rods); and

(c) Technical assistance program (TA). This component (US$5 million)would aim at assisting the Government in implementing key housingpolicy objectives in the following three critical areas: improvinghousing supply incentives; reforming housing finance, through theentry of CNEP in the banking sector; reforming and targeting housingsubsidies. In addition, the TA program would provide specific

- 16 -

support to the Ministry of Housing to mitigate the negativeenvironmental impact of the housing construction sector.

C. RATIONALE FOR BANK INVOLVEMBNT

2.3 Housing policy dialogue with Algeria started in 1991, at the sametime the housing market reform program started. This program, as well as theBank recommendations for further actions, were detailed in a Housing SectorReport, dated April 14, 1992. As highlighted in Part I, the housing reformprogram is consistent and proceeding in the right direction. However, due to thesluggish supply response, particularly impeded by a severe deficit of criticalbuilding materials, the resultant housing shortage (Algeria's 8.5 person per unitoccupancy ratio is one of the highest in the world) is hindering the reformprogram, to the point of seriously exacerbating the current social crisis. RapidBank involvement in providing urgently needed foreign exchange for the import ofcritical materials is vital to ease the severe supply crisis, decrease thedamaging economic effects of delays in completing housing projects, and toenhance the credibility of the reform program.

2.4 Bank involvement is also crucial to assist the Government inimplementing the reform program. The project would not only complement theEnterprise and Financial Sector Adjustment Loan (EFSAL, approved in FY91) in thehousing finance sector, but also help initiate key policy actions aimed atdeepening reforms with far-reaching implications in the long-term on the demandside. Further, it would support preparatory work for future Bank assistanceprograms in key priority areas, including the provision of infrastructure andserviced residential land, and the creation of a mortgage market.

D. DETAILED PROJECT DESCRIPTION

Social Housing Program for 8ale (8HPs)

2.5 The SHPS is made of 74,150 units in progress, of which 51,300 areunder construction and would be exclusively targeted by the project. The programunder construction is spread around 23 Wilayas, with an important concentration(46%) in the six larger Algerian cities. Based on an audit of the SHPS program,51,200 units have been selected and, it is estimated that these units will bedelivered over a three year period (Table 2.1).

Table 2.1: Planning of Current SHPS

Provisional Plarmina (Units)

. Annual 6,997 13,000 17,000 21,310 51,310Cumulative , 30,000 51,310 -

- 17 -

The audit consisted in an in-depth in-site analysis of five BPLFs totaling 22,000units, and was complemented by a comprehensive questionnaire survey later. Themajor findings of this audit are:

(a) this program is adequately financed; funds are provided throughfinancing agreements by CNEP to the BPLFs, who manage theconstruction and receive a 2* fee; due to high inflation inconstruction costs, these financing agreements were updated in 1992for 85 of the program and provide now for a sufficient coverage ofthe costs;

(b) the program is well managed by the EPLFs; although some technicalassistance will be helpful to update construction managementtechniques, the projects officers have the adequate technical andmanagerial skills;

(c) EPLFs have contracted construction works to local enterprises onsound contractual arrangements; the oldest contracts were given topublic enterprises, which monopolized 90* of the constructionprogram; however, EPLFs have been looking for improvement inconstruction efficiency through the design of smaller programs thatcan more easily be contracted to private enterprises and throughsubcontracting of finishing works to private enterprises; as aresult, it is estimated that 20% of the value added now comes fromprivate enterprises; and

(d) the major obstacles this program faces relate to input shortages.The input supplies needed to execute the program are presented inAnnez 4.

2.6 Targeted Imoort Products. Funds allocated to the SHPS component(USZ130 million) would finance a positive list of construction materials,presented in Annez 2, with a provisional cost sharing of 59* for finishingproducts (mainly finished doors, plumbing, piping, electrical accessories), 23%for strategic construction materials (cement, wood and steel rods), 10% for on-site infrastructure network materials, and 8% for spare-parts to contractorsinvolved in SHPS. With the exception of wood, steel, and doors, allocated fundswould not, however, cover all of the input-supplies required to execute theentire program. Rather, they are intended to ease the domestic market tensionsbetween demand and supply, and 70% of cement and other finishing products wouldbe supplied by the domestic market.

2.7 ImDorts of Strategic Construction Materials. While importsrestrictions on other building materials no longer exist, importers of strategicmaterials (para. 1.27) are under strict regulation by the Import Concessions Act,managed by the General Directorate of Trade (Direction G6n6rale de 1 'Organisationdu Commerce - DGOC), under the Ministry of Economy. Permanent import licensesare given to importers on a demand basis, through specifications scrutinizingtheir: (a) commercial status; (b) financial solvency; (c) physical stocking andtransport capacity. For the purpose of the project, prequalification ofimporters would also be based on financial and organizational criteria, andselection of final importers would be done on the basis of the lowest commercialmargin bid, for each of the strategic products. All strategic imports would beprocured under simplified International Competitive Bidding (para. 2.18).

- 18-

Private Rousing Program

2.8 Funds allocated to this component (US$65 million) would finance onlystrategic products (cement, wood and steel rods) for the exclusive use of privatebuilders. As for the EPLF program, prequalified professional importers wouldimport these critical materials through simplified international competitivebidding (ICB), and after preshipment inspection has been done at the exit port.Unlike the EPLF program, however, no targeted units are predetermined. Rather,all private builders, and particularly the self-help builders, would be eligibleto purchase these building materials, made available in complement to localproduction or commercial imports, through the existing detailed network.Tracking of imported materials would not only be done by systematic preshipmentinspections, but would also be fully documented by selected importers, down totheir detailed network. An ex-post review, conducted on a sampling basis, wouldalso ensure that loan proceeds are used for the intended purpose of thiscomponent.

2.9 Imolementation Arrangements. In order to eliminate price distortionsin the domestic market, avoid discouraging importers from using scarce availablecomercial credits, as well as addressing the implicit subsidy issue due to thedifference between commercial and concessional loans or credits, funds allocatedto the private housing (market) component would be contracted by importers underterms equivalent to those of commercial credits with exporting countryguarantee 5 . Since the existing practices require certified importers to findexternal financing under an official forward rate averaging a maturity of 12months for strategic building materials, selected importers would have access tothe Bank loan through on-lending arrangements in foreign exchange under the sameterms and conditions, i.e. 360 days maturity with interest rate based on LIBOR,and repayable in two equal installments. Such a procedure will not apply to theSHPS, since the social units for sale are strictly targeted. Under thiscomponent, imports will be financed through a swap of loan proceeds for theequivalent amount of dinars at the official exchange rate, the Government bearingthe full foreign exchange risk. The above implementing arrangements were agreedduring negotiations, and at least 60X (US$40 million) of the loan amountallocated to the private sector component would have to be on-lent to selectedimporters as a condition of effectiveness.

The Tecbnical Assistance Component

2.10 The technical assistance (TA) component would help to implement keyhousing policy objectives, along the lines of the following matrix of housingreforms (Table 2.2), which details the three main objectives to be pursued by theGovernment, ramely:

. Reforming housing finance;

. Targeting subsidies;Improving housing supply incentives.

i/ Given Algeria's high debt service ratio, transactions at the official 22DA/US$ spot rate (compared with a parallel rate of some 40-45 DA/USV) areessentially limited to debt service and down-payments for imports of basicfood and medicines.

- 19 -

In addition, the TA program would provide specific support to mitigate thenegative environmental impacts of the housing program under construction.

Reforming Housing Finance

2.1: Under the Enterprise and Financial Adjustment Loan (EFSAL), as acondition of second tranche release, the Government should have published in itsOfficial Journal a decree providing for the financial reorganization of CNEP, themain housing finance institution. However, the restructuring of the housingfinance system in Algeria, along with the financial restructuring of the OPGIs'portfolio, requires substantial analyses and steps to be taken before decisionsare made. It was therefore agreed that a Government commitment on an actionplan, acceptable to the Bank, for the transforming of CNEP into an autonomousbank, would be a substitute of the former condition attached to the EFSAL secondtranche release. Based on this agreement, the proposed project would provideconsulting services and TA for:

(a) Launching, as soon as possible, a strategic study on housingfinance, according to TORs satisfactory to the Bank. This study(about 30 men-months) would provide the tools for rapid decision-making, and its main outputs would be the following:

- financial audit (10 men-months) to determine the quality of theCNEP's assets and liabilities;

- institutional audit (10 men-months) to determine, inter alia, thesetting-up, role and composition of a new CNEP directorate incharge of managing the transition period, and to detail a threeyear strategic conversion plan, where fundamental issues such asinstitutional leadership, savings network, and staff trainingwould be addressed, with short to medium-term implications onoperational procedures and management activities;

- resources mobilization study (10 men-months), to determine,through reliable data, main sources and methods for mobilizingfinancial resources adapted to the Algerian market, withparticular focus on the potential and risks of contractualsavings schemes;

- setting-up of adjustable rate loans, with particular focus ondual-rate index mortgage loans (DRAM), adapted to the Algerianeconomic and financial environment. During negotiations, TORs onfinancial and institutional audits have been reviewed and agreedupon by the Bank, so as to launch such audits soon aftereffectiveness.

(b) Assisting the restructuring of the CNEP, by providing the servicesof a high level financial Advisor (18 months), and other banking andtraining specialists (30 months). Since CNEP's movement towardscommercial banking activities would significantly increase thecomplexity of management functions, as well as technical, marketingand product functions of this institution, the assistance programwould be built around the strengthening of such functions.

Table 2.2: Matrix of Housing Reforms

SUPPLY SIDE DEMA SIDE

OImective Action already atak Actlms proposed Objectives Aetinshalrad Taktn Aetioms Proposed

Radionaation of dhe . Creation of . Implmndtation of new Cre an enabling . Agreem on a phn of h ipmepatioof CNEPConstuodw industry. utoaomous PEs. p procedure. ewnironmn fo ade io allo dkw transr pbn of acton. incd:

. Fancil reucuring developmtnt of a of CNEP ndr the Money comlte fianial adof EPEs. . Finanil fanem for morgage maret. and Credit Law. instutoal sd4t. New procueme acce to inyods of strategic rehabitation of assets adprocedures to ere buding maerls wihout tiabit a4justmnt ofcompetion whth private catg pric distortions. ieres s ih the baeneprises, sector, inroducto of new. Liberaizaton of morgaq e insuamecoastcton prices (Jun1992).

Uberalization of Rel . Transfonmtion of the . i34opt ew legislatio on real Targetg subsidies . Crean of the Nial . Strategic study to dfin theEs Promotion. statute of OPCs to estate promotion. Houaing FPA (CNL) as a op of absie,gi

EPC,. fit aempt to enor mcroecomic ad soca. hprove the buildi project transpency and bete constaints, with fwt

Draft law on Real cycle of the SHP. tgetn houslds appcationthrughb d FY 94Eate P ou throu com level Faunce LAw.llowing privat . Fina l resructuring of the criera. rU

participation OPOI. . Defining the SHMt euilibrium level ad ;N crin rn of th euram pubic houngstoc

. Define am ssy chelmewith focus on low incomehosds, inchlding accetsto evked plo.

. Clarification of the role ofCNL.

Impove Housing Stock . Sales of 400,000 . Adopt ae legisladon onProdctvy an OPOs unit fo ren ontractual rtonship betweenenhance privatt nal owners and tenamarket. . Draft law to develop

proptrghts . Adopt aw legistioa for anew reguloy framewotk of cc-

New legisation on land ownership.develpmt and urbaPlaning (1990) . Use of taI inenives to

timuate private inwvetm inLiberalization of s the renal sctor.

(to the excbpton ofsocial programs) in June

- 21 -

Targeting Subsidies

2.12 Agreement has been reached, during negotiations, on an explicitcommitment by the Government for reforming the current housing subsidy system,including rent subsidies, currently carried out through the SHPR and the OPGIs,and home-buyers subsidies, currently carried out by CNEP and CNL. In addition,the Government intention to progressively reduce the overall level of housingsubsidies Is clearly stated in the Sector Development Letter. Based on thiscommitment, the proposed project would provide consulting services and TA for:

(a) Launching, as soon as possible, a "sources and application of funds"study (12 months) to: (i) determine the current aggregate level ofexplicit and implicit subsidies attached to each housing operation;(ii) assess its fiscal affordability, given Algeria's macroeconomicconstraints; (iii) define the maximum level of fiscal and centralbudget subsidies to be successively included in the next three fiscallaws; and (iv) measure the cost and benefit of each subsidy scheme,including its social benefit.

(b) Assisting MOH in formulating and implementing its new housing subsidypolicy, through TA (15 months) focusing on: (i) completion of thefinancial restructuring of the OPGIs; (ii) definition of appropriatelevels of rents and subsidies, under the SHPR, which would allow theOPGIs to balance their budget, and implementation of the relatedprogram to increase rents according to targeted households; (iii)setting-up new subsidy schemes for targeted home-buyers; and (iv)definition of the institutional setting and of the managementfunctions of the entity in charge of operating the new subsidyschemes, presumably CNL, and technical assistance (12 months), ifneeded, to this entity.

Improving Housing Supply Incentives

2.13 The project would support this objective as follows:

(a) Strengthening the regulatory framework. During negotlations,agreement was reached on the following: newly adopted legislatLon onreal estate development, landlord/tenant relatlonship, and co-ownership would have to be enacted not later than March 1, 1993.

(b) Assistance to developers. This assistance would primarily help theEPLFs and some selected OPGIs to become more technically efficient,and more market oriented. To this end, a provision of 20 men-monthsof international consultants would be allocated to selectedautonomous developers, on the basis of their potential performanceto implement the Social Housing Program. Their main task would beto help implement the recommendations of the operational auditmission, with specific focus on the management functions of thedevelopers as contracting authorities (Maitres d'Ouvrage), and onthe technical functions of the principal contractors (Maitresd'oeuvre).

- 22 -

(c) `qsistance to the Ministry of Housing (MOB): (i) high level housingadvisory services (12 months of short-term consultants) to assistNOR in overall policy formulation, and more specifically in housingfinance and fiscal analysis; (ii) provision of 24 months of short-term consultants to carry out specific studies to improve the taxincentive system (land taxation, real estate transactions etc..);(iii) provision of 3 months of a short-term specialist to set-up adata base management and monitoring system, in view of monitoringthe completion of the Social Housing Program; (iv) provision of 6months of short term specialists to set-up a housing observatory atthe national levels; (v) vehicles, material and equipment for MOHstaff; and (vi) training funds for seminars and other trainingactivities to support the reform program.

Environmental Support

2.14 Primary environmental issues relate to the mitigation of negativeenvironmental impacts in the following areas: collection of sand and gravel,water supply, wastewater, and solid wastes (para. 3.12 to 3.16) Accordingly, theproject has been rated Category B. To minimize these impacts, the project's TAcomponent would finance two long-term consultants (48 men-months) trained inenvironmental impact assessment. Their main tasks would be to help address aboveprimary issues, by carrying out detailed environmental impact assessments of on-going construction; strengthen environmental management capacity within MOH;train urban planners and environmental specialists at the national and locallevel; and increase the level of cooperation between appropriate ministries andagencies to address housing environmental issues. One of these consultants isto be specialized in environmental impact assessment, development of mitigationtechniques and environmental training. The second should be experienced inenvironmental and urban planning (Annex 7.4). These two consultants would beplaced within MOH, in the Project Coordination Committee.

E. PROJECT COST, AND FINANCING

Project Costs

2.15 Total project cost is estimated at US$585.2 million equiva'lent (seesummary Table 2.3). The foreign cost amounts to US$214.6 million, and includesthe total value of imported goods at their border prices, starting beginning ofyear 1993, as well as the foreign cost of services included in the TA program.Local costs amount to US$267.3 million equivalent, excluding duties and taxes,and include import domestic supplies of materials, transport, distribution andother transaction costs. Duties and taxes amount to US$103.3 million equivalent,with duties on finishing products accounting for about 651. Physicalcontingencies of 10* have been applied to all cost items. Prices contingenciesare presented in Table 2.4. All local costs have been converted into US dollarsusing the official exchange rate at US$1 = DA22. Detailed project costs arepresented in Annex 5.

- 23 -

Table 2.3: Project Cost Summazy

Rowdd FIures

_____ _ 08$ million

ESTIMATED COSTS Local Foreign Total

A. Subtotal Social Rousing Programfor Sale 233.0 127.8 360.8of which:

1. Subtotal Strategic Products 26.4 35.0 61.4. White Wood 2.1 3.1 5.2. Red Wood 3.2 4.9 8.1. Plywood 0.2 0.4 0.6. Steel rods 4.9 20.7 25.6

C Cement 15.9 5.9 21.8

2. Subtotal Finishing Products 200.6 82.9 283.5. On-Site Infrastructure 7.8 12.1 19.9

D Voors 4.4 6.6 11.1. Finishing Products 188.4 64.2 252.6

3. Spare Parts 6.0 9.9 15.9

B. Subtotal Private Housing Program 25.9 56.6 82.5of which:. Strategic Products 25.9 56.6 82.5

C. Subtotal Technical Assistance 0.1 4.9 5.0of which:

Consultants/Studies/Advisors 0.1 4.4 4.4E Equipment, Software materials 0.1 0.2 0.3.Uncommitted _ 0.3 0.3

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

... T,,AL PflO,EC COSTS 3'7.352

FINANCING PLAN

|Government/Beneficiaries 370.6 14.6 385.2IBRD _ 200.0 200 .0

r se/;S TOTAL 1!NhC EN 214.RS#3

Table 2.4: Price Contingencies

o-estic ('i) 1993 2994 1995 1996

Domestic Me |30.0 24.0 20.0 19.0Foreign (&r) |3-8 1.9 2.7 3.5

- 24 -

Project Financing

2.16 The proposed Bank loan of US$200 million would be made to theGovernment of Algeria for a term of 17 years, including five years of grace, atthe Bank's standard variable interest rate. The loan would finance the foreignexchange cost of imported goods at their CIF value, and the foreign cost oftechnical assistance. The Borrower would finance all local costs, includingduties and taxes, as well as most of foreign costs included in the first six-months period of 1994, due to procurement schedule. The loan sharing between thepublic and the private sector would reach 53% and 47*, respectively, taking intoconsideration that about 20* of SHPS contractors are private contractors.Financial arrangements between the Government and the importers have beenpresented in section D (Detailed Project Description). The project financing planis presented in Table 2.3.

2.17 Parallel financing. A proposed EEC grant of ECU7O million (US$90million) is under discussion in the framework of BBC support to the Algerianstructural adjustment program. This grant would be exclusively allocated to thecompletion of the SHPR, and would provide mainly finishing products, and spareparts for contractors involved in SHPR. This parallel financing is not includedin the project cost below, nor in the financing plan.

F. PROCUREMENT

2.18 ImXorted goods. Given the import content of the project, simplifiedInternational Competitive Bidding (ICB), i.e. simplified advertising and use ofa single currency arrangement, would be followed for large value contractsexceeding US$1 million equivalent. This would mainly apply to import ofstrategic and finishing products. To avoid delaying procedures, standard biddingdocuments, preliminarily approved by the Bank, would be used. Accordingly, nofurther reviews by Bank staff of particular bidding documents or procurementdecisions prior to contract awards would be needed, and all contracts awardedaccording to ICB procedures would be sent to the Bank for ex-post review with thefollowing supporting documentation: evidence of bid invitation, record of bidopening, and bid evaluation report. It is expected that about 85% (US$170million) would be procured through simplified ICB. Contracts below US$1 millionequivalent, up to an aggregate amount of US$24 million) would be procured throughInternational Shopping, with at least three international quotations fromprospective suppliers, from at least two member countries of the Bank. Directcontracting, mainly for spare parts, would be accepted on a case by case basis(about US$15 million), in accordance with Paragraph 3.5 of the Bank Guidelines.

2.19 Technical Assistance. The contracting of consulting services for thevarious studies, and other services to be financed under the TA component (US$5million) would be done according to the Bank' a Guidelines on the Use ofConsultants.

2.20 Procurement under the project would be supervised by the ProjectImplementation Unit, strengthened by a procurement specialist during the initialperiod of project execution. Procurement documentation subject to local postreview, i.e. transactions below the statement of expenditures threshold, would

- 25 -

be centralized at the Banque Alg6rienne de D6veloppement (BAD), and readilyavailable to Bank missions or to auditors. The procurement schedule is presentedin Annex 6, and summary of procurement methods in Table 2.4.

Table 2.4: Summary of Proposed Procurement Arrangements(including contingencies, taxes and duties)

(US$ millions)

Prcurement Method

ntemationalCompetitive Ilnernational Direct ConsultingBidding Shopping Contracting Services N.B.F. Total

A. Strategic Products 140.87 - 30.48 171.3594.66 94.66

B. Finishing Products 12.31 - - 1.32 13.631. Doors 6.90 6.90

2. Finishing Products/a 108.54 26.09 - - 244.63 379.2667.98 15.54 83.51

C. Spare Parts - - 15.92 - 15.929.93 9.93

D. Consultacies 4.72 4.72- 4.72 4.72

8. Equipment&Matedal 0.28 0280. _ . 0

ToTOa 262.01 26.09 15.92 4.72 276.43 585.16169.82 15.54 9.93 4.72 - 20000

Note: Underlined figures are the respective amounts financed by the World Bank.vs: lwneational Shopping for bids lower than I million US $.

G. DISBURSEEMNTS

2.21 Disbursements would be made for 100 percent of the foreign cost ofimported goods at their CIP value, and 100 percent of direct expenditures forconsultants' services, including subsistence and travel expenses, studies andtraining. Unless duly specified, as in the case of vehicle and spare parts, nodisbursements would be made against local expenditures, including local freightcharges, insurance premiums in local currency, custom duties and other taxes.

2.22 The BAD would be responsible for the preparation and submission ofall withdrawal requests. Disbursements would be made against fully-documentedwithdrawal applications, except for those contracts for goods below US$1 million,which would be made on the basis of Statements of Expenditures (SOBs).Supporting documentation for the SOEs would be retained by the BAD for at leastone year after receipt by the Bank of the audit report for the year in which thelast disbursement was made. This documentation would be made available to theauditors and to Bank staff upon request.

- 26 -

2.23 In order to facilitate project implementation, the Borrower wouldestablish a special account in US dollars at the Central Bank of Algeria (Banqued'Alg6rie). The authorized allocation would be US$7.0 million which representsabout four months of the Bank's share of eligible expenditures for contractsvalued below US$1.0 million. For contracts for imports above that amount, theBAD acting on behalf of the Borrower, would request the Bank to issue to thecommercial bank, normally the bank of the exporter, its Special Commitmentagreeing to reimburse that bank for payments made, or to be made, under theletter of credit. The special account would be replenished on a monthly basis,at the latest every three months, or whenever one-third of the authorizedallocation has been withdrawn, whichever occurs earlier. Documentationrequirements for replenishment of the special account would follow the sameprocedures as described in paragraph 2.22.

III. PROJECT IMPIEM3NTATION AND MONITORING

A. PROJECT IMPLEMENTATION UNIT

3.1 The management, administration and coordination of the project wouldbe the responsibility of MOH. The main responsibility of MOH would be to: (a)monitor the completion of the Social Housing Program for Sale; (b) ensure thatimported goods effectively reach end-users; (c) administrate the TA component;and (d) coordinate all other actions and decisions among the involved ministries,agencies, and external lending agencies to ensure timely and effective projectimplementation.

3.2 To ensure proper project coordination, the Government will establisha Project Coordination Committee (PCC) within MOH, which would be staffed by amulti -disciplinary team, with representatives of the primary ministries involved.The PCC would work in close relationship with the Directorates of Town Planningand Construction (DUC) at the Wilaya level, the BPLFs and OPGIs, as well as withthe public association of construction enterprises and any group of privateenterprises. The PCC's staff would include: (a) three representatives of theMOH, including a project coordinator; (b) two representatives of the Ministry ofEconomy; (c) one representative of the National Planning Council (CNP); (e) onerepresentative of the Central Bank; (f) one representative of BAD; and (g) apermanent technical staff, including secretarial support and drivers. Agreementon above staffing was confirmed at negotiations.

3.3 The main responsibilities of the PCC would be the following: (e)monitor overall project execution, and in particular the procurement procedureuand delivery of goods under both public and private programs; (b) coordinate theTA program, with direct responsibility for the environmental component; (c)advise selected beneficiaries on procurement and disbursement matters, incoordination with BAD; (d) issue quarterly progress reports, with special focuson effective delivery and delivery schedule of SHPS units; (e) follow-up on thepreparation and maintenance of project accounts, and launch all relevant auditmissions; and (f) issue the project completion report. The establlshment of PCC,wlth staffing and operating arrangements satisfactory to the Bank, would be acondition of effectiveness.

- 27 -

3.4 The BAD would be made responsible for the maintenance of all loanaccounts and records of all transactions under the loan, in accordance with soundaccounting practices. However, to allow close monitoring of the project by thePCC, the BAD will make available all accounting documents to PCC. At theinitiative of PCC, all accounts will be audited within six months after the endof the Government's fiscal year, by independent auditors acceptable to the Bank.Certified copies of the audit would be submitted to the Bank and would includea separate opinion with regard to claims submitted to the Bank on the basis ofSOEs.

3.5 The closing date of the loan would be December 31, 1996.

B. PROJECT MONITORING

3.6 To monitor project implementation and policy reform performance,detailed implementation plans of both the SHPS and the reform program have beenset-up during appraisal. They provide benchmarks which have been reviewed andagreed upon during negotiations. Based on these agreed benchmarks, a mid-termreview will be carried out by Bank staff not later than October 31, 1994, toassess progress made on both the Sector Development Program and theImplementation plans. During negotiations, it was agreed that, should suchprogress be considered unsatisfactory by the Bank, and should the Government andthe Bank fail to agree on a new timetable of actlons, the Bank will be entitledto suspend disbursement under the loan. Prior to suspension, all feasible andalternative options would be scrutinized to meet the objectives of the project,including auctioning rather than finishing part of the public housing program.

3.7 Detailed Implementation Plan for the SHPS. Based on therecommendations of the operational audit mission on EPLFs, PCC would elaboratea data base and management information system (DABIS) for the monitoring of SHPS,including the status of completion of each operation to measure projectperformance. The DABIS system, which should be easily computable and transparent,would include: (a) technical-administrative status of housing operations, withkey monitoring indicators (administrative authorizations, contracts awarded,service ordera, status of various key stages of completion); (b) cost andfinancial estimates, including comparative data on committed budget and paidworks; and (c) critical path of SHPS completion. Fully documented reports on theabove would be sent to the Bank quarterly, while access to DABIS would be madereadily available to Bank supervision missions. If necessary and at any time ofthe project, a technical audit by independent auditors of a sample of DABISinformation sources (i.e. DUCs and related EPLFs) would be carried out at Bankrequest. Annex 4 provides a detailed schedule of implementation, and thefollowing benchmarks have been agreed upon during negotiations:

- Number of units to be completed by end of December 1993: 13,000;

- Cumulative number of units to be completed by end of December 1994:30,000; and

- Total number of units to be completed by end of December 1995: 51,300.

- 28 -

3.8 Detailed Implementation Plan for Housing Finance Reform. Chart Ipresents a detailed task schedule tor implementing the restructuring of CNEP.Critical benchmarks (end of task), which lead to the launching of the "new"housing financial institution no later than September 30, 1995, have been agreedupon during negotiations and are the following:

- introducing, as soon as possible, a clause permitting the revision ofthe terms of the loan in CNEP new mortgage loans;

- Setting-up a restructuring committee: November 1, 1993;

- CNHP's financial and institutional audits: June 1, 1994;

- Raising CNHP standard interest rates to banking sector level:starting June 30, 1994;

- Start lending at adjustable interest rates: June 30, 1994;

- Resource mobilization study: August 1994; and

- Final proposal on legal and organizational structure: January 3, 1995;

3.9 In parallel with preparing and launching the new organization, CNEPwould have to restructure its current portfolio, namely: the OPGIs, thepromotional housing, savings accounts and the CNEP/Treasury portfolios. Theabove restructuring tasks have been reviewed during appraisal, and options havebeen discussed. The schedule of these tasks, based on their dependency uponexternal decisions (e.g. financial restructuring of the OPGIs), or the internalprocess of transforming CNHP into a housing bank (e.g. use of adjustable interestrates for the restructuring of the promotional portfolio) is shown in Chart 1.

3.10 Detailed Implesentation Plan for Housing Subsidies Reform.The detailed task schedule for implementing this decisive reform is presented inChart 2. Critical benchmarks have been agreed during negotiations and are listedbelow6:

- Source and Application of Funds study (first phase): October 31, 1993;

- Determining the level of Central Budget housing subsidies forFY94 (to be issued in the 1994 Finance Law): end of November 1993;

- For all new housing operations, replacement of the implicit importsubsidy to the sector, linked to the difference between externalcommercial and concessional credit lines, with an explicit budgetarysubsidy: not later than NMrch 31, 1994; failure to comply with thisundertaking would lead to suspension of disbursements under the loan;

- Financial restructuring of the OPGIs: June 30, 1994;

{J They do not include actions related to land policy, since such actionswould be dealt with under a possible Bank financed project on landdevelopment, currently under discussion.

Housing Finance Reform

1993 1994 1995 199BNamw Qtr4 Q |ri Qtr2 |Qtr3 Qlr4Qtrl Qtr2 Qtr3 Qtr4 QIr Qtr2 MOQ3 Otb4 QtWI Otr2 Qtr3Effecveness of Loan 415*

Bank Miterm Review 10l30+

Fow of Funds sudy ls phae) 1 11

Agreemern on ToRs i12s*

Left of hwbton 12 D 2/4

Selecon Prcess & Contract awrd 2S5 4/15

SltaOfetd 4122*OPGI Rendal Sector 413 711

CNEP and Bandn Sector 4/23 7/29

Home Buyera Sector 4Q3 7/t

Teasuy 423 711

Endofetudy .11/1 .

Ban Mdtem Review 1130*

CNEP proNo_ 1 / 2 6 --- 1 2 / 2CNEsftwan l &ittt AudI 112E_ 4/22

Aereemnt on ToRs 1

Lefter of IdZtIon ; 2J

Selection Pcess & Conrbact awrd 2I 4116

1art Of finanuia udit 4f3*

farndalc audt 4026 412 2End of frnancial aum4t

S"tatofntutlonalaudi

InttuInal auit 6/21 -IY 17

1 21593 5:56 pm5.56PM~~0

Housing Fhance Reform

1S93 1994 1995 1996

Narme tr4 Itr1 Qtr2 Qtr3 | Qtr4 Qtr1 Qtr2 Ct r I tr2 Q2r3 Qt Otri Qtr2 Qtr3

End of ktttiona audit 12.17

OPOt Poaitolo eNaUcwtu 1015 _ 12131

So 5% PofoIo es1u0, . .

1009% Poiotodo resructured S

CNEPTrreasr eato p 11/2 a 11/15

New repuaon on rent 12/31

Housing for Sale Portfli restructuring 21 9/31)g

CNEP Saving EPonts reesucrig 1/1I 1228

Raisig sv rate (1st step) 111

Raising saing rates (2nd step)

Poftolo nest 6t2n g .12t28

Bank m Review 1030 I

Set up the new housng finance ltitlon 111121

CNEP Diretorate rnow operatlons 1U1 *Raise CNEP tandard rteto bankdg irst rateb bv .___.. .. . 613D O1 VA 2

Sta xtl at variabl inrest rate am

Ressoud mozao study 11/ _ 10131

Agreemt on ToRs 11/1*

-leofinvitation 11f2 11/8

Selcson Process & Co*act wd 11/9 a 1/17

Starofatudy 1f24*

Shdy (1st pse report) 1f2 9

Study(fl hl 2pot) gm i 'm w s

2 2/5/3.-56 pm n

_ouin Finance ReM

1993 -1994 199 1996Name Qtr44 Cir I Cr2 CQtr3 Ctr r QI Qtr2 Itr Ct4 trl Q Ctr 2 Q-tr3 tCr 4 QtrI Q tr 2 Qtr3End of study 1031 *

Study an HF. L orga tion and legah atats 9f19 4/3

Agreement on ToRe 9/19.

Lelr of hwtbon .. 9/2919/

Selcfton Proess & Contrt awd W m - 12/5

Startof stud 12112

St.d. 12/13 413

Ends oftdy 413-

Bank M m Re&iw 1ow30*

La Ing of h new housi fnacil nsuonk. 4t4 1M

Prepaon of Lega Documents 4t4 1t1

Decion on sttus and creaonm

Sdreg andW - pol.. 1012 1 124

Fnanwc gment wand orgnton . .t ~ 122

OdnflEon of brendn aiies .2 ~ 12/29

Bankhldem Review 10130*

Trann ff ...staf 415 UV

3 25/93 5:56 pin

QI

Housin Subsidy Reform1993 1994 199 1998

ID Namne Otr I Qtr 2 Qtr3 tr 4 Qir I Qtr 2 Qr3 Q tr 4 Otri Q tr2 Qtr 3 ltr 4 QAr IQM 2 CQtr3 Otr-4 Ctr ICtr 2¶ Effectlveness of Loan s

2 8anldd-kRm Review t,o3 Row Of Funds stuy tflst phase) i

13 199S4 Fkwaclow t

14 Flow df Fund. stuay (secondx!' 1/3 6/215 11104 anausl suhsidly pror" 1112 3/31

16 dratpropgrun 112 U112

17 progrm effetIvee 331 1996S anima subsid progrun W ~ M 3/31

19 drapt pogram SW.ou 6/420 programs ellectIeness,331

21 1996 annua subs*d prorn Io22 drafProgen Ion* 11I23 progua effecIveness 313124 Renta Mousing U 1/328 OmO Potfolio restucturin

26 so0% Potfolo 10/4

27 100 %Postflbio reshitsucud 1(1 -E 6/3

28 CNEP/Treaswyrelationswl 11/2 It/I

29 OPOi break even stdyi 12/330 Now egsimalnon rest 12/3

31 Housing for Sale Wg

32 PortfoloResktructuring

42 Dralft Home Buyer Subsidy Lawm- u43 LaweffectIvewnes

eto

I ~~~~~~~~~~~~~~~~2(4196:41 pm

- 29 -

- Draft legal framework on home-buyers subsidies: October 31, 1994;

- Determining the level of Central Budget subsidies, on a 3 years rollingprogram basis for FYs 1995 to 1997: October 31, 1994

- Decision on the future/or the reorganization of CNL: November 31, 1994;

- New regulation on public housing for rent, allowing full cost recoveryfor the OPGIs: not later than December 31, 1994;

- Enactment of legislation on home-buyers subsidies: January 30, 1995.

C. ENVIRONMENTAL ASPECTS

Summary of Environmental Aspects of Project

3.11 The environmental issues associated with the project are related tothe impact of both construction and subsequent habitation of the housing units.The impacts during the construction phase center on the use of sand and gravelduring construction and conversion of productive agricultural land. The impactsof the habitation of the finished units center on the increased demand forcentralized distribution of potable water, waste water treatment facilities,disposal of solid waste, and other effects resulting from increased urbandevelopment. Accordingly, the project has been rated Category B. To minimizethese negative effects, the provision of two long-term environmental consultantshas been included in the technical assistance component (para. 2.14).

Environmental Impacts of Project Activities

3.12 Sand and Gravel. The construction of housing units will requireapproximately 12 million cubic meters of sand and gravel. Traditionally, thismaterial is removed from river banks, coastal areas and quarries. This material,when taken from environmentally sensitive areas could have a significant impacton river turbidity, erosion, fish resources and downstream wetlands. The problemof sand and gravel collection is likely to be most serious in the coastal areas,especially in the areas of Algiers, Annaba, and Skikda. In addition, the E1Kalaa reserve, near the Tunisian frontier, is a wetland of particularinternational importance. The removal of sand or gravel upstream from El Kalaa,and other important wetland resources (such as El-Macta, the Marshes -of Reghaia)could have significant downstream impacts.

3.13 Productive Aciricultural Land. Only about 7.5 million ha (3*) ofAlgeria are suitable for crop cultivation. The extent and productivity ofagricultural land in Algeria is declining due to desertification, . urbandevelopment and other factors. As a result, the remaining agricultural land isof particular economic importance. The expansion of urban centers, and .thedevelopment of "new towns" is likely to result in the conversion of agriculturallands.

3.14 Centralized Potable Water Systems. The construction and subsequenthabitation of housing units could increase the consumption of potable water fromcentralized distribution systems by up to 2 million cubic meters per day.

- 30 -

Currently, potable water systems are strained in several major urban areas,especially the capital, Algiers. Overall, a majority of aquifers are excessivelyexploited. Approximately 0.70 billion cubic meters of water are used annuallyfor drinking water and present demands exceed supplies in many areas. Thisoveruse of water, combined with the increasing desertification in some regions,has lead to a significant degradation of water quality. Rivers such as theSarno, Mina, Cheliff, Tafna, El-Harrach and Seybouse are rated as severelypolluted by the Department of Water Quality. The three main northern aquifers(Mitidja, Saida and Mascara) are all at great risk from pollution. Competitionfor water between industry and human consumption and irrigation has becomeparticularly acute in some areas such as Algiers and Oran.

3.15 Wastewater Treatment. The existing facilities in Algiers and otherurban areas are unable to treat much of the generated waste water stream. As aresult, sewage and storm water systems discharge over 600,000 cubic meters ofuntreated wastewater directly into the Mediterranean per day. The resultingsevere pollution of 32-km coastline along Algiers poses significant problems interms of human health, fisheries and tourism. In the medium-term, a proposedAlgiers Environmental project (FY95) would address the wastewater issue facingthe 33 communes of Algiers. Within other major cities, blockages and structuralfailures of the sewerage systems not only force the untreated water to thesurface, but also causes it to seep into potable water reservoirs. The permeablealluvial soils in northern Algeria pose particular risks for groundwatercontamination due to leaks and blockages in existing water treatment facilities.For example, the Saida aquifer is becoming severely polluted by infiltration fromurban wastewaters.

3.16 Solid Waste Disposal. Current collection and disposal mechanisms arenot able to cope effectively with the rapidly increasing urban population. Theproposed Algiers Environmental Project would also evaluate the solid wastemanagement needs in the capital, and develop new land fill sites and incinerationfacilities. In addition, the project would strengthen the local governmentcapacity to maintain these facilities and monitor the effectiveness of the newoperations.

3.17 Air Pollution. Increases in both rural and urban air pollution arelikely to result from this project. The cement industry is currently asignificant source of air pollution. Of the twelve plants currently inproduction, at least four (Cheliff, Meftah, Rais Hamidou, and Sour el Ghozlane)do not have functioning electrostatic filters. The air pollution controlequipment of many other cement factories are operating at sub-optimalefficiencies. This pollution is having a direct impact on agriculturalproductivity and human health in the urban areas.

Recommended Mitigation Procedures

3.18 In coordination with the Mediterranean Environmental TechnicalAssistance Program (METAP), priority will be given in strengthening planning,managing and regulating capacities of the Ministry of Housing and his keypartners to start implementing mitigation procedures. The environmental trainingand impact assessment review included in the TA component (para 2.14) should, inthis respect, play a pivotal role. By working in close cooperation with existingenvironmental and planning agencies, in particular with the State Secretary ofResearch, a consultative body on environmental, urban planning and water resource

- 31 -

planning would be developed. This consultative body should review the overallplanning strategy of the on-going construction program and suggest opportunitiesfor minimizing the most urgent negative environmental impacts. The TA will thenevaluate the most effective methods for coordinating long-term environmentalconstruction planning within the Ministry of Housing and the Government. Basedon the above methods, and once human and institutional capacities having beenstrengthened, it is expected that adverse environmental impacts of the buildingand construction sector would start being properly and preventively addressed.

3.19 Because of the significant short term environmental impact of thesand and gravel issue, one of the first research activities associated with theproject will be the carrying out of an economic and environmental cost/benefitstudy of sand and gravel collection. This study will evaluate a variety ofsources and methods of collection, and will identify those materials sources, andcollection methods, which have the lowest economic and environment costs, takinginto account the environmental sensitivity of specific sites.

D. PROJECT BENEFITS AND RISKS

3.20 Benefits. First, the project would result in immediate benefits to:(a) the economy as a whole, by a reduction of the annual economic losses due toconstruction delays, currently about 2* of GDP; (b) low and medium-incomehouseholds (44% of the potential beneficiaries have a monthly income level belowUS$225) who would benefit from the anticipated availability of the targeted51,000 social housing for sale; and (c) self-help private developers, who wouldbe in a better position to compete with the public sector for the acquisition ofbuilding materials. Second, the TA program would provide longer term benefitsto: (a) the housing sector as a whole, through the acceleration of key sectorreforms, both on the supply side and on the demand side; (b) the State budget,which currently finances, through CNEP, 100 percent of the social program forrent, and is heavily committed in subsidizing the housing sector, throughrestructuring of the current subsidy schemes; (c) private developers, who wouldbenefit from incentives to build for the rental market; and (d) low-incomehouseholds, who would be targeted under a new personalized housing assistanceprogram, directly linked to their income level.

3.21 Risks. In the short-term, the primary project risk lies in Algeria'spolitical and economic uncertainties, which could lead to an acceleration ofsocial tensions, and therefore negatively impact the implementation of sectoralreforms, as well as their management. Mitigation of this risk for the projectwould come from: (a) a strong Government commitment to reform the housing sector,evidenced by the content of its Sector Development letter; and (b) a carefulimplementation review of the agreed plans of action, with dated covenants.Another short-term risk, exacerbated by the visibility of the project and itssocial impact, could come from the non-accomplishment of the targeted SocialHousing Program for Sale. A mid-term review would assess this risk, and, ifneeded, would define specific measures to ensure timely project completion. Inthe longer term, as far as project sustainability is concerned, the main riskwould be the persistence of a weak supply response to housing reforms, leadingto a prolonging of the role of the State as a direct provider of social housing.Mitigation of such a risk would come from the Government's commitment to producestrictly social safety net units, where family income determines eligibility.

- 32 -

IV. AGREI MTSB AND RECOMIDATZON

4.01 The following have been reached during negotiation:

(a) Schedule of completion of the SHPS, leading to the delivery ofthe entire program (51,300 units) by December 31, 1995 (para.3.7);

(b) Implementing arrangements: the Treasury will on-lend theproceeds of the loan allocated for the private housing programto selected importers, through on-lending arrangements inforeign exchange on the basis of the average maturity ofcurrent commercial credit lines for strategic buildingmaterials (360 days), at an interest rate based on LIBOR, andrepayable in two equal installments (para 2.9);

(c) Housing finance reform: plan of action with specific datedcovenants in 1993 and 1994 for the transformation of CNRP intoa commercial housing bank, not later than September 30, 1995.Dated covenants include measures to raise CNEP standardinterest rates to banking sector level (para. 3.8 and 3.9);

(d) Subsidy reform: plan of action with specific dated covenantsin 1993 and 1994, leading to: (i) a satisfactory budgetaryallocation of housing subsidies in 1994, including thereplacement of implicit subsidies linked to the differencebetween commercial and concessional external credit lines withan explicit budgetary subsidy; (ii) full cost recovery forpublic housing for rent; and (iii) reform of the housingpurchase subsidy system (para. 3.10);

(e) Sector Development Program: a draft policy letter outliningkey reforms to be implemented during the medium term period onthe demand and supply sides of the housing sector waspresented by the Algerian authorities, and discussed with theBank. This letter has been endorsed by the Government, andreflect its commitment to reform the sector, including itsintention to progressively reduce housing subsidies, startingin 1994 (para. 1.45, 2.12 and Annex 1).

(f) Staffing and role of the PCC (para. 3.2 to 3.4); and

(g) Enactment of legislation, not later than March 1, 1993, on:real estate development; contractual relationship betweenowners and renters; and rules governing co-ownership (para2.13).

4.03 The following would be conditions for effectiveness:

- 33 -

(a) Establishment of PCC, with staffing and operating arrangementssatisfactory to the Bank (para. 3.3);

(b) On-lending arrangements for the financing of the privatehousing program would have to be entered into by theGovernment with selected importers in an amount equivalent toat least US$40.0 million (para. 2.9).

4.04 The following would be conditions to continue disbursement:

(a) By March 31, 1994, and for all new housing operations, thebudgetary law should include specific measures, includingmanaging procedures and targeting, to replace the implicitimport subsidy linked to the difference between commercial andconcessional credit lines, with an explicit budgetary subsidy(para. 3.10);

(b) At mid-term review, the SHPS should be delivered according tothe agreed schedule (para. 3.7); agreed dated covenants toimplement housing finance and subsidies reforms should be met(para. 3.6, 3.8, and 3.9); and progress in implementing the

Sector Development Program should be satisfactory to the Bank.Suspension of disbursement will occur only if the Governmentand the Bank fail to agree on a new timetable of actions(para. 3.6).

Recommendation

4.05 With the above assurances, agreements and conditions, the proposedproject would be suitable for a Bank loan of US$200 million equivalent. Theproposed loan would be repaid over a period of 17 years, including 5 years ofgrace, at the standard variable interest rate.

Annex 1

Draft Policy Letter

Non official translation.

Annex 1Page 1 of 7

The People's Democratic Republic of Algeria

Ministry of Housing

Le Ministre

No. 09/DC/MH192

Algiers, January 22, 1993

To:The PresidentWorld Bank

Res World Bank project in the housaing sector in Algeria

Dear Mr. President:

Before introducing the various actions undertaken or scheduled forimplementation in the short, medium and long term within the framework of theAlgerian Government's housing sector policy, I should like to respond to certainof the Bank's queries regarding:

- the content of the Government's work program, adopted in September1992, concerning cancellation of the decision in favor of Governmentdivestiture from the low-cost housing sector;

- the problems linked to reexamination of the quasi-monopoly held byCNBP (Caisse Nationale d'Spargne et de Pr6voyance);

I should also like to take this opportunity to emphasize how much Ihave appreciated the selfless efforts and continuous availability of the Bank'sexperts, in particularly of the head of mission, in expediting preparation ofthis project, formalization of which in the very near future will, I hope,provide appreciable support for the effective recovery of our housing programs,and for the study and institution of key reforms within the housing sector.

1. First of all, as regards the question of cancellation of the decisionon Government divestiture, I feel it useful to point out that the AlgerianGovernment held a quasi-monopolistic role in the supply of housing and ofbuilding sites, particularly in urban areas, up until 1989.

The most notable results of this situation were:

- government management of urban development sites;

Annex 1Page 2 of 7

full-fledged Government financing for most of the site developmentand infrastructure works;

- across-the-board support for building materials prices;

- highly attractive Treasury financing for housing programs undertakenby the public agencies (OPGIs);

- across-the-board rent and transfer price support for all households.

Government intervention also extended to assistance to the housingsector through the grant of subsidies for operations initiated within theframework of real estate development and self-help construction, and transfersof public land on attractive terms for the construction of all types of housing.

The Government suddenly divested itself of all responsibility for thefinancing of low-cost housing, so that the only ongoing programs financed by theGovernment are those adopted on December 31, 1989. This sudden decision on thepart of the Government to disengage from the housing sector, without making evenminimal arrangements for a takeover by new institutions or for new financingmechanisms, has had serious consequences at the economic and social levels, witha sharp drop in housing starts and deliveries, a slump in the contractingbusiness, loss of jobs, etc.

It thus became apparent that Government intervention in the housingarea was vital for the country, until such time as the institutions and facilitiesneeded to replace it as a supplier of housing could be put in place. Thisdecision to halt the process of Government divestiture from the housing sector canonly be explained in this way, and has no implications for the series of reformsalready under way in the sector, which will be continued.

This position is clearly affirmed in the 09/10/92 documentestablishing the Government's work program, which states: "It is the Government'sresponsibility to create the necessary conditions to ensure, in addition to itsown efforts (which should be seen as specifically targeting the poorest of thepoor...), that projects of self-help builders and developers can developefficiently and on terms eliminating all forms of speculation."

2. As to the question of reexamining CNEP's quasi-monopoly, I haveresolved, together with my colleague, the Minister-Delegate to the Treasury, thataction needs to be taken on this matter as quickly as possible. A task force hasnow been set up for this purpose, composed of Ministry of Housing and Ministryof the Treasury representatives and world Bank experts.

This task force has held many meetings at which it has studied anddefined the terms of reference for the large-scale efforts involved in thereforms affecting CNIEPIs articles of agreement, the savings and loan system, andGovernment assistance to the housing sector. Thanks to the work of this taskforce, the World Bank experts were able or. December 13, 1992 to finalize thedraft action plans for the above-mentioned areas and to propose an implementationschedule.

Annex 1Page 3 of 7

The in-depth discussions between your representatives and those ofthe Algerian authorities concerned, specifically the ministry of Housing and theTreasury, resulted in complete unanimity of outlook on the substance of thisnegotiation, to which we attach particular importance.

Thus, where these matters are concerned, we are convinced that thefindings of the CNEP audit will highlight the measures to be taken by adheringto a realistic implementation schedule which take account of our constraints andweakness.

The initial implementing stages of this timing, which will coincidewith the period of preparation of the 1992 finance law, will enable us to includein the law the initial measures related to the reforms.

Following the above discussion of certain key preliminary issues, Ishould like to specify the main thrusts of our short, medium and long term sectorpolicy as follows:

A. HODSSNG DBM

In this area, the action programs focus mainly on:

1. CREATION OF A MORTGAGE MARKET AND DEVELOPMENT OF OWNERSHIP RIGHTSTHROUGH:

- Regularization of occupancy rights to land or housing stocktransferred by the Government, and clarification of the rulesgoverning co-ownership rights.

- Acceleration of the process of sale of transferable public realestate through continued upward adjustment of prices and institutionof appropriate transfer procedures.

- Facilitation of land transactions through reactivation of the localland agencies (AFLs), clarification of the sale process for urbandevelopment sites belonging to the Government, and development ofthe land registry.

- Development of the public and private rental market through arevision of the existing law on real estate development, institutionof new regulations governing owner-tenant relations, and a gradualincrease in rents to equilibrium level;

- In the long term, development of appropriate financial institutionsthrough the restructuring of CNEP and overhaul of the role ofcommercial banks in the area of housing financing, as well as thatof Caisse Nationale du Logement (COL).

Good progress is already being made with some of the actions designedto achieve the above results:

Annex IPage 4 of 7

* The draft law (legislative decree) that will constitute the newoperating framework for real estate development and govern owner-tenant relations is in process of being approved.

* In the field, action is under way to provide practical support forthe rights of real estate owners, through the implementation ofcourt rulings to expel tenants or occupants having a dispute withthe owners.

* An arrangement for imposing a tax system favoring the rental ofunderused private property has been proposed and adopted within theframework of the 1993 finance law.

* The regulations on public real estate rentals were revised in 1989(Decree 89-98 of June 20, 1989) to introduce an equilibrium-levelrental policy and an income-based rental subsidization systeminstead of across-the-board aid for all tenants regardless ofincome. The implementing provisions are being prepared and havetaken longer than expected, owing mainly to the complexity of theprocedures to be set up and the launching of programs designed toachieve financial recovery of the OPGIs. These programs have beenin progress since July 1992.

A number of major actions have been undertaken in regard to the abovepoints.

* Given that ownership rights and lanc: transactions are key aspects ofany housing policy, an annex will be prepared, detailing a number ofdevelopments to present or future housing sector policy.

- Privatization of the public real estate stock, primarily to favor theemergence of a real estate market, is well under way. Out of atransferable stock of 762,000 units (existing stock and newdeliveries as of March 31, 1992), 346,000 units have beentransferred. This privatization of the public real estate stock willcontinue with a new policy governing transfer prices, which havealready undergone two upward revisions since 1990, and suLject to thenew arrangements set forth in the Government's work program in thisarea (see pages 24, 25 and 26 of the 09/19/1992 document) and toprovisions governing the non-transferability of the new low-costunits. These units are intended for households targeted on the basisof precise criteria - Decree 89-35 of March 21, 1989 governing thisissue is shortly to be revised by the Government to ensure stricterapplication of the allocation criteria.

2. STR8AMLINING OP HOUSING ASSISTANCE

Actions are under way with a view to streamlining housing assistanceand making this process more transparent. The Government is now focusing itsfinancial assistance on the poorest of households (accession to ownership andproposed rental subsidies), with the objective of progressively reducing the

Annex 1Page 5 of 7

general level of implicit and explicit subsidies to the housing sector, takingthe last three years as point of reference to start this reduction.

The CNL was created with a view to improving management of thisassistance, and more particularly to ensuring greater transparency in the use offunds allocated to public assistance. These provisions represent a break withthe former situation in which assistance was granted across the board.

The assistance mechanism still needs to be upgraded through:

- financial recovery of the OPGIs, so as to get an idea of the amountsof subsidies granted to the housing units (rents, transfer prices);

- revision of the CNL's role, and assessment of the impact ofsubsidization on the Governmeat budget.

The overall objective is:

- to assess the cost of social policy in the matter of housing and thedifferent sources of financing (budget, taxes);

- to devote the different forms of assistance (unit subsidy - income-based subsidy) to the poorest households. In this context, it isessential to determine the size of this social group so that amultiyear assistance program can be established.

D. HMSIg MWPLY

In this area, the actions to be taken are designed to maximizehousing supply through:

1. ADAPTATION OF THE LEGAL AMD REGULATORY FRAMEWORK GOVERNING SUPPLY

- Liberation of real estate development, definition of the role of thepublic-sector actors in this area (OPGIs, EPLFs, privatedevelopers), and opening up of competition in the supply of housingproducts.

- Reduction of excessive costs through an overhaul of the regulations,whether in the area of technical standards, land use regulations,general conditions of contract, or certain articles of the code ofpublic procurement.

- Lifting of legislative and tax obstacles hampering the placement ofunoccupied units onto the rental market.

- Opening up of competition among contractors with a view to reachingleast-cost solutions, and gradual streamlining of the constructionindustry through the design of programs appropriately sized toenable small private firms to participate in the competition.

Annex 1Page 6 of 7

2. SUPPLY OF SERVICED LOTS

- A better balance between the respective roles of the public andprivate sectors (private operators, communes, utilityconcessionaires).

- Adaptation of levels and standards of the infrastructure systems toensure that the households can afford them.

- Stimulation of the land market through adaptation of regulatory andtax provisions.

In parallel with these actions, steps will be taken to better defineand coordinate the roles and functions of the public land operators, i.e. theland agencies and the AADLs responsible for land development. Where privatedevelopers are concerned, the 1993 finance law promotes land development throughvarious tax incentives.

While still looking at the question of land supply, action programsare planned to promote serviced sites through the development of large numbersof small building plots affordable by low-income households. Land developershave been approached to undertake a far-reaching program based on a cross-subsidization mechanism with recourse to bank credit, designed to minimizeGovernment financial intervention as much as possible.

C. P Y N

From this set of measures and reforms concerning the housing sectorand its related activities, a list of priorities has been drawn up. They are:

1. A study of the savings and loan system and a financial andinstitutional audit of CUEP with a view to reforming the system and the partialor entire conversion of CNBP into a fully-fledged bank. With this objective inmind, a committee will be established (at the latest by November 1993) with thefollowing goals:

- completion of the study during the first half of 1994, formulationof draft wording for the new statutes by end 1994 and, as far aspossible, their passage into law by September 1995. This shouldresult in the development of competitive systems to finance housing.To reach a gradual elimination of all disparities, the followingwill be necessary:

* rapid insertion of a clause in new housing loans granted byCNEP recognizing the principle of interest rate revision; and

* formulation of a gradual adjustment program for interest rateson the basis of the study's conclusions, with implementationof the first decisions during the second half of 1994.

Annex 1Page 7 of 7

2. Study of the financial components of the housing sector, includingthose related to State subsidies. This study should be organized in two phases,the first comprising the level of subsidies for inclusion in the 1994 budget, andthe second, the preparation of multiyear subsidy programs taking into accountmacroeconomic and budgetary constraints.

3. The implementation and completion of the program aimed at achievingfinancial recovery of the OPGIs, and the preparation of implementing provisionsfor full cost recovery of the public rental housing stock during 1994.

4. Reexamination during 1994 of provisions and criteria currentlyregulating State support for housing ownership.

I should like to point out that for certain of the above points, whichrepresent the basic thrusts of the sector policy, I have not elaborated on anumber of action programs already in progress or in course of preparation. Thiswas for the sake of brevity, since it was my intention to devote this letter topresentation of the key points of our sector policy, which is designed togradually rehabilitate the housing sector so that it can take its rightful placewithin the national economy. The loan from the World Bank will give a definiteboost to our efforts in that direction as well as in the acceleration of ongoinghousing construction programs (imports of construction materials) and in thepursuit of our reforms (technical assistance).

Very truly yours,

The Minister of HousingFarouk Tebbal

Annex 2Page 1 of 2

Positive list of Building Materials, Finishing Products,eligible to the Project

Strategic Materials

Ciments s CementAciers pour beton Steel rodsBois route de menuiserie Red woodContre plaqu5 I PlywoodBois blanc White woodPortes isoplanes Flat doors

Materials and Products of Secondary Works (Finishing Products)

Fil et cable 6lectrique Electrical cable and wireGaine 6lectrique Electrical ductDisioncteurs Circuit breakersDistributeur d'dtage Floor DistributorDistributeur d'appartement Apartment DistributorMinuterie : TimerTube cuivre tous diametres Universal diameter copper pipeTube acier noir Black steel pipeChauffe-eau Water HeaterM6langeurs MixersRobinet arrOt eau Water Shut off valveRobinet arr&t gaz I Gas Shut off valveAccessoire de raccordement (T6, Connection Accessory (T-shaped rule,coude, etc.) bend, etc.)

Plinthe BaseboardCarreau faience Earthenware tileLavabo SinkReceveur de douche Shower receiverBaignoire Bath tubCuvette W.C. (anglaise et turgue) s W.C. Tub (English and Turkish)R6servoir et accessoire chasse d'eau: Reservoir and lavatory accessoriesEvier de cuisine Kitchen sinkSiphons s U-bends

Verre plat ordinaire I Ordinary smooth glassVerre plat martel6 Planished smooth glassVerre plat arms Wired smooth glass

Serrure complete pour porte Complete door lock system

Annex 2Page 2 of 2

Cremone complete pour fenOtre Complete Espagnolette bolt forwindow

Serrure portail s Main entrance lockSerrure placard s Closet lockPaumelles s Door hinges

Feutre bitum4 d'6tanchelt& Sealing roofing feltPaxalumium

Spare parts for Materials and Engines

Pieces pour les engine de s Equipment spare parts for steelfabrication du beton manufacturing

Pi&ces pour lea engins de transport a Spare parts for truck spare partsPiaces pour les engine de levage : Spare parts for fork lift and

et de mise en oeuvre du beton cement mix truckPi&ces pour lea engine de Spare parts for stripping machinesterrassementPetit outillage de chantier pour la a Small tools for the constructionmise en oeuvre des installations site of secondary worksdes corps d'6tat secondaires

Annex 3Page 1 of 2

The construction Industry: Profile and Financial Restructuring

1. The Algerian construction industry is still dominated by publicly-owned enterprises. There are about 900 public construction enterprises, dividedinto 160 national public enterprises (Pis) and 740 local enterprises. The 160 PEsaccount for half of the formal construction industry's output and employment.They employ an average of 1,800 people, which qualifies them as large companiesby international standards. The majority of PEs are vertically integrated andselectively produce their own inputs (e.g., concrete pipes, cement blocks,prefabricated components, tiles, aggregates etc..). This excessive verticalintegration contributes to low capacity utilization, currently well below 50% forbuilding contractors and producers of materials, lax management practices,inadequate investment, and poor maintenance. It also contributes to an excessof manpower, particularly for building contractors where labor costs amount toover half of turnover. Whereas liquidity constraints affect all PEs, buildingcontractors and most producers of materials also show persistent losses, negativeequity, and a high debt burden.

2. National Public Enterprises are being legally, financially andindustrially restructured, with 70 public contractors now enjoying an autonomousstatus. The objective of the ongoing reform is to transform public enterprisesfrom public administration executing agencies into fully autonomous commercialentities, ready to compete for public and private contracts in a market-determined environment. In January 1988, two laws were enacted to define theframework for transformingi national public enterprises, in all sectors of theeconomy, into autonomous public entities (Entreprises Publlques EconomLques,MPEs), and for entrustinge the relevant shares to the fiduciary management ofeight public holding companies, or Fonds de Partlcipation (FPs). Sectoral innature, a typical FP holds 40% of the shares of most enterprises in its sectorwith the remaining shares of each enterprise held by two other FPs specializingin other sectors. For example, the construction FP (Fonds de ParticipatLonConstruction, FPC) holds 40% of the shares of the national contractors, and 30%of the shares of numerous enterprises in other sectors.

3. The financial restructuring of the construction PEs has recentlyshown decisive progress for autonomous as well as for non-autonomous enterprisesand should be completed by the end of 1992. Negative net assets of potentiallyviable autonomous contractors, which represented DA 18 billion by the end of1991, are being wiped out by the conversion of bank and Treasury debt into equityor quasi-equity and the infusion of liquidity by the Treasury (DA 3.96 billion),financed from budget surpluses generated for that purpose. Non-autonomousconstruction enterprises ivill be granted DA33.0 billion from the Treasury (30%for construction enterpribes) for financial restructuring, and DA.. billion ofbank credit in 1992. Enterprises deemed not potentially viable are to be closed,although no such action has been implemented so far, because of fear of adversesocial consequences in an already high-unemployment situation.

1/ Loi 88-01 du 12 janvier 1988 portant loi d'orientation sur les entreprisespubliques 6conomiques

2/Loi 88-03 du 12 janvier 1988 relative aux fonds de participation

Annex 3Page 2 of 2

4. Local Public Enterprises (LPEs) have an average of 200 employees, andaccount for about 40% of construction employment and 27% of construction industryoutput. These enterprises are operating in a local captive market, under thedirect tutelage of local administrations, either from the Wilayas (provinces) orthe municipalities. Their productivity is low, about half of that observed inPEs, and most of them are managerially and financially unsound. Since 1985, LPEshave been facing numerous liquidations or mergers, to the point that theirpresent number is less than half of what existed in 1985. The restructuringprocess of the remaining LPEs has also started, albeit at a slower pace than forPEs.

5. The Private Sector contributes to about one-fifth of the sectoroutput, and 15% of the construction employment. Although vastly larger in numberthan in the public sector, registered private companies are very small andoperate primarily in the production of private and individual housing. Recently,however, the private sector has invested significantly in the production ofbricks, ceramic tile, and steel rod. The private sector also includes numerousinformal contractors who are operating exclusively in housing construction.According to broad estimates, this informal sector has a turnover equivalent tothe formal private sector, and a work force of at least 100,000 workers. Privateformal and informal enterprises have been developing in the few "niches" leftuntouched by the overly regulated public environment. Significant private sectorinvolvement in the construction sector would now depend on progress in reformingthe incentive framework, as well as in restructuring the public constructionsector. of particular importance would be the physical restructuring of largePEs, since their excessive vertical integration now represses the sub-contractingactivities on which could depend the development of small scale privateenterprises.

6. Construction Material Production System. The Algerian production ofconstruction materials is dominated by some 17 PEs covering over 70% of the totalturnover (an estimated DA12.3 billion in 1991). These PEs produce nearly a fullrange of products used in construction, with a quasi-monopoly on cement andspecial cement, asbestos derivatives, light-weight concrete blocks, concretepipes, glass, bitumen, sanitary fittings (ceramic and metal), plastic products(tubes and joinery), electrical components, and light bulbs. Local publicenterprises play an important role in the production of basic constructionmaterials such as sand and gravel, cement block and other cement by-products,gypsum by-products, bricks, metal, and wood joinery. Private enterprises aremainly artisanal in nature. Their activity mainly concerns secondary componentssuch as concrete slabs, lime, small metallic supply, and mastic. Since 1989, theyare more active in the production of bricks (clay and silica), earth blocks,ceramic tile, aggregates, marble, and stone quarries. The informal sector isestimated to play only a marginal role in the production process, although it isactive in the distribution of construction materials for the private housingsector.

Annex 4Page 1 of 4

Assessment of Inputs for Housing Construction

Imports in the housing sector

1. In 1990, Algeria imported U$550 million worth of cement, steel andwood for housing construction purposes. In global terms inputs for housingconstruction include 30% of imports. Algeria has no wood; the steel products itproduces include only a small amount of reinforcing bars for concrete; its annualcement production does not cover its uses, and it is not yet capable of producingthe finishing products it needs.

2. Shortage of construction materials is one of the major explanationsof the very lengthy construction process; average completion time is about 5years, whereas it is lesser than two years in neighboring countries with similartechniques.

3. Three types of developers produce the urban housing: a) privateproduction; it is done by the households that develop their own dwellings (85,000building permits were delivered in 1991), b) The EPLFs (public developers)produce housing for sale (ongoing program comprises 52,000 units, and c) OPGIsproduce social housing for rent (ongoing programs comprises 70,000 units andstock is 350,000 units). The project concentrates on the first two types.

Private housing production

4. Although private developers do not yet exist in Algeria, privateindividual production is quite active. Based on the building permits statistics,it is estimated that the construction of 300,000 new units was launched duringthe period 1989-92. The average size of privately developed units is five timesthe size of the publicly developed units. The inputs that the construction ofprivately developed housing units need is equivalent to the inputs needed for theannual construction of 240,000 social housing units. US$500 million worth ofcement, steel and lumber will be imported annually . The loan will concentrateon strategic products (cement, lumber and steel bars) and alleviate the shortagesby financing US$90 million worth of these materials.

EPLF program

5. The 23 EPLFs are involved in an ongoing program for the constructionof 52,000 units, 83% being currently less than 50% completed. It is estimatedthat, if the shortage of inputs is alleviated, the average completion time willbe reduced from a current 5 years to 3.5 years. The attached schedule is basedon the assumption that completion of structural works will take half the totalcompletion time and that inputs for structural works as well as for finishingworks will be regularly procured along the corresponding period of the schedule.

Annex 4Page 2 of 4

Table I: Inputs for the EPLF program

Housing unit equivalent

Year Structural products Finishing products

1993 12,615 9,276

1994 983 23,194

1995 0 12,784

inputs for the EPLF program

6. Table II indicates the inputs that the loan will finance. It isbased on the following assumptions:

a) a typical housing unit built by an EPLF requires the average inputsshown in the third column;

b) the loan will finance 30% of cement inputs for this program, whichrepresent the percentage imported nation wide;

C) the loan will finance all steel and wood products after june 1993;

d) the loan will finance 30% of finishing products; and

e) for the first semester 1993, the loan will only finance the cementimports due to procurement minimum delays; it is expected that theprogram will get its supplies on the regular market.

Table X:s imports financed by the loan

Imports financedInputs per housing unit by the loan

Quantity perItems Unit unit Total quantity

Cement t 15.66 63,883

White wood m3 0.85 9,292

|Red wood m3 0.49 18,516

Plywood m3 0.13 1,133

Steel t 3.41 30,178

Doors u 6 226,723

Other finishing products u 1 11,336

I~~~~~~~~3~ .

Inputs for the EPLF program

lIputs ftin bed b tbe loan quantity

Items unit Jan-Jun 1993 Jul-Dec 1993 Jan-Jun 1994 Jul-Dec 1994 Jan-Jun 1995 Jul-Dec 1995 Total

Cement t 22,306 36,957 4.620 0 0 0 63.883

WhIte wood _r3 0 6,689 836 0 0 0 7.526

Red wood .3 0 3,296 5,648 5,717 3,855 2,409 20,925

Pltwod .3 0 1,007 126 0 0 0 1,133

Steel t 0 26,825 3,353 0 0 0 30,178

Doors _u 0 40,361 69.154 70,008 47,200 29,500 256.223Other finish. prod. u 0 2,018 3,458 3,500 2,360 1,475 12,811

Localty ffnanced qinuts quantity | _ _ ____,_-=,

items unit Jan-Jun 1993 Jul-Dec 1993 JanrJun 1994 Jul-Dec 1994 JanJun 1995 Jul-Dec 1995 Total

cement t 52,046 86,234 10,779 0 0 0 149,059White wood .3 4,037 0 0 0 0 0 4.037Red wood o3 1,249 0 0 0 0 0 1,249

Plyood us 608 0 0 0 0 0 608

steel t 16,190 0 0 0 0 0 16,190

Doors u 15,293 0 0 0 0 0 15,293

Other finish. prod. u 2,549 4,709 8,068 j 8,168 5,507 3,442 32,441

. _ .__ _ _ - _ _.__ __

Proaw iqa quantity

Items unit Jan-Jun 1993 Jul-Dec 1993 Jan-Jun 1994 Jul-Dec 1994 Jan-Jun 1995 Jut-Oec 1995 TotalCement t 74,352 123,191 15,399 0 0 0 212,942

WHite wood |3 4.037 6,689 836 0 0 0 11,563

Red wood o3 1,249 3,296 5,648 5,717 3,855 2.409 22,174 -ua)Plywood I3 608 1,007 126 0 0 0 1,741

Steel t 16,190 26,825 3,353 0 0 0 46,369 II

Doors u 15,293 40.361 69,154 70,008 47,200 29,500 271.516 0 goOther finish. prod. | u 2,549 6,727 11,526 11,668 7,867 4,917 45,253 ||

Annex 4Page 4 of 4

r d d =C -O

0L '- E IA^ B

I- tl'C , s,l

2 L E _ _ . s ii

m | g 9 $ a o § o ;* 35- 5

U~ ti^wf n

41 --- §t

Abwlb

ExpeafndiuAccosats Prjt Cost Summawy

W Totld0DA) Y(Us$ Minc pote%n am"~~~ci ..-f td .- 0 To t!m ___ ost

Lfnotot_CostsA. Socia Hosing Progm for $al

1. Statei Productsa. Sled 107.s6 455.34 562.90 489 20.70 2559 810 .0b.Wood 0.0 000 0.00

Whltwood 452 GM 114.15 27 3.12 49 60.0 1.0RedWood 71.44 107.J2 178I76 325 4.88 A.3 s0o0 2Plvo.d 5.81 8.42 14.03 0.26 0.38 084 s0oSubtotlWood 12256 18428 308.94 W58 838 -13S5 60.0 30c. Cemnt 35038 121.94 48032 15.93 5.91 21.83 27.0 80Subtota Srec Prodcts 50O 76956 1,350.16 2 34 St 37 370 14D2. Fbini Produ 0.00 o00 o0.a. ,On-bb_*abucu 171J8 28854 437.40 7.81 12.07 19.8 61.0 40b.Doors 9756 14627 24363 4.43 655 11.7 600 2.0e. FWsI po*acb 4,14496 t,411.88 555M3 188.1 64.18 2-2.58 25.0 soSubtot FInslbdnProhet 4.414.18 1,69 6,237.87 W200.8 82a0 28354 29D. 63.0& Spr.asts 131.75 218.44 350.19 59 9.93 15.52 62.0 4.0SubtaSodalHosProram frSal. 5.12653 2,81159 7,22 23302 1270 360.83 35.0 80S.Privafte ho Prgm 0.00 0.00 000

1. Stategic Prod OD 0Q00 O,Da.Stel 81.04 34307 424.11 35 15.59 1928 81,0 4Db Wood 0.00 0.00 O0m

Whbwood 127.13 19009 318.12 5.78 8A8 14.46 60.0 30RedWood 224AS 33720 5S516 10.20 15.33 25.53 600 60PlWood 3At 5 t2 .53 0.15 023 039 60.0 -SubtWood 35499 533.32 6830 1. 2424 40.38 60.0 90c. Cement 133.80 388.4 0 50220 80 18.75 22.83 73.0 5.0Subt l S btatec Produt 569.2 t244.79 1.814J1 2590 S658 -82.48 690 18.0C.TechncaAssitance 0.00 0.00 0.00I.Consuftmrts&Avtor 0.78 9633 97.11 O4 438 4.41 99.0 102.EWpnwt&SdMmMmibs 1.10 5.17 627 0D5 024 028 83.0 -3. Ur _ommld 0.00 652 652 000 030 030 100.0 -Sublotd TacuicalAsstnce 1,8 7 108.13 110.00 0 4.91 5.00 6980 1.0TolBASEUNECOSTS s,es22 4.1t451 9,882.e3 W-2, 1890 4tS31 42A tOO tPhysa Con _Menoe 56SS 363.0 94026 2529 17AS 42.74 41.0 10.0PdoCo ^egn_ 1.88929 171.10 2.07039 so= 7.78 94.11 80 210 nTotl PROJECT COSTS 8,15396 4,71951 12,873A9 3704 21452 S.Wi 37.0 131. 0 M

e ACsx

Un v

_euf"APtAtftloCos mr

Houksin Comgtiodo ood $10tar OovdapMu

eAeuturl, ACuNcoildW

H Coot.Pise fits

Be" Coot Phadod caoou'ds C_ Told kw. Co. Coot Pie.Load Dud" Load ou" Low Dudes Load Dud" a 0n Cm an

For. Ca. a SW. CaK. a pot. saucs. a * 4. a Bose Phydodfc a.., T TL TTMosl TOWt - ch , JWO Laxe J 3td _ Tel Tte h . Td CTas Coot.

L lowosoust CottA. Soede H _Pp 1u

S. Stee 20. 0.6 4.4 26.6 2.1 * 04 2.0 0.1 0.1 0.7 23.2 0.6 4.9 28.0 20.2 2.6h. Wood

Wo*oewod 3.1 0.7 1.4 6.2 0.3 0.1 0.1 0.5 0.1 O.J * 0.3 3.6 0.9 1.6 0.0 64 0.6fied Wood 4.9 1.1 2.2 8.t 0.6 0.1 0.2 0.0 0.3 0.6 0.2 1.0 6.6 1.8 2.0 10.0 9.1 '0Plywood 0.4 O. 0.2 0.6 * - 0.1 O 0A4 0.1 0.2 O.7 0.7 0.1

Sulatol Wood OA 1.0 3.7 14.0 0.0 0.2 OA 1.4 0.3 0.7 0.2 1.3 9.6 2.8 4.3 16.7 16.1 16a. Ceasd 6.9 13.6 2.4 21.8 0. j .4 0.2 2.2 0,1 2. . . 17.6 9. LA !.3 LJi

_O*IOI.)S_O#OO)OP_OieS 28.360 6. 10.6 61.4 36 1. 1O 8.1 10 3.4 04 4.7 39.4 20.9 11.0 72.2 66.7 0.02Lflrdsoa P _ct

*.On. nlrr4toommxo 12.1 4.6 3.0 19.9 1.2 O OS 2.0 0.3 0.0 0.1 1.1 1l 6.1 3.3 23.0 20.9 2.1b.tOW 6.0 1.6 2.8 11.1 0O .0.1 3 1.1 04 0. 0.3 1.4 7.7 2.6 3.6 13 12.4 1.2a. FiSbd*c prodl 4.2 13o.9 61.6 262.0 SA 13.7 6.1 26.3 3.4 72.7 2.3 7A 74.0 _223A 6B0. ... 323.9 32.4

60*UdN ft P8Iu 02.9 143.2 67A 283.6 0.3 14.3 6.7 20A 4.1 74A 2. 81.0 96.2 231.6 $0.7 892.9 367.2 36.73. _P. _ I A 4. 16.. 9.9 LB 4.6 16.9 t6.9

B0d*oloodHolsahI t-Fow fawds 127.0 160.7 723 300.8 11.0 16.0 GA 34. 6.0 77.7 3.0 663 144. 264.3 02.1 481.1 438.0 42.3

1. staraPI IL.ObW 16.0 0.4 3.3 10.3 1.6 0.3 1.9 0.6 0.1 0.1 0.8 17.7 O 3.0 22.0 20A 2.0h WoodI

Wid. wood 8.7 1.0 3.8 14.6 0.8 0.2 OA IA 0. .4 0.3 1.9 10.0 3.1 4.6 173 10.1 1.8Red Wood 16.3 3A 6.0 26.6 1.6 0.3 0.7 2. 0.9 2.1 0.7 3.7 17.8 6.9 0.1 31. 20.9 2.9Plywood 0.2 0.1 0.1 0 .OA. 0.3 a.1 .4 . E.O.O

eod Wood 24.2 4A 10.7 40.4 2A 0.6 1.1 4.0 1i 3.1 1.0 6.6 28.1 9.1 12.9 49.0 "4A 4.6c. C_msed IS.7 2.1 4.0 22.8 t.7 0.2 0.4 2.3 0. 1.0 0.3 2.1 1933 .3 4. 2J.2 24J. _ 2.ASd_odBuwo pu 60.6 7.9 10.0 82.6 8. 0.0 1.0 8.2 2.8 4.2 IA 8.4 6.0 12.9 21.2 99.1 90.1 9.0C. Todujo Aug8.1.Coma&Admu 4A * . 4A * . * . * * 4.4 * 4.4 442. qdpeno & So dwmaLotwdd 0.2 * 0.3 * . . . . * * * 0.2 0.3 0.33. ** O.S. _0.3 0.3. 0.3 0.3 0.3

B8d Teddd Asolsluw 4.0 0.1 6.0 *49 6.0 6.0Told 169. 1680 00A 440.3 17A 18.7 S.6 42.7 7.8 02.0 4.3 04.1 214.6 207.3 1033 686.2 633.9 61.3

to

N9 3'3

0 a.h x

2-1 0_edta ACotw Oreddown

-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~" w I" am tTakdT t. _dW tm a a a

Lboaf~~~~~t""Wt , _ s7__t_th00_6m

__o'WOWWWA V.OtIff OU1, An.W tB _a " tt" _A zO V

dn1l_" l F t l i * 3.11 * 90"0 l SGA * O 1 ___,lfltiSfOlmto tf> ,C__ wwxaA4 0 704 610 120 NA A IS 2 " a " A A

C"_*S Xtl.tf =1 eAA IA.$ VAelOM I" 4" O fOXM* °t

com I"RAM * * t1S.tJ02t,t71 ° ° * .to27 J GASe 170 t7 tTt |i84" tla_e~~~~~~~~~~~~~~~~~INM aAldlc .<S46 am O 74" WAA SPUS ontOOM OO tum e

£lc4z~~~~~~~q 4wt" *!111 . st 4eff Ut tQtn t 7" *3 i_ tDo eDo 2^^ tLo~~~~~~~~~~~~~~~~~~~~~~~02,46 WA VDVn 14)"I st e 1

-t^=g7~~~~~~~~~~~~~~~.11,3 0 SWA t7a21f 0 0 IItI "CM X "am so" SAPA "hain tt o iOt" °° tas___rZ ff7. 0 *7 e CO t: OV7t.tS xtoSo tto et tJSs7 te7 zst40 teo *7.4 *7 tS~~~~~~71= 12 2CAN " a"OA n

_o - _ _ st.77a7t s"Sc2 7tab1 u oT*e*s I oAgt-tZ stt7t2.9 XO.tOt 7 S t4tKO Xe : ns"I "Afta SAOSla sow a -lj 75MP SMS ns AMASS 4,011.7,4 l ? SAA OAfttO SX" OA. t"A ttn SStn

amwf Id_* tsom t OA4X _ .SA SOASI- a7 oISzzA U tJONe SAWA27 "AYA23 MO * . SA .s IA,

___0:4 amTo A* te7 7U DJOWs2154 1I404 t . 7 t 1= 1 t te o S0 7" 2 J " "At*AcWO" -g*._u 2s nm 7t satStJUan t0 s t E 07. 3

t_w_d*~~~~~~~~~~~~~~SISAI &76 7 X m tO t4te nte UWA t"IA 612 X *A DO 2 v

__^_t z~~~~~~~~~~~~~~~~0Af 7JI00fin tU700 "7 ftt 0011" *cot t ro72 uSUAn Q6":2S tt.43 f#" va PA "C.T A_ la 1A j_t a QJ7 mi L 46H MS A t6m 4;W " 4

tat> odubAt teM" O4*V *11JI tAOA tAe% *011 oA*l $?AMA 1,A 0332 *2,13 *OS ee a" ** oo aS

_ _ _ *tt^Se o o 4.4#A0 4,4t~~~~~tAO20 0 0 *,4tW JKOM *Az #AftU Op SA.A 04-- ~~~~~~~~~~~~~~4A a * OA MA 0 GOA OIA2 = g _ S aloeo MA oe eoA

OSANG 0 44SA06 O"~~~~tS &VA~z o Oblanw tDs WD tsA AA A0 ACN1 `

Godm SA" 64A 4"SOAN OA 91 6.

L cam ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ash mdBu Oeqw

1. I. qua abdp0e

1. ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~00ftd Od SMADW 04 0 0 0 0~~~~bmiwe b ted.

SW IAW J* so lumve vnmst~1~ Wod 4d Te ee.weeb.ft~ -ft'..~ n*_oswe 0 n *_K0

A.OSd. be fd d

Steel fla et eeee9 2 0 0 0 0 10,4223 0 1.02.28am' Ida. Mv 121 ... J~~~~Idf ..L f.........L 1. 1467 22 1710 425.24^09

WWWWAadIeeeeSIMIMM 0t 0 0 0 2.t48 0 0 t 4.40W

8awedetwedfa24w 0.205 2.019 22"80.227 2.5 2ip4g2 0 124aed weed Ida. Mt 001 01±620 ±901920 P 1.210.742 7A60

4. WISa weed ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~0 1%26M % 7ma0 G7

-t$_ tX"tX9- 1,72l,Zt13.M2 0 1%504ill -%42m 42, O t45t7

Do" cm emam ox 0 0 0 0 .740s 0 0 2S070.l0

WIabSe weed (de 0110 t1.2t 13S U

Salem' Wok, (tee-S5t 20200 250.090 0 2.210.707 S2.400.21 190.423 0 3.52t.114

Dbtomit_t * tI[t.MeA 0t7 2 _t1 4.784.47

edN #_ e 9010 0 0 0 0 2.1101

Ceweebt la ommia e.so.....uu

Sadlet Cemeal 6 2 0 ..9 1 flZJD3.J..7wt lA.tOIl 43.Stl0 t M oSSA*ie/ 93. .2. 0 2?, t 20*30 o,010.M ML 5

Sdo od FLkv O 3O o _ 2.71" 6.M.7" 1.WlaSS_C 6.l.24-M tt 1 1" 0 -- . 1 ^ 7 4 a

_~~~~~~~~~~~~~~~~~4." s_ 2t.,tB3 thtt t 30.t4t

2. h0*eS

Mve _hS 1X2.520.20 0 0 u.m.uo, 0.70.70 0 0 2.1070lSO"mee* Oaaa4 Oj 0 7St 0 0 a 17..j.".a 4.E"1_ 0ai a. *e_ar 1t,2.5023 0 0 123,320 9.5.2 0 0 B.9.2

De, IlUaaeaeSm 01 0 0 0 0 1, 22,17S 4 0 1.l223170Dem0 2n.50 72A 4,11t,0S0 0.8. 2.7127 7.t2i9 3.417.02 .72143

_epa,aealat_A*39a 0 0 0 0 I0.0.162 0 0 4.195."51_ tAea em0 0 0 104ooz0 0 0 10.457*2Mvtd de .q 3 1 452.2 07.012.906 21.277,*0 t90.004.7d9 0007.407 25.4)7.24 15.27.420 *7.5401

Deed.dw _0 0 m .. 7 J.° L 1I7,07o4S 7i4t7 7o 0- L_ tmdide fidawS.203 2322.001 20.480.716 00.4t0.057 0.42.902 142.105.54 0563.10 20.41.9

2. VAin.a O'wD S0 &aS w-" al_' 1.0PA .1 0 ^S1n .a4too_ L450t_ 0 202

_ t _ _bar edigUlum au 04522t 40.212.01 27.112.73t ta.00.0 102.00.22 1 t.0.2 07.1e12.21 10,56.511

so dm 1410 701 0 17.572.317 2,5 a.7.0 0 4 2 S4

dt @ " Slt,9.4 20.907 0 261711 161.00 2,7 0 104.005

led :l weed Id..1182 1.12 100012tt 7*4.00 t7,02.9 WQQOt0 7.457.702 5.8ttt1 14.02620

a. ,OMeaI 172.940 0 tAO J062 725166SdwhS_ee_* Uode 15.40.5 40.720.831 0.220.22 00000 0.135.470 2127.211t3 7.090.°- 21.12.2C. T.eddAdem

to*lb *74000 0 0 0C7.000 0 0 0 4a.TAtfWtfl 485.000 0 0 419.000 0 0 0 0 ¢d.IwileeaNaeb 1.050.00 0 0 1.0600 0o 0 0 0O00awedCaee~~~~d. t4.4140. 0 0 0.414.000 0°

t. Iguei _ae. _uie 000 0 0 2B5,0D0 0 0 0 0

Tee 74.670.10-0 ~ 60.0025 2.3057 2QO,OOOAoO0 109.141.01i4 t7t,64.72 tO.5247 20lS.150,SI3 0 0h. t

4.1 gam IWmebSUb 5U

Housing Compledon and Sector DevelopmentDbbuments by Gemeetr

(US*)

The Wodd TheBank OGwmment Tota

Amount Amount Anount

1 0 0 02 9,170,760 51,013,487 60,184,24B3 65,508,430 57,728,327 123,236,7574 51,967,092 89,240.389 141,207,481S 37,013,162 82X323,883 119,337,0446 21,165,519 54.628.609 75,794,1287 1S,175.O37 SO 223 818 65.398,8SS

Totl 200.000.000 385,158,513 585,158,513

00,

0 X5-1 Disburment by Senmeers -' x

Ded Procur Sedul

1993 1994 19g5ID Name QCr4 Otr I Qtr2 2 r3 IQTr4 | rICr Q2 2 tr 3 Qt4 Otr I Qtr2 7 C1r3 1 ar4

1 N _gocin lie 1M_ _._ _ _ .. __ _ _

3 Mmen In4 p- _ _ 25.*ati, ___ .77_

5 S8o n _ h,p,,,n 2h 8 2012

a Pmundos_sr,AOJ. 215' 2____

7 PubIoon AvisAO GnaId -

8 Fw a bebn l1stid bd 1 / _

9 Aw1sAOPubaton Av*s A_.

10 Reeiean Offles 3n 312

-ii A4uojdanAlSANacionsC415 4f1.12 No _l _ 2 *...._C.. _.

13 Fabd_on 5/7 O 7/1

Uirs U -. 11 5 _ _,, _ __

1S Ltamn (1) a39 7. .

-160LMon (2) 7131 * 815

17 LUran (3) 8131 as __

18 lkan (4)19 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~a I 10131111._

'10 Pera ron2dms) 2/4 II20 For a baond OW 6fw2t

21 PubiOatfAn AvIsA.. _ . ,.

22 Recsep IOtffes 6lm 6128

23 A _ *4 m423 AdjudIcation ~~~~~~~~~~~~~7/14 7114

21831:32ams

0 aK

Annex 6Page 2 of 4

XN I j 1 1 11 0 1 t ! #

ra .113 It 4I 0

_ I64 p; in A1 4111 -$ d I IF If.

at

Annex 6Page 3 of 4

_ - _ .i

g~~~~~~~~~~~~~ 1 L I If

AI~~~~~~~~

lii~~~~~~~~~~~~~~~~~affi fi i . St, . j m 511.

. 2 0 0'b 0 o | 111 -t[[ l 0i Is Is 1 l

l ~I i~ W, I G: 8 IIKiNI sE l 8Bg IKI 8B 8

Dnlded Procurem.' Sdue

1993 1994 1995ID Nawe Otr4 ItC 1tr w2Qtr3 Qt4 I IQtr2 1 Cltr3 1QX4 Qtr 1Ctr2 1tr3 1r 470 Nifiailons hC

71 Ctdde 42- 622 721 IJwaismbWsf_oup7m __ _~~wlo _ol .og 1172 __._._.

73 Uwalban 7/ I 7m 7l74 Llwahn pott_.. _._.___ 712Y 7/27_

75 1 _ whm 7M lp71-61 Ualaapaet 7/21* 7/2_ -~ _MhIIPl1ft - ./ _ ,____ ......... _

77 PubcicAon A*k AO. -.

78 Recepfton Offres 3/ ._

3n 40~~~~~~~~~~~~~~~~~~~~~~~~~~~~~0

79 Jkqudk4J0 n

4M~~~~~~~~~~~~~~~~~~~~~~t

80 lJt 1751

.D4 2/9/9311:32mam

00-.h K

Annex 7Page 1 of 3

Terms of Reference for Technical Assistance Component

Environmental Aspects.

1. Mitigation of potential environmental impacts of this projectinvolves strengthening the capacity of the GOA to improve its effectiveness incoordinating and implementing environmental impact assessment and mitigationactions. The proposed Technical Assistance component of the loan includes theprovision of two long-term assistants. These assistants will be posted to theSpecial Projects Unit of the Ministry of Housing and serve to increase technicalcapacity within the Ministry and other government agencies, and to coordinatelong-term strategies for natural resource use and environmental management andplanning. These Technical Assistants will focus on two areas: (a) environmentalimpact assessment and environmental management issues, and (b) long-termurban/environmental planning.

Environmental Impact Assessment Specialist.

2. The ZIA specialist will work with the Ministry of Housing, and otherhousing agencies within the Government to carry out environmental impactassessments of the on-going construction phase, and to propose realisticmitigation procedures. In addition, the specialist should develop and implementan ZIA training course at the national and local level.

3. Initial VIA Activities. The initial activities of the EIA specialistshould focus on assisting the GOA in carrying out an environmental review of theon-going construction program The TA should work in collaboration with theMinistry of Housing, Ministry of Equipment and other agencies. This reviewwould allow the Ministry to minimize the negative environmental impacts wherepossible. The cooperation proposed in this review would also serve as aprecursor to long-term coordination of urban planning, environmental impactassessment and water resource planning between the various national and regionaladministrative bodies. Such on-going coordination would greatly assist theGovernment of Algeria in promoting sustainable development. The technicalassistance should include the following elements:

a. Collecting sand and gravel. The EIA specialist will review datacollected from OPGI which details the strategy for collecting sandand gravel, where these resources are collected and the amounts tobe collected at each site. These data should enable the TA, inconjunction with the Ministry of Housing and the Department ofEnvironment of the State Ministry for Research, to assess thepotential for disturbance of environmentally sensitive sites andpropose mitigation techniques.

b. Converting agricultural land. The TA will assist the Ministry ofHousing to compile a report which details where agricultural land isbeing used in the construction, how much land is being developed,and whether techniques can be used to minimize the use of productiveland.

Annex 7Page 2 of 3

C. Using Potable Water. In collaboration with OPGI, the technicalAssistant will coordinate an assessment of the housing units impacton the demands for potable water resources, waste water systems, andirrigation water resources. In this assessment, the TA and OPGIshould consider information such as take-off of potable water fromeach river, the amount of waste water created, the level of

- treatment necessary, the capacity of existing and planned treatmentfacilities, the discharges of waste water into the river system, andthe impact of discharges on overall water quality. This analysis,should also assess the infrastructure investments required to ensureadequate capacity at treatment facilities affected by the housingprogram.

4. Short Term Studies. The TA will develop several short-term studiesduring the course of the project. One study will focus on the air pollutionemitted by the cement factors. Currently, such emissions have a negative impacton both human health and agricultural productivity. The study, should focus onproduction efficiencies at the factors and cost-effective strategies for reducingair pollution.

5. The TA will develop a short-term study to define the protocols andprocedures for carrying out detailed environmental impact assessments for thesecond phase of the construction phase. This phase will entail the constructionof approximately 30,000 housing un'ts. The TA will prepare the technicalproposal for the ZIA and site analyses, and supervise consultants in carrying outthe work. In addition, the TA will work with the GOA to ensure that the resultsof the EIA are implemented in the planning and construction of the housing units.

6. During the course of the assignment, the TA will evaluate othershort-term research needs and develop the appropriate study protocols and TOR's,and manage the short-term consultants carrying out those studies.

7. Lona-Term Environmental Plannina Activities. The TA will evaluatethe most effective methods for coordinating long-term environmental planningwithin the government. The existing environmental and planning capacity,especially under the State Secretary of Research and the Ministry of Interiorshould be integrated into the planning and impact assessment activities for theon-going construction. In particular, the Agence Nationale ProtectionEnvironnement (ANPE), Agence Nationale pour l'Am6nagement du Territoire (ANAT),Centre National d'Etudes et de R6alisations en Urbanisme (CNERU), and Ministryof Equipment should review the overall planning strategy of the on-goingconstruction planning and suggest opportunities for minimizing the negativeenvironmental impacts. This process should be developed as an on-goingconsultative body on environmental, urban planning and water resource planning.The initial consultations could, however, review the data and analysis proposedabove, and make suggestions for improving the on-going construction andIrecommendations for future construction.

8. Lecislative Review. Current environmental regulations do adequatelycover many critical issues in Algeria. However, some areas are not sufficientlycovered. For example, the procedures for Environmental Impact Assessment, aspresented in the 1990 Executive Decree (No. 90-78 of 27 February 1990 relative

Annex 7Page 3 of 3

to the studies of the impact on the environment) and the 1983 Environmental Laws(Loi no. 83-03) do not extend to urban planning or construction. Incollaboration with the Ministry of Housing and other agencies, the TA will reviewthe relevant legislation and consider recommendations for strengthening the legalfranework for environmental management.

Urban/Environmental Planning Specialist.

9. A second Technical Assistant to be assigned to the Special ProjectsUnit will focus on urban planning. This TA will review the existing urban plansrelative to the on-going construction, and, in conjunctior. with local andnational agencies, develop cost-effective proposals to enhance the urbanenvironment. A majority of the housing units will be constructed in existingcities, or in large "new towns." These sites will require extensive urbanplanning in order to provide for centralized services, such as solid wastedisposal and public transport. The TA, in conjunction with the Ministry ofHousing will review these plans, with special reference to the opportunities toadjust existing plans to improve the urban environmental quality for theinhabitants. Specifically, the TA and Ministry of Housing should work with OPGIto provide an assessment of the level of central services which will be requiredfrom each site, how such services are to be provided, and the existence ofrealistic implementation plans for these services in each commune or Wilaya.

10. Trainina. Currently, urban planning associated with the on-goingconstruction is based with planning units at the Wilaya level. At present only400 of the 2,000 planning positions at the "Cadres Superior" level are filled.These cadre are largely recent university graduates with little planningexperience. Consequently, the Urban Planning Specialist will develop a trainingprogram in Urban/Environmental Planning in conjunction with the Ministry ofHousing, Centre National d'Etudes et de Realisations en Urbanisme (CNERU) and thelocal Wilaya officials, and implement training courses for these cadres. Thesetraining courses should focus on developing realistic mitigation procedures forthe on-going construction, as well as new planning tools for future constructionand urban planning projects.

11. EauiDment Sum3ort. In order to carry out the Terms of Referenceoutlined above, the TA will require the use of basic equipment and tools ofenvironmental analysis and training. These tools include computers, printers,plotters, aerial and satellite images, survey equipment, and environmentaltesting equipment for water and air quality. The cost of such equipment islikely to be on the order of US $300,000.

IBRD 24534

HOUSING COMf-lXtk0N

SECtOfta-z DEtOMN | /- 25..rf -, -M/ --- -- -- - 26' ----------- - ~ - - ~ .

2 - Ag q >j;sZoM _ . *- WloG \ J- w STo * Sli-- --- -

32 ~~~~3

WILAYA NAMES AND PROJECT LOCATIONS (4) 0 TOWNSANDVIILGESAPAVED NATIONL ROADS fii

ADRAR i 2 EL BAYADN J ' OUARGLA 0 WAWAHERADQUARTES I

44 AIN DEFLA 3 EL OUED 4 OUM EL BOUAGHI A-0n7f hAIN TEMOUCHENT 36 EL TARF 48 RELIZANE PAVED WILAYA ROADS

16 ALGIERS 47 GHARDAIA 70 SAIDA 3 NA0 C 47/ 23 ANNABA 21 GUELMA SETIF ° / 30

5 BATNA 3 ILZI 22 SIDI EEL ABBES RAILROADSBECHAR 18 JIJEL 21 SKIKDA /37 >A G IR-+-AI

6BEJAIA 4' KHENCHELA A SOUK AHRAS --- 33BISKRA 3 LAGHOUAT TAMANGHASSET

9 LIDA 29 MASCARA 12 TEBESSA AIRPOR11I34 BORDJ BOU ARRERIDJ 26 MEDEA 14 TIARET INTERNATIONALEOUNDARIES 2\

10 BOUTRA '1 MIIA TINDOUF N \|.35 BOUMERDES 27 MOSTAGANEM 42 T:PAZA Th X moP Wod Benhn ntnfl e (or th e '/

2 CHIE 38 MSL 1SSEMSIL Th .ntPheeMj7A hn,d4 W edonrI fo e elon 9h ol Bon 0 SD lDD ISO N~25 CONSTANTINE A" NAAMA 15 TIZIOUZOU h:undi ofierte

7oCrporo6oho Th denemine6eoI hGoe en the

DJELfA N31 ORAN TLECIEN tnt6reinlPnr.CroooeP3

,y 1 1 7'Id ey *,cmthrri.ory trony endoremetor C cephtnc eh on ori K.-

JANUARY 1993