STATE-OWNED AGRICULTURAL LAND - A DORMANT TREASURE KATJA DELLS International Consulting Dept., BVVG Bodenverwaltungs- und verwertungs GmbH (German AgriForest Privatisation Agency), Germany dells.katja@bvvg.de Paper prepared for presentation at the 2014 WORLD BANK CONFERENCE ON LAND AND POVERTY The World Bank - Washington DC, March 24-27, 2014 Copyright 2014 by author(s). All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies.
Abstract Land in state-ownership including agricultural land is often regarded as free good rather than a valuable asset. While in many countries around the world ownership of agricultural land lies mostly in private hands, in others a considerable share of agricultural land belongs to the state. This raises the question of how to deal with this state-owned agricultural land (SOAL) in the long run, how to manage it effectively and how to allocate it appropriately in order to put it into effective use. However, a clear vision of how to manage this land is often lacking and unfavorable frame conditions for SOAL management add to the problem. The paper/presentation highlights how the potential of SOAL can be unlocked. It focuses on the aims and principles of effective and transparent management of SOAL and analyzes different procedures and tools used in SOAL management. It draws on examples from e.g. Serbia, Ukraine, Kosovo and (Eastern) Germany. Good governance approaches are illustrated and different legal and institutional settings for the management of SOAL are highlighted. Concluding, the paper/presentation summarizes best practices for SOAL management and future assignments for the global community regarding the management of SOAL. Key Words: Management of state-owned agricultural land, good governance, procedures and tools 2
1. Introduction Despite the growing recognition of the importance of state lands and their proper management, public land and property assets are generally weakly managed. Considered as free and available, state lands are commonly encroached upon, over utilized and acquired for personal gain. Undefined tenure arrangements and poor recording of land rights contribute to the poor and ineffective management of public lands, providing fertile grounds for corrupt practices (FAO, 2009). This also applies to agricultural land in state-ownership. It is often regarded as a free good rather than an asset, which should be used to fulfill land policy aims in favor of its citizens and to gain revenues for the state-budget. In many countries around the world a considerable share of agricultural land belongs to the state. Reasons for this are manifold. Either, land reform objectives have not yet been accomplished, privatization procedures are still ongoing, or states have decided to keep this land in state-ownership for various reasons. In Ukraine, for example around 10 m ha of agricultural land are still in state-ownership, the Russian Federal Service for State Registration, Cadastre and Cartography declares 276,5 m ha agricultural land to be in state- and communal ownership, Kazakhstan reports 85.5 m ha of state-owned agricultural land (afterwards referred to as SAOL), Mongolia 112,4 m ha (in 2008). Croatia possesses approx. 890,000 ha of SOAL and Germany despite the fact that the privatization procedure of SOAL in the new Federal States has already started shortly after reunification has still got around 260.000 ha of SOAL. This raises the question on how to manage this land efficiently and allocate it appropriately in order to put it into effective use. Effective management of SOAL can support the development of a viable agricultural sector, which is of high importance especially in countries where a considerable proportion of gross domestic product is created by agricultural production. It can help to establish secure land tenure and to support the rural poor that are especially dependent on access to land. Secured ownership or use rights of agricultural land are expected to lead to increasing investments in the agricultural sector. This effect was also observed during the privatization phases of agricultural land in Germany and should be kept in mind when discussing SOAL management. Also, the growing demand for food as well as environmental considerations and the mitigation of climate change impact on the one hand and effective state-land management on the other hand are closely linked. 3
However, often basic knowledge on the amount and location of SOAL is lacking. Base data such as cadastral records and land register data is missing, outdated or difficult to access. Spatial planning regulations are missing or simply not implemented leading to use purposes of SOAL other than agricultural production. Biased or absent markets for agricultural land as well as incoherent legal frameworks and unclear or overlapping competencies of various institutions involved in SOAL management add to the problem. In recognition of the above mentioned challenges, the following chapters will demonstrate how the potential of SOAL can be unlocked. While chapter 2 highlights the policy, legal and institutional framework required for the administration of SOAL, chapter 3 illustrates different procedures and tools for the management of SOAL and discussed different the pro s and con s of different allocation procedures. Chapter 4 focuses on good government principles and approaches in state-land management and shows how transparency and accountability of business operations can be facilitated. Chapter 5 summarizes best practices regarding the management of SOAL and points out where future assignments for the global community lie in the context of SOAL management. The paper draws back on BVVG s (AgriForest Privatization Agency) 1 experience gained in the framework of foreign consultancy projects but also during the German privatization process and will mention examples from various countries including Serbia, Ukraine, Kosovo, Mongolia and (Eastern) Germany. 2. Policy, Legal and Institutional Framework for Administration of SOAL Effective and transparent management of SOAL requires a sound policy, a coherent legal framework and an adequate institutional framework. 2.1. Policy Framework SOAL management should be determined by a state s policy objectives. From a fiscal point of view the objective of managing state-owned land is to maximize state-revenues. However, agro-structural objectives, for example aiming at the development of the agricultural sector by supporting private sector development or rural-development goals often also play a major role. 1 BVVG is a state-owned agency responsible for the management and privatization of state-owned agricultural and forestry land in Eastern Germany. 4
Serbia for example supports rural development objectives by granting 40 % of the revenues gained from leasing SOAL to the municipalities where the revenues are generated. The municipalities are entitled to use these revenues for investment purposes in the agrarian and rural sphere such as flood control and infrastructure measures as well as irrigation improvements. The same counts for Croatia where even 65 % of the generated revenues remain in the municipalities. In Croatia these revenues are also earmarked for the mentioned improvements and rural investments. In addition to that the revenues can also be used for the updating and completion of the cadaster and land register as well as the implementation of mine clearing projects. In the framework of land reform, objectives of social equity and in the case of post conflict situations of remediation and compensation are often the main policy drivers. In the context of SOAL management environmental objectives as well as climate change issues including objectives of mitigating climate change impact also get increasingly relevant. Often more than one objective is considered in the policy framework for SOAL management. For example, in Germany the consideration of economical, ecological and structural particularities as well as aspects of ownership restructuring (Trustee Act) served as guiding principle in the privatization process of former publicly owned land. Within the boundaries of these partly non-fiscal objectives, fiscal policy aims, i.e. gaining revenues for the state-budget were followed. This already showed by the fact that the task of SOAL management and privatization was subordinated to the Federal Ministry of Finance. Later, in 2009 the coalition treaty of the newly elected government parties stated that certain environmentally valuable land in state-ownership should be transferred free of charge to the German Federal States or their Federal Nature Protection Foundations with the aim of preserving these sights. Following this environmental objective up to 21,5 Tha of SOAL have been transferred by BVVG until today. However, in a lot of countries a clear vision regarding the aims of SOAL management are either not clearly mentioned of missing altogether. Ideally, a national land policy should be formulated that also includes SOAL management. It should define major objectives and determine the implementation methods and procedures to accomplish these objectives. It should comply with other related policies such as the national agrarian and environmental policy. A clear formulation of such land policy aims helps to determine and communicate those underlying objectives and serves as basis for the required legal framework and more detailed implementation programs for SOAL management. 5
Especially in countries where allocation of state-owned land bares a great potential for conflict a clearly and transparently communicated policy that explains the government s rationale and informs the public about their rights and options in the scope of state-land allocation can help to diminish this conflict potential. When determining the state s land policy including the objectives for SOAL a sound and complex approach is required. Since this state-land forms a valuable asset that can be used not only for the development of the agricultural sector but, alternatively also for e.g. conserving the environment, for urbanization projects and/or for mitigating climate change impacts questions on how to use SOAL go beyond the question of using the land for agricultural purposes. National and regional spatial planning concepts as well as economic and environmental development plans ideally need to be in place as basis for decision of how SOAL can be put into most effective use. For example, in many countries vast lands are used extensively as pasture land. Often this land is state-owned. When deciding about how to put this land into effective use intensification of the agricultural use sometimes with the help of foreign investment is often taken into consideration. However, a possible alternative could be to maintain the extensive use in combination with for example wild life management and opt for wild life and nature tourism. Analyzing the different options including their economic, environmental and social impact as basis for decision for a certain land policy can prevent from choosing the second best alternative. 2.2. Legal Framework The legal framework for SOAL management differs from country to country. Serbia, Croatia and Kosovo for example have created a core law governing different aspects regarding the use and protection of agricultural land and include regulations concerning SOAL. Other countries like e.g. Ukraine have drafted land codes that govern all aspects related to land in general including the issue of SOAL management. Germany in comparison has chosen a different approach. General regulations governing the use of land are found in several laws such as the Law on Lease Transactions, the Law on Land Turnover, the Civil Code and environmental laws corresponding to the protection of land. These laws are also applicable when managing SOAL. Furthermore, German contract law including the principle of freedom of contract allows for the regulation of many details regarding lease or sales agreements for agricultural land (including SOAL) on a contractual basis rather than stipulating them by law. Aside of these general regulations in Germany a few so called transitional laws came into force that governed the restructuring of ownership on former publicly owned land in Eastern Germany. Rather than on land as centerpiece of concern they focus on the intention of compensation for lost property. These transitional laws most 6
prominent the Indemnification and Compensation Act together with the above mentioned laws governed the privatization process of SOAL in Eastern Germany. No matter how states design their legal framework for SOAL management, the main objective should be to make it coherent and consistent. Although seemingly trivial the lack of coherency in the legal framework is often an impediment for the implementation of land management regulations including SOAL management. In some cases the regulatory content is far too complex and lacks consistency, in other cases the legal framework suffers from overregulation or lacks clarity. For example, when governing the management of SOAL it must be clear how SOAL is defined. A clear distinction between SOAL and municipal land or land belonging to certain communities has to be made in order to avoid conflicts resulting from vague or lacking regulations in the laws. The excessive use of cross-references from one law to the other combined with frequent law amendments often leads to inconsistency. Generally, the legal framework for SOAL management should illustrate the main objectives and principles while procedural and operational regulations should be fixed in by-laws that can be easily amended in order to adapt to changing requirements. 2.3. Institutional Framework SOAL management has to be executed by a government body. In Germany a separate agency (BVVG) was installed, exclusively responsible for the management and privatization of state-owned agricultural and forest land in Eastern Germany. In contrary Serbia has decided to use the administrative structures already in place and add the task of SOAL management to them as one of various assignments. While the Serbian Ministry of Agriculture, Forestry and Water Management has the overall responsibility for SOAL management, the municipalities are in charge of the operational business. Croatia recently decided to change from SOAL management on the municipal level to the installation of an Agricultural Land Agency subordinate to the Ministry of Agriculture. In Kosovo the task of SOAL management was allocated to a privatization agency, responsible for privatizing all state-assets. In Ukraine SOAL management was delegated to the district administrations. However, in 2012 a state-land bank was established that is meant to take over the operational business of SOAL management. Establishing a SOAL management agency has the advantage that uniform management and allocation procedures can be implemented. Experience and know-how is bundled in one agency and economies of scale can be implemented regarding the development of instruments (e.g. IT system). Important data such as lease prices and sales price information can be recorded centrally, processed and made available 7
to all subordinates (branch offices) of the agency. Monitoring of such a management agency can be organized easily, by subordinating it to one of the Ministries (e.g. Ministry of Finance, Ministry of Agriculture). However, the establishment of new agencies is a costly endeavor. The use of existing administrative structures can be an advantage for countries with limited financial resources. Experience in Serbia showed that by supporting the municipalities in their tasks through simple measures like providing documents for the execution of their tasks, by regular training seminars and by monitoring their performance, SOAL management could be efficiently implemented by local administrations. In Serbia the fact that 40 % of the lease revenues for SOAL are allocated to the municipalities acts as incentive for the municipalities to participate in the process of SOAL management. The Serbian model has led to a consistently rising percentage of SOAL leased out and to rising revenues for the state budget and the municipalities 2. At the same time SOAL was put into production and helped to further develop the agricultural sector. In the long run it is advisable to allocate a proportion of these revenues to develop the local administration s technical capacity for SOAL management. Whatever institutional setting is chosen, a system of supervision and monitoring has to be in place (see chapter 4). Furthermore, it is important to limit the number of different institutions involved in SOAL management. An excessive distribution of tasks frequently causes unclear or overlapping responsibilities as well as the existence of competing objectives with the result of making SOAL management bureaucratic and ineffective. 3. Procedures and Tools for the Management of SOAL SOAL management requires determined procedures that govern the work processes and tools that make these work processes more transparent and effective. This chapter will highlight different procedures and tools and will show under which circumstances one alternative is more appropriate than the other. 3.1. Allocation Procedures In the context of SOAL management decisions have to be taken on how and to whom to allocate this land. SOAL can be leased on a short or long term basis or can be sold. Also, long term lease rights can be 2 While in 2006-2007 when the lease program started in Serbia approx. 68,000 ha where leased out, in 2009-2010 this figure amounted to approx. 240,600 ha, and in 2012-2013 to about 288,600 ha. Revenues generated by the leasing of SOAL increased from approx. 9 m EUR in 2007 to almost 50 m EUR in 2013 (Serbian Ministry of Agriculture, Forestry and Water Management, personal communication). 8
granted for SOAL. Generally, this implies payments from the recipient. However, SOAL sometimes is allocated free of charge. The latter usually happens in the scope of land reform. In Ukraine, for example all members of former collective farms received a land certificate for a certain land share that at a later stage - was transferred into an ownership title. Additionally, so called household plots were distributed to people living in rural areas. The measure aimed at improving the livelihood of the rural population by granting land for subsistence farming or starting a family business. In Bulgaria, Romania, Estonia, Latvia, Lithuania, and also Germany SOAL was partly restituted to former owners. Allocation free of charge often has a social dimension and / or is driven by aims of justice. It can become essential in the scope of a pro poor policy with the aim to secure access to land and tenure rights. However, it can also have a negative impact on the agro-structure because often causing fragmentation of land and ownership. SOAL allocation free of charge sometimes also serves administrative purposes. For example, in Germany land was allocated free of charge to statutory bodies (e.g. municipalities) if they could prove that they needed this land to fulfill their administrative tasks. As mentioned before, a certain share of SOAL was also transferred without charge when proved to be environmentally valuable (see chapter 2.1). In Ukraine (and also in Serbia) SOAL can be transferred free of charge to science institutions to be used for research purposes. However, this land in practice as a study on SOAL management in Ukraine in 2006 revealed is often underutilized or subleased. The handing out of short term lease agreement s (one to five years) for SOAL is often chosen as method to keep this land in production while the ownership situation is still unclear and regulations for SOAL management are not yet in place. In Serbia, for example SOAL with restitution claims can only be leased out for up to three years. Also, in Eastern Germany at the first stage of SOAL management mainly short term contracts were concluded. The Kosovo Trust Agency also issued lease contracts for SOAL generally only on a one year basis as an interim solution before full privatization. The procedure of leasing SOAL on a long term basis (here defined as agreements with durations of 6 to approx. 20 years) can be feasible when states decide not to privatize SOAL but to keep it in stateownership. But also when planning to privatize SOAL, the granting of long term lease contracts in the first phase of the privatization process is an option. In Germany this approach was chosen. One reason was the fear that quick privatization through massive land sales would shatter the land market in Germany and beyond resulting in declining prices for land. But also, the leasing on a long term basis (after a short period of handing out short term lease contracts) was considered the best way of using SOAL for agricultural production while setting up the regulative framework for privatization. This also had the 9
advantage that agricultural enterprises did not have to bind capital in land purchases but could rather invest in machinery or other inputs. Another reason was that land prices were expected to rise during time. Therefore, by leasing SOAL at an early stage of transition and selling at a later stage, the state can benefit from market development and generate more income for the state. However, it must be considered that business concepts of farm enterprises rely on the land used. A withdrawal of large proportions of land because of expiring lease contracts eventually can result in bankruptcy. Also, investments made on SOAL leased on a long term basis need to be considered and compensated adequately when lease contracts run out. Long term use rights for up to 50 years and longer are often considered in the scope of SOAL management. Such use rights provide high security for the user. However, experience from Mongolia, Ukraine, and other East European countries have shown that allocation of SOAL for such long time frames can lead to underutilization of land and often block land market development. The rent for these long term use rights is often fixed or governed by law. Therefore, prices for the use rights can t be adjusted during the course of time. The user pays little over this long time span and is not urged to put the land into effective use. Often this land is subleased for a much higher price than the user pays. The user benefits from rising prices rather then the state, who is owner of the asset. Eventually SOAL can be sold. Full ownership provides maximum security for the owner and facilitates access to credits since land can be used as collateral. The buyer can make intensive investments without having to fear disputes with the land owner on the level of compensation for these investments at a later stage. If SOAL is sold in a fully developed land market, revenues reflect the real value of the assets. Administrative costs are no longer incurred and a managing authority is no longer needed. Any subsequent land allocations will happen through market transactions between private owners. In case the state requires agricultural land at a later stage it can buy land on the land market. Another possibility is to keep a minimum amount of SOAL required for future tasks such as land consolidation. Table 1 below summarizes the pro s and con s of different allocation procedures. 10
Method Pro Con Allocation free of charge Short term lease agreements Long term lease agreements Long term use rights Improving livelihood of rural population (if dedicated only to smallholder farmers) Supporting smallholder farming Securing land tenure rights Supporting public institutions in fulfilling their administrative tasks Formation of state and/or university farms to demonstrate good farming and new farming techniques to farmers Allow high flexibility in SOAL management because of the option of reallocation after a short period of time Allows farm businesses to consolidate economically Facilitates to keep SOAL in production Stretching privatization: no selling on a not functioning land market time to set up privatization program time to solve restitution issues High security for the user Administrative effort of SOAL managing agency is low Situation of rural poor and smallholder farming not necessarily improving if not flanked by additional measures (e.g. farmers support programs) Land often subleased Subleasing to big enterprises at low prices Land often underutilized Little security for the lessee Low readiness of the lessee to invest into farm businesses Withdrawal of large amounts of leased land after termination of contract can lead to bankruptcy of the farm business Investments made by the user have to be taken over (if stipulated in contract) and valued properly Lease price adjustment even with contractual clauses allowing for it, lead to discussions/conflicts with lessees Land often underutilized due to fixed rents Can block full privatization Investments made by the user have to be taken over (if stipulated in contract) and valued properly Hinders development of a healthy market for agricultural land Land sales Maximum security for the owner regarding land tenure Land can be used as collateral by the owner Administrative costs do not incur any longer or are limited only to contract monitoring Selling on a developed land market provides for high revenues for the state Table 1: Methods of SOAL allocation: Pros and Cons. Dells, K (2010) Selling at a stage where restitution questions are not solved leads to necessary compensation measures later, when compensation in kind is no longer possible Selling on a not developed or distorted market can lead to low sales prices 11
The allocation of SOAL has to follow certain procedures. Usually they are governed by law, by-law and / or internal guidelines. A distinction can be made between public bidding procedures and the handing out of direct contracts (the term direct contract refers to concluding a contract on a direct basis with an applicant, i.e. without a bidding procedure). In many countries the standard procedure for awarding lease or sales contracts is a public bidding procedure. The underlying principle is that the public should be informed about available state-assets and parties should get equal opportunities to access them. Of the two public bidding types tender or auction auction is often favored. The process can be followed openly by all participants thereby decreasing opportunities for corruption. However, were bids awards depend not only on the highest bid but also additional criteria, for example a business concept or the solvency of the bidder auctions are not suitable. Tender procedures can be preferable because the procurement agency is not obliged to sell or lease the object. It can refrain from awarding when for example bid levels are too low. Another advantage of tenders is that a contract can also be done with the second bidder in instances where the contract can t be concluded with the highest bidder. This does not count for auctions. However, tenders create a danger of fraud when sealed bids are opened and reviewed internally by the designated agency. The implementation of transparent procedures, such as collecting sealed bids in a closed tender box and as was done by the Kosovo Trust Agency in the scope of land sales - opening the bids in public. SOAL can also be allocated by a direct lease or sales contract with an applicant. Many countries, inter alia Serbia, Germany, Ukraine and Mongolia make use of this option. The reason often is based on a policy favoring the allocation to certain beneficiary groups, for example in Serbia to livestock holders or in Germany in the early nineties to applicants with economically viable farm concepts. Sometimes the underlying reasoning and the procedure of handing out direct contracts is unclear or not transparent producing loopholes for corruption. In comparison, selling by public tender can result in higher prices and allocation of SOAL to financial powerful investors, giving little chance to small holders or small-medium farm enterprises to receive SOAL. Both arguments have their reasoning. An alternative procedure that allows allocation to certain beneficiary groups while following the principle of competition is to implement restricted tenders for a certain share of SOAL, where only certain predetermined eligible groups can place their bids. 12
Procedures Pro Con Tender Equal chances to access SOAL Price achieved reflects market value All bids are valid Additional criteria than highest price can be considered Auction Equal chances to access SOAL Price achieved reflects market value Less opportunity for corruption Direct contracts Facilitates allocation to eligible parties, e.g. in the scope of farmers support programs Can enable corruption Forcing up of prices Forcing up of prices With fall of the hammer other bids have not validity - procedure has to be restarted if winning bid does not lead to contract conclusion No equal chances to get access to SOAL Determination of prices difficult Danger of corruption Table 2: Procedures of SOAL allocation: Pros and Cons. Dells, K (2010) 3.2. Model Contracts and Contract Management Lease or sales agreements are usually fixed by a written contract. Model contracts help SOAL managing agencies to follow uniform procedures in the process of concluding contacts and provide standard clauses as well as optional clauses for different situations. They provide a framework for officials responsible for contract negotiations and prevent them from exceeding their competences. Ideally model contracts are available electronically to the managing officer. Written lease contracts lay down the rights and duties of both contracting parties. The more detailed the contract describes the negotiated agreements the more it prevents both parties from future disputes. Sometimes lease contracts have to be reported to the responsible public agency or even registered in the cadaster (e.g. in Ukraine). The contracts provide information for tax purposes and valuation of land. Contract templates used by public authorities managing SOAL are often limited to a few basic provisions. However, leasing over a long period of time requires more detailed provisions in the contract. Aside of standard compulsory clauses including personal data of contracting parties, cadastral data (including an excerpt of a map showing the boundaries of the lease / sales object) contract duration, payment modes and amount of rent, use purpose, reasons for termination and appeal, additional optional clauses can specify the terms of the agreement (e.g. subletting, the using of facilities, environmental matters, compensation for improvements and / or consequences in case of breach). 13
Sales contracts usually contain the following information: i) personal data of the contracting parties, ii) land parcel information (cadastral data), iii) information usually found in the land register such as the present owner, limitations/restrictions, easements, preemption rights, mortgages (on the sales object), land charges, iv) purchase price, v) rights of the purchaser in the event of defects / other breaches of duties, vi) duties of the purchaser with regard to the transfer of possession. Additional clauses might be required, for example when polluted land is sold or when the responsible agency for SOAL management sells SOAL in the framework of a special program benefitting certain eligible groups. In the case of Germany the so called land purchase program allowed for selling SOAL at reduced prices (approx.. 35 % below the market value). However, beneficiaries had to comply with certain regulations. The land had to be managed by the purchaser, the purchaser had to have his principal residence close to the farm holding, land use had to comply with the business concept, the sales object was earmarked for agriculture and the reselling of SOAL purchased was prohibited for 20 years (later 15 years). Additional regulations can be inserted in a sales contract where legal regulations governing certain issues are lacking. For example, if the change of land use is not governed by legally binding spatial planning documents, respective restrictions can be made in the sales contract. Sometimes special arrangements such as selling SOAL in the scope of land consolidation projects or investment projects are needed that result in very complex sales contracts. The obligations of the lessee or the buyer laid down in the lease or sales contract require monitoring by the agency responsible for SOAL. This calls for a determined procedure of monitoring compliance and in case of contract breach of measures to penalize contract violation. Respective clauses governing obligations or restrictions in the context of using the land are futile if not monitored adequately. This sounds obvious but in practice is not always guaranteed. Missing control mechanisms because of unclear responsibilities, staff shortage or undefined procedures hamper enforcement and the respective clauses turn into toothless tigers. 3.3. Land Valuation The sale or lease of SOAL requires information about the value of the land in question. Some countries, such as Mongolia chose to fix lease or sales prices (by law or by the government). These fixed prices usually do not represent the market value. In these cases SOAL often gets leased or sold under value which can lead to (illegal) subleasing or reselling at higher prices, whereby the lessee/purchaser rather than the state benefits from the margin generated. 14
In the case of public biddings the highest price achieved can be considered the market price and reflects the value of the land in question. But, sometimes agencies managing SOAL want to determine orientation prices to compare to the prices achieved in public bids. Furthermore, as mentioned above SOAL is often allocated by concluding contracts directly with an applicant. In these cases a procedure is required that allows for the determination of the potential market value. Countries with developed land markets usually have institutions monitoring market activities and providing market information to the public. In Germany, so called valuation boards situated in the cadaster offices and building administrations collect data on sales contracts, process them statistically and publish market reports. The market reports provide market information to all players on the market including BVVG that uses this information (together with company internal valuation data) to determine the value of land in its portfolio. However, in countries where the land market is poorly developed, these data are often not accessible. Due to little market activity or unofficial land transactions comparison prices are not available. In many countries the need of a land market monitoring institution, such as the above mentioned valuation board, is not recognized. Also transactions in biased land markets don t provide valid data. For example in the case of Kosovo spatial planning regulations are sometimes lacking or not implemented. As a result prices paid for agricultural land often do not reflect its value for agricultural production but rather the land s potential as building site. If no applicable comparison prices are available, valuation experts have to draw on other appraisal methods. In Europe, the valuation standards by The European Group of Valuers Association (TeGoVA) serve as guideline for valuation. Whatever valuation procedure is chosen in the context of SOAL management, it needs to be designed by professionals (in Germany publicly appointed valuers) and comply with the countries legal regulations concerning valuation. Ideally, the procedure once designed is scrutinized by independent professional bodies dealing with valuation. 3.4. IT-Support An important tool for managing SOAL is a land information system (LIS) that provides necessary information on land under the responsibility of the managing agency in charge. An important precondition for such an LIS is the availability of accurate cadastral data and an inventory and recording of key data such as amount and location of SOAL as well as its different use types. In Germany, BVVG has built up its own land information system that consists of a data base and a GIS with special functionalities for state-land management. The land information system supports the sales 15
and lease officers in their daily work. It provides all required spatial and non spatial data, inter alia parcel and contract information as well as data for land valuation purposes. More or less all internal business processes are driven and supported by this IT-system. The data base contains all important information e.g. cadastral data, data regarding the legal status of a parcel and restrictions in use and stores all information in connection to the preparation of lease or sales contracts on SOAL, including inter alia personal data of applicants, status of contract preparation, land parcels contained in a lease or sales contract and contract monitoring issues. The linked GIS-extension provides an extensive amount of spatial data (e.g. location, size and distribution) of land in BVVG s portfolio and surrounding parcels. The designing and maintenance of such a complex IT-system requires extensive investments into the ITinfrastructure. Today, however, more simple solutions can be achieved, e.g. by using open source software (OSS). In Mongolia a pilot project for a land information system based on OSS, including a module for SOAL management was launched in the scope of a GTZ land management project. The Serbian Ministry of Agriculture, Forestry and Water Management is also working on an IT-support for their management of SOAL. This underlines that institutioins responsible for SOAL management recognize the enormous benefits of such a system and are willing to invest into such IT-projects despite the fact that a considerable amount of their budget has to be allocated to system design, maintenance and updating. The mass of spatial and non spatial data available provides valuable information as basis for the decision on how to allocate SOAL in the best way. For example, spatial data on wind suitability areas provided by the spatial planning authorities (and visualized in BVVG s GIS) allow BVVG to determine whether land in its responsibility lie in such a wind suitability area. If so, BVVG can proactively enter into negotiations with companies engaged in implementing renewable energy projects. BVVG provides the required land, generates higher revenues and at the same time supports one of the primary goals of the German government, the envisaged turnaround in energy policy (independency from fossil and nuclear energy sources by extending the use of renewable energy sources). When choosing more complex approaches on how to use SOAL, including for example environmental or climate change issues in the decision, a LIS becomes even more important. One the one hand spatial data provides information on environmentally valuable sites or sites that can be used to mitigate climate change impact. On the other hand cadastral data shows where SOAL land lies. By matching these two layers of information SOAL that can be used to preserve environmentally valuable sites and to support environmental projects. Furthermore, it can be used for e. g. measures mitigating climate change impact 16
by providing land inter alia for flood control (building of dikes, creation of flood-plain areas) and reforestation (increasing the capacity of carbon sinks). 4. Good Governance Aspects As already discussed, SOAL administration is often characterized by weak management and lacking accountability. Standards applied in the context of good financial government are missing and allocation procedures for SOAL are not transparent leaving room for corrupt practices. The previous chapters already highlighted a few procedures and management tools for transparent SOAL management such as public bidding procedures, the application of acknowledged valuation standards, consistent contract monitoring and the support by an LIS. From an institutional point of view transparent and efficient management of SOAL requires a lean institutional set up with external and internal control and monitoring measures. Competencies and responsibilities of each institution involved have to be clearly defined and overlapping responsibilities need to be avoided. In Germany in terms of efficiency it proved advantageous to install only one agency (BVVG) responsible for the operational business of allocating SOAL on the national level. However, the case of Serbia showed that the use of existing administrative structures (municipalities and Ministry working hand in hand) can be a practicable alternative if guidance and supervision is executed by a superior authority such as the Ministry, and the competencies of each link of the chain are clearly defined. Transparent SOAL management requires a set of checks and balances and includes the involvement of monitoring institutions and independent auditing. In Germany, BVVG is subordinated to the Federal Immobile Agency (BImA). The Federal Ministry of Finance (MoF) is the functional supervisory body of the BImA. External control measures and monitoring of BVVG s activities as SOAL managing agency are organized in the following way: BVVG drafts business plans that are subject to approval by the BImA. Company goals are discussed and agreed upon with the BImA on a yearly basis; BImA and BVVG meet on a monthly basis to review target-performance comparisons, discuss current and future privatization approaches in the light of changing policies, discuss legal amendments and the implications they have on SOAL management and review special individual cases; 17
Meetings between MoF, BVVG and BImA take place when land policy questions arise that influence SOAL management; Enquiries by members of parliament in the context of BVVG s activities can take place at any time MoF asks BVVG for comments; Petitions with the parliament by the public on BVVG s privatization practices can be filed at any time BVVG prepares answers in coordination with MoF; Complaints by clients regarding BVVG s practices can be directed at BVVG at any time Dealt with at BVVG s Complaint Management Office; Law suits by clients or claimants against BVVG under Germany s civil law system can be filed at any time; External auditing by independent auditing companies happens on a yearly base; External financial inspections of the government and / or auditing by the Federal Court of Audit of BVVG s activities can be made at any time. To ensure transparency and accountability within the institution(s) responsible for SOAL management additional internal control measures are required. The following list summarizes some possible measures: Implementation of a four eyes principle (a process or decision is signed off independently by two separate officials): e.g. sales or lease negotiations are done by one officer while the valuation of the object in question is done by another officer (this is meant to prevent that officers in charge for selling or leasing make opaque arrangements with a client); Periodically staff rotation within the institution preventing inappropriate relationships between clients and staff in charge for land allocation; Implementation of an Internal Audit Department as an organ of internal financial and operational control to improve business operations, the effectiveness of risk management, as well as control and governance processes, and to investigate any indication of corruption; Installation of an anti-corruption officer; Cooperation with an external prosecutor mandated by the institution who can be contacted (also anonymously) by each single employee in the case of having a suspicion of corruption; Automated (IT-based) business operations providing uniform and transparent work procedures; Bottom-up reporting on a determined basis to superior levels (Dept.) within the institution to facilitate internal monitoring by the respective technical departments; 18
Implementation of accounting standards and proper invoicing according to respective legal regulations by the Finance Dept. of the institution; Installation of a Controlling Department providing figures and statistical data (on lease and sale transactions, current portfolio, revenues generated, etc.) as basis for benchmarking and management decisions. 5. Conclusion SOAL bears a great potential that can be used for achieving land policy objectives such as fiscal, agrostructural, environmental goals and goals of social justice. But, to unlock SOAL s full potential, efficient, transparent and goal oriented management is required. Summarizing of what has been demonstrated in the previous chapters, the Box 1 shows some best practices of SOAL management. Box 1: Best practices in the management of SOAL 1. Make an inventory of SOAL determining amount, location and use type of SOAL 2. Set up a management institution/unit with a lean guiding and monitoring unit at the central level a decentralized operative units in the region with an adequate amount of financial resources embedded in a framework of external and internal control and monitoring measures 3. Determine transparent allocation procedures with public bidding as standard procedure for awarding considering the possibility of restricted tenders considering direct contracting for special cases considering allocation of SOAL to other public agency responsible for (e.g.) environmental issues 4. Develop an Land Information System as supporting tool based on a long term IT-strategy containing all necessary spatial and non spatial data supporting automated business operations 5. Provide model contracts and a contract monitoring unit supporting uniform allocation procedures facilitating enforcement of contractual obligations in the scope of SOAL allocation Dells, K. 2014 19
However, weak management of SOAL often leads back to the fact that unfavorable frame conditions exist. Box 2 summarizes which frame conditions are needed to facilitate effective SOAL management. Box 2: Favorable frame conditions for effective and transparent management of SOAL 1. A consistent policy for SOAL management that is embedded in an overall land policy facilitating revenues for the state budget incorporating agro-structural measures supporting environmental objectives 2. A coherent legal frame providing transparent provisions with regard to land relations providing a program for the management of SOAL governed by the rule of law principle 3. A functioning Cadastre and Land Register facilitating the inventory of SOAL facilitating ownership registration facilitating the recording of the state as owner of land and using land as collateral Providing data for statistical means and land taxes 4. Adequate financial means for financing the task of SOAL management facilitating the implementation of SOAL management as stipulated by law resulting in a quicker refinancing of financial input by rent revenues 5. A transparent and healthy land market Facilitating lease and sale of SOAL at fair market conditions 6. Institutions monitoring price developments on the land market and improving valuation standards Collecting lease and purchase prices Making price information accessible to the public Providing valuation standards 7. Institutions implementing spatial planning regulations Preventing illegal change of land use Dells, K. et al. (2008), amended by the Author 20
Highlighting these findings in a more global context it must be noticed that land plays an increasingly important role in terms of achieving food security for all, improving the lively hoods of the rural poor and facilitating the sustainable use of the environment (compare FAO, CFS 2012). Therefore, in countries with a considerable share of state-owned land including SOAL their governments have to commit themselves to putting this land into effective use in favor of its citizens. Since food security and sustainable resource management are of global interest, the global community can support such a development by giving it the attention it deserves. Supporting measures should focus on the recording and sharing of spatial and non spatial related to SOAL, the strengthening of good governance approaches and to knowledge transfer and capacity building. Especially in the field of IT technology constant technical progress opens windows for collecting and analyzing more and more data, providing a multitude of information, which when analyzed thoroughly allows for more sophisticated and tailor made solutions for SOAL management. However, this does not only require transfer of technology. Even more important is capacity building in the field of IT-technology in order to facilitate sustainability of software systems that get more complex day by day. But also the strengthening of good governance approaches is of outmost importance. This does not only refer to accountability within SOAL agencies or related institutions but also to the manifestation of basic principles related to the implementation of the rule of law and the strengthening of the civil society. 21
Bibliographical Note Katja Dells worked in the sales and lease Dept at BVVG s headquarters - a German state-owned company responsible for the management and privatization of former publicly owned agricultural and forest land in Eastern Germany - since 1995. In 2003 she changed to the International Consulting Dept. of BVVG and became Head of Dept. in 2004. She is responsible for the project management within the scope of BVVG s involvement in international advisory projects and also works as an expert in EU and GIZ funded projects. Remark by the author: This paper in large parts is a summary of a study conducted on behalf of Chemonics International Inc with the support of the USAID funded Egypt s Competitiveness Project titled Management and Privatization of State-owned Agricultural Land. Aims, principles and procedures regarding the allocation of agricultural land in state-ownership: four country examples with a special focus on the East German Case (2010, unpublished). Additionally, information from the sources listed in the reference list including previous publications of the author was used. 22