A private-sector role in managing land administration? We did our homework

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The role of PPPs in Land Management
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In this blog space in October 2017, we discussed the role of private sector in land administration and mentioned our unit would undertake an assessment and conduct global consultations on the issue. Our idea was to discuss current experience and explore ways to enhance this kind of partnership. 

Last month in Vienna, we completed the third consultation where 40-some participants joined us—split equally between government and private sector representatives. This followed two consultations held in Dubai last October and Kuala Lumpur in February. 

Our consultations addressed several questions: 

•    What models of PPP in land administration should be considered?
•    What are their minimum requirements?
•    What risks are involved and how can they be mitigated?

We know that many countries already partner with the private sector for several functions of land administration, either through service contracts or long-term contracts where the private sector is paid against outputs/performance indicators. Service contracts are utilized for cadastre mapping, first registration, development, and IT solutions—among others. The latter partnership model is best demonstrated by the Malaysia e-Tanah IT solution, digital property registration developed and operated by the private sector based on a 12-year contract. 

In very few cases, governments have issued a concession to the private sector to run the entire land registration functions—as in several states in Canada and Australia. 

Our consultations show that many governments are interested in attracting private sector partnership into this field. But they raise important concerns about data ownership, the cost of services for citizens, the fate of government employees, and what happens after contracts end. 

Fortunately, many of these concerns could easily be addressed by a clear, detailed, and transparent contract and competitive bidding processes. Clearly, the government should retain ownership of all data. Fees are always set by government, in line with the contract terms, to ensure services don’t become more expensive. In many countries, governments include language in governing contracts ensuring government staff have employment security for a specified period. Lastly, contracts can easily clarify what happens at expiration: re-negotiation, extension, or re-bidding.  Interestingly, we’ve seen that private-sector consultation participants showed strong interest in providing services based on service agreements or long-term agreements with performance-based payment.  

There are other concerns. In addition to the normal risks associated with PPPs—such as macroeconomic instability, currency fluctuations, and security and political risks—there are specific land administration risks, such as adequacy of laws and regulations, informality in the property sector, downturns in real estate market activities, ability of government to pay on time, and securing financing for the project. 

Many of these can be mitigated by comprehensive assessment to investigate the legal and regulatory framework, market activity, financial flow of land registration agencies, and more. An analytical and operational framework—the result of our consultations—provides a tool to help land agencies and the public sector undertake due diligence to understand the viability of any investment.

Clearly, private sector participation may not fit every country and function of land administration. We can say that the functions we see attracting the most interest from both governments and the private sector are IT solutions—as governments lack in-house skills to develop and maintain sophisticated solutions and often adequate budget to maintain and upgrade them. The private sector has the know-how and ability to attract highly skilled IT professional—and Malaysia has shown us how this can be done. 

Another area that could attract private-sector participation is first registration. First registration is complicated, but fundamental for completing any country land administration system. Many functions of first registration could be done by the private sector, such as management, surveying and mapping, collection of legal documents for citizens, and public announcements. The issuance of rights and dealing with disputes probably needs legal officials from government, but data used for adjudication is easily collected by the private sector. The high cost of first registration may require subsidies from government, as downstream revenue from property registration fees may be insufficient to recover the cost for an investor, even on a long-term contract.  

One way to achieve efficiency and speed is to bundle first registration with IT solutions under one long-term contract. Government would subsidize a good deal of first registration costs through their own financing or donor funding, and the private sector would pay for the IT solutions and a small percentage of first registration costs. The private sector could then recover the investment through a revenue-sharing arrangement on property transactions over the contract duration. Undoubtedly, a comprehensive assessment and feasibility study is needed to structure this arrangement and make sure the investment is viable. However, if successful, this arrangement could achieve multiple goals: bring private-sector skills and flexibility in hiring and financing first registration and building modern IT solutions; reduce the burden on government financing; accelerate progress on land registration generally. 

Let me emphasize again that partnership with the private sector based on long-term agreements may not fit every country or every function of land administration. We’re conducting this analysis simply to add additional items to our menu of support to governments. If they choose this route, we want to provide governments with tools for comprehensive assessment that enables them protect the interest of state and citizens, while achieving success in modernizing land administration functions.  

We’ll have these analytical and operational tools available on the web very soon and will encourage their use by governments, the private sector, and development partners. We will modify the tools based on the experience gained during their implementation—so we look forward to collaboration in this regard. 

And of course, we, at the World Bank, are happy to support our client countries to undertake the assessment if they’re interested. 

Let me end by emphasizing that partnering with private sector alone will not solve all land administration weakness. Governments must develop a broader road map that includes policy and legal reform, institutional modernization, capacity enhancement, and investment.   Private-sector participation should be only one stop on this map. 

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Wael Zakout

Senior Technical Advisor and Global Lead, Land Policy and Geospatial

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