Developing an Urban Water Supply and Sanitation Sector Strategy and Regulatory Framework for Georgia (Financed by ADB’S Technical Assistance Special Fund)
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Technical Assistance Consultant’s Report Project Number: 43556 December 2010 Georgia: Developing an Urban Water Supply and Sanitation Sector Strategy and Regulatory Framework for Georgia (Financed by ADB’s Technical Assistance Special Fund) Final Report Output 1 – Sector Development Plan Prepared by Egis Bceom International In Association With: GeoHydro Services For the Asian Development Bank This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design. Asian Development Bank Developing an Urban Water Supply and Sanitation Sector Strategy & Regulatory Framework for Georgia PATA 7492-GEO Final Report Output 1 – Sector Development Plan December 2010 The Stonemason’s Craft Batania Monastery c. 12th c CE In Association With: GeoHydro Services Developing an Urban Water Supply and Sanitation Sector Strategy & Regulatory Framework for Georgia Final Report: Output 1 – Sector Development Plan Quality Information of the Document General Information Author(s) EGIS PATA Team Title of Project Developing an Urban water supply and sanitation Sector Strategy & Regulatory Framework for Georgia Title of Document Output 1 Sector Development Plan Date December 2010 Reference ADB PATA 7492-GEO Recipients Sent to : Name Institution Sent on: Vijay Padmanabhan Asian Development Bank Copy to : Name Institution Sent on: Ministry of Regional Development and Infrastructures United Water Supply Company of Georgia Georgian National Energy and Water Supply Regulatory Commission History of modifications Version Date Made by Checked by: Final Control of Document Date Name Signature Developing an Urban Water Supply and Sanitation Sector Strategy & Regulatory Framework for Georgia Final Report: Output 1 – Sector Development Plan Abbreviations and Acronyms BWC Batumi Water Company FDI Foreign Direct Investment FIZ Free Industrial Zone FTZ Free Tourism Zone GDP Gross Domestic Product MAFS Ministry of Agriculture and Food Safety MDF Municipal Development Fund MEPNR Ministry of Environmental Protection and Natural Resources MLHSA Ministry of Labor, Health and Social Affairs MRDI Ministry of Regional Development and Infrastructure NSFSVP National Service of Food Safety, Veterinary and Plant Protection SCWSE State Commission on Water Supply and Energy SDP Sector Development Plan STP Sewage Treatment Plant TSA Targeted Social Assistance UWSCG United Water Supply Company of Georgia WSS Urban Water Supply and Sanitation Page i Developing an Urban Water Supply and Sanitation Sector Strategy & Regulatory Framework for Georgia Final Report: Output 1 – Sector Development Plan Table of Contents Output 1 – Sector Development Plan ........................................................................................ 1 1.1 Strategic Context ................................................................................................................ 1 1.2 Urban WSS Sector Problems and Constraints ................................................................ 4 1.2.1 Technical Sustainability and Environmental Protection ............................................ 4 1.2.2 Institutional and Financial Sustainability ................................................................... 5 1.2.3 Enabling Legal and Regulatory Framework .............................................................. 9 1.3 Urban WSS Sector Development Plan............................................................................ 10 1.3.1 Vision and Objectives ............................................................................................. 10 1.3.2 Investment Plan ...................................................................................................... 11 1.3.3 Sector Road Map .................................................................................................... 13 Appendices ................................................................................................................................ 19 Page ii Developing an Urban Water Supply and Sanitation Sector Strategy & Regulatory Framework for Georgia Final Report: Output 1 – Sector Development Plan Map of Georgia Page iii Developing an Urban Water Supply and Sanitation Sector Strategy & Regulatory Framework for Georgia Final Report: Output 1 – Sector Development Plan Output 1 – Sector Development Plan 1.1 Strategic Context 1. Georgia has a population of 4.43 million and serves as an important nodal point for inter-regional trade flows, connecting the South Caucasus and landlocked Central Asia with the Black Sea and Mediterranean basins. The country’s gross domestic product (GDP) was $10.8 billion in 2009 with an annual growth of 5.9% (2004-2009). 2. As a small, open, economy at the cross-roads of Europe and Asia, Georgia’s trade and economic growth heavily depends on developments in neighboring countries and major trade partners. With the global recovery taking hold, Georgia’s GDP grew by at least 6.6% in the first half of 2010 on account of high growth in manufacturing, trade and transportation with the growth forecast revised upward to 5.5% for 2010. The growing demand for, and higher prices of, main export commodities, such as gold and base metals, along with the continued positive outlook for the Russian Federation, still the major source of remittances to Georgia, are now expected to improve Georgia’s trade and current account balances. 3. Foreign Direct Investment (FDI) in Georgia has been the principal driver of economic growth over the last five years and is a major balancing factor for a sizeable trade deficit. According to the National Statistics Office of Georgia, FDI, at its peak in 2007, amounted to nearly 20% of GDP and held on a steady growth path, from single-digit rates prior to 2006 to double-digit rates from 2006 onward relative to GDP — until the onset of the global financial crisis. 4. With the advance of the global financial crisis and a corresponding decline in FDI (to just 5% of GDP in the first half of 2010), the Government had a compelling reason to act in order to offset a significant decline in private demand and investment. As part of its counter-cyclical policy response to the crisis, the Government capitalized on a sizeable fiscal stimulus package in 2009, which was in line with a shift toward domestic expenditure and donor-financed rehabilitation spending. The need for infrastructure improvements was consistent with policies aligned with fiscal expansion. A significant fiscal stimulus in support of large public investment projects would create space and conditions for private demand to take up the slack later on. This was especially justified given the prevailing sectoral profile of traditional FDI into the economy. 5. The service sector accounted consistently for a predominant share of total FDI— over the years of 2007-2010H1, averaging at nearly 60% of the total FDI. As a share of GDP, FDI in the service sector was equal to 10.5% in 2007, while in 2008—amounting to 7.8%—it was well over a half of the total FDI-to-GDP ratio of 12.2%, and the trend continued through 2010. This meant that the service sector-driven basic needs provision through improved municipal services was a key priority, which is highlighted in the context of major urban centers, such as Tbilisi, Rustavi, Kutaisi, Poti and Zugdidi, where larger populations are associated with increased demand for municipal services and greater pressures on service delivery. Urban centers in traditional tourist destinations, such as Kobuleti, Batumi and, most recently, Mestia, serve as important magnets for tourist attraction during holiday seasons, and the development of service infrastructure, such as hotels and resorts, is a priority along with revamping of road and transport infrastructure that links to such key destinations. Page 1 Developing an Urban Water Supply and Sanitation Sector Strategy & Regulatory Framework for Georgia Final Report: Output 1 – Sector Development Plan 6. Some major investment initiatives are worth highlighting in the context of free industrial zones (FIZs) and free tourism zones (FTZs): (i) In 2008, RAK Investment Authority of the UAE assumed full ownership of the Poti FIZ, and in April 2009, Fresh Electric Company of Egypt was one of the first major international investors in the second FIZ in Kutaisi, a major city in western Georgia. (ii) Further sizable investments are expected to be channelled into the Poti Seaport and the Kutaisi FIZ in the near future, as anchored by a highly liberal financial regime (with a multi-currency framework in place) and a tax regime that is highly concessional and greatly conducive to doing business in these zones (such as exemption from VAT, customs duties, profit and property taxes for all companies operating in FIZs). (iii) A new “Free Tourism Zone” initiative recently announced by the President bolsters the role of Ajara region as a major site of urban redevelopment and tourism infrastructure and aims to embrace Georgia’s Black Sea coastline with new investments, as businessmen who will immediately commit at least GEL1 million for investment in the construction of the hotel segment will be exempt from profit and property taxes for the next 15 years. 7. With improved prospects for domestic growth and a recovery in the global economy, further increases in GDP are expected to continue to be driven by the service