The World Bank for OFFICIAL USE ONLY Public Disclosure Authorized Report No: ICR00005142

Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: ICR00005142

IMPLEMENTATION COMPLETION AND RESULTS REPORT 5178-GE and 8607-GE

ON A

CREDIT

Public Disclosure Authorized IN THE AMOUNT OF SDR 19.8 MILLION

(US$30 MILLION EQUIVALENT)

AND

A LOAN

IN THE AMOUNT OF US$9.00 MILLION

Public Disclosure Authorized GEORGIA

FOR THE

SECOND REGIONAL DEVELOPMENT PROJECT

June 18, 2020

Urban, Disaster Risk Management, Resilience and Land Global Practice Europe and Central Asia Region Public Disclosure Authorized

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

(Exchange Rate Effective April 2, 2020)

Currency Unit = GEL GEL 3.29= US$1 US$1.37 = SDR 1

FISCAL YEAR July 1 – June 30

Regional Vice President: Anna M. Bjerde Country Director: Sebastian-A. Molineus Regional Director: Steven N. Schonberger Practice Manager: David N. Sislen Task Team Leader(s): Vica Rosario Bogaerts, Rosanna Nitti ICR Main Contributor: Anita Ellmauer-Klambauer ABBREVIATIONS AND ACRONYMS

AF Additional Financing AM Aide-Mémoire aRAP Abbreviated Resettlement Action Plan BP Bank Policy CE Citizen Engagement CIT Corporate Income Tax CPF Country Partnership Framework CPS Country Partnership Strategy DMO Destination Management Organization/Office ECA Europe and Central Asia EIB European Investment Bank EIRR Economic Internal Rate of Return EMF Environmental Management Framework EMP Environmental Management Plan EU European Union FIRR Financial Internal Rate of Return FM Financial Management FY Fiscal Year GDP Gross Domestic Product GEL Georgian Lari GeoStat National Statistics Office of Georgia GNM Georgian National Museum GNTA Georgian National Tourism Administration GoG Government of Georgia GRM Grievance Redress Mechanism IBRD International Bank for Reconstruction and Development ICOMOS International Council on Monuments and Sites IDA International Development Association IDP Internally Displaced Person IR Intermediate Results IRLDP Integrated Regional and Local Development Project ISR Implementation Status Report LGU Local Government Unit M&E Monitoring and Evaluation MDF Municipal Development Fund ML Management Letter MP Management Plan MRDI Ministry of Regional Development and Infrastructure NACHP National Agency for Cultural Heritage Preservation NPV Net Present Value O&M Operation and Maintenance OP Operational Policy PAD Project Appraisal Document

PDO Project Development Objective PIT Personal Income Tax PIU Project Implementation Unit PIUTD Project for Integrated Urban and Tourism Development RDP Regional Development Project RDP2 Second Regional Development Project RDP3 Third Regional Development Project RF Results Framework RMIDP Regional and Municipal Infrastructure Development Project RPF Resettlement Policy Framework RVP Regional Vice President SAR Subproject Appraisal Report SCF Standard Conversion Factor SECHSA Strategic Environmental, Cultural Heritage, and Social Assessment SIDA Swedish International Development Cooperation Agency SSWMP Supporting Sustainable Wastewater Management Project STC Short-Term Contractor TIC Tourist Information Center TTL Task Team Leader UNESCO United Nations Educational, Scientific and Cultural Organization VAT Value Added Tax VMP Visitors Management Plan WB World Bank WWTP Wastewater Treatment Plant

TABLE OF CONTENTS

DATA SHEET ...... 1 I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES ...... 6 A. CONTEXT AT APPRAISAL ...... 6 B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) ...... 9 II. OUTCOME ...... 11 A. RELEVANCE OF PDOs ...... 11 B. ACHIEVEMENT OF PDOs (EFFICACY) ...... 12 C. EFFICIENCY ...... 19 D. JUSTIFICATION OF OVERALL OUTCOME RATING ...... 20 E. OTHER OUTCOMES AND IMPACTS (IF ANY) ...... 20 III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME ...... 21 A. KEY FACTORS DURING PREPARATION ...... 21 B. KEY FACTORS DURING IMPLEMENTATION ...... 22 IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME .. 24 A. QUALITY OF MONITORING AND EVALUATION (M&E) ...... 24 B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE ...... 26 C. BANK PERFORMANCE ...... 27 D. RISK TO DEVELOPMENT OUTCOME ...... 28 V. LESSONS AND RECOMMENDATIONS ...... 29 ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS ...... 31 ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION ...... 44 ANNEX 3. PROJECT COST BY COMPONENT ...... 46 ANNEX 4. EFFICIENCY ANALYSIS ...... 47 ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS AND BORROWER’S ICR ...... 57 ANNEX 6. SUPPORTING DOCUMENTS ...... 73 ANNEX 7. LIST OF OUTPUTS UNDER THE PROJECT ...... 74 ANNEX 8. PICTURES OF SELECTED ASSETS FINANCED BY RDP2 BEFORE AND AFTER REHABILITATION WORKS ...... 78 The World Bank Second Regional Development Project (P130421)

DATA SHEET

BASIC INFORMATION

Product Information Project ID Project Name

P130421 Second Regional Development Project

Country Financing Instrument

Georgia Investment Project Financing

Original EA Category Revised EA Category

Partial Assessment (B) Partial Assessment (B)

Organizations

Borrower Implementing Agency

Ministry of Finance Municipal Development Fund of Georgia

Project Development Objective (PDO) Original PDO The Project Development Objective is to improve infrastructure services and institutional capacity to support increased contribution of tourism in the local economy of the Imereti Region.

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FINANCING

Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) World Bank Financing

30,000,000 30,000,000 28,949,682 IDA-51780

9,000,000 9,000,000 6,795,234 IBRD-86070 Total 39,000,000 39,000,000 35,744,916

Non-World Bank Financing 0 0 0 Borrower/Recipient 7,500,000 7,500,000 7,500,000 Total 7,500,000 7,500,000 7,500,000 Total Project Cost 46,500,000 46,500,000 43,244,916

KEY DATES

Approval Effectiveness MTR Review Original Closing Actual Closing 06-Nov-2012 29-Jan-2013 18-Apr-2017 30-Jun-2017 31-Dec-2019

RESTRUCTURING AND/OR ADDITIONAL FINANCING

Date(s) Amount Disbursed (US$M) Key Revisions 16-Mar-2016 23.93 Additional Financing Change in Results Framework Change in Components and Cost Change in Loan Closing Date(s) Change in Safeguard Policies Triggered 29-Mar-2018 28.95 Change in Results Framework Change in Loan Closing Date(s) Change in Implementation Schedule

KEY RATINGS

Outcome Bank Performance M&E Quality Moderately Satisfactory Moderately Satisfactory Modest

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RATINGS OF PROJECT PERFORMANCE IN ISRs

Actual Disburse- No. Date ISR Archived DO Rating IP Rating ments (US$M) 01 25-Jun-2013 Satisfactory Satisfactory 7.59

02 29-Dec-2013 Satisfactory Satisfactory 10.64

03 30-Jun-2014 Satisfactory Satisfactory 12.62

04 16-Apr-2015 Satisfactory Moderately Satisfactory 17.65

05 01-Apr-2016 Satisfactory Moderately Satisfactory 25.62

06 31-Oct-2016 Satisfactory Moderately Satisfactory 26.52

07 25-Apr-2017 Satisfactory Moderately Satisfactory 26.52

08 30-Oct-2017 Satisfactory Moderately Satisfactory 28.95

09 18-Apr-2018 Moderately Satisfactory Moderately Satisfactory 28.95 Moderately 10 18-Oct-2018 Moderately Unsatisfactory 28.95 Unsatisfactory Moderately 11 30-Apr-2019 Moderately Unsatisfactory 30.20 Unsatisfactory 12 12-Jul-2019 Moderately Satisfactory Moderately Satisfactory 30.82

SECTORS AND THEMES

Sectors Major Sector/Sector (%)

Public Administration 10 Sub-National Government 10

Education 2 Workforce Development and Vocational Education 2

Energy and Extractives 15 Other Energy and Extractives 15

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Transportation 59 Urban Transport 59

Water, Sanitation and Waste Management 14 Other Water Supply, Sanitation and Waste 14 Management

Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Private Sector Development 13

Jobs 13

Job Creation 13

Human Development and Gender 0

Education 0

Access to Education 0

Science and Technology 0

Teachers 0

Standards, Curriculum and Textbooks 0

Urban and Rural Development 86

Urban Development 35

Urban Infrastructure and Service Delivery 24

Urban Planning 11

Rural Development 13

Rural Infrastructure and service delivery 13

Cultural Heritage 38

ADM STAFF

Role At Approval At ICR

Regional Vice President: Philippe H. Le Houerou Anna M. Bjerde

Country Director: Henry G. R. Kerali Sebastian-A Molineus

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Director: Laszlo Lovei Steven N. Schonberger

Practice Manager: Sumila Gulyani David N. Sislen Vica Rosario Bogaerts, Rosanna Task Team Leader(s): Ahmed A. R. Eiweida Nitti ICR Contributing Author: Anita Ellmauer-Klambauer

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I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES

A. CONTEXT AT APPRAISAL

Context 1. In 2012, Georgia was a post-conflict country that had embarked on economic recovery. After the twin shocks of a war with Russia in August 2008 and the global economic and financial crisis, economic growth fell sharply. It recovered in 2010–11 as a result of the government’s strong countercyclical policy, and Georgia experienced high growth rates compared to many other emerging countries in Eastern and Central Europe. The government’s goal, then, was to increase employment and decrease the country’s current account deficit by providing financial stimulus through infrastructure investments. Public investments in various sectors, including tourism, aimed to promote private investments and accelerate job creation in the country. 2. The Government of Georgia (GoG) set out to create an environment promoting development in the country’s regions, and it reached out to the World Bank (WB) to support these activities. The objective of the government’s State Strategy on Regional Development (2010–17) was to promote socioeconomic development and job creation among and within the country’s regions. Public investments in infrastructure and improvements in public services would also attract increased private-sector investments, especially in the tourism sector. In particular, as part of its regional development strategy, Georgia intended to tap fully its potential to promote sustainable tourism in potentially attractive regions, such as Imereti and Kakheti. 3. The Bank is supporting regional development in Georgia with a programmatic approach. The first in a series of projects for this purpose was the Regional Development Project (RDP, 2012–17; IBRD: US$60 million) in the Kakheti region. The Second Regional Development Project (RDP2, 2012–19; IBRD/IDA: US$30+9 million) focused on the Imereti region, and the Third Regional Development Project (RDP3, 2015–22; IBRD: US$60 million) is implemented in the Mtskheta-Mtianeti and Samtskhe-Javakheti regions. The Integrated Regional and Local Development Project (IRLDP; IBRD: US$50 million) is currently under preparation. RDP2, which is the subject of this report, was mentioned in the Country Partnership Strategy (CPS) Progress Report for FY10–13 and presented to the World Bank Board in April 2011. It supports the goals of the Country Partnership Strategy for FY10–13 of economic and business growth, job creation, and social service. 4. The Imereti region was chosen for support under the Second Regional Development Project. The Imereti region has a lot of tourism potential, which was largely underutilized, and several important cultural heritage sites, which are located all over the region. The region also had good growth prospects, and the government had already started to invest substantially in Kutaisi, the region’s capital, before the Project. These investments focused on urban renewal, as well as the rehabilitation of Kutaisi International Airport. The Imereti Regional Development Strategy (2010–14), which was prepared with technical and financial support from the European Union (EU), as well as the Imereti Spatial Economic Analysis 2012 and the Imereti Tourism Development and Marketing Strategy 2012, identified tourism, trade, and industry as the main drivers of growth in Imereti and significantly informed the project design. 5. The RDP2 activities were to be implemented as an integrated approach comprising infrastructure upgrading, cultural heritage restoration, strengthening of institutional capacity, and improved attractiveness for private- sector investments. The Project’s infrastructure investments focused on the town of Tskaltubo, known historically for its hot springs and natural spas. Also included was the rehabilitation of Vani Museum and the adjacent archeological area, which is associated with the world-famous myth of the golden fleece, and the upgrading of cultural heritage assets along the tourism circuit of the Imereti region; these comprise the UNESCO World Heritage Site Gelati Monastery, Ubisa Church, Katskhi Church, Katskhi Column Monastery, and Motsameta Monastery.

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6. Before the Project, the government’s investments in the Imereti region had focused mainly on Kutaisi, with little attention paid to the city of Tskaltubo and the surrounding cultural heritage sites. Tskaltubo, despite its historical importance as a spa resort, was characterized by dilapidated buildings and malfunctioning infrastructure, including water supply, streetlighting, and sewerage, and a lack of tourism facilities, such as parking, toilets, restaurants and cafes, and tourist information centers. Vani Museum was in poor physical condition and underutilized. Similarly, many other cultural heritage sites in the region also lacked tourist facilities and were in need of rehabilitation. In addition to physical investments in infrastructure and the rehabilitation of cultural sites, RDP2 was to address institutional strengthening and capacity building. Despite its huge tourism potential, Imereti lacked activities to promote the region as an attractive tourism destination and offered a limited number of food and beverage facilities and limited hotel capacities. The GoG recognized the need to improve urban services to attract private investments to revitalize business activity and promote Imereti as a high-quality, health/nature and cultural heritage destination. Theory of Change (Results Chain) Figure 1: Theory of Change—Second Regional Development Project

7. The results chain in figure 1 shows the links among the Project’s activities, outputs, and outcomes, as con- ceptualized at appraisal. RDP2 was designed to rehabilitate urban infrastructure, including tourist sites, and to provide basic services, as well as to strengthen the capacity of private and public actors in the tourism sector in the Imereti region. The improved infrastructure services, based on rehabilitated tourist attractions, and the enhanced institutional capacity, including the establishment of a Destination Management Organization (DMO), would increase the contribution of tourism to the local economy as more visitors spent more money and stayed longer in the region. With greater investments by the private sector in hotels, restaurants, cafes, and other tourism-related businesses, the long-term outcome would be higher employment and wages in the region’s tourism sector. The original theory of change of the Project assumed the DMO would play a key role in private capital mobilization. The Project demon- strated, however, that private capital mobilization was successful beyond the initial assumptions, and the established DMO is expected to play a key role in the sustainability of project results in the long run.

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Project Development Objectives (PDOs) 8. The objective of the Project is to improve infrastructure services and institutional capacity to support increased contribution of tourism in the local economy of the Imereti region. 9. No revisions to the PDO were made throughout the Project. Key Expected Outcomes and Outcome Indicators 10. The expected outcomes and respective PDO indicators as of project appraisal are shown in table 1. Outcome B (“Improved infrastructure services”) and Outcome C (“Improved institutional capacity”) contribute toward reaching Outcome A (“Increased contribution of tourism in the local economy of the Imereti region”). Table 1: Unpacked Project Outcomes and Corresponding PDO Indicators Expected outcomes PDO indicators (as of project appraisal)

A. “Increased contribution of tourism in the Increased number of hotel beds in circuit route areas local economy of the Imereti region” Increased revenues from tickets sold at Vani Museum

B. “Improved infrastructure services” Increased number of hours per day of piped water services in Tskaltubo

Increased energy efficiency of streetlighting in Tskaltubo

C. “Improved institutional capacity” Increased volume of private-sector investment in Tskaltubo mobilized by the Tskaltubo DMO

Components 11. Component 1: Infrastructure Investment. At appraisal: US$41.62 million (parent project, IDA – US$26.46 million; Additional Financing, IBRD – US$8.54 million; recipient – US$6.62 million). Actual: US$35.09 million (parent project, IDA – US$24.37 million; Additional Financing, IBRD – US$5.79 million; recipient – US$4.93 million). 12. Component 1.1: Urban Regeneration of Tskaltubo envisaged an integrated approach to the urban renewal of Tskaltubo city. This included (a) rehabilitation of municipal infrastructure and utilities in the central area; (b) upgrading of public spaces and parks and construction of tourist amenities; and (c) restoration of public buildings with historic vernacular architecture. These activities would help improve livability and hospitality in a culturally informed manner, enhance attractiveness for visitors, revitalize the urban nucleus, and attract an increased volume of private- sector investments. 13. Component 1.2: Tourism Circuits Development supported an integrated approach to upgrading and improving the management of the six most attractive cultural heritage sites in Imereti: Gelati Monastery; Vani Museum and the surrounding archeological site; Ubisa Church; Katskhi Church; Katskhi Column Monastery; and Motsameta Mon- astery. This included (a) improvement of urban landscaping and public parking; (b) construction of information kiosks and public toilets; (c) restoration and refurbishing of the exterior and interior of Vani Museum; (d) improvement of access roads; and (e) preservation of selected cultural heritage sites. 14. Component 2: Institutional Development. At appraisal: US$4.88 million (parent project IDA – US$3.54 million; Additional Financing IBRD – US$0.46 million; recipient – US$0.88 million). Actual: US$9.22 million (parent project IDA – US$4.70 million; Additional Financing IBRD – US$1.20 million; recipient – US$3.32 million) 15. Component 2 aimed to enhance the institutional capacity of the Georgian National Tourism Administration (GNTA), the National Agency for Cultural Heritage Preservation of Georgia (NACHP), the Georgian National Museum (GNM), and the project-implementing entity and other local and regional entities to carry out the following activities:

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(a) establishment of a Destination Management Office in Tskaltubo; (b) sustainable tourism development and promotion; (c) preparation of visitor management plans for the sustainability of the Project’s cultural heritage sites; (d) skilled workforce development and capacity building; (e) performance monitoring and evaluation; and (f) construction supervision support. 16. Estimated project costs added up to US$46.5 million, while actual project costs totaled US$44.31 million. The difference (US$2.19 million) was not disbursed due to a cancelled investment in the rehabilitation of the Tskaltubo Wastewater Treatment Plant (WWTP), which was planned as part of the Additional Financing (AF) loan (further details on page 23f.). The actual project costs for investments under Component 1 were lower than estimated at appraisal, which allowed funds to be made available for Component 2. The estimated costs of Component 2 were higher than estimated at appraisal for two reasons. First, extension of the project closing date, which was processed in 2018 so all ongoing works could be completed and the Project could reach the full potential of its development impact, also required an extension of the time-based contract with the construction supervision company. Second, 90 percent of disbursements for the tourism marketing and promotion consultancy for the Imereti and Kakheti regions were made under RDP2. The original estimate under RDP2 was only 50 percent (and 50 percent had been estimated under RDP, the first of the World Bank–supported regional development operations). B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE)

17. No revisions to the PDOs or the project outcome were made during the Project. Target values of some PDO indicators were, however, changed in the course of implementation to reflect the expanded project scope supported by the AF loan and the extended closing dates. The Results Framework (RF) was also revised, as described below, to capture the project results better. 18. The Project was restructured twice. This included one restructuring associated with the AF loan. Restructuring 1/Additional Financing: 19. In March 2016, an AF loan in the amount of US$9 million was approved by the WB Board. The AF mainly aimed to finance a number of cost overruns caused by additional investments needed for a few surplus works related to cultural heritage sites supported under RDP2, as well as to address a financing gap resulting from the national currency devaluation (there was a 35 percent exchange rate devaluation of the Georgian Lari with respect to the US$). The AF also aimed to support two new activities; these were rehabilitation of the wastewater treatment plant (WWTP) in Tskaltubo1 and the reconstruction of a section of Vani Museum that was added to the original scope of works for the museum. The AF also funded the technical assistance necessary to carry out detailed design and engineering supervision activities, as well as operating costs that were increased due to the project extension. The project components and their costs were updated accordingly. 20. The AF triggered OP/BP 7.50 Projects on International Waterways, which was not originally triggered by the RDP2 parent project, because of the planned rehabilitation of the WWTP in Tskaltubo. 21. The AF included an 18 months’ extension of the project closing date, from June 30, 2017, to December 30, 2018, to allow for full implementation of the activities under the AF. While the PDO and associated project outcomes remained unchanged, the target values of the Results Framework indicators were revised to reflect the increased scope of the Project and to ensure alignment with the new closing date. Furthermore, a new Citizen Engagement Indicator (Participants in consultation activities during project implementation—number by gender) was added in

1 The rehabilitation of the WWTP was added as a contribution to the Supporting Sustainable Wastewater Management Project (SSWMP, P145040), financed by a Swedish International Development Cooperation Agency (SIDA) grant, approved on July 12, 2013, but was not financed under RDP2 in the end (see further information on page 26f.). Page 9 of 84

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response to the enhanced World Bank approach toward CE to support better monitoring of civic engagement throughout the project cycle. Restructuring 2: 22. The Project was restructured in April 2018 to extend the closing date by 12 months, from December 30, 2018, to December 31, 2019, to address previously accumulated implementation delays and allow for full implementation of all major works—such as the reconstruction of Vani Museum—that were vital to achieving the PDOs. The delays in execution of the Vani Museum contract resulted from a combination of several factors, including the need to address concerns from local residents about the adjacent archeological site; requests for design revisions by the contractor and the Project Implementation Unit (PIU); and the slow mobilization of the contractor. As Vani Museum is the most prominent cultural heritage site along the main tourism circuit in Imereti, completing its reconstruction— as envisaged by the ongoing contract and with the technical quality of the work ensured—was essential. The disbursement estimates and implementation schedule were also revised to reflect the actual implementation progress and the extended project closing date. Together with the extension of the closing date and the change in implementation schedule and disbursement estimates, the Results Framework of the Project was revised to improve its alignment with the PDO and to allow better tracking of the implementation progress. The changes in the Results Frame- work included the introduction of a new PDO indicator, as well as revisions in wording or the dropping of some of the original PDO indicators, as explained in table 2. Table 2: Revision of Results Framework in April 2018 Original Revised Rational PDO indicators Increased number Indicator dropped Indicator was assessed to be inappropriate in terms of its attribution to the of hours per day of project-supported activities. No cause-effect relationship exists between what piped water service the Project finances and the number of hours of water supply in Tskaltubo. The in Tskaltubo Project did not envisage rehabilitation of the entire water supply system with all hydraulic elements in any of the project sites; rather, it only effected the rehabilitation of the water networks and connections at the immediate project locations. Increased energy Indicator dropped Indicator was assessed to be inappropriate in terms of its attribution to the efficiency of street- project-supported activities. There is no cause-effect relationship between lighting in what the Project finances and the increased energy efficiency in Tskaltubo. The Tskaltubo Project only envisaged increased energy efficiency in selected project sites in Tskaltubo. ---- New indicator: New PDO indicator was added for better tracking the project implementation Square meters of progress. new or rehabilitated urban public spaces in selected municipalities Increased volume Revised indicator: GNTA manages tourism development from Tbilisi with the support of Tourist of private sector in- Increased volume of Information Centers (TICs) in regional capital towns. GNTA considered shifting vestment in private sector from TICs to DMOs to allow for more autonomy over regional development. Tskaltubo mobi- investment in Thus, GNTA aims to establish one DMO in each region as a pilot and, upon lized by the Tskaltubo mobilized successful implementation, to allow regional DMOs to develop their own Tskaltubo DMO: by Imereti DMO: branches throughout their respective regions. The wording of the indicator was target of US$20 target reduced to revised in line with the client’s vision. million US$13 million

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Furthermore, target value was decreased from US$20 million to US$13 million to reflect national currency devaluation (there was a 35 percent exchange rate devaluation of the GEL (Georgian Lari) with respect to the US$).2 Intermediate results indicator Tskaltubo DMO es- Imereti DMO estab- Indicator was changed in line with the above revision of the associated PDO tablished and oper- lished and opera- level indicator. ational tional

Revised Components 23. No revisions to the original components occurred during the life of the Project, although changes were made in terms of the component costs. Funding for Component 1 increased proportionally more than for Compo- nent 2 with regard to the AF loan because the AF-supported activities were mostly integral to Component 1 (Infra- structure Investments). In addition, as the extensions of the project closing date led to increased costs for the time- based contract for the engineering supervision consultancy, funds had to be recommitted from Component 1 to Component 2. The redistribution was also due to disbursements for the tourism marketing and promotion consultancy for the Imereti and Kakheti regions that were higher than originally estimated. Rationale for Changes and Their Implication on the Original Theory of Change 24. None of the changes had implications on the original Theory of Change behind the project design and the expected project outcomes. The AF followed the same PDO and allowed for addressing cost overruns from additional investments and a financing gap resulting from the national currency devaluation. Triggering of OP/BP 7.50 resulted from the addition of a new investment in the WWTP under the AF. The activities of the AF also required a first extension of the project closing date and a revision of the Results Framework to align with the increased scope and time, and an indicator was added to monitor citizen engagement (CE) better throughout the Project. The second extension of the closing date was needed to ensure all major activities could be finished so as to reach the full development impact of the Project. The revisions of the PDO and intermediate results indicators enabled better tracking of the project results.

II. OUTCOME

A. RELEVANCE OF PDOs

Assessment of Relevance of PDOs and Rating Relevance Rating: High 25. The relevance of PDOs is rated “High,” as the objectives of RDP2 remained fully relevant to the government’s strategic objectives and the current World Bank Systematic Country Diagnostic (SCD) 2018 and Country Partnership Framework (CPF) FY19–22 for Georgia. Georgia is also continuing its strong focus on increasing the value of tourism in the country’s national economy, as explained in the Georgia Tourism Strategy 2015–25. The CPF FY19– 22 confirms the importance of tourism as a contributor to economic growth in Georgia and for the development of lagging regions. The CPF also mentions that the World Bank is continuing and deepening its engagement in regional development with an integrated approach focused on infrastructure upgrading, cultural heritage renovation, capacity building, and private-sector attraction in Focus Area 1 (Enhance Inclusive Growth and Competitiveness). The CPF FY19–22, as well as SCD 2018, emphasizes priority areas that are also addressed in RDP2, such as increasing spatial equity, connectivity, and economic participation in the regions and creating an environment supportive of private- sector participation. The relevance of the approach taken by the Project is additionally confirmed by the replication

2 The change in the target value for private capital mobilization was not a real change in the target value due to currency devaluation, and, thus, a split evaluation was not considered necessary. Please find further information in para. 38. Page 11 of 84

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of the regional development concept in Georgia, through RDP3 and IRLDP (which is currently under preparation), as well as in other countries in the Europe and Central Asia (ECA) region, such as Albania and Armenia, and globally. B. ACHIEVEMENT OF PDOs (EFFICACY) Efficacy Rating: Substantial 26. The Project’s PDO statement has three outcomes: A. “Increased contribution of tourism in the local economy of the Imereti region” B. “Improved infrastructure services” C. “Improved institutional capacity” 27. Outcome A (“Increased contribution of tourism in the local economy of the Imereti region”) is the main objective of the Project; hence, the discussion on PDO achievement is structured around how RDP2 strengthened the tourism-related economy of the Imereti region, to which both Outcome B (“Improved infrastructure services”) and Outcome C (“Improved institutional capacity”) contributed. 28. RDP2 laid a strong foundation for the growth of the tourism-related economy of the Imereti region by reha- bilitating urban infrastructure, including tourist sites, and providing basic services, as well as by strengthening the capacity of private and public actors in the region (as discussed in detail below). In addition, the Project was a mile- stone for integrated tourism and urban development projects by the World Bank. RDP2 and the series of Regional Development Project in Georgia provided inspiration for the development of other, similar integrated tourism development projects in ECA—for example, in Albania and Armenia—and worldwide, which also aim to bring about a transformation of the tourism-related economy of a region by urban/cultural heritage upgrading, along with institutional strengthening. Assessment of Achievement of Each Objective/Outcome

Outcome A: “Increased contribution of tourism in the local economy of the Imereti region” Table 3. PDO-Level Indicators and Intermediate Results Indicators for Outcome A (as of Project Closing) Original Revised Baseline Actual Achievement target target PDO-level results indicators Increased number of hotel beds in circuit 2,661 3,193 4,400 4,809 Exceeded route areas (#) Increased revenues from tickets sold at Vani 10,519 88,989 90,000 0 Museum rehabilitated but not opened Museum (GEL) at time of project closing.a Intermediate results indicators Number of tickets sold at Vani Museum (#) 5,215 15,645 16,500 0 Museum rehabilitated but not opened at time of project closing.b Increased annual number of visitors at 740,000 740,000 903,000 953,646 Exceeded project sites (#) a Target value is expected to be reached by October 2020 (see para. 31). b Target value is expected to be reached by June 2021 (see para 31).

29. The overall growth of the tourism industry in the Imereti region and in Georgia as a whole over the project implementation period is evident. In 2012, the number of visitors to Georgia amounted to 4.43 million, increasing to 9.36 million in 2019. The tourism sector accounted for 6.1 percent of Georgia’s GDP in 2012, increasing to 7.6 percent

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by 2018.3 In the Imereti region, the number of international visitors rose from 140,617 in 2015 to 345,773 in 2018, a significant increase of 146 percent over only three years. The growth in the number of international visitors in the Imereti region was the second highest in all regions of Georgia, just after Mtskheta-Mtianeti region (161 percent), and far above Georgia as a whole (57 percent). At appraisal the average annual growth rate of tourists in the Imereti region was projected at 5 percent, but the actual annual growth rate from 2012 to 2018 was significantly higher, amounting to 21 percent.4 This demonstrates a significant positive impact of the RDP2-supported investments and activities on the number of visitors in Imereti.

30. In addition, the average number of nights spent by international visitors in Imereti increased by 9 percent between 2015 and 2018, and the average daily spending by tourists rose during the project period by 19 percent between 2012 and 2018.5 In fact, the result for the PDO-level indicator, Increased number of hotel beds in circuit route areas, was exceeded by far: hotel beds increased from 2,661 to 4,809 during the life of the Project, an increase of 81 percent that exceeded the target value by 9 percent (see table 3). The number of visitors at the RDP2 project sites—as measured by an intermediate results indicator—increased from 740,000 to 953,646 over the life of the Project, exceeding the target value by 6 percent. 6 In Tskaltubo municipality, where most of the investments under the Project were made, the number of visitors staying in hotels increased by 389 percent over the life of the Project, from only 9,097 in 2012 to 44,495 in 2018.7 Furthermore, the investments under RDP2 created a strong enabling environment for businesses to open their doors or invest in their enterprises in Tskaltubo, which was an abandoned city before the Project. In response to an M&E survey (sample size of 251 enterprises, of which 151 were registered and 100 were unregistered businesses) conducted at the end of the Project, the vast majority of both registered and unregistered businesses stated that the infrastructure investments under RDP2 had a positive impact on their enterprises, with half of interviewed enterprises confirming that they had expanded their businesses or started new business activities during the time of RDP2. The interviews confirmed that the Project had been the deciding factor for several new investments in tourism businesses or the expansion of business activities in Tskaltubo, starting as soon as the first investments of the Project had been delivered (more details are provided in paragraphs related to achievement of Component C). 31. The second PDO indicator under Outcome A, Increased revenues from tickets sold at Vani museum, had not been achieved at the project closing date. A mixture of factors caused delays in the rehabilitation of the museum, such as slow mobilization of the contractor, the need to address concerns from local residents about the adjacent archeological site, and requests for design revisions by the contractor and PIU. As a result, the rehabilitation had only just been finished at the time of RDP2 closure (the end of 2019), with the museum not scheduled to reopen its doors to the public until International Museum Day on May 22, 2020.8 Because the reconstructed museum had not started its operation yet, no increased revenues could be recorded at the project closing. The M&E consultant was, however, able to extrapolate from historical data from Vani Museum, ticket revenue trends from a similar museum in Georgia, and data on seasonality of tourism that the revenues from tickets sold at Vani Museum in the first year of its operation (from May 22, 2020, to May 21, 2021) would amount to an estimated GEL 131,979. Because tourism is seasonal and the number of visitors peaks over the summer, the target value of GEL 90,000 in increased revenues is expected to be reached already by the end of October 2020, assuming a normal tourism season. A sensitivity analysis of the

3 Georgian National Tourism Administration (GNTA), Georgian Tourism in Figures: Structure and Industry Data, 2018. 4 Calculated from data available from GEOSTAT and Georgian National Tourism Association (GNTA): https://gnta.ge/wp-content/up- loads/2014/08/geo.pdf. 5 Georgia National Tourism Administration (GNTA). Regional data on international visitors are not available from GNTA before 2015. 6 ACT, Project Results Monitoring & Evaluation for RDP2, Final Report, 2019. 7 GeoStat survey of hotels and hotel-type enterprises, 2012–18. Every stay in a hotel is assumed to represent a separate visit. 8 The Vani Museum was scheduled to reopen its doors on 22 May 2020 – the International Museum Day – but the planned reopening was delayed because of the COVID-19 outbreak. The museum is now scheduled to reopen its doors in the first week of July 2020.

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projections (considering a 30 percent decrease in visitors) shows the target value of GEL 90,000 would be reached one year from the start of the operation of the renewed museum, in May 2021. The target value of 16,500 tickets sold for the intermediate results indicator would be reached by June 2021. If visitor numbers were 30 percent lower, the results target of the intermediate results indicator would be reached by November 2021, one and a half years after the reopening.9 32. It should be acknowledged that not all the favorable developments in tourism in Imereti over the past seven years can be attributed to the Project, as tourism generally had been experiencing a great upturn in Georgia during that time. For sure, for example, the rehabilitation and further expansion of Kutaisi International Airport also played a role in boosting tourism in the region. RDP2 laid the foundation for tourism development of the local economy in the Imereti region, however, through a combination of activities carried out under the Project, ranging from improving infrastructure services to strengthening institutional capacity (which will be discussed in more detail below). Outcome B: “Improved infrastructure services” Table 4. PDO-Level Indicator and Intermediate Results Indicators for Outcome B (as of Project Closing)

Original Revised Achieve- Baseline Actual target target ment PDO-level results indicator Square meters of new or rehabilitated urban public spaces in selected 0 584,296 813,664 Exceeded municipalities (m2) Intermediate results indicators Number of buildings restored and constructed in Tskaltubo and Vani 0 9 11 14 Exceeded (#) Number of parks upgraded in Tskaltubo (#) 0 2 2 Achieved Number of tourism facilities constructed at cultural heritage sites 0 6 5 5 Achieved along the tourist circuit (#) Number of streetlighting posts and bulbs replaced (#) 0 1,448 1,800 2,301 Exceeded Piped household water connections that are benefiting from 0 5,000 6,164 Exceeded rehabilitation works undertaken by the project (#) Number of people in urban areas provided with access to all-season 0 6,000 6,252 Exceeded roads within a 500-meter range under the project (#) Roads rehabilitated, nonrural (km) 0 5.1 10.3 Exceeded Direct project beneficiaries (#) 0 20,000 22,546 Exceeded Female beneficiaries (%) 0 50 53 Exceeded Participants in consultation activities during project implementation 0 5,000 5,600 Exceeded (#) Grievances responded to and/or resolved within one month of being 0 100 100 Achieved filed (percentage) Grievances registered related to delivery of project benefits addressed 0 100 100 Achieved (percentage)

33. The project activities that contributed to Outcome B (“Improved infrastructure services”) focused both on the urban regeneration of Tskaltubo and the development of the tourism circuit in the Imereti region. All these investments under RDP2 strengthened the development of the tourism-related economy of Imereti by making the

9 The following calculations are projections assuming a normal tourism season following normal tourism trends. Projections were made before the COVID-19 outbreak. Given the uncertainty and variability of COVID-19 risks, it is difficult to make any revised projections. Projections are based on the originally scheduled date for the reopening of the museum of May 22, 2020. Page 14 of 84

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region more attractive and hospitable as a destination for tourists, while at the same time improving the living conditions of the local households. 34. At project closing, Outcome B was tied to one PDO-level indicator (Square meters of new or rehabilitated urban public spaces in selected municipalities) and monitored by several intermediate results indicators. The target value of the PDO-level indicator was exceeded by 39 percent, and all the end target values of the intermediate indicators were also achieved or even exceeded; some had already been achieved as early as the time of the Project’s midterm review (see table 4). 35. Outcome B (“Improved infrastructure services”) was addressed under Component 1 of the Project (Infra- structure Investment), which included Component 1.1 (Urban Regeneration of Tskaltubo), and Component 1.2 (Tour- ism Circuit Development). Some of the results are discussed below. (Annex 7 provides further information on outputs under the Project per component.) The rehabilitation activities under Component 1 substantially improved the quality of infrastructure of core tourism destinations in the Imereti region and contributed to the creation of Tskaltubo as a second hub in the region, as follows: • Urban Regeneration of Tskaltubo: Urban regeneration and renewal efforts under the Project were concentrated in the town of Tskaltubo. These comprised investments in the rehabilitation of roads (7.02 km), outdoor lighting (2,146 lighting posts and bulbs improved), underground utilities (13.1 km of water and sewage pipes laid), and the drainage system (10.3 km rehabilitated), as well as the rehabilitation of two large parks, including the rehabilitation of three bridges and three fountains, construction of sanitary facilities, and provision of 608 bins and 723 benches. In addition, several public buildings were rehabilitated, including the municipal building, serving approximately 22,000 inhabitants of the town of Tskaltubo, and the historic railway station building, which includes new office space for the Tskaltubo Tourism Office. Furniture and equipment for the tourism office were also delivered under the Project. The Project’s contribution to the rehabilitation of the Tskaltubo WWTP, which was added as part of the AF loan, was later cancelled, as delays in the implementation of the WWTP rehabilitation activities financed from a SIDA grant did not allow the project-financed part of the WWTP civil works to be started, but this did not affect the project outcomes (see the section ‘”Key Issues during Implementation” for further details). • Tourism Circuit Development: Activities under this subcomponent improved six tourist attractions and cultural heritage sites in the Imereti region: Vani Museum, Gelati Monastery, Motsameta Monastery, Ubisa Monastery, Katskhi Church, and Katskhi Column Monastery. The Project supported investments (a) to improve access roads to the sites; (b) to construct tourism facilities on the sites; and (c) to improve public parking. Overall, this included 5,238 m2 of rehabilitated areas, including tourist infrastructure and parking facilities, as well as 3.32 km of rehabilitated road. In addition, the Project supported basic conservation works for Gelati Monastery, Katskhi Monas- tery, and Ubisa Monastery, as well as the restoration and refurbishing of the exterior and interior of Vani Mu- seum, the delivery of equipment for the museum, and the conservation of archeological sites on Vani Museum territory by arranging for protective coverings. With respect to Vani Museum alone, 3,500 m2 of the area was rehabilitated (including the outdoor area and parking), along with 2.3 km of the access road and fences and 1.3 km of retaining and gabion walls. 36. The investments under RDP2 resulted in improved transport connectivity and better municipal services and thereby benefited both tourism development in the Imereti region and the living conditions of local residents. The project investments provided 6,252 people with access to all-season roads within a 500-meter range (just above the 6,000-people target); improved water supply, with 6,164 piped household water connections benefiting from rehabilitation works undertaken by the Project (exceeding the target of 5,000 household connections); and brought about an overall transformation of the historic center of Tskaltubo and the tourism circuit in Imereti, which greatly en-

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hanced the attractiveness and livability of the region for tourists and residents. The number of residents who benefited directly from the infrastructure investments reached 22,546 (exceeding the target value of 20,000 by 12.7 percent), of whom 53 percent were women. During focus group discussions with a few households conducted by the RDP2 monitoring and evaluation (M&E) consultants, interviewed households stated that the rehabilitation of road and water systems was a precondition for better living conditions for the local population.10 Also, as was mentioned above and will be described in detail in the next section, a survey of the private-sector players, conducted by the M&E consultant, confirmed that the infrastructure investments under RDP2 had a positive impact on their businesses and, thus, contributed to the mobilization of private-sector investments.

Outcome C: “Improved institutional capacity” Table 5. PDO-Level Indicator and Intermediate Results Indicators for Outcome C (as of Project Closing)

Original Revised Achieve- Baseline Actual target target ment PDO-level results indicator Increased volume of private-sector investment in Tskaltubo mobi- 0 20 million 13 million ≈25 million Partially lized by the Imereti Destination Management Office (amount, US$) achieveda Intermediate results indicators Production and distribution of new maps based on geotourism data- 0 10,000 15,000 93,250 Exceeded base (#) (36,250 Geo, 57,000 En) Imereti Destination Management Office established and opera- 0 1 1 Achieved tional (#) a Even though the target value of an increased volume of private-sector investments was exceeded, the PDO indicator was only partially achieved in a literal sense. A detailed discussion on this PDO indicator can be found in para. 38ff.

37. The investments in infrastructure and service delivery undertaken by RDP2 generated private investments that strengthened the increase of the tourism-related economy in the Imereti region. The volume of private-sector investments in Tskaltubo generated during the project period amounted to approximately US$25 million, which exceeded expectations by far (see table 5).

38. Outcome C of the Project (“Improved institutional capacity”) was addressed under Component 2 and has been tied to one PDO-level indicator (Increased volume of private-sector investment in Tskaltubo mobilized by the Imereti DMO) and monitored by two intermediate results indicators. The target value of the PDO-level indicator had been revised from US$20 million to US$13 million in April 2018. This change did not imply a real change in the target value, however; it was made to reflect a 35 percent currency devaluation of the Georgian Lari (GEL). As the PIU had measured this indicator in GEL, the target value was adapted to keep it the same in GEL. Thus, a split evaluation was not considered necessary. 39. Throughout the Project, the end target value of the PDO-level indicator was exceeded by almost 100 percent, which is attributable to the project-supported activities. The investments under RDP2 created a strong enabling environment for businesses to open their doors or invest in their enterprises in Tskaltubo, which was an abandoned city before the Project. According to qualitative interviews conducted by the M&E consultant in 2019, large-scale, tourism-related businesses (such as hotels, restaurants, spa facilities, and tourist attractions) invested more than US$25 million in Tskaltubo between 2012 and 2018. This figure is based on focus group conversations with a few large-scale enterprises in 2019, and actual numbers were likely much higher. The M&E consultant also conducted a

10 ACT, Project Results Monitoring & Evaluation for RDP2, Final Report, 2019. In-depth focus group discussions with eight residents (50 percent female) of Tskaltubo. Page 16 of 84

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survey, in response to which 92 percent of the registered businesses (and 86 percent of the unregistered businesses) stated that the infrastructure investments under RDP2 had a positive impact on their enterprises, and 50 percent of interviewed enterprises stated that they had expanded their businesses or started new business activities during the time of RDP2.11 In addition, the M&E consultant conducted focus group discussions with households in Tskaltubo, who mentioned that the RDP2 infrastructure improvements were an incentive for them to offer beds to visitors, as they expected more visitors would come to the city. The interviews confirmed that the Project had been the deciding factor for several new investments in tourism businesses or the expansion of business activities in Tskaltubo, starting as soon as the first investments of the Project had been delivered. 40. Investments in Tskaltubo continue to grow each month, with the government recently undertaking to sell all dilapidated sanatoria in the town to the private sector to turn them into nicely rehabilitated hotels to meet the growing influx of visitors; these investments would not be attractive to the private sector without the major transformation of Tskaltubo brought about under the Project. The investment of US$25 million does not include small and micro-enterprises, such as traders selling souvenirs and local produce near tourist attractions rehabilitated by the Project, for which the Project had also been a significant trigger to start or expand their business activities. 41. While the private-sector investments can be plausibly attributed to the project investments, they were not mobilized by the Imereti DMO and, thus, the PDO-level indicator, Increased volume of private-sector investment in Tskaltubo mobilized by the Imereti DMO, has been assessed as partially achieved. Delays in the Imereti DMO establishment resulted from a change in approach from creating city-level DMOs to the idea of establishing regional DMOs, which was initiated by GNTA. As a result, the Imereti DMO only became operational in summer 2019. Thus, while its expected enabling role in mobilizing private investments was not fully achieved by the time of the project completion, the DMO has since been advancing with activities quickly. At the time of the ICR mission, the Imereti DMO had been officially established and allocated office space and equipment, and it was staffed with five people. Within the first few months of its existence, it had, among other activities, already prepared a concept for private capital investments that were needed in the Imereti region, developed an events calendar for the region, and organized trainings for municipalities, as well as sightseeing tours for tourists through the whole region. In its initial stages, the DMO was being financed with contributions from the municipalities, but in time it is expected to be sustained by private-sector members. 42. The establishment of the Imereti DMO was one of the most important results under Component 2 of the Project, and since being put into operation, it has started to provide a platform for private-sector mobilization in the Imereti region. Before establishment of the DMO, the Tskaltubo Tourism Office already existed and was located in an office building rehabilitated and with equipment purchased by RDP2. The Imereti Tourism Office also already existed in Kutaisi. Under the guidance of GNTA, these two offices played an important role as precursors of the DMO in promoting Tskaltubo and creating an enabling environment for the private sector, as well as by promoting these sites to tourists and distributing maps (the intermediate results indicator referring to the production and distribution of new maps was exceeded by 522 percent). Thus, even though the PDO indicator was only partially achieved in a literal sense, the main development outcomes—an increased volume of private-sector financing, mobilized through the project investments and other public entities supported by the Project, as well as the establishment of the Imereti DMO—could be considered accomplished by the Project closing. In addition, the DMO is expected to contribute significantly to private capital mobilization in Tskaltubo and the Imereti region in the future. 43. Besides achieving the results monitored in the Results Framework, the Project did a significant amount of work to improve institutional capacity in the Imereti region, all of which contributed to strengthening the tourism- related economy of the region and making it sustainable in the long term. The Project financed a comprehensive contract for sustainable tourism development, marketing and promotion, and destination management for the

11 ACT, Project Results Monitoring & Evaluation for RDP2, Final Report, 2019. Page 17 of 84

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Imereti (and the Kakheti) region, under which a branding, marketing, and promotion strategy, including brand identity for the regions, as well as for Georgia, was produced. Online coverage for the Imereti region was established, along with online marketing and promotional activities. An organizational structure, job descriptions, and a working program were developed for the Imereti DMO under the same contract. In addition, six visitor management plans were created for the cultural heritage sites covered under the Project. For Gelati Monastery, a management plan was prepared in accordance with the requirements of the World Heritage Committee, which contributed to the removal of the Gelati Monastery from the List of World Heritage Sites in Danger in July 2017. 44. Another area for institutional strengthening under the Project was the workforce development and capacity- building program, under which 360 hours of training were delivered to 300 participants (of whom the majority were women) to improve the performance of local staff working in the tourism sector in terms of tour-guiding techniques, basic culinary techniques, and professionalization of trekking, as well as customer relations and care. This program made important contributions to raising service quality to international standards, to promoting Imereti as a popular tourist destination, and to the overall economic development of the region. Similarly, capacity-building workshops were organized for the GNTA and recommendations provided to it for improving data collection practices in the tourism sector at the national level. 45. All these activities contributed to institutional strengthening in the Imereti region, which can now be adver- tised and promoted as a sustainable tourism destination and which benefits from the increased awareness of its tourism assets in local and international markets. The Imereti DMO has laid the foundation for destination management and marketing and promotional activities for the region and for further collaboration among national, local, and private-sector actors, which strengthens the tourism-related economy. The establishment of the DMO in the Imereti region (and in the Kakheti region under RDP) was a pilot for destination management in Georgia, and the GNTA is further expanding the concept to other regions of the country, following the approach established by the Project. Contribution of Project Outcomes to Higher-Level Objective 46. All the project investments under components 1 and 2 strengthened the tourism-related economy of the Imereti region by a combination of activities ranging from infrastructure and cultural heritage rehabilitation to enhancement of the institutional capacity of the region through destination management and marketing and promotion and supported an increase in the number of visitors, the average length of stay as well as tourist spending. In addition, the investments by the private sector in hotels, restaurants and cafes, which were mobilized by the Project activities, also supported the increase of the tourism-related economy in the Imereti region, which contributed to an increase of wages and employment in the tourism sector in the region, as has been foreseen by the Project’s theory of change. Between 2012 and 2018, an increase of 58 percent of new jobs in the tourism sector in Imereti could be observed, and salaries paid in the sector showed an increase of 109 percent; the latter figure covers raises in salaries as well as additional salaries for new hires.12 These increases demonstrate that the project outcomes contributed successfully to the Project’s higher-level objectives—to raise employment and wages in the tourism sector. Justification of Overall Efficacy Rating Efficacy Rating: Substantial 47. The overall efficacy of the Project is rated as “Substantial.” Despite shortfalls in accomplishing all PDO-level indicators at the time of project closing, the Project reached its development objectives and contributed to its higher- level objectives. Overall, the Imereti region saw significant development of its tourism economy during the project time, which can, to an important extent, be attributed to the Project. The Project laid the cornerstone for a mobilization of substantial amounts of private capital, and the Imereti region has been unlocking its potential to become

12 National Statistics Office of Georgia (GeoStat). Page 18 of 84

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one of the most popular areas for tourists in Georgia, with more and more visitors spending time outside its capital, Kutaisi. This is a validation that the Project has invested in the right locations in making towns and sites in the region other than Kutaisi attractive, thereby dispersing tourists over the region. The Project spread its resources by rehabil- itating the historic spa town of Tskaltubo, as well as by making cultural heritage sites along the tourism circuit more appealing to visitors and residents. Included among these is Vani Museum, with its memorable collection, which is expected to reach the target values for ticket sales within a few months of reopening. C. EFFICIENCY

Assessment of Efficiency and Rating Efficiency Rating: Modest

48. The return on investment generated by the Project at closing was slightly higher than projected at appraisal. The results are shown in table 6. Attributability of benefit streams to a specific project is a common challenge for economic analysis of tourism projects, particularly such complex ones as RDP2. As analyzing direct returns on every physical investment is impossible, analysis of the cumulative impact assessment is used instead. In the case of RDP2, some of the original assumptions for the analysis at appraisal might have led to over- or under-attribution. The main parameter that might explain the difference between the projected and actual returns on investment is tourist arrivals. The average annual growth rate from 2012 to 2018 equaled 21 percent, which was much higher than the 5 percent projected at appraisal. Another factor could be the change in actual disbursements of the loan amount. A small part of the loan remained undisbursed, and investments were spread over a longer period of time due to extensions of the project closing date. The main parameter that might explain the large difference between the estimate of the net present value (NPV) at appraisal and the NPV at closing is the discount rate—at appraisal, the Pro- ject’s economic and financial returns were evaluated using a 12 percent discount rate to calculate NPV, and at closing a 5 percent discount rate was used.13 Table 6: Comparison of Estimates of Economic and Financial Returns Indicators at Appraisal and Closing

Results at appraisal Results at closing NPV US$9.54 million US$18.26 million FIRR 15.64% 16.00% EIRR 23.61% 27.95% Source: Calculations based on data from GeoStat, Revenue Service of Georgia, and M&E report commissioned for the Project. 49. Despite substantial methodological limitations, benchmarking of estimates of unit costs of the investments completed under the Project can be seen as a confirmation of its complexity and of the problems observed during implementation. Unit costs of selected assets (which covered around 40 percent of total project costs) were compared to those of other municipal, urban, and regional infrastructure projects in Georgia. The analysis showed slightly higher than average costs for RDP2 of road construction (10 percent higher cost per kilometer, relative to the average of comparator projects) and municipal buildings (17 percent higher), as well as the water and sewage supply networks (20 percent). The comparison needs to take into consideration, though, that the road subprojects implemented under RDP2 included significant works on underground infrastructure rehabilitation; that the rehabilitated municipal buildings were cultural heritage assets that required the use of specific materials and techniques; and that work on the water and sewage supply networks needed to allow for the “spa” underground infrastructure specific to Tskaltubo. Costs for streetlighting installation were 30 percent lower under RDP2 than for comparator projects (see annex 4 for detailed results and discussion).

13 Per the most recent guidelines, a 5 percent discount rate is recommended for project evaluation: Technical Note on Discounting Costs and Benefits in Economic Analysis of World Bank Projects. Page 19 of 84

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50. The overall efficiency rating for the Project is “Modest.” The results of the unit cost analysis confirm the challenges observed during implementation of the Project that affected its efficiency (as discussed in more detail in the sections below). Four major contracts comprising investments in Tskaltubo and Vani Museum and amounting to a total of around US$9 million had to be retendered, resulting in delays and increasing the costs of the investments. For many subprojects, variation orders were needed (an average of 5.5 for works contracts), and a large number of remediation works needed to be carried out, both of which resulted in delays and additional costs for the investments. Contract variation orders decreased at later stages of the Project due to better quality of designs and improved contract management and supervision. The rehabilitation of the WWTP in Tskaltubo, which had been added under the AF, did not happen, and the greatest part of the US$2.3 million allocated for it remained undisbursed under the Project (for more information on the WWTP, see section “Key Factors during Implementation”). In total, the Project had to be extended by 2.5 years to ensure rehabilitation works could be completed and assets would be fully operational at the time of the project closing. Despite the positive values of return on the project investments, which were slightly higher than projected during appraisal, overall project efficiency experienced some shortcomings during implementation, suggesting it should be rated “Modest.” D. JUSTIFICATION OF OVERALL OUTCOME RATING Overall outcome rating: Moderately Satisfactory

51. The overall outcome rating of the Project is assessed as “Moderately Satisfactory.” This rating is justified by the “High” relevance of the PDO, “Substantial” efficacy, and “Modest” efficiency. Although the Project achieved its PDO and remains very relevant for Georgia, some minor drawbacks that were experienced in its efficacy and efficiency hinder a fully “Satisfactory” rating of the Project. E. OTHER OUTCOMES AND IMPACTS (IF ANY)

Gender 52. The Project was designed to be fully gender informed. Women comprised 53 percent of the project beneficiaries, and their inclusion in public consultations held across all subprojects was emphasized. Rehabilitation of the water supply and sewerage connections under Component 1 had a positive impact on women, given their larger role in domestic work. Project activities under Component 2 included skills development trainings, which helped entre- preneurs gain skills relevant to the successful running of their tourism businesses, such as hotels, B&Bs, agritourism, sale of handicrafts and other items, tour-guiding techniques, and customer relations and care. Sixty-three percent of the participants in these trainings were women. Institutional Strengthening 53. See para. 43ff. Mobilizing Private Sector Financing 54. See para. 37ff. Poverty Reduction and Shared Prosperity 55. Although no specific poverty reduction or shared prosperity outcomes were stated in the Project Appraisal Document (PAD), the Project had a significant impact on both dimensions in Georgia, as Imereti is one of the poorest regions of the country, with the GDP per capita significantly below that for Georgia as a whole (US$3,241 versus US$4,722 in 2018).14 In addition, many internally displaced persons (IDPs), who are among the most vulnerable

14 GEOSTAT Regional Statistics. https://www.geostat.ge/en/modules/categories/93/regional-statistics. Page 20 of 84

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groups in the population, are located in the region. As of 2014, 24,755 IDPs were located in the Imereti region, comprising 9.5 percent of all IDPs in Georgia (a total of 259,247). Tskaltubo, where a major part of the investments under RDP2 went, had 5,995 IDPs in 2014—more than a fifth of all those in the Imereti region.15 Other Unintended Outcomes and Impacts 56. Previous to RDP2, the UNESCO World Heritage Site Gelati Monastery—one of the cultural heritage sites under the Project—was included on the List of World Heritage Sites in Danger. Under the Project a management plan was prepared for the monastery and the adjacent buffer zone, in accordance with the requirements of the World Heritage Committee. The management plan provided a clear statement as to why and how the value of the Gelati Monastery would be safeguarded, managed, and improved. It also explained how all stakeholders at the local level (the monastery and local government and society) and the international level (UNESCO and the International Council on Monuments and Sites, or ICOMOS) would be involved in the management of the property and how their support could be secured. The management plan prepared under the Project contributed to the removal of Gelati Monastery from the List of World Heritage Sites in Danger by the World Heritage Committee in July 2017.

III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME

A. KEY FACTORS DURING PREPARATION

• The design of the Project was based on comprehensive analytical studies. The availability of different analyses of regional development in Georgia (State Strategy on Regional Development, 2010–17), as well as studies on the economic development and tourism potential of the Imereti region (Imereti Regional Development Strategy, 2010–14, Imereti Spatial Economic Analysis 2012, and Imereti Tourism Development and Value Chain Analysis 2012), led to a well-informed design of key project activities and investments and high relevance of the PDO. • RDP2 largely followed the innovative design and implementation arrangements of the first RDP and other World Bank projects in Georgia. The implementation arrangements, including procurement, safeguards, and financial management, were based on existing structures, mechanisms, and capacities built up during the Re- gional and Municipal Infrastructure Development Project (RMIDP), the RMIDP AF, and the first RDP, which facil- itated project preparation. In addition, certain lessons learned from RDP were taken into consideration when designing RDP2. • The design and implementation structure of RDP2 were complex, which led to challenges during implementation. The Project comprised a large number of contracts (46 in total), some of them relatively small. It also required frequent coordination among multiple stakeholders, such as the Ministry of Regional Development and Infrastructure, the Georgian National Museum, the National Agency for Cultural Heritage Preservation, the Geor- gian National Tourism Administration, and the United Water Company, as well as the municipality of Tskaltubo and other stakeholders. The complex structure challenged the contract management capacity of the PIU and led to issues with the participation of bidders, the quality of designs and necessity of remediation works, and delays in implementation. • Incorporation of lessons learned from RDP. RDP2 built on the innovative design of the first RDP, and it continued many practices that had proved successful. The timing of the RDPs did not leave enough time to incorporate many lessons from RDP into the design of RDP2, but some were introduced throughout implementation of RDP2. In particular, investments under RDP2 were concentrated in a few cities and cultural heritage sites along a tourism circuit in the Imereti region rather than being scattered throughout the whole region, and emphasis was placed on delivering fully operational assets, including equipment and furniture. Although lessons from RDP regarding a decreased number of contracts were also taken into account, the contract management capacity of the

15 Ministry of IDPs, Labor, Health and Social Affairs, Internally Displaced Persons Issues, http://mra.gov.ge/eng/static/55. Page 21 of 84

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PIU under RDP2 could have been better assessed, certain challenges could have been better anticipated, and more mitigation strategies could have been put into place (regarding, for example, the packaging of contracts and the use of designs by government agencies). B. KEY FACTORS DURING IMPLEMENTATION

(a) Factors subject to the control of the government and/or implementing agency • The government opted for retroactive financing arrangements, leading to a quick-start of implementation and disbursements at the beginning of the Project, which, however, was put on hold due to a change in the government. The Project provided for 30 percent retroactive financing, and the procurement process for nine contracts was already underway before the project appraisal. In addition, many of the subproject designs had already been prepared by government agencies. The civil works under some subprojects were jumpstarted in the first six months of the Project, mostly in Tskaltubo. In June 2013, only half a year after project effectiveness, disbursements already amounted to 26 percent of the credit amount. In October 2012, the change in the national government put a hold on implementation, which had been advancing rapidly in its first few months, as the new government reevaluated most of the contracts that had already been signed. This caused significant delays in the implementation not only of RDP2 but also of other World Bank/IFI/donor–financed projects in Georgia. Delays in the execution of works led to cashflow problems for many contractors in the country, affecting the construction companies employed under RDP2. • Several designs prepared by the government agencies had to be adjusted to the actual situation, which caused delays in implementation and necessitated remediation works. Several designs, which had been prepared by beneficiary agencies during project appraisal, were incomplete or did not take into consideration the sensitive context of the “spa” environment in Tskaltubo—that is, its network of thermal and mineral water boreholes—or the specific requirements of cultural heritage works. The insufficient quality of the designs resulted in frequent variation orders of contracts during the implementation of works, delays in construction, and the necessity for remediation works for several subprojects that experienced insufficient quality of finishing, leading to additional costs and reduced efficiency. MDF cooperated closely with the engineering supervision consultant and the contractors to address the defects and ensure the final quality of deliverables was up to standard. At the time of project closing, the quality of construction of all subprojects under RDP2 was assessed as satisfactory. • The need to manage multiple contracts at the same time with a high standard of quality, including frequent coordination with stakeholders and ensuring safeguards compliance, challenged the capacity of the PIU. The Project experienced inefficiencies in the contract management cycle at various stages of implementation. This was due mostly to issues of coordination among MDF, the supervision consultant, and contractors but also to a lack of high-quality designs and difficulty in finding high-quality and reliable contractors. Several contract variation orders, extensions, and terminations of contracts were required throughout the project life, which reduced efficiency. Furthermore, the need for frequent coordination with project stakeholders led to additional complex- ities in project management and delayed implementation of several subprojects. The Project also experienced a few challenges with environmental safeguards monitoring by government agencies, but they could be rectified successfully (see further information in para. 63). Throughout RPD2, MDF substantially improved its capacity for environmental safeguards monitoring and reporting, and its governance structure was enhanced significantly with a more meaningful blending of environmental and social aspects into the technical work of the institution. • Mobilizing of a supervision company and an extended team of experts at MDF allowed for overcoming initial challenges with engineering supervision of civil works. Based on experience from RDP, the process for selecting a supervision consultant was already begun at the project appraisal. A delay in the procurement process delayed the selection, however, and the engineering supervision consultant was not mobilized for the first months of implementation, when retroactive financing arrangements prompted the commencement of work under some Page 22 of 84

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subprojects. Supervision had to be conducted by the staff of MDF, which was already overstretched. Supervision of subprojects improved once the supervision company was onboard. The supervision company was also involved in reviewing designs, which helped raise the overall quality of design documentation. Implementation supervision was coordinated well by MDF, which arranged regular meetings and site visits with local designers, contractors, and the supervision company to ensure each subproject was advancing well. Following the advice of the WB team, MDF hired a full-time engineer and two architects at later stages of the project implementation who supported design review and construction supervision of the RDPs and conducted regular visits to the project sites, which greatly benefited supervision. • All the abovementioned challenges—in particular, issues concerning the quality of designs, supervision, and contract management; remediation works; and coordination with multiple project stakeholders—led to significant delays in the implementation of various subprojects. The delays contributed to the need to extend the project closing date twice—first in 2016, for a year and a half, together with the AF; and, second, in April 2018, for another year—to ensure the PDO could be fully achieved. Vani Museum was one of the subprojects that experienced the most significant delays because of a combination of factors: (a) initially slow mobilization of the contractor; (b) problems with the contractor; (c) the need to address concerns from local residents about the adjacent archeological site; and (d) requests for design revisions by the contractor and PIU. At the project closing in December 2019, all subprojects were finished except for two: the Gelati retaining wall and the Katskhi Pillar monks’ cell and service building, which have been completed with government funding. The works at Gelati retaining wall were finalized by 31 May 2020 and the remaining works in Katskhi Pillar are expected to be completed by 30 June 2020.16 • The Project experienced challenges regarding operation and maintenance (O&M), particularly with some of the initial investments in the municipality of Tskaltubo, which improved significantly over the course of the Project. The World Bank, MDF, and the municipality coordinated to repair some initial investments that had been damaged and to replace some with other structures that would require less maintenance by the municipality. To ensure sustainability of the assets in the long term, MDF arranged for multipartite financial agreements and handover agreements to be signed between the municipality and other relevant stakeholders for each subproject that was finalized, whereby stakeholders would commit to actions to support the municipality in maintaining the investments. A few assets delivered under the Project were also leased to the private sector by municipalities, which would receive the revenues of the assets on the one hand and be responsible for O&M on the other. This has been working well so far, according to conversations during the ICR mission. • The construction of the WWTP in Tskaltubo, which was added as part of the AF loan in 2016, was not financed under RDP2. The rehabilitation of the Tskaltubo WWTP was supposed to complement the SSWMP (P145040), financed by a grant from SIDA approved on July 12, 2013. A preliminary assessment that the original SIDA grant would not be enough to cover the construction costs – because of a financing gap created by the currency devaluation of the GEL – indicated the need for the AF contribution to the SSWMP (amounting to US$2.3 million). At a later stage, however, the tender for the rehabilitation of the WWTP showed the price offered by the lowest bidder was low enough to be covered by the original SIDA grant. Nevertheless, the GoG and MDF retained the AF portion for the rehabilitation of the WWTF to cover possible change orders and unforeseen circumstances. Although the rehabilitation of the Tskaltubo WWTP was scheduled for completion in 2018, delays in the construction process shifted the expected completion date to May 2020. The delays resulted in uncertainty as to whether the AF funds would still be needed during RDP2 as long as the SIDA grant had not been fully disbursed. The WB team followed up frequently with the GoG and MDF on the situation. Most of the funds allocated for the

16 Completion of the investments in Gelati and Katskhi pillar was scheduled for 31 March, 2020, but had been delayed because of the COVID- 19 outbreak. Page 23 of 84

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rehabilitation of the Tskaltubo WWTP—US$2.19 million—remained undisbursed under RDP2, and due to the delays and uncertainty, only a small part—US$0.11 million—was reallocated to other project activities. (b) Factors subject to the control of the World Bank • The World Bank closely monitored project implementation and provided adequate implementation support to the borrower to mitigate the impact of implementation delays. The first Task Team Leader (TTL) was based in-country, which was beneficial for implementation of the Project, given its complex design. While subsequent TTLs were not based in Georgia, they completed implementation support missions at least twice a year. Although the TTLs changed twice during project implementation, effective implementation support was provided by the WB team throughout the life of the Project. One core team member was based locally, and the team mobilized local engineers (STCs) who were engaged in close supervision and visited the sites every month. The team also reviewed and cleared all Sub-project Appraisal Reports (SARs) by MDF for every sub-project under RDP2 and was very active in following up on implementation progress and providing technical advice on all challenges that occurred during project implementation, such as issues with the quality of designs, delays in implementation, environmental safeguards compliance, contract management, and procurement. The WB team also reported implementation issues candidly in ISRs, AMs, and Management Letters (MLs) throughout the life of the Project. In December 2016, the team commissioned an Implementation Review of RDP, which would also inform implementation of RDP2 and RDP3, and incorporated valuable lessons learned, such as the importance of a more sustainable approach toward the construction of visitor centers, into the implementation of RDP2. It must be acknowledged, however, that certain challenges during implementation that were similar to issues experienced under RDP could have been anticipated earlier. More mitigation measures could have been put into place, and the Results Framework could have been revised more thoroughly and in a timelier manner (see next section). (c) Factors outside the control of the government and/or implementing agency • External conditions were mostly favorable during project implementation. Overall, the geopolitical and macroeconomic environment was stable throughout the time of project implementation, which favored an increase in tourism in the country and the Imereti region, as well as private-sector investments. The devaluation of the national currency (the Georgian Lari) in 2016, however, led to a financing gap for certain project investments, which was one of the reasons for the AF loan in 2016.

IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME

A. QUALITY OF MONITORING AND EVALUATION (M&E) Rating: Modest M&E Design 57. Overall, the PDO was clearly specified, and the theory of change of the Project was clear and well-aligned with its design; however, there were some weaknesses in the design of the Results Framework. Some of the indicators (including PDO-level indicators) were inappropriate and not well-designed to measure project development outcomes. In addition, clear attributability of certain indicators to the project results has been a challenge under RDP2, similar to what is experienced by many other tourism-related projects. 58. The task team restructured the Results Framework in March 2016 and in April 2018 to address some of the weaknesses in the RF. With the restructuring in April 2018, two PDO-level indicators (Increased number of hours per day of piped water services in Tskaltubo and Increased energy efficiency of streetlighting in Tskaltubo) were dropped from the Results Framework after they were assessed to be inadequate because a cause and effect relationship was lacking between what the Project financed and what the indicators measured. RDP2 continued to monitor piped

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household water connections and number of streetlighting posts and bulbs replaced with intermediate results indicators. Meanwhile, a new PDO-level indicator (Square meters of new or rehabilitated urban public spaces in selected municipalities) was added to the Results Framework to measure progress under Component 1. Finally, in recognition of the change in the GNTA’s approach from municipal DMOs to regional DMOs, the PDO-level indicator, Increased volume of private-sector investments in Tskaltubo mobilized by the Tskaltubo DMO, and intermediate results indicator, Tskaltubo DMO established and operational, were adapted slightly to refer to Imereti DMO instead of Tskaltubo DMO (further details regarding restructurings are provided in para. 17ff.). 59. The team missed the opportunity, however, to restructure more thoroughly the abovementioned PDO- level indicator, revised as “Increased volume of private-sector investments in Tskaltubo mobilized by the Imereti DMO.” According to the Project’s theory of change, the Results Framework should have captured the increased volume of all private-sector investments mobilized in Tskaltubo related to project-supported activities, not just those mobilized by the DMO. The task team also could have made the adjustments to the M&E framework earlier in the course of the Project to enable better tracking of progress throughout implementation. Most of the revisions to the Results Framework were only done in April 2018, when the Project had already been under implementation for more than five years. M&E Implementation 60. M&E data were adequately collected and analyzed. Baseline data were gathered from the Imereti Tourism Development and Marketing Strategy. Progress in achieving the set targets was monitored by MDF, with the help of the supervision consultant. MDF reported adequately on the progress of each subproject in its quarterly reports. Although bringing onboard the M&E consultant (a consortium of an international and a local consultant) took longer than expected (until 2015), once mobilized, the consultant contributed significantly to the quality of data collection and reporting, as well as the M&E methodology of the Project. In 2016, the consultant conducted tourist, household, and business surveys and focus group discussions, which provided useful data for project M&E. In cooperation with the WB team and MDF, the M&E consultant gave recommendations regarding revisions of indicators that were taken into consideration in revisions of the Results Framework in 2018. The consultant also conducted a capacity-building workshop with GNTA with regard to improvements in the tourism statistics system. The local M&E consultant conducted updates of the business and tourist surveys in 2019, which provided useful information on the achievement of results indicators at project closing. M&E Utilization 61. M&E was used to track project implementation progress and demonstrate results. The WB team used ISRs to report adequately on the progress of the Project, consistently illustrating overall progress as well as progress on each component through the ratings. Results indicators covered many aspects of this complex Project, which helped maintain focus on problematic issues during implementation—for example, M&E data were used to inform MDF and the WB team of the need for additional oversight when certain activities were lagging. Many indicators were met or exceeded relatively early in the life of the Project, especially those related to rehabilitation works conducted in Tskaltubo, while some lagged until the end, such as establishment of the DMO and indicators related to the Vani Museum rehabilitation, despite substantial supervision efforts by the WB team and MDF. Justification of Overall Rating of Quality of M&E 62. The overall rating of M&E quality is considered “Modest.” Significant shortcomings in the M&E design, as well as delays and lack of comprehensiveness in addressing those shortcomings during project implementation, as discussed above, were observed and suggest an overall rating of the quality of M&E as “Modest.”

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B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE

Environmental and Social Safeguards 63. The Project was assigned the environmental Category B at appraisal, which did not change with the AF, and it triggered OP/BP 4.01 Environmental Assessment, OP/BP 4.11 Physical Cultural Resources, and OP/BP 4.12 Involun- tary Resettlement at appraisal. With the AF in 2016, OP/BP 7.50 Projects on International Waterways was also triggered. • The Project was compliant with OP/BP 4.01 Environmental Assessment. The PIU prepared an Environmental Management Framework (EMF), which was approved by the World Bank. Each subproject was screened according to environmental, social, and cultural heritage impacts, and environmental screening reports, environmental reviews and/or EMPs were prepared, as prescribed by the EMF. Noncompliance with waste disposal was the greatest challenge during implementation and was rectified successfully. Compliance with Health and Safety Standards for the workers onsite was also an issue. The management of environmental safeguards improved over the course of the Project as a result of an effort by MDF to improve its environmental safeguards monitoring and reporting capacity, along with close supervision and follow up by MDF and the supervision company onsite. • The Project was compliant with OP/BP 4.11 Physical Cultural Resources. The PIU coordinated on a regular basis with the Ministry of Culture, the National Agency of Cultural Heritage Preservation, and the Church to remain compliant with OP 4.11. The coordination also led to delays with project implementation at cultural heritage sites, however. The rating for OP 4.11 was downgraded to “Moderately Satisfactory” about half a year before project closing because significant delays in the works at Vani Museum left part of the museum’s collection in temporary storage and inaccessible to the public much longer than was expected. • The Project was compliant with OP/BP 4.12 Involuntary Resettlement. The PIU prepared a Resettlement Policy Framework (RPF) that was approved by the World Bank. Resettlement under RDP2 took place under one subproject at Gelati Monastery because of livelihood impacts. An abbreviated Resettlement Action Plan (aRAP) was prepared for this subproject and implemented to the satisfaction of the World Bank. • OP/BP 7.50 Projects on International Waterways was triggered only in 2016 with the AF because of the planned rehabilitation of the wastewater treatment plant (WWTP) in Tskaltubo, which was one of the subprojects to be supported under the AF. The rehabilitation of the WWTP complemented the Supporting Sustainable Wastewater Management Project (SSWMP), and an exception from the riparian notification requirement in the policy already granted under the SSWMP also covered the RDP2 AF as the scope of interventions was maintained. Due to the triggering of OP 7.50, the EMF had to be updated and was redisclosed in February 2016. • A Grievance Redress Mechanism (GRM) was established for RDP2. The GRM was not fully in place at the beginning of the Project but was established with support from the WB team when required by WB guidelines. A simple GRM mechanism was set up through a unified phone and email address and managed by a dedicated person at MDF. Three grievances were recorded in the grievance log of the Project • Following a participatory approach, the Project held consultations with public stakeholders for every subproject. A CE indicator was introduced with the AF in 2016 to enable better monitoring of citizen engagement in the Project. An estimated 5,600 people participated in public consultations, of whom 40 percent were women. • A Strategic Environmental, Cultural Heritage, and Social Assessment (SECHSA) carried out under RDP2 evaluated the tourism development vision and action plan defined in the Imereti Tourism Development and Marketing Strategy. Although its finalization was delayed, SECHSA helped to evaluate long-term risks and their avoidance and mitigation and to steer development in the Imereti region in an environmentally and socially sustainable direction.

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Procurement and Financial Management • The procurement rating for the Project was “Satisfactory.” Some procurement challenges presented over the life of the Project were managed well with the support of the WB team. In the first year, incomplete designs necessitated several contract amendments, which were managed by the WB on a case-by-case basis. Because of frequent amendments to the scope of contracts, the Bank agreed with MDF to submit all changes to the WB for clearance. For civil works contracts, low participation of bidders in procurement processes was an issue; this situation improved over the course of the Project in response to additional measures, such as better packaging of contracts to increase values and attract participation of medium-size contractors and reassessment of cost estimates to ensure they were up to date and based on current market prices. MDF also offered trainings for contractors and potential bidders, in coordination with the WB. • Contract management was rated as “Moderately Satisfactory” for most of the project lifetime. It was a challenge throughout the Project, but particularly at the beginning. Especially challenging were maintaining oversight of contractors and consultants and avoiding slippage of key milestones, which resulted in delays in implementation and additional costs. Contract management improved once the PIU hired an additional engineer and architect for the RDPs, who supported supervision and contract management of RDP2. • The rating for Financial Management was “Satisfactory” throughout the Project. No major issues arose regarding project financial statements, despite some minor delays in submission. The World Bank regarded the quality of project financial statements as satisfactory throughout the Project. C. BANK PERFORMANCE Rating: Moderately Satisfactory Quality at Entry 64. The WB team, in cooperation with the borrower, developed an innovative project that was well-informed by analytical studies and consultations with various stakeholders. The design was highly relevant for reaching the development objectives of the Project, and the project locations—with a focus on Tskaltubo and Vani Museum and a few cultural heritage sites along the tourism circuit—were chosen wisely. Certain lessons learned from the first RDP operation were incorporated into the design of RDP2, which reduced the number of contracts, focused investments in a few areas of the region only, and recognized the importance of delivering equipment together with rehabilitated buildings to have fully functional assets. 65. The project design also had some shortcomings, however, which led to challenges and delays throughout its implementation. The WB team based the Project on complex institutional arrangements and overestimated the contract management capacity of the implementing agency. In addition, the wide use of designs prepared by government at the beginning of implementation led to challenges regarding the quality of the work, as well as delays. Some of these aspects could have been anticipated in a better way in the design of RDP2, especially because RDP experienced many of the same challenges. The design of the project’s Results Framework also had some shortcomings, as discussed in the M&E section, above. Quality of Supervision 66. The WB team closely supervised implementation throughout the course of the Project. The first TTL was based locally, which helped with early implementation challenges. Afterward, when TTLs were placed in Washington, DC, and supervision missions took place on a regular basis roughly every six months, a strong presence on location was maintained. The TTLs mobilized local supervision and cultural heritage specialists, who conducted field visits to the project sites almost every month. This was particularly important, as cultural heritage works like those included in the Project are often more complex and require close supervision during all stages of the construction cycle. The

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local presence allowed the task team to identify challenges early on and work on solutions together with the implementing agency. In addition, the WB team was proactive in its supervision efforts, mobilizing an international expert on project implementation to assess implementation bottlenecks and advise the WB and the implementing agency on ways to expedite and improve performance. The team made an effort to ensure completeness and full functionality of all subprojects and conduct remediation works for all assets that were not of high quality in the first place. 67. Issues and concerns with implementation as well as safeguards compliance were raised candidly through ISRs, MLs, and AMs throughout the Project. In October 2018, progress toward achievement of the PDO and overall implementation progress were downgraded to “Moderately Unsatisfactory” because of delays with the works at Vani Museum that could have jeopardized the outcomes of the Project. The team further intensified supervision onsite and held biweekly calls with the implementing agency to monitor closely the completion of outstanding works. The ratings were upgraded again to “Moderately Satisfactory” in July 2019, when the team assessed that the Project was back on track to deliver the envisioned results on schedule in December 2019. 68. It has to be acknowledged, however, that challenges in certain areas, related to PIU contract management capacity, packaging of contracts, and use of designs by government agencies, could have been anticipated earlier and more mitigation strategies put into place to avoid delays. The WB team also could have restructured the Results Framework earlier, and it missed an opportunity to restructure thoroughly the PDO-level indicator, Increased volume of private-sector investment in Tskaltubo mobilized by the Imereti DMO, as discussed in the M&E section, above. Justification of Overall Rating of Bank Performance 69. Overall World Bank performance is rated as “Moderately Satisfactory,” as moderate shortcomings in the quality at entry and quality of supervision could be observed. D. RISK TO DEVELOPMENT OUTCOME

70. Operation and maintenance of the assets delivered under the Project remains an important consideration. Despite challenges concerning the quality of the assets during implementation, it was deemed satisfactory at project closing. For each subproject finalized, MDF arranged for multipartite financial agreements and handover agreements to be signed between the municipality and other relevant stakeholders. These agreements were an opportunity to bring relevant stakeholders together to commit to actions supporting the municipality or church, to whom the assets were handed over, in maintaining the investments. It has yet to be seen how these agreements will be implemented in the long term and whether adequate financial resources will be allocated for O&M of the investments, but these agreements constitute a good practice to ensure sustainability of the assets in the long run. Some of the investments under RDP2 have been leased by municipalities to the private sector, which is also responsible for their maintenance. This practice has proved successful so far. With quickly growing numbers of visitors, which have been experienced in the past, however, the region, as well as municipalities and sites, will need to think about how to deal with the increased tourist demand to make sure the bearing capacity of sites will not be exceeded, and that tourism remains sustainable without causing destruction to the physical, economic, and sociocultural environment of the region. 71. The capacity of local institutions is of vital importance for the continued promotion and management of tourism in the Imereti region. The Project included capacity-building activities for the public and private sectors, but more capacity strengthening will definitely be needed if tourism continues to grow as much as it has over the past decade. Sustaining the Imereti Destination Management Organization will be important for the coordinated promotion of the tourism industry. Destination management is still a new concept in Georgia, and the newly established Imereti DMO is only just starting its operations. Sufficient funding for the DMO and the attraction of private-sector partnerships and financing will remain important in this regard. The fact that the DMO model is going to be extended to other regions in the country is a positive sign that shows the commitment of the government to improving destination management in its regions. If the DMO model is not managed efficiently and cannot be sustained in the long

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run, this outcome might not be favorable for tourism development in the Imereti region, but the negative effects would be small, as the tourism industry is likely to continue expanding in the long term as it has done over the past years, even without coordinated tourism management and promotion. 72. Finally, the COVID-19 pandemic may have serious impacts on the outcomes of the Project in the short and medium terms. The tourism sector is one of those hardest hit by the pandemic worldwide, with both supply and demand for travel affected. Numbers of international travelers have already declined sharply globally and in Georgia, and how long it will take for tourism to pick up again remains to be seen. In Georgia, where the numbers of international tourist arrivals have been increasing constantly over the past years and contributing significantly to economic growth in the country, the pandemic will have a significant impact on the tourism-related economy and economic indicators, both in the Imereti region and all over the country. Once the numbers start growing again, however, the foundations provided to the tourism sector by the Project will prove even more important, and the basis it will provide for successful recovery of the tourism-related economy in the Imereti region will contribute to Georgia’s overall economic recovery, as well. The rehabilitation efforts in Tskaltubo have made it a second hub in the Imereti region (besides Kutaisi), and the increased attractiveness of Vani Museum and other important cultural heritage sites along the tourism circuit can be expected to continue drawing visitors to the region. The value of the DMO will be amplified during the COVID-19 crisis by the key role it will be able to play by providing a platform for information, communication, and partnership with other actors who want to help or invest in the COVID-19-related recovery. The assets developed under the Project, as well as the business networks created, should be able to withstand such shocks as the COVID-19 pandemic, as well as potential geopolitical shifts or macroeconomic instability in Georgia in the future, and the impacts of these shocks on the project outcomes in the long term are likely to be only temporary.

V. LESSONS AND RECOMMENDATIONS

73. The following lessons and recommendations can be drawn from the experience of RDP2 for other World Bank–supported projects focusing on regional development and integrated tourism development, in ECA and worldwide. The lessons are also relevant for the further implementation of the regional development program in Georgia. 74. The success of the regional development projects depends on the targeted selection of full investments in tourism circuits. RDP2 incorporated lessons learned from the first RDP, which was beneficial to the full functionality of project assets and better outcomes under RDP2. Investments under RDP2 focused on a few cities and cultural heritage sites along a tourism circuit in the Imereti region rather than being scattered through the whole region. Under RDP2, no separate small-scale investments were part of the Project; rather, all the tourist infrastructure and visitor centers built were linked to the cultural heritage sites that were part of the Project. The Project paid attention to delivering fully functional assets that had the ownership of the municipalities and other stakeholders for operation and maintenance, which was secured by MDF through the signing of multipartite financial agreements and handover agreements. The Project also paid attention to providing furniture and equipment for the assets after rehabilitation works were finished, thereby delivering full investments, which led to better outcomes. 75. The complexity of a project design needs to be balanced with the capacity of the government agencies involved in project preparation and implementation and must ensure the provision of necessary capacity support to the client. RDP2 required high levels of technical and institutional capacity and coordination efforts, as well as contract management skills, for the implementation of a complex project with a large number of subprojects and the need for frequent interagency coordination. This led to many challenges throughout RDP2 and suggests that a comprehensive assessment of the capacity and resources of the implementing agency is of great importance at the preparation stage. The situation should be monitored well by the WB team throughout project implementation, and lack of capacity and skills needs to be identified early and addressed by targeted capacity-building activities or adaptation of responsibilities. Also, the borrower needs to ensure the PIU team is adequately staffed with experts to support the monitoring of key milestones of contracts and review of designs, as well as implementation supervision activities. Page 29 of 84

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76. Consultancy contracts that cover concept, design, and supervision for each subproject increase accountability between the design and supervision phases and minimize the risk of multiple challenges arising during implementation. RDP2 was designed to include separate contracts for the design and supervision of subprojects. It also used designs by government agencies in the first half of the Project, many of which had deficiencies and did not take into account the local context, which led to reduced efficiency and delays during project implementation. Toward the end of the Project, the engineering supervision consultant mobilized under RDP2 also engaged in simple revisions of designs directly on the ground. Although this worked well in the later stages of the Project, it was learned that having separate contracts for design and supervision would lead to less accountability between different stages of the Project, and the original approach of the design might be modified. Having combined consultancy contracts that cover both concept and design, as well as supervision, guarantees continuity of accountability and approach between the design and supervision phases. Combined consultancies can also be incorporated when using designs prepared by government agencies by concluding a contract that involves review of the design and adaptation to the local context as well as supervision, thereby safeguarding the quality of designs. This lesson has already been reflected in the design of the PIUTD in Albania and is also implemented for new contracts under the RDP3. 77. Cultural heritage works are particularly sensitive and need more resources than other kinds of works, as well as very close supervision. The Project included a significant number of works on cultural heritage sites, which are very sensitive and resource intensive. They require high-quality designs and often need more time for implementation and more qualified workers, as well as very close and diligent supervision efforts. Projects that involve heritage works (including retrofitting, restoration, and adaptive reuse) should assess these specific needs, including the need for additional time, during project preparation and pay particular attention to the specific requirements of the works and supervision contracts throughout implementation to avoid problems and delays at later stages. 78. Developing PDO-level indicators whose results are attributable to project interventions is a challenge for projects aiming to achieve tourism-related outcomes. For tourism projects, clear attribution of outcomes to project activities is difficult because of the often complex nature of project interventions and exogenous factors that also affect outcomes. ICRs of other Bank-financed tourism projects suggest most of them have faced challenges with attributability similar to those encountered by RDP2. It is recommended that teams choose PDO-level indicators that are measurable and attributable to the project results and that consider outcomes at project closure. Other indicators that are also informing the Project but are more difficult to attribute could still be monitored as part of the Project’s M&E framework and through surveys, but it is advisable not to include them as PDO-level or IR indicators in the RF. 79. Establishing a well-functioning DMO requires clear ownership on the part of the borrower, as well as a sustainable source of financing. When RDP2 was designed, setting up a DMO was still a new concept, and the World Bank had only just begun pioneering DMOs in tourism projects. Despite some initial skepticism from the government, under RDP2 the Georgian National Tourism Administration (GNTA) has been very committed to establishing a regional DMO in Imereti and has owned the whole process, starting from the consultancy that developed the bylaws and organizational structure of the DMO over setting up the DMO in an adequate building and providing furniture and equipment to the actual operation of the DMO. GNTA is now using the same concept to establish DMOs in other regions of the country as well. Furthermore, while setting up a DMO is a lengthy process that requires extensive coordination among various project stakeholders, RDP2 had the advantage of being able to build on a discussion with the government on the subject that had already started as part of the first RDP. Also essential to the successful operation of a DMO is a sustainable source of financing. RDP2 supported an approach that bases the DMO’s financing on LGU’s own financial resources, as well as private-sector contributions in the long run, rather than project funds. As RDP2 was one of the first-generation tourism projects with DMOs, the World Bank team learned a lot in the process on a trial and error basis, making sure the model was right and well adapted to the country context. These lessons learned and successful practices have already been applied in the RDP3 in Georgia and beyond. .

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ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS

A. RESULTS INDICATORS

A.1 PDO Indicators

Objective/Outcome: Improve infrastructure services & capacity to support contribution of tourism in local economy Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Increased number of hotel Number 2661.00 3193.00 4400.00 4809.00 beds in circuit route areas 07-Sep-2012 07-Sep-2012 31-Mar-2016 31-Dec-2019

Comments (achievements against targets): Exceeded - The target value has been exceeded by 8 percent.

Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Square meters of new or Square 0.00 584296.00 813664.00 rehabilitated urban public Meter(m2) spaces in selected municipalities 07-Sep-2012 30-Apr-2018 31-Dec-2019

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Comments (achievements against targets): Exceeded - The target value has been exceeded by 39 percent.

Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Increased volume of private Amount(USD) 0.00 20000000.00 13000000.00 25000000.00 sector investment in Tskaltubo mobilized by the 07-Sep-2012 07-Sep-2012 30-Apr-2018 31-Dec-2019 Imereti Destination Management Office.

Comments (achievements against targets): Partially achieved - Even though the target value of an increased volume of private-sector investments has been exceeded by 92 percent, the PDO indicator was only partially achieved in a literal sense. A detailed discussion on this PDO indicator can be found in para. 38 ff. of the main text.

Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Increased revenues from Number 10519.00 88989.00 90000.00 0.00 tickets sold at Vani museum 07-Sep-2012 07-Sep-2012 31-Mar-2016 31-Dec-2019

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Comments (achievements against targets): Museum rehabilitated but not opened at time of project closing. Opening expected in the first week of July 2020. Target value is currently expected to be reached by October 2020.

A.2 Intermediate Results Indicators

Component: Infrastructure Investment

Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of buildings restored Number 0.00 9.00 11.00 14.00 and constructed in Tskaltubo and Vani 07-Sep-2012 07-Sep-2012 31-Mar-2016 31-Dec-2019

Comments (achievements against targets): Exceeded - Target value has been exceeded by 27 percent.

Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of Parks upgraded in Number 0.00 2.00 2.00 Tskaltubo 07-Sep-2012 07-Sep-2012 31-Dec-2019

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Comments (achievements against targets): Achieved - The target has been fully achieved.

Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of tourism facilities Number 0.00 6.00 5.00 5.00 constructed at cultural heritage sites along the 07-Sep-2012 07-Sep-2012 30-Apr-2018 31-Dec-2019 tourist circuit

Comments (achievements against targets): Achieved - The target has been fully achieved.

Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of street lighting Number 0.00 1448.00 1800.00 2301.00 posts and bulbs replaced 07-Sep-2012 07-Sep-2012 31-Mar-2016 31-Dec-2019

Comments (achievements against targets):

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Exceeded - The target value has been exceeded by 28%.

Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Piped household water Number 0.00 5000.00 6164.00 connections that are benefiting from 07-Sep-2012 07-Sep-2012 31-Dec-2019 rehabilitation works undertaken by the project

Comments (achievements against targets): Exceeded - The target value has been exceeded by 23 percent.

Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion

Number of people in urban Number 0.00 6000.00 6252.00 areas provided with access to all-season roads within a 500 07-Sep-2012 07-Sep-2012 31-Dec-2019 meter range under the project

Comments (achievements against targets):

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Exceeded - The target value has been exceeded by 4 percent.

Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Roads rehabilitated, Non- Kilometers 0.00 5.10 10.30 rural 07-Sep-2012 07-Sep-2012 31-Dec-2019

Comments (achievements against targets): Exceeded - The target value has been exceeded by 102 percent.

Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of tickets sold at Number 5215.00 15645.00 16500.00 0.00 Vani museum 07-Sep-2012 07-Sep-2012 31-Mar-2016 31-Dec-2019

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Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Direct project beneficiaries Number 0.00 20000.00 22546.00

07-Sep-2012 07-Sep-2012 31-Dec-2019

Female beneficiaries Percentage 0.00 50.00 53.00

06-Mar-2018

Comments (achievements against targets): Exceeded - The target value has been exceeded by 13 percent.

Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Participants in Consultation Number 0.00 5000.00 5600.00 Activities during project implementation (number by 07-Sep-2012 31-Mar-2016 31-Dec-2019 gender)

Comments (achievements against targets): Exceeded - The target value has been exceeded by 12 percent.

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Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Grieavances responded to Percentage 100.00 100.00 100.00 and/or resolved within one month of being filed (in 07-Sep-2012 07-Sep-2012 31-Dec-2019 percentage)

Comments (achievements against targets): Achieved - The target has been fully achieved.

Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Grievances registered related Percentage 100.00 100.00 100.00 to delivery of project benefits addressed 07-Sep-2012 07-Sep-2012 31-Dec-2019 (percentage)

Comments (achievements against targets): Achieved - The target has been fully achieved.

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Component: Institutional Development

Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Imereti Destination Number 0.00 1.00 1.00 Management Office established and operational 07-Sep-2012 07-Sep-2012 31-Dec-2019

Comments (achievements against targets): Achieved - The target has been fully achieved.

Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Production and distribution Number 0.00 10000.00 15000.00 93250.00 of new maps based on geotourism database 07-Sep-2012 07-Sep-2012 31-Mar-2016 31-Dec-2019

Comments (achievements against targets): Exceeded - The target value has been exceeded by 522 percent.

Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion

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Increased annual number of Number 740000.00 903000.00 953646.00 visitors at Project sites 07-Sep-2012 07-Sep-2012 31-Dec-2019

Comments (achievements against targets): Exceeded - The target value has been exceeded by 6%.

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B. KEY OUTPUTS BY COMPONENT

Objective/Outcome 1: Increased contribution of tourism in the local economy of the Imereti region 1. Increased number of hotel beds in circuit route areas (#) Outcome Indicators 2. Increased revenues from tickets sold at Vani museum (#) 1. Number of tickets sold at Vani museum (#) Intermediate Results Indicators 2. Increased annual number of visitors at Project sites (#) Both the activities under Component 1 and Component 2 contribute to Outcome 1: 1. Increased number of hotel beds in circuit route areas: 4,809 at project closing versus target value of 2,661 beds 2. Increased annual number of visitors at Project sites: 953,646 at project closing versus target value of Key Outputs by Component 903,000 visitors (linked to the achievement of the 3. Increased volume of private sector investment in Tskaltubo amounting to approx. US$ 25 million Objective/Outcome 1) versus target value of US$ 13 million 4. Increased revenues from tickets sold at Vani museum: 90,000 expected to be reached by October 202017 5. Increased number of tickets sold at Vani museum: 16,500, expected to be reached by June 202118

Objective/Outcome 2: Improved infrastructure services

Outcome Indicators 1. Square meters of new or rehabilitated urban public spaces in selected Municipalities (Sq. m)

1. Number of buildings restored and constructed in Tskaltubo and Vani (#) 2. Number of Parks upgraded in Tskaltubo (#) 3. Number of tourism facilities constructed at cultural heritage sites along the tourist circuit (#) Intermediate Results Indicators 4. Number of street lighting posts and bulbs replaced (Number) 5. Piped household water connections that are benefiting from rehabilitation works undertaken by the project (#)

17 Please see para. 31 of the main text of the report for more information. 18 Ibid.

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6. Number of people in urban areas provided with access to all- season roads within a 500-meter range under the project (#) 7. Roads rehabilitated, non-rural (km) 8. Direct project beneficiaries (#) 9. Female beneficiaries (%) 10. Participants in consultation activities during project implementation (#) Component 1: 1. 813,664 m2 of new or rehabilitated urban public spaces in Tskaltubo as well as along the tourism circuit in Imereti (Vani, Gelati, Motsameta, Katskhi, Ubisa) versus target value of 584,296 m2 2. 14 buildings restored and constructed in Tskaltubo and Vani museum versus target value of 11 buildings 3. 2 parks upgraded in Tskaltubo, including rehabilitation of 3 bridges and 3 fountains, construction of sanitary facilities and provision of 608 bins and 723 benches versus target value of 2 parks upgraded 4. 5 tourism facilities constructed at cultural heritage sites along the tourist circuit versus target value of 5 tourism facilities constructed 5. 2,301 street lighting posts and bulbs replaced versus target value of 1,800 light posts/bulbs Key Outputs by Component 6. 6,164 piped household water connections rehabilitated versus target value of 5,000 connections (linked to the achievement of the 7. 6,252 people in urban areas provided with access to all-season roads within a 500-meter range Objective/Outcome 2) versus target value of 6,000 people 8. 10.3 km of non-rural roads rehabilitated versus target value of 5,1 km 9. Preservation measures for Gelati monastery, Katskhi monastery and church and Ubisa monastery 10. Supply of goods (computers, office equipment and furniture delivered) for Tskaltubo tourism office 11. Supply of goods (computers, office equipment, furniture, lab equipment, showcases and illumination) for Vani archeological museum 12. Arrangement of protective coverings for 5 archeological sites at Vani museum territory 13. 22,546 direct project beneficiaries, out of which 53% female versus target value of 20,000 direct project beneficiaries 14. 5,600 participants involved in consultation activities during project implementation versus target value of 5,000 participants

Objective/Outcome 3: Improved institutional capacity

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1. Increased volume of private sector investment in Tskaltubo mobilized by the Imereti Destination Outcome Indicators Management Office (Amount, US$) 1. Production and distribution of new maps based on geotourism database (#) Intermediate Results Indicators 2. Imereti Destination Management Office established and operational (#) Component 2: 1. Imereti Destination Management Office (DMO) established and operational 2. Production and distribution of new maps (36,250 in Georgian; 57,000 in English) based on geotourism database versus target value of 15,000 maps 3. Tourism, marketing, promotion, online coverage and destination management for Kakheti and Imereti regions Key Outputs by Component 4. Preparation of Visitor Management Plans (VMP) for 5 cultural heritage sites in Imereti: Gelati (linked to the achievement of the monastery, Motsameta monastery, Katskhi monastery, Katskhi church, Ubisa monastery Objective/Outcome 3) 5. Preparation of Visitor Management Plan (VMP) in accordance with the requirements of the World Heritage Committee for Ubisa monastery 6. 360 hours of training delivered to 300 participants working in the tourism sector in Imereti 7. 5 capacity building workshops delivered to GNTA 8. Project Monitoring and Evaluation 9. Engineering supervision of civil works

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ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION

A. TASK TEAM MEMBERS

Name Role Preparation Ahmed A. R. Eiweida Task Team Leader(s)

Sandro Nozadze Procurement Specialist(s)

Galina Alagardova Financial Management Specialist

Zaruhi Tokhmakhyan Team Member

Darejan Kapanadze Social Specialist

Jose C. Janeiro Team Member

Rocio Mariela Malpica Valera Counsel

Damir Leljak Team Member

Vusala Mamed Asadova Team Member

Michelle P. Rebosio Calderon Social Specialist

Nino Metreveli Team Member

Supervision/ICR Vica Rosario Bogaerts, Rosanna Nitti Task Team Leader(s) Nino Ramishvili, Tanvir Hossain Procurement Specialist(s) Djamshid Iriskulov Financial Management Specialist Tengiz Gogotishvili Team Member Sophia V. Georgieva Social Specialist Vusala Mamed Asadova Procurement Team Damir Leljak Team Member Fabiola Altimari Montiel Counsel Jose C. Janeiro Team Member

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Luz Meza-Bartrina Counsel Darejan Kapanadze Environmental Specialist Mohammad Ilyas Butt Procurement Team

B. STAFF TIME AND COST

Staff Time and Cost Stage of Project Cycle No. of staff weeks US$ (including travel and consultant costs) Preparation FY12 10.876 69,253.00 FY13 31.672 160,552.11

Total 42.55 229,805.11

Supervision/ICR FY13 6.805 55,768.63 FY14 12.287 83,874.70 FY15 17.038 91,251.96 FY16 10.773 92,453.29 FY17 14.913 101,670.27 FY18 25.801 116,154.17 FY19 23.845 151,411.96 FY20 26.434 115,218.08 Total 137.90 807,803.06

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ANNEX 3. PROJECT COST BY COMPONENT

Amount at Approval Actual at Project Clos- Percentage of Components (US$, millions) ing (US$, millions) Approval (%) Infrastructure 41.62 35.09 84.31 Investment Institutional 4.88 9.22 188.93 Development Total 46.50 44.31 95.29

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ANNEX 4. EFFICIENCY ANALYSIS

Unit Cost Analysis

1. The complex structure of the Project prevents direct comparison of unit costs for some of the outputs delivered under it. Table 1 compares unit costs for four types of assets delivered: roads, a water supply pipeline, municipal buildings, and street lights. The comparator values are taken from other municipal infrastructure development projects implemented by MDF in Georgia: the Regional and Municipal Infrastructure Development Project (RMIDP), funded by a World Bank loan, and the First Regional Devel- opment Project (RDP1) and Urban Reconstruction and Development Project, funded by the European In- vestment Bank (EIB).

2. The results of unit cost analysis need to be interpreted with caution because of the limited com- parability of assets delivered by RDP2 with those of other projects, with the exception of RDP. RDP, for instance, included construction of roads in urban centers as well as in remote areas, both of which have specific implications. Direct comparison of the costs for municipal buildings constructed under the different projects (RDP2, SRMIDP, and EIB) is also complicated, as the tourist visitor centers and museums built by RDP2 are not typical structures.

3. The analysis showed slightly higher than average costs for road construction (10 percent higher per kilometer than the average for comparator projects), municipal buildings (17 percent higher), and the water and sewage supply networks (20 percent). It needs to be taken into consideration, though, that the road subprojects implemented under RDP2 included significant rehabilitation of underground infrastructure; that the municipal buildings were cultural heritage assets whose rehabilitation required the use of specific materials and techniques; and that the water and sewage supply networks needed to take into account the specific “spa” underground infrastructure in Tskaltubo. The cost for street light installation was 30 percent lower than for comparator projects.

Table 1: Unit Cost Analysis Average cost per unit, GEL SRMIDP— Typology Measurement from SPs EIB—from SPs RDP2 RDP1 completed in completed in 2019 2019 Roads per km per lane 278,130 265,502 244,989 247,650 Municipal/Public buildings per m2. 2,071 1,748 2,117 1,435 Water supply networks per km 201,852 113,160 171,747 218,895 Street lights per installed pole 1,574 1,543 2,554 N/A Source: Calculations based on project documentation provided by the Municipal Development Fund.

Economic and financial analysis

4. The economic analysis carried out at closing replicated the approach used at the appraisal stage, with several adjustments. At appraisal, the economic and financial returns of the Project were evaluated using a 20-year period and a 12 percent discount rate for the calculation of net present value (NPV),

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whereas at the closing a 15-year period and 5 percent discount rate were used, according to updated World Bank guidelines.19 The financial analysis calculated the incremental growth in tax revenues assuming the following benefits streams: increase in tourist arrivals, overnight stays, and spending; increase in number and profitability of economic enterprises; property value appreciation; and temporary job creation. The economic impact analysis assumed the following primary benefits: economic benefits from incremental tourist expenditures; economic benefits from temporary job generation; and economic benefits from secondary sales. The same core assumptions and the same benefit streams were considered at closing. Table 2 shows that the values of NPV, FIRR, and EIRR at project closing were slightly higher than forecasted at appraisal:

Table 2: Comparison of Estimates of Economic and Financial Returns Indicators at Appraisal and Closing Indicator Results at appraisal Results at closing NPV US$9,537,933.75 US$18,264,288.77 FIRR 15.64% 16.00% EIRR 23.61% 27.95%

5. The values of core effectiveness indicators at project closing were slightly higher than at project appraisal. The main parameter that could explain the large difference between the returns on investment at appraisal and closing is the much higher tourist arrivals. The average actual growth rate in 2012–18 was 21.01 percent, which is much higher than the 5 percent projected at appraisal. The parameter that could explain the large difference between the original estimates of NPV and the results at closing is the discount rate. At appraisal, the project’s economic and fiscal impacts were evaluated using a 12 percent discount rate for calculation of the net present value (NPV), and at closing a 5 percent discount rate was used. Another reason for the difference might be the change in actual disbursements of the loan amount, because a small part of the loan remained undisbursed, and the extension of the project closing date led to the investments being spread over a longer period of time.

6. These better-than-expected economic performance indicators are even more respectable when it is considered that some assumptions made at project appraisal stage were reduced at closing:

1. At appraisal, the private investment leverage factor was estimated to equal 2.0. The actual private investment leverage factor equaled 1.54. Here the lowest confirmed private investment amounts were used.20 Investments of family-owned businesses were not included, as not enough data were available. 2. The original model assumed average daily expenditures by tourists amounting to GEL 89.8 in 2011. The assumption was based on a very small sample of surveyed respondents in Tbilisi (only those who had visited Imereti). Actual daily expenditures were slightly lower. GNTA21 stated GEL 72 (US$43.48) as average daily spending for international tourists in Imereti in

19 Per the most recent guidelines, a 5 percent discount rate is recommended for project evaluation. Technical Note on Discount- ing Costs and Benefits in Economic Analysis of World Bank Projects. 20 Project Results Monitoring & Evaluation for the Second Regional Development Project (RDP2)—Phase 2. Initial survey results and project performance monitoring and evaluation in the Imereti region, prepared by ACT/Horwath in September 2017 and updated by ACT in 2019. 21 Tourism development and marketing plan for the Imereti region, prepared by THR—Innovative Tourism Advisors and TBSC Consulting for GNTA, July 2012.

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2011. This information had only been published after the project appraisal but was used now for the economic analysis at project closing. Under RDP2, the M&E consultant collected data on average expenditure of tourists twice, in 2016 and 2019. The data collected by the M&E consultant for RDP2 showed that, in 2019, average daily spending amounted to GEL 110.86 and the average length of stay amounted to 3.1 days. 22 Thus, the overall expenditure per stay was estimated to amount to GEL 343.67 (US$ 120.58) per stay, based on the data of the M&E survey. In addition to the M&E survey, data collected by GNTA on average stays and average expenditures, including average stays per region (for domestic tourists only) was considered. 23 As can be seen from the table above, GNTA data was more or less in line with the results of the M&E survey in 2016, but numbers were quite different for 2019. For most years GNTA numbers were used for the Cost-Benefit analysis, except for 2016 and for 2019, where the average of the amounts of GNTA data and the M&E survey was used. A 2% annual growth of daily spending was assumed after 2019 (same as at project appraisal). The data that was used for the analysis is presented in table 3.

Table 3: Average Stays and Daily Expenditures, per GNTA Data Year Average expendi- Average expendi- Average expenditure per stay, ture per stay, ture per stay, used Note USD (GNTA) USD for the analysis, (M&E Survey) USD 2011 43.48 43.48 2012 44.35 Assumes 2% growth (43.48 * 1.02) 2013 45.24 Assumes 2% growth 2014 46.14 Assumes 2% growth 2015 49.60 49.60 2016 49.44 50.58 50.01 Average of GNTA and (49.44 + 50.58)/2 M&E Survey 2017 51.60 51.60 2018 52.92 52.92 2019 3rd 59.44 120.58 90.01 Average of GNTA and Quarter (59.44 + 120.58)/2 M&E Survey

22 Tourism and project performance monitoring and evaluation in the Imereti region, prepared by ACT/Horwath in September 2017 and updated by ACT in 2019. 23 https://gnta.ge/statistics/.

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Table 4. Key Assumptions of the Cost-Benefit Analysis

Macroeconomic indicators Disbursement of project funds Average exchange rate US$/GEL 2012–14 1.70 GEL US$

Average exchange rate US$/GEL 2015- 2.50 Year 2012 5,995,569.26 3,526,805 2018 Exchange rate US$/GEL in February 2020 2.85 Year 2013 13,659,213.87 8,034,832

Long-term exchange rate after 2020 2.80 Year 2014 18,999,280.31 11,176,047

Discount rate, % 5% Year 2015 16,530,139.35 6,612,056

Operation and maintenance costs, % of 2% Year 2016 8,025,376.46 3,210,151 investment GDP growth rate, % 4% Year 2017 5,115,582.54 2,046,233

Inflation, % 3% Year 2018 5,579,177.69 2,231,671

Private investment leverage factor 1.54 Year 2019 21,834,727.87 8,733,891

Tourism indicators Year 2020 1,416,905.00 497,160 (planned) Total tourist arrivals in Georgia in 2011 1,318,968 Total 97,155,972.35 46,068,845.59

Share of Imereti (average of GNTA, 91,009 Geostat, survey) Number of beds in Imereti 2,661 Project indicators

Long-term baseline tourism growth rate 2% Share of labor costs in capital expenditures 29.50% (w/o project) (public) Tourist arrivals average growth rate in 21.01% Share of labor costs in leveraged capital 25.40% 2012–18 (actual) expenditures Tourist arrivals growth rate forecast after 2% 2020 Average stay, days in 2012 1.32 Increase in number and spending of tourists After project average stay, days in 2019 3.10 Year % Number of Number of Number of % Tourist (source: M&E) increase tourists tourists additional increase spending, w/o tourists due US$ project to RDP2

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Macroeconomic indicators Disbursement of project funds After project average stay, days from 3.10 2011 0% 91,009 91,009 0 0% 43.48 2020 (source: M&E) Average spending per tourist, GEL 73.92 2012 23.30% 92,829 112,213 19,384 2% 44.35 (sources: Geostat), 2011 Average spending per tourist, GEL 256.53 2013 11.78% 94,686 125,432 30,746 2% 45.24 (average of GNTA and M&E), 2019 Local share in tourist spending 90% 2014 19.85% 96,579 150,328 53,749 2% 46.14 Hotel occupancy rate 60% 2015 -6.46% 98,511 140,617 42,106 N/A 49.60 Secondary sales multiplier factor 1.50 2016 74.55% 100,481 245,447 144,966 N/A 50.00

Breakdown of the tourist spendings 2017 38.75% 102,491 340,553 238,062 N/A 51.60 Personnel salary (net) 20% 2018 1.52% 104,540 345,727 241,187 N/A 52.92 Food, utilities and other (local) 30% 2019 2% 106,631 352,642 246,010 N/A 90.01 Food, liquor (imported) 10% 2020 2% 108,764 359,694 250,930 2% 91.81 Taxes 20% 2021 2% 110,939 366,888 255,949 2% 93.65 Investor profits 20% 2022 2% 113,158 374,226 261,068 2% 95.52

Taxes 2023 2% 115,421 381,711 266,289 2% 97.43 VAT 18% 2024 2% 117,730 389,345 271,615 2% 99.38 Corporate income tax (CIT) 15% 2025 2% 120,084 397,132 277,047 2% 101.37 Personal income tax (PIT) 20% 2026 2% 122,486 405,074 282,588 2% 103.40

Property tax 1%

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Fiscal Impact Analysis

7. When calculating Tax Revenues from Increase in Tourist Arrival, Overnight Stays, and Spending, the following approach was used:

• Tourist spending was calculated by multiplying the incremental number of tourists by average tourist spending—that is, by multiplying average stay and average daily spending. • At the appraisal of the project, average stay was forecasted to increase from 1.32 days (2012) to 2.5 days, beginning in 2020. Based on the results of the visitor surveys conducted in 2017 and 2019, the actual average stay in Imereti had increased to 3.1 days. The model uses this estimate and assumes the growth in average length of stay will not continue after 2020, and that it will remain at 3.1 days. • At the beginning of the project, it was assumed that both domestic and international tourist arrivals and spending would increase by 5 percent for five years beginning in 2013; after 2017, growth would be 2 percent. For the analysis at project closing, this was corrected to the actual figures, as described in table 5.24 Table 5: Number of Tourist Arrivals and Growth Rate Year Number of tourists Growth rate, % 2012 112,213 23.30 2013 125,432 11.78 2014 150,328 19.85 2015 140,617 –6.46 2016 245,447 74.55 2017 340,553 38.75 2018 345,727 1.52 2019 352,642 2

• Starting from 2020, the growth rate forecast was kept at a conservative 2 percent. • It was calculated that part of the tourist spending from direct sales will flow to the government in the form of value-added tax (VAT, 18 percent of sales), personal income tax (PIT, 20 percent of salaries), corporate income tax (CIT, 15 percent of profit), and dividend taxes (5 percent). In total, taxes will comprise 20 percent, at minimum.

8. To calculate Tax Revenues from Indirect (Secondary) Sales, the following approach was used:

• Tax payments (20 percent) and expenditures on imported food and liquor (10 percent) were deducted from tourist spending. The remainder is paid to personnel (20 percent), local food and wine producers, utilities, etc. (30 percent), and 20 percent is left to investors—that is, 70 percent of the tourist expenditures will be transformed into local revenues that will be spent locally and will create secondary economic effects in the region. We applied the widely

24 https://www.geostat.ge/en/modules/categories/102/inbound-tourism.

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used National Park Service Money Generating Model25 sales multiplier, which equals to 1.5. This implies each dollar of direct sales generates another 50 cents in secondary sales in this region. We assumed the tax rate for the secondary sales is the same and equals 20 percent.

9. To calculate Tax Revenues from Property Value Appreciation, the following approach was used:

• Leveraged capital attracted by public expenditures on infrastructure improvements will construct assets and about 50 percent of these assets will be commercial, rather than family, assets. We assumed only 50 percent of tax payment, because small family guesthouses and restaurants might not report their assets. A property tax of 1 percent was paid on the commercial (reported) assets, which is also used in the model.

10. To calculate Tax Revenues from VAT and Temporary Job Creation during construction activities, the following approach was used:

• There were two sources for VAT and temporary job creation: construction activities during project implementation (public funding) and during the construction of assets by leveraged capital. • VAT was calculated on all capital expenditures. • Analysis of RDP2 sub-projects has shown that labor costs comprised about 29.5 percent of total costs during reconstruction/rehabilitation works, and the labor component for construction of assets by leveraged capital (average of other projects) comprised around 25.4 percent of total costs. • The PIT (20 percent) was paid on these expenditures.

Economic Impact Analysis

11. The economic analysis was based on the financial analysis. Hence, all the assumptions made in the financial analysis are valid here.

12. Financial costs—both investment and operation and management costs—were adjusted to assess correctly costs associated with the Project globally from the point of view of the whole economy. To achieve this, payment of taxes was excluded from the financial costs, as tax payments just represent trans- fer of funds from the point of view of the country. Also, shadow prices were considered, along with inef- ficiency characteristics for a transitional economy. The assumptions made for the economic analysis are discussed below in detail.

13. The financial costs, as discussed above, were corrected for the economic analysis, as follows:

• PIT, which is included in labor costs, making up to 20 percent, was deducted from the labor costs reflected in the financial costs.

25 http://35.8.125.11/mgm2_new/

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• VAT at the current rate of 18 percent was deducted from the operations and maintenance and capital costs used in the financial analyses.

14. The conversion factors required for the economic analysis were identified and applied in the following two stages:

1. Total project costs were broken down into three components: foreign procurement, local procurement, and local labor force; it was calculated that 10 percent of the materials were purchased internationally and 90 percent locally. In addition, 25 percent of construction cost was attributed to labor. 2. Foreign procurement was considered at world prices, and a conversion factor was not used. A standard conversion factor (SCF) was calculated at 0.95, as Georgia has relatively low im- port and export taxes, and the average difference between world and domestic prices is very small. A shadow wage factor was calculated by the following formula: SW = W*(1-t)*(1-u), where SW is the shadow wage, W is the market wage, and t is the income taxation, and u is the unemployment rate of the region. By plugging in appropriate numbers for Georgia,26 we received a shadow wage factor of 0.69.

15. Then, the appropriate conversion factors were applied to each group. Those applied to the mentioned cost items are shown in table 6.

Table 6. Capital Costs Conversion Factors Local procurement Foreign purchases Type of work Materials Labor force Share in total Conversion Share in total Conversion Share in to- Conversion costs, % factor costs, % factor tal costs, % factor Construction 0 1.0 75 0.95 25 0.69 works Materials 10 1.0 80 0.95 10 0.69

16. After the application of the conversion factors, the resulting capital expenditures (both public and leveraged) were used for the economic analysis.

17. The primary economic benefits of the Project were expected to come from the following benefit streams and related assumptions:

1. Economic Benefits from Incremental Tourist Expenditures 2. Economic Benefits from Temporary Job Generation 3. Economic Benefits from Secondary Sales

26 Income tax in Georgia equals to 20% and average unemployment rate during 2012-2019 equaled 13.77 percent – source: https://www.geostat.ge/en/modules/categories/38/employment-and-unemployment

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18. To calculate Economic Benefits from Incremental Tourist Expenditures, the following approach was used:

• Tourist spending was calculated by multiplying the number of additional tourists by average tourist spending—that is, by multiplying average stay by average daily spending. • Tax payments (20 percent) and expenditures on imported food and liquor (10 percent) were deducted from tourist spending to calculate economic benefits.

19. To calculate Economic Benefits from Temporary Job Generation, the following approach was used:

• Salary payments during temporary job creation, which are used for the financial analysis, are based on two factors: a) Construction activities during project implementation (project funds) and b) Construction activity of assets by leveraged private capital. • The PIT (20 percent) was deducted from these payments to calculate economic benefits.

20. To calculate Economic Benefits from Secondary Sales, the following approach was used:

• The non-tax portion of incremental tourist expenditures and salaries during temporary job generation was spent locally to create secondary economic effects in the region. We applied the widely used National Park Service Money Generating Model sales multiplier, which equals 1.5. This implies that each dollar of direct sales generates another 50 cents in secondary sales in this region.

Sensitivity analysis

21. The sensitivity analysis shows that, while changes in some of the important parameters of tourism development would have an impact on the project’s economic and financial outcome, they might not be strong enough to undermine the overall positive results of the Project (table 7).

Table 7. Analysis of Sensitivity of Key Results of Economic and Financial Analysis to Changes in Assumptions Decrease in assumed values Variable ∆ NPV Base ∆ FIRR Base ∆ EIRR Base NPV (actual NPV) FIRR (actual FIRR) EIRR (actual EIRR) Tourist arrivals growth $18,264,288.77 –$1,075,537.15 16.00% –0.39% 27.95% –0.38% rate forecast after 2020 ($17,188,751.63) (15.61%) (27.57%) (–50%) Tourist spending –$802,318.60 –0.29% –0.26% growth rate forecast af- ($17,461,970.17) (15.71%) (27.69%) ter 2020 (–50%) Average stay of tourists –$4,170,422.71 –1.70% –1.63% after 2020 (–10%) ($14,093,866.07) (14.30%) (26.32%) Private investment lev- –$1,550,386.01 –1.21% 2.09% erage factor (–10%) ($16,713,902.77) (14.78%) (30.03%) Secondary sales multi- –$2,638,757.54 –1.29% –0.64% plier factor (–10%) ($15,625,531.24) (14.71%) (27.31%)

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Increase in assumed values Variable ∆ NPV Base ∆ FIRR Base ∆ EIRR Base NPV (actual NPV) FIRR (actual FIRR) EIRR (actual EIRR) Tourist arrivals $18,264,288.77 $1,111,042.15 16.00% 0.39% 27.95% 0.38% growth rate forecast ($19,375,331.11) (16.39%) (28.32%) after 2020 (+50%) Tourist spending –$828,889.94 0.29% 0.26% growth rate forecast ($19,093,178.72) (16.29% (28.21%) after 2020 (+50%) Average stay of tour- $4,567,110.21 1.61% 1.56% ists after 2020 (+10%) ($22,831,398.98) (17.61%) (29.51%) Private investment $1,550,386.01 1.29% –1.84% leverage factor ($19,814,674.78) (17.29%) (26.10%) (+10%) Secondary sales mul- $2,638,757.54 1.23% 0.64% tiplier factor (+10%) ($20,903,046.31) (17.23%) (28.59%)

22. The NPV and FIRR are most sensitive to the average stay of tourist variable—a 10 percent decrease in this variable will decrease NPV by US$4,170,422.71 and FIRR by 1.7 percent. The NPV and FIRR are also quite sensitive to the secondary sales multiplier variable—a 10 percent decrease in the secondary sales multiplier will decrease NPV by US$2,638,757.54 and FIRR by 1.29 percent. EIRR is most sensitive to the private investment leverage factor—a 10 percent decrease in the private investment leverage factor will decrease EIRR by 2.09 percent.

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ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS AND BORROWER’S ICR

Comments by the Ministry of Regional Development and Infrastructure (MRDI) on the ICR

1. We have to agree that project has a lot of positive outcome. This also is stated in various places of this report. Considering also the marked statement why the final rating of the Project is so low? Even there were some challenges all targets for indicators for all components were met

Comments by the Municipal Development Fund (MDF) on the ICR

2. During the ICR mission it has been noted that the RDP 2 savings is due to non-disbursement of SIDA funds - co financing for Tskaltubo WWTP. It was out of control of the RDP2 project, completely unrelated and cannot affect any of the ratings in this document. Therefore, we consider that the overall outcome rating shall be upgraded to the Satisfactory level. Compared to the RDP (Kakheti) project, RDP 2 has made substantial progress in terms of better planning, implementation and overall O&M of the assets. So, we expect the final rating to depict this progress.

Borrower’s ICR

Strategic Context

A. Project Background

3. In the framework of the Country Partnership Strategy Progress Report (CPS-PR) for FY10-FY13 presented to the Board in April 2011 (Report Number: 58287-GE), the Government of Georgia asked the Bank to support regional development by applying a programmatic approach. First regional development program (RDP- P126033), US$60 million IBRD loan, was approved by the Board on March 20, 2012, focusing on the Kakheti region and was successfully implemented during 2012 – 2017 year period. The Second Regional Development Program (RDP II) was approved on November 6, 2012 in the amount of USD 30 million. The Project became effective on January 29, 2013, with an original closing date of June 30, 2017. An Additional Financing (AF) loan of USD 9 million was approved on March 16, 2016, and the RDP II closing date was extended by 18 months to December 30, 2018 to ensure completion of all activities planned under the AF. The aim of RDP II project was to support the local economy development in Imereti region by carrying out integrated tourism development approach, focusing on infrastructure, urban regeneration, cultural heritage restoration, skills development and enabling the environment to attract private sector investments.

4. Imereti region is known for its rich cultural heritage, ancient and unique monuments, sites, museums, and culinary dishes, as well as parks and protected areas. It has been a tourism attraction during the Soviet era, in particular Spa treatment. More than 200,000 tourists used to visit Imereti every year to see its beautiful nature and unique monuments. Around 100,000 visitors per year were visiting Tskaltubo

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for Spa treatment purposes only. The region is home to 78 Churches, 13 Castles, 39 Archeological Monuments and 27 Museums. The region also has 3 protected areas, 12 unique caves and 9 spa resorts based on hot and cold spring water.

5. The Imereti spatial economic analysis and Imereti Regional Development Strategy have identified tourism, industry and trade as the main drivers of economic growth in the region. In addition, The Imereti Tourism Development & Marketing Strategy was prepared by the Government with the help of an international consulting firm to define a long-term tourism development vision for Imereti and underpin this Project’s design. Imereti is home to several cultural heritage sites. The most significant are the Bagrati Cathedral and the Gelati Monastery, which is listed as UNESCO Word Heritage Sites. The ancient town of Vani and its museum features a unique archeological area associated with the myth of the Golden Fleece. The Katskhi Column Monastery, Katskhi Church, Motsameta Monastery and Ubisa Church also have unique monuments with impressive architecture and natural landscapes. There are three significant natural areas: the Gordi gorge, one of the deepest and most attractive in Europe; twelve unique caves including two of the most significant in Europe (Prometheus and Sataplia); and attractive health/spa destinations in Tskaltubo and Sairme, based on spring-fed thermal water with unique therapeutic qualities. The protected area of Borjomi-Kharagauli National Park, one of the largest national reserves in Europe with rich landscape, is adjacent to Imereti.

6. There was strong ownership of the Project from the Borrower’s side. A Supervisory Board leaded by the Prime Minister, have been working closely with the Bank to identify, prepare and implement the Project.

B. Project Development Objective

7. The Project Development Objective is to improve infrastructure services and institutional capacity related to the tourism economy in the tourism and heritage circuits of the Imereti region.

C. Project Components

8. The project had two components: (1) infrastructure investments in urban regeneration of Tskaltubo and tourism circuit development, and (2) institutional development:

Component 1: Infrastructure Investment:

9. Financing Investment Subprojects for the following activities:

10. Component 1.1. Urban Regeneration of Tskaltubo: An integrated approach is proposed for urban renewal of Tskaltubo city. This includes a) rehabilitation of municipal infrastructure and utilities in the central area; b) upgrading of public spaces, parks, and construction of tourism amenities, and c) restoration of public buildings with vernacular architecture. The proposed activities will help improve livability and hospitality in a culturally-informed manner, enhance attractiveness for visitors, revitalize the urban nucleus, and attract increased volume of private sector investments around the medical and spa tourism cluster.

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11. Component 1.2. Tourism Circuits Development: An integrated approach to site upgrading and improved management of the six most attractive cultural heritage sites in Imereti: including Gelati Monastery; Vani Museum and surrounding archeological site; the Ubisa Church; the Katskhi Church, the Katskhi Column Monastery, and the Motsameta Monastery. This includes a) improving urban landscaping and public parking; b) construction of information kiosks and public toilets; c) restoration and refurbishing of the exterior and interior of Vani Museum; d) improving access roads; and e) preservation of selected cultural heritage sites.

Component 2: Institutional Development

12. Component intended to enhance the institutional capacity and performance of the Georgia Na- tional Tourism Administration (GNTA), National Agency for Cultural Heritage Preservation of Georgia (NA- CHP), Georgia National Museum (GNM) the Project Implementing Entity (MDF), and other local and regional entities to carry out the following activities:

• Establishment of Tskaltubo destination management and development office; • Sustainable Tourism development and promotion; • Preparation of visitor management plans for the sustainability of the Project’s Cultural heritage sites; • Skilled workforce development and capacity building; • Performance monitoring and evaluation; • Construction supervision support;

(For the additional details, please refer to project appraisal document)

Additional Financing (AF), Project Restructuring and Project Extension

13. Additional Financing (AF): In March, 2016 An Additional Financing (AF) loan of USD 9 million was approved and the RDP II closing date was extended by 18 months to December 30, 2018 to ensure completion of all following activities planned under the AF: (i) Scaling up existing activities for the completion and rehabilitation of selected municipal and tourism infrastructure for cultural heritage sites in the Imereti Region that would ensure the full functionality and sustainability of key investments delivered so far under the Project; (ii) New construction (WWTP and the reconstruction of the Vani Museum); (iii) Addressing a financing gap resulting from currency devaluation; and (iv) Financing a number of cost overruns caused by additional investments needed for a limited number of unforeseen additional works related to cultural heritage sites supported under the original operation. The AF also supported the necessary technical assistance for detailed designs and supervision activities and increased operating costs for the project extension period. The Results Framework was also revised to (i) Reflect the increased scope of the Project and (ii) Align some of the target values and dates with the proposed new closing date.

14. It is worth mentioning that AF also included one of the subprojects, the rehabilitation of the Waste Water Treatment Plant (WWTP) in Tskaltubo, which was not originally triggered by the RDP II project. The

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rehabilitation of the Tskaltubo WWTP complemented the Support of Sustainable Wastewater Manage- ment Project (SSWMP - P145040), financed by a SIDA grant approved on July 12, 2013. (For the additional details, please refer to Project Paper with Report No PAD1776)

15. Project Restructuring and Project Extension: In February, 2018, MDF addressed the World Bank requesting Extension of the closing date by 12 Months to December 2019 and modification of indicators as part of the project restructuring. Both requests had solid backgrounds from MDF:

Project Extension:

16. The proposed extension was required to enable the Borrower to complete all the remaining works, to reach the full potential of its development impact. For instance, the delivery of a functional and fully operational Vani Museum was one of the RDP2 PDO indicators. As the most prominent cultural heritage site along the main tourism circuit in Imereti, it was criticaly important that all works in Vani were fully completed with the needed technical quality of works ensured. The World Bank approved the extension and sent an official notice to MDF on 02 April, 2018. PDO and associated outcomes as well as composition of the Project’s components and the Project institutional arrangements remained unchanged.

Indicators modification:

17. In addition to time extension, MDF requested modification of indicators as part of the project restructuring. The World Bank approved the extension and sent an official notice to MDF on 02 April, 2018. The results of the Indicators assessment revealed that several indicators included in the framework were not best fit for evaluating the achievement of the PDO of the project and not well aligned with the interventions conducted under the project. The proposed changes supported more accurate and precise evaluation of the Project outputs and outcomes and achievement of the PDO at Project closing.

Indicator Action Target Rationale for revision PDO Level Results Indicator Square meters of New 584,296 This indicator was measured by the cumulative number (in sq.mt) of new or rehabili- indicator new or rehabilitated public spaces in selected municipalities. Urban tated urban public public spaces are understood as public parks, plazas, pedestrian spaces in selected walkways, cultural and natural heritage sites and their adjacent ar- municipalities eas, green spaces, etc., which benefited from the project interventions to provide improved quality of urban spaces and living conditions and infrastructure services for residents and visitors Increased number Dropped This indicator was assessed to be inadequate. There is no cause-ef- of hours per day of indicator fect relationship between what the project finances and the num- piped water ser- ber of hours of supply in the Tskaltubo. The project did not envisage vices in Tskaltubo rehabilitation of the entire water supply systems with all hydraulic elements in any of the project sites, instead the project only affected the rehabilitation of the water networks and connections at the immediate project locations.

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Indicator Action Target Rationale for revision Increased energy Dropped This indicator was assessed to be inadequate. There is no cause-ef- efficiency of street indicator fect relationship between what the project finances and the in- lighting in creased energy efficiency Tskaltubo. The project only envisaged en- Tskaltubo ergy efficiency in selected project sites in Tskaltubo. Increased volume Revised Old: USD Indicator: Georgian National Tourist Administration (GNTA) man- of private sector indicator 20 ages tourism development from the capital city of Tbilisi with the investment in and re- Million support of Tourist Information Centers (TIC) in the regional capital Tskaltubo mobi- vised towns. GNTA considers shifting from TICs to Destination Manage- lized by the target New: USD ment Offices (DMOs) to allow for more autonomy with regional de- Tskaltubo DMO 13 velopment. Considering this approach, GNTA aims to establish one million DMO in each region as a pilot and upon successful implementation, allowing the regional DMOs to develop their own branches throughout the respective regions. Therefore, the proposed new indictor was proposed to be phrased as follows: “Increased volume of private sector investment in Tskaltubo mobilized by the Imereti Desti- nation Management Office”. Target: There has been a 35 percent exchange rate devaluation of the Georgian Lari with respect to the US Dollar (from GEL1.6: USD 1 at Board Approval to the current GEL2.50: USD 1). In this context, there was a need to adjust the target accordingly. Intermediate Level Results Indicator Tskaltubo DMO Revised In line with the above, the indictor was proposed to be phrased as Established and indicator follows: “Imereti Destination Management Office established and operational operational”. (For the additional details, please refer to Restructuring Paper with Report No RES31539)

Project Preparation, Design, and Performance

18. Project Preparation and Design: The project preparation and design process were concentrated on the primary objective of the Project, to improve infrastructural services, cultural heritage circuit, institutional capacity related to the tourism sector and in total tourism economy in Imereti region.

19. It was necessary to consider the complex approach to achieve ambitious project development objective. Although there were important and necessary lessons learned from previous RDP project, the RDP II was a great challenge for the Government of Georgia and the Implementing Agency in terms of continuing the successful implementation of RDPs project cycle. Diverse nature of sub-projects of RDP II considered involvement of various stakeholders, like GNTA, NCHPA, GNM Municipalities of Imereti Re- gion, Patriarchate of Georgia, Ministries and many other.

20. Project Performance: Despite the fact that RDP II was complex and challenging for the implementing agency and 2 SPs failed to complete within the timeframe of RDP II project (Due to unforeseen works, limited implementation time and Delays of construction period due to weather conditions) MDF managed to implement most of the sub-projects successfully. Remaining works for above mentioned 2 SPs will be financed by GoG (Government of Georgia) funds and will be completed in March 2020.

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Achievements of project

21. Urban Regeneration of Tskaltubo Town: An integrated approach was proposed for urban renewal of Tskaltubo city. This included a) rehabilitation of municipal infrastructure and utilities in the central area; b) upgrading of public spaces, parks, and construction of tourism amenities, and c) restoration of public buildings with vernacular architecture.

11 SPs were completed with total cost of GEL 43.5 million, including: 1 Rehabilitation of Water Supply and Sewerage Sys- 7 Rehabilitation of Roads, Foot Paths and Storm- tem in central part of Tskaltubo Town water Drain System of Central Park and Lake "Tsivi" in Tskaltubo Town (2 phase) 2 Restoration of Theater and Municipality Building 8 Rehabilitation of Lake "Tsivi" and Water Chan- in Tskaltubo nels In Tskaltubo Town 3 Rehabilitation of Outdoor Lightings of Circle Road, 9 Arrangement of Irrigation System and Landscap- Central Park and Lake "Tsivi" Territory in Tskaltubo ing of Central Park and Lake "Tsivi" Territory in Town Tskaltubo Town 4 Rehabilitation of Road Pavement and Stormwater 10 Supply of furniture for Tskaltubo Municipality Drain System of Circle Road in Tskaltubo Town (2 Resort and Tourism Management Centre phase) 5 Restoration and Internal Repairing works of Train 11 Supply of computers for Tskaltubo Municipality Station and LCG Building and restoration of Small Resort and Tourism Management Centre Size Pedestrian Bridges in Tskaltubo 6 Construction of Destination Management Office and Tourism-related Small Size Structures on Cen- tral Part, Park and Lake "Tsivi" Territories in Tskaltubo Town

Details and numbers (Total): Roads rehabilitated (Including access road to 7 028 meter length (6,628 asphalt and 400 concrete Satsurblia cave) pavement) 8 - (Café - 2, Municipality building - 1, Railway station Buildings constructed or rehabilitated building - 1, Public toilet buildings - 3, Theatre building - 1) 2 - (Tskaltubo Central Park - 757,571.55 m² and 2. Lake Tsivi Parks upgraded (rehabilitated) Territory 46,318.71 m²) Square meters of new or rehabilitated urban public 803,890 m² - (Tskaltubo Central Park area - 757,571.55 m² spaces in selected municipalities and 2. Lake Tsivi Territory area 46,318.71 m²) Outdoor poles (number) 2 146 Water and sewage pipeline (meters) 13 134 Bins (number) 608 Benches (number) 723 Bridges rehabilitated in central park (number) 3 Drain system rehabilitated (meters) 10 331

22. Tourism circuit development: An integrated approach was proposed for site upgrading and improved management of the six most attractive cultural heritage sites in Imereti: including Gelati Monas- tery; Vani Museum and surrounding archeological site; The Ubisa Church; The Katskhi Church, The Katskhi

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Column Monastery, and The Motsameta Monastery. This includes a) improving urban landscaping and public parking; b) construction of information kiosks and public toilets; c) restoration and refurbishing of the exterior and interior of the Vani Museum; d) improving access roads; and e) preservation/conservation/restoration of selected cultural heritage sites.

Details and numbers (Total): Tourist Infrastructure arranged (Number of buildings) 5 (Ubisa – 1, Katskhi – 2, Motsameta – 1, Gelati – 1) Parking lots arranged/rehabilitated (Number) 5 Museum constructed/rehabilitated (Number) 1 (Vani archeological Museum) Access road rehabilitated (Meters) 3 298 Restoration/conservation of Cultural Heritage Monu- 3 (Gelati – 2 SPs, Ubisa – 1 SP, Katskhi – 1 SP) ments (Numbers)

23. Vani Archeological Museum Reconstruction: One of the most important investment Under RDP II project, was renovation of Vani archeological site. To turn Vani into a functioning and economically viable attraction it was decided to rehabilitate/reconstruct one of the oldest and unique archaeological area with Museum, associated with the myth of the Golden Fleece, which is already branded internationally. Several SPs with total amount of 21 mln Gel were implemented through phased approach:

• Reconstruction of Vani Archeological Museum – 2 Lots; • Supply of Show-cases, furniture and other equipment for Vani Archaeological Museum – 4 Lots; • Rehabilitation of Access Road to Vani Museum and Adjacent territory (fences along the road) – 1 Lot; • Vani Archaeological Monuments Protective Covering and Vani Museum-Reserve Territory Renovation Project – 1 Lot; • Preparation of DD for Museum – 1 Lot;

24. It is worth mentioning, that the project has had to overcome many challenges and obstacles during implementation of SPs in Vani. In particular, Phase 1 works for Museum reconstruction contract was terminated due to Contractors (LTD Sani) management and financial issues. New Detail Design was prepared under RDP II project and new tender was announced. The museum was successfully renovated and fully equipped by the end of 2019.

25. Institutional Development: Institutional development – an important component of RDP II enhanced capacity of implementing agency – MDF, Georgia National Tourism Administration (GNTA), Na- tional Agency for Cultural Heritage Preservation of Georgia (NACHP), Georgian National Museum (GNM) and other local and regional entities through following sub-projects:

• Preparation of management plan for the world heritage site Gelati Monastery

26. Gelati Monastery was inscribed in the UNESCO list of World Heritage in 1994 together with the Bagrati Cathedral. The World Heritage (WH) status of the Gelati monastery has become threatened when

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the extensive reconstruction works began on the Bagrati cathedral in 2009. Following the request of the World Heritage Committee for the major boundary modification of the property in 2013 the Gelati monastery faced a challenge to justify the Outstanding Universal Value (OUV) on its own and was put in danger list, while Bagrati Cathedral was removed from the property. The update of the documentation requested by the Committee also required a management plan (MP) for the Monastery complex proper and the adjacent buffer zone. Management plan (MP) document was prepared in compliance with this requirement. On July 10, 2017 the World Heritage Committee removed Gelati Monastery from the List of World Heritage in Danger (Please refer to the link: https://whc.unesco.org/en/news/1692/). The objective of the project was to develop a management plan for the World Heritage Site Gelati Monastery. The management plan provides a clear and concise statement why and how the values of the Gelati Monastery will be safeguarded, managed and improved. The MP also includes the description of ways how to engage all stakeholders at local (monastery, local government, society), National (Patriarchate of the Apostolic Or- thodox Church of Georgia, Ministries) and international level (UNESCO WHC, ICOMOS) in the management of the property and to secure their support and commitment where appropriate.

• Visitors Management Plan (VMP) for selected Cultural Heritage Sites (CHS) in Imereti region

27. The objective of the assignment was to:

• Investigate existing practices to develop VMP for CHS; • Define methodology to assess carrying capacity of cultural heritage sites; • Adjust it to needs of the project area including selected CHS for Imereti region (Ubisa, Katskhi Church and Katskhi Column, Vani, Gelati); • Design visitors’ MP guideline to be applicable for CHS; • Design practical recommendations as a tool-kits for operation of visitors’ programs around selected CHS.

28. All the scheduled tasks have been completed in 6 months by international consultant, providing strategic recommendations and guidelines for implementing VMP for each CHS in Imereti region.

• Workforce development and capacity building consultancy

29. Under the Imereti Development Program implemented by international consultant between 19 April and 7 July 2016 trained 300 persons, out of which 63% were women. Project focused on component 2 of RDP2 (Component 2.4 “Skilled workforce development and capacity building”) and provided “demand-driven capacity building training activities to three groups in order to establish a targeted, integrated workforce development program in tourism-related businesses in the Imereti region”. Workforce training in Imereti was important for overall economic development and promotion of the region as a popular tourism destination. The training aimed to improve the performance of local service staff, thus raising service quality to international standards and implementing techniques and service systems.

30. The training covered the following courses:

• Tour guiding techniques

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• Quality management • Basic culinary techniques • Basic baking and pastry techniques • Wine Appreciation and Service • Professionalization of trekking guides • Rural tourism tools and techniques • Customer relation and care

31. Trainees’ originated from different occupations, including tour-guides, cooks, pastry-cooks, bakers, restaurant managers, hotel managers, guesthouse owners, wineries owners and trekking guides. The larger occupational group to be trained was cooks and chefs, followed by waiters and waitresses.

32. Additionally, workshops for capacity buildings were conducted with the representatives of GNTA. At least 5 capacity building workshops were organized.

• Supervision of civil works for Second Regional Development Project

33. Subproject included not only civil works supervision but also detailed design reviews of cultural heritage sites and tourism circuit sub-projects. Both of these services were great support and experience for MDF. Design review process adopted under the sub-project is still extensively used, new procedures helped the agency to identify the most optimal way of design review process and developed skills for identification of major design flows in project documentation.

• Tourism, marketing, promotion, online coverage and destination management for Kakheti and Imereti Regions in Georgia

34. Under the sub-project sustainable destination Management Office in Kakheti and Imereti with all relevant responsibilities, the organization structure, the concept of the advisory board, the job description and tasks of the working program was developed. Kakheti DMO located in the center of Telavi and Imereti DMO located in center of Kutaisi well-staffed and fully equipped (computers, digital equipment, and furniture) for proper functioning.

Key Factors Affecting Implementation of the Project

Influencing factors out of control of the government of Georgia and implementing agency

• Delays of construction period due to bad weather conditions; • Due to contractors’ performance (LTD SANI management issues and bankruptcy, which delayed successful implementation of Vani Museum reconstruction SP)

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Influencing factors under the control of government

• Change of the government: In autumn 2012, Georgia underwent a development that is already described as historical. The Georgian parliamentary elections on 1 October led to change in government, which was the proof of country’s democratic maturity. The more important fact was that Georgia experienced a peaceful, non-violent, constitutional change of power for the first time in the country’s modern history, after fall of the Soviet Union. Change of government influenced project implementation. First of all new management was appointed in MDF, who started review and analyses of ongoing and planned sub-projects, Indirectly, this process slowed down RDP II implementation for a while. For instance, due to revision and modification of some detailed designs, MDF decided to retender construction works for several sub-projects. • Counterpart funding: The government of Georgia provided counterpart funding in an adequate and timely manner. • Inter-governmental coordination: Many governmental agencies were involved in the implementation process of RDP II, and maybe lack of coordination between agencies had negative impact on the smooth implementation of the project.

Influencing factors under the control of implementing agency

• During the implementation period, MDF kept being stable if we do not take into account the change in government, which itself slowed down the implementation process. There were several restructurings and changes in MDF management and reorganization of the structure in PMU (last approved MDF structure became more project oriented). However, in general, project management has been carried out smoothly. • Due to various reasons, 2 SPs failed to complete within the timeframe of RDP II project: o Reconstruction of Monks cells and service building at Katskhi Pillar SP - Due to unforeseen works, implementation of SP was prolonged; o Gelati Road and Retaining Wall SP - Due to limited implementation time and Delays of construction period (due to bad weather conditions), implementation of SP was prolonged;

35. Remaining works for 2 SPs will be financed and completed by GoG funds in March 2020. Formal letter (Government decree) which provides commitment to finance the remaining works (starting January 1, 2020) was approved on Dec 25, 2019 and was submitted to WB.

Monitoring and Evaluation (M&E)

36. The purpose of the monitoring and evaluation project was to achieve a more detailed understanding of the current state of the tourism industry in Imereti Region and deploy mechanisms to monitor the implementation and effectiveness of activities undertaken from the initiation of RDP II. Consultant verified baseline values of all results indicators of RDP II results framework, and surveyed and monitored PDO and intermediary indicators.

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37. Overall, the sub-project enabled MDF to monitor and evaluate key performance indicators and to understand the project implementation process.

Project Financial and Procurement Compliance

38. Financial activities: MDF as the implementing agency deployed qualified financial accounting staff and opened designated account for independent accounting. Followed unified approaches to financial management, accounting, and reimbursement and kept unified and complete records and account files. Independent auditors regularly verify compliance with these requirements. Please refer to the audit report on MDF website.

39. Procurement activities: The procurement activities are carried out by Guidelines Procurement under IBRD Loans and IDA Credits.

Evaluation of Project Outcomes

40. The project design was in line with development objectives. The investments in Urban Regenera- tion, Tourism Circuit Development, and institutional development were consistent with the project development objectives.

41. The achievement of project indicators: There is a positive growth tendency of foreign visitors throughout the country and Imereti is no exception to that tendency. There is an increase in terms of number of the visitors, as well as hotel beds. The project set target for 903,000 visits on its project sites and based on the estimations the number of visits at project sites including Vani site will be 953,646 that exceeds the set target by 6%. The number of the hotel beds exceeds the project set target by 9% (4,400 hotel beds). The increase of the visits at project sites are triggered by multiple factors, such as general growth tendency of the tourism sector across the country, Kutaisi Airport operations, Sataplia managed reserve and Prometheus cave, although the project activities in particular RDP2 interventions in Tskaltubo such as improved infrastructure and utilities are considered to be basis for any type of development; without these vital components, it would have been impossible to maintain the positive growth tenden- cies of visitors in target locations.

42. If RPD 2 interventions contributed to increased number of visitors at project sites it certainly created a demand for tourism related businesses and enabling environment to operations.

43. Tskaltubo is the most different location among others, since the visitors of Tskaltubo have medical reasons for visiting, stay longer and know the place as they are the returning consumers. It should be mentioned that despite Tskaltubo specifics, staying in Tskaltubo became more comfortable following RDP2 infrastructural projects. Locals, as well as businesses operating in Tskaltubo see the benefits of RDP2 interventions in terms of enabling environment, it should be mentioned that these interventions improved infrastructure, attracted higher number of visitors and created a demand for hotels, additional services like swimming pool, restaurants, entertainment, etc.

44. Based on the qualitative study results, it is estimated that more than USD 25 million was invested in Tskaltubo since 2012 till 2018. This number was collected via in-depth interviews with large establish- ments operating in Tskaltubo

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45. The visitor’s study conducted at the project sites show high satisfaction levels with the utilized services; although assessment checklists have identified gaps across the sector, despite the extensive capacity building and workforce development activities under RDP2, there is a need of additional capacity building and diversification of services.

46. For the details, please refer to contract – Project Results Monitoring & Evaluation for the Second Regional Development Project (RDP2) – Phase 2.

Implementation of Resettlement Policies and Environmental Management Plan

47. Implementation of Environmental Management Plan: Under the Second Regional Development Project (RDP II) all the SPs were implemented in compliance with the Georgian legislation and environmental requirements/standards of the donor organization (WB). Any construction activities within the protected areas or buffer zones, as well as within general or particular protection zone for cultural heritage monuments, were carried out after obtaining relevant consents from the regulatory agencies. For each SP, MDF prepared environmental documentation (EMP, ER) and discussed with stakeholders. Minutes of Meetings were prepared and disclosed on the MDF web-site accordingly.

48. Potential impacts at the construction phase as well as during operation of the infrastructure supported by the project were considered, and proper mitigation measures were taken during the project implementation. Prepared environmental documentation were the part of construction companies’ contracts and each of them was familiar with EMPs/ERs.

49. Additionally, MDF conducted regular on-site monitoring during civil works to verify contractors’ adherence to the requirements set out in the environmental documentation, to identify any outstanding environmental issues or risk, and to ensure proper application of the prescribed remedial actions. Envi- ronmental chapters of quarterly progress reports on the project implementation were shared with the World Bank to carry more comprehensive, analytical information on the status of environmental performance under the RDP II. Apart from that MDF environmental staff actively reviewed reports provided by the Supervision Company and took actions if deemed necessary.

50. During the project implementation, no apparent environmental issue was reported. Restora- tion/conservation of historical buildings did not affect the structural stability of the existing constructions, depreciate the historical and aesthetic value of heritage sites nor disrupt the natural balance of ecosys- tems.

51. Environmental documentation required by ESMPs/ERs were submitted in timely manner by construction contractors. After the completion of civil works, environmental documentation prepared for the SPs were updated and disclosed on the MDF web-site accordingly.

52. Eventually, RDP II has brought significant positive impacts on the environment, such as:

• Reduced pollution to the ground, surface bodies, and rivers • Improved stormwater collection system and drainage capacity; • Arranged landscape instead of cleaned asbestos-containing waste collection site

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• Improved wastewater system and installed treatment units for the visitor centers and hotels; 53. All the abovementioned points will help to improve environment and give more potential to pro- ductive water usage. Moreover, these positive impacts contribute to the enhancement of public health, improvement of urban life, and development of tourism potential.

54. Implementation of Resettlement Policies: All the sub-projects preparation, review, approval and implementation is in agreement with the requirements of the Georgian legislation and World Bank policies applicable to the RDP II. Before construction works, MDF conducted several individual and public meetings with the project affected persons (PAP) and provided all related information. Consultation and participation has been a major principle in the planning and preparation of the detailed design of the Project (RDP Imereti). WB OP 4.12 gives high priority on public consultation and participation to enhance the community voice and assure incorporation of community views in the design and implementation of a socially and environmentally compliant project. The Georgian law also place strong emphasis on consultation and notification to ensure that PAPs participate in the process. PAPs usually expressed views and ideas during the meetings that had been taken into consideration. Additionally, written consents regarding sub-project implementation were received from PAPs. Besides, MDF hired independent consultants to prepare Resettlement Action Plans.

55. The resettlement were conducted according to the consolidated Resettlement action Plan of Sec- ond Regional Development Project (RDP II). Despite the fact that there were some social risks during the process of project implementation, the issues related to resettlements were appropriately addressed as the grievance redress mechanism was properly developed and made accessible to all PAPs. Compensation agreements were signed by all PAPs and they received amounts in accordance with aRAP.

56. GRM: Under Regional Development Project II, prior to the commencement of each SP, MDF conducted public consultations to the stakeholders and shared detailed information regarding GRM system, introduced contact persons (representative from MDF as well as from local municipality), shared their contact details and channels for receiving GRM information as well as sending complaints, grievances, suggestions, questions and etc. For each project contractor established informational banners including GRM information.

57. During the project implementation, MDF received, logged and resolved on average 20 days, grievances from Tkibuli, Vani and Tskaltubo municipalities. For each grievance, MDF conducted several meetings with the complainers, construction companies, Supervision Company, representatives from local municipalities and final decisions were made in favor of the complainers. MDF kept permanent communication with the complainers until resolving the issues and noted their satisfaction after resolving. According to our data, each complainer is satisfied and have no other worries. Information regarding received, logged and resolved grievances in details were shared with the World Bank in periodic reports.

58. Gender, citizen engagement and social benefits: Women were not sufficiently involved in implementation of the SPs. Women are mostly employed in the offices of construction and consulting companies and are less engaged in construction activities. , women are employed in the tourism sector (After the rehabilitation Guest Houses and Cafes have been set up.). Part of women are self-employed and they

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started generation of their own incomes. During the public consultations among the participants, 40% were women.

59. The carried out activities had a positive impact and population is satisfied. In the period of rehabilitation there were created several temporal workplaces and the income of local population was increased. In terms of impact - communication was improved, safe environment was created, vehicle de- preciation costs and fuel charges were reduced and number of car accidents was decreased. There is a positive impact on health – dust, noise, emission were reduced, and therefore, impact on female status is positive. Tourism business developed, tourism service level increased, number of tourists increased as well. Certain part of the population has leased various properties for business.

60. There were conducted several public consultations/inspection and monitoring of sustainability and maintenance/ on such meetings participated approximately 5600 citizens.

61. Appropriate feedback mechanism was established within the projects. Every municipality has assigned a responsible person to receive, review and react to the APs grievances, comments, and suggestions. As for feedback monitoring MDF registers all received compliances, comments and how the compliance was addressed. Regarding the feedback mechanism, letters of recommendation were sent to all LSGs on behalf of the MDF, which consists of carrying out series of actions. As, for example (a) use of SMS and mobile phone technology, (b) focus group discussions, (c) questionnaires at disposal of beneficiaries in the Municipality, (d) mail boxes where to deposit the filled questionnaires, (e) suggestion boxes, (f) one to one interviews, (g) meetings’ billboards, (h) adequate publicity of the BFM institution, through the press and local radio etc.

62. Maintenance of all completed sub-projects is carried out by various organizations: by appropriate Services (Water-Sewage Companies), Georgian National Museum (GNM), NACHP, private persons and Governmental Unit (Municipality) - by means of the hired Company. Even the staff is engaged in maintenance at the cultural heritage sites. In the process of the social monitoring/sustainability and maintenance/ and impact assessment, MDF special attention was paying to the following issues: gender, creation of work places, sense of security of the most vulnerable segment of population, tourism development, etc.

Project Sustainability

63. A distinctive feature of the RDP II is that it strongly emphasized stakeholders ownership and sustainability of the investments. All state agencies, municipalities on regional and local levels were involved in the design preparation of the project, and later all the agencies were a part of implementation and supervision process. In order to strengthen stakeholder’s ownership, before launching of sub-projects, MDF organized public discussions with dwellers, local governments and other stakeholders. Additionally, MDF screened all investments against Operations manual criteria and as a standard practice signed subproject investment agreements with beneficiaries, where responsibilities for operating and maintaining assets are assigned to them.

Evaluation of Bank and Borrower Performance

Bank Performance

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• Realistic project design and proper project identification • In-depth assessment of the project and evaluation • Quality supervision of civil works and detailed designs

64. Bank team with task team leader, co task team leader, experts and consultants actively supported MDF in project initiation, planning, further implementation, and project closing. The team had excellent and efficient work style, full understanding of policies and procedures. WB frequently supported MDF with expert’s advice that eventually reflected on the successful implementation of the project.

Borrower Performance

65. Government's Performance: The government of Georgia actively supported the project during proposal, approval, planning, implementation, evaluation, and closing process. The government ensured proper coordination, execution, and control by maintaining the supervisory board of MDF, chaired by the Prime Minister of Georgia, and comprising of ministers of effected ministries and the Governor of Imereti. The Board’s functions included (a) overall supervision of the project implementation; (b) inter-agency coordination to achieve the project objectives and (c) review and approval of the annual work program budgets and reports. Additionally, sufficient and timely provisions of credit funding and domestic counterpart funding ensured smooth project implementation.

66. Implementing Agency Performance: By the lead of the government, the implementing agency actively contributed in design and construction of sub-projects and supervision of civil works; obtained approval on all necessary documentation from the World Bank, as well as local governments and various states agencies. All the procedures mentioned above ensured the completion of quality civil works, increased institutional capacity and eventually achievement of expected results.

Lessons learned

67. The Second Regional Development Project was challenging in terms of successful continuation of RDPs chain. The expertise of MDF as well as of other state agencies increased significantly based on lessons learned during the project implementation:

• As a result of restructuring (reorganization of structure) MDF became more project oriented which enabled dedicated team to manage implementation process more effectively than before. Proper evaluation and review of detailed designs, as well as adequate supervision for civil works, was still challenge for MDF. However, by the support of WB, which included active civil works supervision from WB monitoring team and detailed design review, quality increased significantly year by year. This process was supported by the independent consulting company, which reviewed all the detailed designs for cultural heritage sub-projects and monitored construction works. Advanced supervision management and active involvement of project managers as well as consultant engineer in implementation process reduced the number of defects after completion of construction works. • Strong government ownership and proper coordination among relevant state agencies are vital for project success. Several stakeholders were involved in project implementation, which initially was a challenge for the implementing agency. Assigning focal point persons

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from each stakeholder, was part of the coordination strategy, which proved to have positive impact on performance. Almost, all constructed assets (Tourist Infrastructure, Museum and etc.) were handed to beneficiaries and are operated properly.

Conclusion

68. In conclusion, we would like to state that Second Regional Development Project was massive support for Imereti region as well as for the whole country. It brought significant social, economic and environmental benefits. The project laid a solid ground for cultural heritage preservation and potential for boosting investments from private entities in Tskaltubo Town. RDP II was a significant factor in the spec- tacular growth of tourism sector in Imereti region between 2012 – 2018 periods. We can see growth in number of international visitors to Imereti Region, increase in average salaries of employees in Region and robust growth visitors in Tskaltubo, where most of RDP II investments were spent. Please see the data below:

Description 2015 2018 Number of international visitors to 140 617 345 773 Imereti region from 2015-2018 Description 2012 2018 Average salaries of employees in 461 690 Imereti region from 2012-2018, (Gel)

Visitors in hotels/hotel-type enterprises in Tskaltubo and other cities in the region from 2012-2018 2012 2013 2014 2015 2016 2017 2018 Kutaisi 56 536 42 112 54 896 75 208 81 246 98 175 123 690 Tskaltubo Municipality 9 097 22 073 33 123 40 928 41 018 44 248 44 495 Bagdati Municipality 9 727 10 379 12 248 19 600 22 239 18 502 22 362 Zestafoni Municipality 640 531 507 767 2 995 3 079 3 711 Chiatura Municipality 82 1 161 341 79 470 678 3 082 Samtredia Municipality 2 440 2 262 2 451 2 965 4 674 1 864 2 382 Terjola Municipality 1 030 1 378 847 855 1 605 Khoni Municipality 260 220 120 284 564 627 927 Kharagauli Municipality 412 350 345 429 398 299 513 Sachkhere Municipality 115 3 813 95 1 525 456 Tkibuli Municipality 237 142 112 192 132 28 182 Vani Municipality 113 130 150 35 30 35 24

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ANNEX 6. SUPPORTING DOCUMENTS

1. RDP2 Project Appraisal Document (October 2012) 2. RDP2 Additional Financing and Restructuring Project Paper (March 2016) 3. RDP2 Financing Agreement and AF Loan Agreement 4. RDP2 Project Agreement 5. RDP2 Aide Memoires and Management Letters 6. RDP2 Mid-term review report May/June 2015 7. RDP2 Restructuring Paper (April 2018) 8. RDP2 Internal Implementation Status Reports 9. RDP2 Project procurement plans at appraisal and closing 10. RDP2 Project Operations Manual 11. RDP2 contract tracking tool November 2019 12. RDP2 Sub-Project Appraisal and Sub-Project Summary Reports 13. RDP Aide Memoires and Management Letters 14. RDP3 Aide Memoires and Management Letters 15. RDP Implementation Review (December 2016) 16. RDP Implementation Completion and Results Report (June 2018) 17. Georgia Systematic Country Diagnostic 2018 18. Georgia Country Partnership Strategy FY10-13 19. Georgia Country Partnership Strategy Progress Report for FY10-13 20. Georgia Country Partnership Framework FY19-22 21. Georgia State Strategy on Regional Development (2010-2017) 22. Georgia Tourism Strategy 2015-2025 23. Imereti Regional Development Strategy 2010-2014 24. Imereti region SECHSA 25. Project Results Monitoring & Evaluation for the Second Regional Development Project, Survey Results and project performance monitoring and evaluation in the Imereti Region Final Results Report, prepared by ACT/Horwath in September 2017 26. Project Results Monitoring &Evaluation for the Second Regional Development Project, Final Re- port and Survey Results, ACT, 2019.

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ANNEX 7. LIST OF OUTPUTS UNDER THE PROJECT

List of Outputs under Component 1.1—Urban Regeneration of Tskaltubo Location Description Actually completed Tskaltubo Rehabilitation of road (including access Length of rehabilitated road—7.02 km (6.62 km road to Satsurblia Cave) asphalt and 0.4 concrete pavement) Rehabilitation of outdoor lighting Arranged outdoor poles—2,146 Rehabilitation of underground utilities Water and sewage pipeline length—13.1 km Rehabilitation of parks in Tskaltubo Upgraded parks—2 (Central Park; Lake Tsivi territory) Square meters of new or rehabilitated ur- 803,890 m² (Tskaltubo Central Park area, ban public spaces 757,571.55 m²; Lake Tsivi Territory area, 46,318.71 m²) Bins (number) 608 Benches (number) 723 Bridges rehabilitated in Central Park 3 (number) Buildings constructed or rehabilitated 8 (café, 2; municipality building, 1; railway station building, 1; public toilet buildings, 3; theatre building, 1) Drain system rehabilitated (km) 10,3 km Fountain rehabilitated 3 Supply of goods for Tskaltubo Municipal- Computers ity Resort and Tourism Management Cen- Office equipment ter Furniture

List of Outputs under Component 1.2—Tourism Circuits Development Location Works description by contract Outputs Vani Reconstruction of Vani Archaeological Rehabilitated/reconstructed museum area— Museum (3 phases) 3,500 m² (including outdoor area for parking) Rehabilitation of Vani Archeological Museum—completion of new extension to the museum building (2 phases) Vani Archeological Monuments Rehabilitated/conserved archeological sites—5 protective covering and Vani Museum- (central gate; mosaic temple; round temple; Reserve Territory renovation project upper terrace; child burial) Rehabilitation of access roads to Vani Rehabilitated road—2,3 km Museum and adjacent infrastructure in Rehabilitated bridges—2 the town of Vani, Imereti Fences along the road—2,090 m Outdoor lighting—52 poles Retaining wall—810 m Gabion wall—480 m Supply of goods for Vani Archeological Computers Museum Office equipment Furniture

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Location Works description by contract Outputs Lab equipment Showcases Illumination Gelati Integrated revitalization of cultural Restoration/conservation works—1 (church heritage site in Gelati Monastery building) Preservation measures for Gelati Arrangement of tourist infrastructure—1 (430 Monastery cultural heritage site m²) Preservation measures for Gelati Monastery cultural heritage site, phase 2 Rehabilitation of Gelati Road and retaining wall Motsameta Integrated revitalization of cultural Arrangement of tourist infrastructure—1 (149 heritage site in Motsameta Monastery m²) Rehabilitation of parking lots—2 Rehabilitation and arrangement of public toilet—1 (building) Road rehabilitation—0,25 km Conservation of walls—2 Katskhi Integrated revitalization of cultural Arrangement of tourist infrastructure—2 heritage site in Katskhi Monastery (1,067.56 m²) Preservation measures for Katskhi Arrangement of parking lots—1 Monastery Restoration/conservation works—1 (Katskhi Reconstruction of monks’ cells and Church) service building at Katskhi Pillar Road rehabilitation—0,19 km Ubisa Integrated revitalization of cultural Arrangement of tourist infrastructure—1 heritage site in Ubisa Monastery (92.13 m²) Preservation measures for Ubisa Arrangement of parking lots—1 Monastery Restoration/conservation works—1 (Ubisa Church Road rehabilitation—0,58 km

List of Outputs under Component 2—Institutional Development Activities Outputs Subcomponents 2.1 and 2.2—Tourism, mar- Under the assignment the following tasks have been completed: keting, promotion, online coverage, and destination management for Kakheti and Imereti • Branding, marketing, and promotional strategy and action regions in Georgia plan for Georgia, including the elaboration of a Georgia brand book and brand guideline • Imereti branding strategy and action plan, including Imereti visual and verbal brand identity ad brand basic guidelines • Kakheti marketing and promotion strategy and action plan • Revision of Kakheti website and creation of a similar one for Imereti and integration of these travel webpages into www.georgia.travel • Destination management offices (DMOs) in Kakheti and Imereti regions, including development of relevant responsibilities, organization structure, concept of the advisory

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Activities Outputs board, and job descriptions and tasks of the working program • Online marketing and promotional activities • Under the subproject, sustainable destination management offices in Kakheti and Imereti Subcomponent 2.3—Visitors management Tasks were completed in six months by international consultant, plan (VMP) for selected cultural heritage sites providing strategic recommendations and guidelines for imple- (CHSs) in Imereti region menting VMP for five CHSs in Imereti region. Preparation of management plan for the Gelati Monastery was inscribed in the UNESCO List of World Her- World Heritage Site, Gelati Monastery itage Sites in 1994, together with the Bagrati Cathedral. The World Heritage (WH) status of the Gelati Monastery was threatened when extensive reconstruction work began at the Bagrati Cathedral in 2009. Following the request of the World Heritage Committee for a major modification of the property boundary in 2013, the Gelati Monastery faced the challenge of justifying its outstanding universal value (OUV) on its own and was put on the danger list, while Bagrati Cathedral was removed from the property. The updated documentation requested by the committee required a management plan (MP) for the monastery complex proper and the adjacent buffer zone. The management plan developed provided a clear and concise statement as to why and how the value of the Gelati Monastery would be safeguarded, managed, and improved. It also described ways to engage all stakeholders at the local level (monastery, local government, society), the national level (Patriarchate of the Apostolic Orthodox Church of Georgia, government ministries), and the international level (UNESCO WHC, ICOMOS) in the management of the property and to secure their support and commitment where appropriate. The MP was prepared in compliance with requirements, and on July 10, 2017, the World Heritage Committee removed Gelati Monastery from the List of World Heritage in Danger (see https://whc.unesco.org/en/news/1692/). Subcomponent 2.4—Workforce development The Imereti Development Program was conducted between April and capacity building consultancy 19 and July 7, 2016. It amounted to more than 360 hours of training, divided in eight modules, and accounted for exactly 300 participants in total, the large majority of whom were women (63 percent). Workforce training in Imereti was important for overall economic development and promotion of the region as a popular tourism destination. The training aimed to improve the performance of local service staff, thus raising service quality to international standards and implementing tourism service techniques and systems. The training covered the following courses: • Tour-guiding techniques • Quality management • Basic culinary techniques • Basic baking and pastry techniques • Wine appreciation and service

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Activities Outputs • Professionalization of trekking guides • Rural tourism tools and techniques • Customer relations and care Trainees came from different occupations and included tour guides, cooks, pastry cooks, bakers, restaurant managers, hotel managers, guesthouse owners, winery owners, and trekking guides. The largest occupational group to be trained was cooks and chefs, followed by waiters and waitresses. In addition, At least five workshops on capacity building were organized and conducted with representatives of GNTA. Subcomponent 2.5—Monitoring and evalua- The purpose of the monitoring and evaluation project was to tion (M&E) achieve a more detailed understanding of the current state of the tourism industry in Imereti region and deploy mechanisms to monitor the implementation and effectiveness of activities undertaken under RDP2. The consultant verified baseline values of all results indicators in the RDP2 results framework and surveyed and monitored the PDO and intermediary indicators. Overall, the subproject enabled MDF to monitor and evaluate key performance indicators and to gain an understanding of the project implementation process. Subcomponent 2.6—Supervision of civil Subproject included not only civil works supervision but also de- works for Second Regional Development Pro- tailed design reviews of cultural heritage sites and tourism circuit ject subprojects. Both of these services provided great support and experience for MDF.

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ANNEX 8. PICTURES OF SELECTED ASSETS FINANCED BY RDP2 BEFORE AND AFTER REHABILITATION WORKS

Before rehabilitation After rehabilitation Vani museum

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Before rehabilitation After rehabilitation

Tskaltubo

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Before rehabilitation After rehabilitation

Ubisa monastery tourist infrastructure

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Before rehabilitation After rehabilitation

Motsameta monastery tourist infrastructure

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Before rehabilitation After rehabilitation Katskhi monastery and church tourist infrastructure and conservation

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Before rehabilitation After rehabilitation

Gelati monastery tourist infrastructure and conservation

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Before rehabilitation After rehabilitation

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