Report for Nablus and CRA s1

RESTRUCTURING OF THE MINISTRY OF TRANSPORT AND COMMUNICATIONS GEORGIA

MAIN REPORT July 2001 Dornier SystemConsult

ACKNOWLEDGEMENTS With the presentation of the final report the Consultant would like to express his thanks to H.E. Merab Adeshvili, the Minister of Transport and Communications for granting time for consultations and interacting with the Consultant’s experts developing a common, workable structure for the sector. Special thanks also to the political leaders of Georgia who were open for dicussion with the Consultant and for expressing their views on the reforms. The Consultant would like to mention here H.E. George Arsneishvili, the State Minister of Georgia, H.E. Zurab Nogaideli, Minister of Finance and Shota Kochraidze the Head of the Public Service Bureau in the State Chancellery. The Consultant expresses particular gratitute to H.E. Zurab Tskitishvili, the Head of the Parliamentary Committee for Sectors of Economy, for his constructive involvement and substantial input in the reform policy development process. The Consultant would also like to express his thanks to Mr. George Tsagareli whose continous endeavours contributed greatly to the project team. Special thanks are also expressed to Mr. Tengiz Gogelia who was closely consulted in the team work and valuably contributed in understanding Georgian conditions and implementation difficulties.

Table of Contents

1. EXECUTIVE SUMMARY...... 4

2. SCOPE OF THE PROJECT...... 8

3. BASIS OF RESTRUCTURING...... 9

3.1. GUIDING PRINCIPLES FOR MOTC RESTRUCTURING 9

3.2. USE OF GUIDING PRINCIPLES 11

4. RESTRUCTURING COMPONENTS...... 12

4.1. TRANSPORT SECTOR 12

4.1.1 RECOMMENDED SECTOR STRUCTURE 12

4.1.2 RELATIONSHIP BETWEEN TRANSPORT SECTOR ELEMENTS 13

4.1.3 THE MINISTRY OF TRANSPORT AND COMMUNICATIONS 14

4.1.4 THE TRANSPORT MODAL ADMINISTRATIONS 15

4.1.5 CIVIL AVIATION ADMINISTRATION 17

4.1.6 MARITIME ADMINISTRATION 18

4.1.7 AUTO-MOTOR TRANSPORT ADMINISTRATION 19

4.1.8 RAILWAY ADMINISTRATION 20

4.2. COMMUNICATIONS SECTOR 21

4.2.1 CURRENT STATE OF REFORMS 21

4.2.2 PROPOSALS FOR RESTRUCTURING THE COMMUNICATIONS DIVISION 21

4.3. STATUTES 22

4.4. RETRENCHMENT 22

4.5. RECRUITMENT AND PAY SCALE REFORM 23

4.6. INFORMATION SYSTEM DESIGN 23

4.7. TRAINING 24

5. RECOMMENDATION...... 25

5.1. REFORM REALIZATIONS STRATEGIES 25

5.2. RESTRUCTURING PROCESS 25

5.3. PROCESS OF CONSENSUS BUILDING WITH THE GEORGIAN GOVERNEMENT 25

5.4. PRE-CONDITIONS FOR IMPLEMENTATION 27

5.5. RECOMMENDED ACTION PLAN 28

LIST OF FIGURES

Figure 1 Proposed Overall MOTC Structure Figure 2 Relationship between Sector Institutions: Policy/Legal, Regulatory and Operating Figure 3 Proposed MOTC Structure Figure 4 Proposed Structure of Civil Aviation Administration Figure 5 Proposed Structure of Maritime Transport Administration Figure 6 Proposed Structure of Auto-motor Transport Administration Figure 7 Proposed Structure of Railway Transport Administration

LIST OF ABBREVIATIONS

ICAO International Civil Aviation Authority MOTC Ministry of Transport & Communications TACIS Technical Assistance to the Commonwealth of Independent States TRRC Transport Rehabilitation & Reform Centre SOE State Enterprises or Enterprises founded with State Share

1. EXECUTIVE SUMMARY The structural reorganisation of the Ministry of Transport and Communications is underway and being implemented within the scope of a World Bank Learning and Innovation Credit for Restructuring the Ministry of Transport and Communications, a Technical Assistance Project. It started as a project for restructuring the Ministry of Transport; he communications sector was added to the project after the amalgamation of the two ministries into one Ministry of Transport and Communications (MOTC). This consulting service is carried out under the lead of the German Company Dornier SystemConsult, a subsidiary of the DaimlerChrysler Group.

The elaborated project aims at the restructuring of the Ministry based on the principles in the Terms of Reference given by the World Bank in the course of competitive tender process. These terms require a restructuring that will focus on the policy and legal framework roles of the Ministry and the independent role of the modal transport administrations to implement policies and regulations. These administrations will be separate and independent outside the organisation structure of the Ministry but reporting directly and are accountable to the Minister.

Restructuring of the MOTC is necessary for two reasons. The first is to serve better the Georgian people and businesses in a market oriented economy. The second is the Georgia’s central location in the Caucasus; the transport and communications sector in Georgia also has to serve the international transport and communications well and efficiently. There are ambitious transport projects in Georgia; for example, Georgia initiated revival of the Silk Route and the Eurasian Transport Corridor. The existing transport sector management practices and the resulting inefficient and inadequate level of transport service, especially in the rail and road sectors, do not provide an enabling environment for consistent sector growth, which would enhance Georgia’s domestic market and her role as a transit country.

The Consultant’s approach was that fulfilling the Terms of Reference requirements could only be sustainable if the sector management restructuring provided the basis for market economy compatibility. The core of the reform is:

- Granting good governance by the separation of policy and implementation functions (Good Governance) - The amplification of the Minister’s function as the top transport official in the system

- Accountability and Efficiency of the Modal Administrations in implementing polices and regulations - Upgrade the human resources level and reduction of staff number and increase in salaries Page 4

The international experience discussed in this document show that in many countries, which applied reforms in the transport and telecommunication sector, the MOT (or MOTC) has withdrawn from micro-management of transport sector. Central management has been replaced by autonomous transport administrations and organisations. These are accountable to the Minister of Transport/Transport and Communications. They operate under his purview. Transport services are provided by the private sector or, in a transitional phase, by state owned enterprises. While the Ministry focuses on policy making, legislation, National programmes, and international relations, the administrations are outside the Ministry organisation structure. They focus on the implementation of laws and regulations, and monitor the compliance of service delivery by service providers (state enterprises and private companies). Good Governance can only be seriously pursued by separating responsibilities in a hierarchical structure in which the institution managing the sector (Ministry) is not involved in their implementation. In the transport context, the ministerial level delegates certain functions to a regulatory body that applies these regulations to make daily decisions. The Ministry remains as an oversight body and provides the basis for appeals from the public and the service providers. The creation of independent Administrations is reached by spinning off the regulatory functions of the current administrations within the Ministry. To ensure the sector manageability, the Minister will require a number of powers so that his role as the country’s most senior transport officer can be carried out effectively through the organisations within this overall responsibility. The Minister will have the powers to undertake the following:  make key appointments and be able to dismiss appointees, including the heads of the state owned enterprises, for just causes.  have the overall power to approve reports and submissions through a delegated submissions and approvals system.  be informed as to progress through a delegated reporting and monitoring system.  receive a number of specified Annual Reports by a due date supported by independent financial audits. The establishment of independent financial audits of the various independent organisations will enhance public accountability and control. Through these powers, the delegation of specific functions and the development of an effective oversight system, the Minister will be able to report regularly on his overall responsibility for the transport sector in the government, to the parliament.

The regulatory bodies are generally mode-related. They have different names in different countries, be it administration, authority or an agency. The term “Transport Administration” is used for Georgia illustrating that it has earmarked revenues, which are managed according to a business plan approved in advance by the Minister of Transport and financially audited according to the Guidelines of the Ministry of Finance. These institutional reforms aim at higher productivity of the sector and require human resource development. To achieve this, the Terms of Reference requested the design of a retrenchment, a recruitment system, and a pay scale reform in addition to training for the retained staff. The new scheme for restructuring the Ministry of Transport and Communications (MOTC) will involve retrenchment of approximately 50%- 60% of the staff when completely implemented. The Consultant has developed in agreement with the Georgian counterpart an intermediate stage for the staff reduction to ensure the sector’s smooth operation and to avoid social tensions. The proposed compensation package consists of components to assist dismissed staff through direct financial compensation like severance payments and early retirement schemes, and indirect compensation like pilot training and re-training measures. The design of a compensation package considered the applicability and replicability to the Georgian Public Service as a whole. Financing the envisaged compensation package may become the most difficult issue in the restructuring process of the MOTC. According to the Development Credit Agreement, the government shall finance the severance payment. Due to the weak financial situation of the Government, the proposed compensation package may become difficult to implement in the short term. Foreign Aid funds could be channelled for this challenging task. Alternatively, the retrenchment costs may be added to the Ministry’s and the administrations’ budget calculations. To enable this, and bearing in mind the pilot nature of this project, the Consultant proposes a social fund similar to best practices from other countries going through a restructuring process. A calculation made for severance payments for the reduction of 50% of staff (152 persons) indicates costs in the vicinity of US$ 95,000. The reform process may not become dependant on securing the government funds. It is strongly recommended to go ahead with the restructuring process, as the retrenchment process will be implemented with a slower pace. For the new and retained staff a new recruitment system and pay scale structure are proposed. The proposed recruitment and pay scale reform was elaborated in collaboration with the Civil Service Bureau of the State Chancellery considering the recommendations of the Civil Service Assessment study prepared by the World Bank. The intention to arrive at a remuneration policy that is

MAIN REPORT July 2001 Dornier SystemConsult transparent, non-discretionary and competitive is achieved despite the lack of reliable local market data. To reach higher efficiency and acquiring best qualification for each position, the Consultant is basing his recommendation on best practices and is proposing a recruitment procedure with open competition as the overriding concern. Everybody should know how the process is run and what stages must be observed. To enable an efficient working environment, efficient information flow serving the Ministry and the sector operation at large, information types were identified and information flows with access privileges have been designed (Technical Report IV - Table 1: Responsibilities and access rights). The Consultant will assist during the implementation phase in contracting a local software developer to create the management and sector information database. Funds are available in the World Bank Credit for this purpose. In addition, the Consultant has designed a new computer network to serve the new proposed structure and has prepared the technical specification and bidding document required to procure the computer equipment according to the World Bank procurement standards. The cost estimate for the computer equipment is US$ 380 000. An additional US$ 50000-70000 is required for the software development. Adequate funds are allocated from the World Bank for system realisation. Ten (10) management-training topics are currently proposed for the new MOTC staff core group to understand and discharge their work according to market economy principles and delegation of functions. These courses are designed to be applicable to both the transport and communications sectors. They will be open to Ministry staff to be retained, Modal Administration Heads and Deputy Heads and selectively, subject to space available, to senior staff of state enterprises and private companies. Certificates of completion will be issued and will be partly based on examinations. In addition to these courses, 16 technical courses are outlined to address the modal administration technical upgrading process. The final issue of concern is the sector funding. The transport and communications sectors raise revenues from fees, licenses, petrol product taxes and fines that currently are not returned to the sector to pay salaries, maintain infrastructure or permit sector growth. These revenues are currently channelled to the state budget. This is one of the reasons for the sector deterioration indicators, which are clear to an expert but not yet highly visible to the public. There is an evident need to improve the balance between revenues and expenditures of the sector. While there will differing requirements at the various levels of the organisation structure, it will be necessary to pay competitive salaries and reward excellent performance. The GNPTRC has solved this problem by being allowed to charge a 1% fee on communications sector enterprises and businesses that are regulated (Turnover tax). In the transport sector, the presidential Decree 610, of Page 7

November 1, 1999 amended by Decree 468 of October 28, 2000 allows similar turnover taxation on the SOEs. This Decree will be practised during the transition period to allow the administration to build up its staff and capabilities. The new Transport Administrations must be able to operate financially on a Business Plan basis. The Business Plans are to be approved by the Minister and audited by the Ministry of Finance. The Consultant, at the Minister’s request has prepared for the Ministry and Administrations preliminary budget calculation sheets to show the expenditures and to calculate their revenues. Further support will be given in the implementation phase of this project. During the project, the Consultant has kept the political leaders informed of the on-going process and discussed the principal aspects of restructuring with them. This applies to the State-Minister, the Parliamentary Committee for Sectors of Economy, the Ministry of Finance, and the office of the Public Service Bureau in the State Chancellery. The restructuring process proposed in this project has a pilot character for other Ministries to follow in Georgia. Failure of the implementation of reforms in the transport sector could have symbolic character to the targeted public sector administration reform process. Bearing this in mind, the Consultant has prepared an implementation road map to allow phased implementation with minimum adverse social impacts. The project design envisages a next phase in which the Ministry and the modal administrations will create internal task forces to implement the reforms with technical assistance from the Consultant team.

2. SCOPE OF THE PROJECT The program of restructuring the Georgian Ministry for Transport and Communications is performed under World Bank technical assistance credit to Georgia. The program provides for consulting support with three international companies from Germany and the UK. This final report represents the consensus from the Consultant’s proposal and the requirements of the Georgian counterparts for the restructuring process of the Ministry of Transport and Communications and the modal administrations. While there is substantial documentation on institutional development in the transport sector from previous studies, this project is initiated with the aim that implementation on the ground will be the main output. The Consultant has focused on the workability while developing the recommendations and the structural reforms for Georgia. Good governance has always been the overriding concern.

The report is integrating the output of the tasks performed in the preparation phase of reforms started in May 2000. Transport Reform and Rehabilitation Center (TRRC) and the Ministry have had input at each stage of the work. This report is MOTC approved and ready for wider political discussions and decisions. It is structured into this main volume with supplementary technical reports. The technical reports handle the following issues in greater details: Technical Report (I): “MOTC organisation, functions, staffing plan and job descriptions” Technical Report (I): “Statutes of MOTC and Transport Administrations” Technical Report (III): “Retrenchment and Payscale Reform” Technical Report (IV): “The information system design” Technical Report (V): “Training program”

3. BASIS OF RESTRUCTURING

3.1. GUIDING PRINCIPLES FOR MOTC RESTRUCTURING The main objectives of the restructuring is to establish a state management mechanism for transport infrastructure that is based on modern management principles and will provide for, a. Market-based provision of transport services b. Fair and effective regulation of the transport sector c. Efficient operation of the national transport and communication sectors d. New potential for sector development with higher private sector involvement in the realisation of ambitious projects like the Silk Route e. A substantial increase in sector revenues through higher productivity and re-channelling income from corrupt practices to the state budget The Ministry of Transport and Communications now amalgamates the functions of the former Ministry of Transport and those of the former Ministry of Post and Telecommunication. While the communications sector has been reformed on the ground and privatised to a large extent, the main focus was to restructure the transport sector and create a harmonised structure for both of the Ministry divisions (Transport and Communications). In general, there is a consensus in previous studies about the direction of reforms within the transport division of the Ministry. This is clearly towards “an efficient Ministry” concentrating on the policy and legal framework for Page 9

MAIN REPORT July 2001 Dornier SystemConsult the transport sector, with autonomous and commercially-oriented Transport Administrations focusing on the regulation and monitoring of both public and private transport enterprises (including traffic and transport safety matters). For the most part, transport services should be left to the private sector and further steps need to be taken to privatise the remaining state owned and controlled transport enterprises. The previous studies did not deal in any detail with the specific requirements of the controlling, monitoring and reporting relationships between the proposed new institutions. The restructuring of the Ministry of Transport and Communications is based upon the key principles set out in the Terms of Reference given by the World Bank: The Ministry of Transport and Communications is to become an efficient, [normative] Ministry that preserves the autonomy and commercial orientation of Transport Administrations within the emerging social and political environment of Georgia. Concretely, these imply realisation of the following management organisation principles:

Good Governance Governance implies structures and processes for determining the use of available resources for the public good. Good governance implies efficient, impartial and transparent decision-making practices in public agencies. Transparency in decision-making and strict adherence to the laws and regulations are the basis for combating corrupt practices. This is one of the guiding principles of overall reform in Georgia since the new government took power in May 2000. Also according to the World Bank guidelines, good governance must be the overriding concern in the public sector reform process.

Separation of functions Good governance can only be seriously pursued by separating responsibilities in a hierarchical structure in which the institutions setting policies and drafting laws are not involved in their implementation. In the transport and communication context, the ministerial level delegates these e functions to a regulatory body that applies these regulations to enterprises providing transport or communication services. The Ministry retains an oversight responsibility and provides for a higher level for appeal by the public and businesses within the sector. The regulatory body could be an independent governmental authority or an agency. In some cases it could be a private enterprise with regulatory duties. However it must be able to take day-to-day decisions autonomously within the set framework. Good governance has to be built on the creation of quality organisations and is based on a good legal framework. The sector’s development should be based on these

structures rather than relying on political will, the personal will of a strong leader or state power; factors which may not be stable over the longer term.

Coherence Both the transport and communications sectors require coherent organisational structures, consistent laws and regulations and good professional staff. Coherence is a pre-condition, which is necessary to enable professional staff to make good use of their skills as they seek to manage transport and communications services.

Manageability Manageability can be maintained despite the delegation of responsibilities in several ways: through appointment and overruling power but also via policies and performance objectives. Given the privatisation of the transport and communications sectors, direct control of the enterprises is no longer an option. A combination of management via objectives and delegation is the only way forward. These four principles define the overall relationships between the main organisations within the sector. The basic functions of policy, regulation and operation are segregated. Relationships are transparent and clearly defined to improve manageability based upon coherent laws, business plans and appointment and approval powers.

3.2. USE OF GUIDING PRINCIPLES The Consultant has considered how other countries have reformed their transport and communications sectors. Sector structures in Finland, New Zealand, Lithuania, the UK and USA have been examined for Georgian model development. These guiding principles imply that there should be a minimum overlap of duties between organisations and that cost-effective methods be used to carry out responsibilities. The transport sector is composed of three primary elements:

 The policy and legal elements - the Minister and the Ministry

 The regulatory / enforcement element - the Police or Transport Administrations

 The operational element - State Enterprises and Private Companies The options for relating these elements are limited by the objective of the re-structuring study, which is: to create an efficient Ministry and self-funded Administrations and ensure effective operation of enterprises. In the transport sector the Ministry is currently responsible for policy and regulatory functions. The policy function remains and will be strengthened. Control over Transport Administrations and State Enterprises will be strengthened by giving the Minister power for the appointment of key managers and requiring all self-funding parties to prepare business plans and annual Page 11

MAIN REPORT July 2001 Dornier SystemConsult budgets for Minister’s approval. With these changes, day-to-day monitoring will no longer be required or be appropriate. Regulatory functions in the communications sector have already been delegated to a new independent regulatory commission, GNPTRC. A similar approach will be followed in the transport sector. Mode regulation in transport will be delegated to four Modal Transport Administrations, Civil Aviation, Maritime, Auto-motor and Railway Transport. The Minister can overrule Administration decisions in case of misapplications. The three Modal Administrations within MOTC will be devolved from the Ministry; strengthened and made to be self-funding through fees and charges. The Minister will retain his power to appoint and remove the Directors of the Administrations. Finally, the Consultant recommends the creation of an independent Transport Safety Agency to be implemented in the future, which will be empowered to promote safety awareness within the industry and amongst the public and to audit transport services, to monitor safety practices and to investigate the causes of serious accidents. The Agency will work with the Modal Administrations who are charged with the responsibility to manage safety according to international agreements. While the creation of such an agency soon is not critical to Ministry reorganisation, the restructuring process should not preclude the creation of an independent safety auditing body in the future. The Consultant has prepared a management scheme for the transport sector in Georgia taking international best practices into consideration. The overriding concern for the sector reform was good governance. The new sector structure promises transparency, counteracting corrupt practices and creating enabling environment for private sector. The Consultant has worked closely with the Minister and his Ministry staff and also the modal administration heads towards finalising a workable institutional set-up. The Ministry organisation proposed enhances the policy-making role of the Ministry and presents a Ministry structure. The Technical Report (I): “MOTC organisation, functions, staffing plan and job descriptions” sets out the recommended sector structure, functions, staffing plan and draft job descriptions.

4. RESTRUCTURING COMPONENTS

4.1. TRANSPORT SECTOR 4.1.1 Recommended Sector Structure Applying the above given practice, the Consultant has come to an agreement with the Georgian Counterpart in defining the overall organisation structure of MOTC, which is shown in figure 1. Figure 1 Recommended Overall Organisation Structure of MOTC Ministry Minister “future” “transitional” Transport Safety Technical Assistance •1st Deputy (Ministry Coordination) Agency (TACIS/ WB/ etc.) •Deputy (Transport) Minister’s Office •Deputy (Communications)

•Deputy (Parliamentary Issues) PR Unit

Transport Transport Policy and Administrations Intermodal Coordination Communications Legal Affairs Services Unit Division Division Division Maritime Administration Communications Chancellery Transport Policy and Policy and Development Coordination Internatinal Affairs Civil Aviation Division Administration Personnel Economics Economics Road Transport Administration Accounting IT and Technical Development Railway Transport Monitoring Administration

Maintenance Policy Regulatory Functions Functions 4.1.2 Relationship between Transport Sector Elements The linkage between these three above-mentioned primary elements is the key to coherent management. The relationships between the elements are illustrated in Figure-2.

Figure 2 Relationship between Sector Institutions:

objectives appoints Policy/Policy/ Legal Legal approves

Ministry Regulatory Business plans Regulatory Administrations appoints directors reports

Business plans Inspect license Operating enforce Operating penalties Enterprises

Policy/Legal, Regulatory and Operating

The Minister and his Transport Division set policies and the legal framework for transport operations by enterprises and private companies. Control over these businesses is limited by the objective of requiring them to operate as independent profit-making businesses. Thus enterprise and company supervision will be exercised consistent with Georgia’s commercial law. The Minister will appoint top officials and review business plans of the transport administrations and of the State Owned Enterprises (SOEs). The power of appointment and removal for cause is sufficient to assure that the directors in the administrations and SOEs are responsive to the requirements of the sector. State Owned Enterprises will prepare business plans for Board approval; the Ministry’s views are represented through the Ministry’s presence in the Board.

Policy/Legal and Regulatory The (regulatory) transport administrations apply the policies and regulations developed by the Ministry to assure the public that the transport services are reliable and cost effective. The Minister manages the transport administration activities through his appointment powers, by giving them objectives to meet and requiring them to prepare business plans. The regulatory administrations must be independent in daily operation from the Ministry to separate rule making and enforcement powers, but the Minister will have veto power over enforcement actions of the regulatory authorities through an appeals procedure.

Regulatory and Operating The regulating administrations enforce the laws and regulations governing the operation of the enterprises. This is done via inspection, licensing and permitting procedures with follow- up enforcement (penalties and fines) either directly or with the police. Regulation also involves the review of enterprise business plans to confirm that policy, plan and operational objectives are being met.

Operating The Enterprises report progress in meeting business plan objectives and explain why they might not be able to meet safety targets and/or regulations. If they do not operate in conformance with the regulations they may be penalised and, in the last resort, lose their license to operate.

Operating and Policy/Legal State Enterprises prepare business plans and send them to the Board and the Minister for review and approval. Enterprises respond to new policies, plans, laws and regulations via business plans. In special cases where public funds are requested the Minister would have a project approval power. 4.1.3 The Ministry of Transport and Communications There are two main choices for managing the Ministry. The first is directly by the Minister using his Deputy Ministers or using a management team composed of Division (business unit) heads. In the future day-to-day management of units by the Minister, either via a committee or by direct control is not a choice, if the Ministry to become efficiently managed. While the Transport element of MOTC is not large, a sub-management structure with the delegation of authority to senior managers, division heads and units fulfils the main principles of the reform: coherence, separation of functions and manageability. According to the recommended organisation structure the Ministry of Transport and Communications will be headed by the Minister. The Minister will be served by a small office, which will handle ministerial activities and public relations. Due to Georgian legislation and current system requirements, the Minister will retain 4 Deputy Ministers during a transitional phase. They will support the Minister as he manages the sector. A First Deputy will handle co-ordination, act as Minister when he is absent and supervise Administrative Services. One deputy will handle ministry relations with the parliament of Georgia. The other deputies will advise on Transport and Communications matters. Currently they are not permitted to manage or supervise professional staff in the Ministry, as they are politically appointed, and not necessarily qualified civil servants. The structure of the Ministry will follow this pattern so that the transition and final stages of the organisation structure are complementary. Thus there will be four divisions within the MOTC: Transport Policy and Inter-modal Co-

MAIN REPORT July 2001 Dornier SystemConsult ordination, Communications, International and Legal Affairs. The services st unit will be reporting to the 1 deputy. These units are described further in the Technical Report (I). The structure of the MOTC and its Divisions is illustrated in Figure 3.

Figure 3 MOTC structure

Minister

• 1st Deputy (Ministry Coordination)

• Deputy (Transport) Technical Assistance Minister’s Office • Deputy (Communications) (TACIS/WB/etc.) • Deputy (Parliamentary Issues) PR Unit

Transport Policy and Communications Admin Services Unit Intermodal Coordination Legal Division Division Division

Maintanace Communications Transport Policy and Policy and intermodal subunit Development unit International Coordination unit Relations Division

Personnel subunit Economics unit Economics unit

Accounting subunit IT and Technical Development unit Monitoring subunit

Chancellery subunit

4.1.4 The Transport Modal Administrations The role of the Transport Modal Administrations is a regulatory one and thus the organisation structure will differ from that of the Ministry. The main functions assigned to the Transport Modal Administrations cover:

 Support in drafting laws and regulations

 Setting safety standards and monitoring performance

 Permit (license) administration

 Monitoring operations of enterprises (‘business’ is the function of the Board or, in case of small firms, the responsibility of the firm’s management team)

 Preparing their own business plans

 Regulation of modes

 Permitting of operators and certification of vehicles

 Enforcing Regulations (apply penalties and fines) While the above activities cover the whole transport sector, this work is modal in nature and the technical requirements of regulation of each mode differ significantly. Because of these unique features it is appropriate for separate administrations to be created which deal with the regulatory activities for each primary mode. The primary modes are:

 Railways

 Public transport (urban and inter-urban)

 Roads and Road Traffic

 Freight (trucking and distribution)

 Aviation

 Ports and Maritime Currently the transport regulation is dispersed within several Ministries. MOTC performs a limited role with respect to the first three groups listed above because of the strength of the railway and road management enterprises and the assignment of public transport and traffic management to the State’s Municipal Administrative Units. Thus there is no justification for creating separate units until these regulatory functions are returned to MOTC. It should be noted here, that the Railway Administration will be involved in drafting the railway policy, set tariffs and monitor the performance of state-owned enterprises within the sub-sector. There is an urgent need to introduce a Supervisory Board for the Georgian railway to ensure transparency. This Board should include a MOTC representative, 2 main shippers, 2 industry representatives, labour representative and two management directors of the Georgian Railways. The MOTC representative should chair this supervisory Board. Very similar analogy applies to the State Department for Roads in Georgia (SDRG). It operates autonomously but without accountability or reporting requirement to the Minister of Transport and Communication. This subject has not been explicitly dealt with in this project. The Minister should be able to access their business and investment planning to ensure that the road sector performance is in line with the overall country policy. There will be four Modal Transport Administrations:

 Auto-motor Transport covering road-based passenger transport and trucking;

 Railway Transport, covering railways

 Maritime covering ports and maritime and

 Aviation covering airports, airlines and air traffic control These groupings are reasonable under current conditions, but should be re- assessed if greater regulatory responsibilities are assigned to the Ministry in the future. The regulatory work falls into two main classes:

 technical work associated with developing standards, laws and regulations, budget and business plan review, and

 regulatory work covering certification, permitting (licensing) and enforcement. These two functions require different professional skills and experience. Inspection and enforcement work needs to be undertaken near the mode being regulated whereas technical work can be undertaken at any location. For these reasons two divisions within each Administration are proposed, one covering technical matters and the other covering inspection and enforcement activities. The creation of units within each division will be as required to manage the work for each mode. 4.1.5 Civil Aviation Administration The proposed organisation structure of the Civil Aviation Administration is illustrated in Figure 8. It comprises 3 Divisions. The Technical Division will supervise permitting (licensing), inspection and certification activities. The Economic Division will manage the development of statutes, performance measures and review business plans. It will also include market and international liaison specialists. A Services Division will handle administration, accounting and personnel matters. The professional staff envisaged totals 40 persons.

Figure 4 Proposed Organisation Structure of the Civil Aviation Administration

Head of Administration

Technical Regulation Economic Regulation Administrative Division Division Services

Flight Safety Economic Regulation Central Supervision Unit and Reforms Unit Dispatchers

Chief Engineer International Unit Relations Unit Legal Unit

Airport Aviation Market Exploitation Unit Unit

Accounting Unit Air Space Organization Unit

Aviation Security Support Services Unit

4.1.6 Maritime Administration The proposed organisation structure of the Maritime Administration is illustrated in Figure 9. It comprises 3 Divisions. The Enforcement Division will supervise ship and port, facility permitting, inspection and certification activities. The Regulation Division will manage the development of statutes, performance measures, review business plans and maintain the State Register of Shipping. A Services Division handles administration, accounting and personnel matters. The professional staff totals 30 persons.

Figure 5 Proposed Organisation Structure of the Maritime Administration

Administrative Enforcement Division Regulation Division Services

Inspection Unit Legal Unit Support Services

Security Unit State Register Unit

Certification Unit

4.1.7 Auto-motor Transport Administration The proposed organisation structure of Auto-motor Transport Administration is illustrated in Figure 6. It comprises 2 Divisions, a service unit and 17 Regional Permitting and Inspection offices. Within the central group of Divisions the Technical Division (Auto-motor Transport & Enforcement) will supervise permitting, inspection and certification activities, and co-ordinate traffic safety work. The Economic Division will manage road sector matters covering assistance in the development of statutes and regulations, and the review of performance measures and business plans. The Permitting and Enforcement Division will manage freight and public transport company Page 20

MAIN REPORT July 2001 Dornier SystemConsult route and terminal permitting and generally supervise the operations of regional centres. A Services unit will handle administration, accounting and personnel matters. The professional staff totals 34 staff in the central group and 25 staff in Regional Centres. Each regional centre will be financially independent, as their operation has been contracted to private companies.

Figure 6 Proposed Organisation Structure of the Auto-motor Transport

Auto-motor Transport Economic Regulation Enforcement Division Services Division Regional Offices Division (Cargo + Passenger)

International PassengerTransportation Economic Regulation and Coordination Unit Reforms Unit

Legal Unit

Cargo Transportation International Freight Accounting Unit Unit Forwarders Service Unit

Support Services

Certification and Safety Unit Maintenance Unit Administration

4.1.8 Railway Administration The recommended organisation structure of the Railway Administration is illustrated on Figure 11. It will be comprised of 3 Divisions (Legal

Regulation Division, Economic Regulation Division and International Relations Division) and a Administrative Services Unit. Figure 7 Recommended Organisation Structure of Railway Administration

Legal Regulation Economic Regulation International Administrative Division Division Relations Division Services

Transport Safety Agency Although there might not be enough awareness of the importance of the safety issues in the transport sector in Georgia, there is an evident need for independent audits for safety provisions and investigation of accidents, should they occur. Due to the need for complete independence of these audits and investigations the creation of a small safety group is recommended. The proposed transport Safety agency should be created once consensus is reached during the implementation phase. The Agency would be composed of a small board with a part-time chairman served by a technical secretariat. Much of the accident investigation and safety audit work will be contracted out to specialists.

4.2. COMMUNICATIONS SECTOR 4.2.1 Current state of Reforms The current legislation gives a clear indication of the allocation of responsibilities within the communications sector. The regulatory authority, Georgian National Post and Telecommunications Regulatory Commission (GNPTRC) is responsible for the following functions: Licensing, Tariffs, Interconnection, Universal service, Spectrum management, Numbering, Compliance monitoring, Monitoring service quality, International relations, Competition regulation and Consumer representation. This list covers all communication sector functions except policymaking and management of state enterprises, which rest in the MOTC. Georgia Post is currently a state-owned enterprise and the collection and delivery of mail with Georgian stamps has until recently been a monopoly. However, competition has been introduced through the licensing of express courier companies such as DHL, TNT, UPS and FedEx etc. The Georgian Law Page 22

MAIN REPORT July 2001 Dornier SystemConsult on Telecommunications and Post indicates that the role of the GNPTRC in the postal sector will be similar to that in the telecommunications sector. The broadcasting network is operated by a state enterprise and is unlikely to be privatised in the near future. The responsibility for supervision of this company lies with MOTC. However, the market for broadcasting has been liberalised and a number of new private companies are providing TV and radio services. 4.2.2 Proposals for restructuring the Communications Division The Division shall discharge has three core functions – policy, supervision of state enterprises and dealing with international organisations. It also has several subsidiary functions. Successful management of the communications sector requires close co- operation between MOTC and the GNPTRC. This should be institutionalised through the following measures:

 Co-operation in the development of new policies and plans to manage the sector and its component parts.

 Drawing up a policy on co-operation between MOTC and GNPTRC. This should describe in detail the allocation of policy development roles and be based on the relevant legislation. The document should identify areas in which co-operation is particularly important.

 The document should identify strategies for institutionalising this co- operation and plans for implementing them (see item first item). Senior officials in the GNPTRC and MOTC should be in regular contact to discuss relevant issues.

4.3. STATUTES Based on the new structure, draft statues have been developed for the MOTC and each of the Transport Administrations. Each statute will be equivalent to an internal law defining the role, attributions, obligations and the decision-making processes of the Ministry and the Transport Administrations. The Statutes are given in the Technical Report (II).

4.4. RETRENCHMENT Retrenchment and pay scale reform are described in the Technical Report (III). The final stage of restructuring of the Ministry of Transport and Communication (MOTC) will involve retrenchment of approximately 50% of the staff. The design of a compensation package with direct and indirect financial compensation measures for dismissed staff is also given. The contractual obligations of the Government towards its employees, the applicable laws including the labour law, the prevailing labour market conditions, the attitudes and power of public trade unions were reviewed Page 23

MAIN REPORT July 2001 Dornier SystemConsult and the applicability and replicability of the compensation package is addressed to the Georgian Public Service as a whole. Based on the applicable laws, the Government has a clear obligation to carry out the following compensation and activities in case of dismissal of staff, (i) financial compensation (severance payments), (ii) training and re- training measures, (iii) protection and prevention of redundancy, (iv) creating a pool of servants. The proposed compensation package consists of components, which assist dismissed staff through direct financial compensation like severance payments and early retirement schemes and indirect compensation like pilot training and re-training measures. Rough estimates of severance payments and early retirement costs have been made. According to staffing plans there are 304 staff currently on the payroll of the MOTC. A calculation made for severance payments is that a reduction of staff by 50% (152 persons) costs approx. US$ 95,000. Financing the envisaged compensation package may be the most difficult issue regarding the restructuring process of the MOTC. Because of the weak financial situation of the Government the proposed compensation package, including severance payments, cannot be wholly financed either by MOTC or by the Government of Georgia. If the retrenchment is carried out, financial assistance from international donors may be needed.

4.5. RECRUITMENT AND PAY SCALE REFORM In accordance with the Terms of Reference the review focused on the current recruitment process and pay scale situation in the Ministry of Transport and Communication (MOTC) and on staffing the Ministry. The organisational structure of the MOTC has been identified. A review of the existing compensation package (including non-salary benefits, salaries, trends in real salary) has been undertaken. Options for the revision of MOTC’s salary structure that would allow the Ministry to attract and retain qualified staff have been identified. The proposed recruitment and pay scale reform is elaborated in close collaboration with the Civil Service Bureau of the State Chancellery and with close attention to the recommendations in the Civil Service Assessment prepared by the World Bank. The minimum monthly salary for permanent staff would be 300 Lari. The model for structures, positions and requirements of the Ministry is implemented in the job descriptions of the proposed restructured Ministry. Under the requirements for this task, job descriptions for each professional position within the re-structured MOTC are prepared. The intention is to arrive at a remuneration policy that is transparent, non- discretionary, and comparable (though not necessarily equivalent) to the private sector, and can be realised in the near future. In the absence of Page 24

MAIN REPORT July 2001 Dornier SystemConsult reliable local market data, an alternative basis for revised salaries is defined and proposed to the Ministry. The recruitment procedure proposed follows the principles of open competition. All positions of the Ministry and Administrations will be published for candidates. Everyone should know how the process will run and what the different stages are. The recruitment procedure will be carried out as an open competition, open in general to the public as a whole.

4.6. INFORMATION SYSTEM DESIGN The existing situation with regards to information collection and storage was assessed in meetings with senior representatives of 14 organisations, comprising 9 Divisions/Administrations of MOTC, the State Department of Roads, Georgian Railways, the Traffic Police, the State Department of Statistics and Tbilisi Municipality. Many of the existing information storage systems have lapsed; the others are not computerised or use obsolescent computers. There is a need for a computer based information system. Information types, responsibilities for data quality, information flows and access rights were identified for 5 transport sector components of the restructured MOTC. These were the Minister/Transport Policy and Inter-modal Co-ordination Department, the Land (Auto-motor and Railway Transport), Maritime and Civil Aviation Administrations, and the Transport Safety Agency. Access right types are read/write, read only and list/bulletin (summaries for selected enterprises and institutions external to MOTC). The Administrations are well placed to undertake initial data collection and Quality Assurance, while the Transport Department, which includes IT expertise, will undertake more sophisticated analyses and manage the system. Communications Department needs were also identified. Computer hardware, database software and a network system are required. The system design incorporates a “one per desk” concept for system access by MOTC staff. Server and computer requirements have been calculated from the staff numbers implied by the proposed restructuring of MOTC. There will be 3 servers, 15 engineering workstations, 136 display workstations and 7 notebooks. Networking requirements are based on dependable access, adequate transmission speeds and high quality fibre optics for communication between the various buildings of MOTC and Transport Administrations. The cost estimate for the hardware procurement is US$ 380,000. The Information System Design is presented in Technical Report (IV).

4.7. TRAINING Technical Report (V) deals with training. Training institutions and programmes, both past and current, were identified. The Transport Consulting and Training Centre has excellent facilities in MOTC’s Kazbegi Avenue offices. Between 1997 and 1999 the Dutch and Georgian training teams taught 30 management and transport courses to a total of 500 people. Other organisations that might be interested in providing training include Georgia Technical University, Institute of Economics, Highway Design Institute, Institute of Applied Mathematics, ESM Business School, Kutaisi Technical University, Georgia Institute of Public Administration and Black Sea University. In communications, a USAID programme of technical assistance to GSPTRC offers some training opportunities, as does the Technical University. It is proposed that MOTC core group training courses will cover the 10 subjects. These courses will be designed to be applicable to both the transport and communications sectors. Moreover, the Consultant has outlined 16 further technical courses for both the transport modes and telecommunication and post. They will be open to Ministry staff to be retained, Modal Administration Heads and Deputy Heads and selectively, subject to space available, to senior staff of the state enterprises and private sector companies. These courses will be designed in units and are expected to last between 2-4 days each. Course schedules are to be determined after staff and enterprise surveys have been conducted. Certificates of completion will be issued and will be partly based on examinations.

5. RECOMMENDATION

5.1. REFORM REALIZATIONS STRATEGIES 1. The Minister as top transport official in the country 2. Focusing the Ministry as a policy making institution 3. The Ministry of Transport and Communications is the focal point of sector co-ordination within the government 4. Redefining the relationship between the MOTC and other Ministries and state organisations 5. Institutional and professional strengthening of the Ministry and reorganisation of the Ministry divisions 6. Creating regulatory Administration outside the Ministry but under the Minister’s direct supervision.

7. Adjusted relationships of the Ministry and the regulatory administrations 8. Improving the enabling environment for private sector operation and investments 9. Implementation of employment reforms including pay scale. 10. Legislative amendments

5.2. RESTRUCTURING PROCESS 1. Restructuring is defined as a process in which new structure, new management procedures and relationships are established gradually 2. Reforms in the Ministry are managed in close co-operation with political leadership and with their support 3. Public awareness of the reforms must be ensured.

5.3. PROCESS OF CONSENSUS BUILDING WITH THE GEORGIAN GOVERNEMENT In Phase B of the project the Consultant actively participated in the process of consensus building in order to assist the Minister of Transport and Communications in restructuring MOTC and Modal Transport Administrations. Phase B involved analysing the comments of different Departments and Modal Transport Administrations of MOTC on the Draft Final Report and integrating their recommendations, when appropriate, into Final Reports to be submitted by the Consultant. In February and March 2001 the Consultant held numerous meetings with the senior officials of MOTC to agree on different issues, including the organisation structure, staffing plan and the budget of the reformed MOTC. The Consultant was asked to help draft the Law of Georgia on Transport and Communications. The consultant provided detailed comments on the draft Law and held a number of meetings with the Deputy Minister of Transport and Communications, Mr. Chubinishvili, and the Head of Legal Department of MOTC, Mr. Nikuradze, to discuss the details of the draft Law. The Consultant assisted in the formulation of an Explanatory Note, which complemented the draft Law when it was sent to other Ministries and Government entities for their comments. The Explanatory Note outlined the main concepts of the proposed restructuring, the guiding principles of the reform, future development plan of the project and summarised the economic effects of the reform. Comments from the Ministries of Justice, Industry and Trade, State Property Management, Internal Affairs and the State Department of Page 27

Standardisation, Metrology and Certification have been considered by the Legal Department of MOTC and have been integrated into the amended version of the Draft. Licensing was the sole issue of concern, since the Ministry of Justice, based on the WB recommendations, had made a decision not to adopt any new laws or acts permitting additional licensing activity. However, after the Consultant’s inquiry, it turned out that the Draft Law referred to the existing limited licensing activity of the Civil Aviation Administration, which is regulated by the Law of Georgia on Licensing Activities. th On 11 of March 2001, the Consultant held a meeting with the Minister of Transport and Communications to agree upon the action plan for the future development of the project. Project team leader, Dr. Ashraf Hamed, reminded the Minister about the 3-day workshop to be held by Consultant according to the terms of reference of the contract (RFP #: LIL/CSTA/99/02; Credit #: 3129-GE): “ One month after the delivery of the draft Final Report, the Consultants will organise and deliver a workshop, directed towards key stakeholders, to present and discuss and exchange views on their findings, proposals, and recommendations for restructuring the ministry. The Workshop will take place in Tbilisi, and is expected to last 3 days. The stakeholders include the government (ministries and agencies), the donor community, and the transport industry. The Workshop will include the key international experts from the team to discuss the merits of different options, and assist the government in making an informed choice about the organisational model best suited to the Georgian transport sector. Following the Workshop, the Client will instruct the Consultants, which changes, if any are required. The Consultants will thereafter finalise and print the report package.” According to the Minister there was no need for a 3-day workshop, which subsequently was cancelled upon his request. Instead the Minister pointed out his approach to present the draft law in the Government Meeting for approval, prior to its submission to the parliament. The Consultant has prepared a first draft for the Minister’s speech and slides for the presentation of the project. th On 20 of April 2001 the Consultant assisted the Minister of Transport and Communications in the presentation of project materials in the meeting of the Parliamentary Committees (Committee for Economic Reforms and Committee for the Sectors of Economy). A supporting presentation was prepared on technical issues. th On 25 of April 2001 the Consultant participated and held a short speech in the Government Meeting. The objective of the meeting was to receive

MAIN REPORT July 2001 Dornier SystemConsult government approval for project implementation and agree upon the action plan for future development of the project. Mr. Adeishvili, the Minister of Transport and Communications, provided an overview of the reform and the Draft Law of Georgia on Transport and Communications. The Consultant outlined the main principles of the reform and the positive effect the reform would have on the efficiency of the Ministry, quality of transport service and decreasing the level of corruption in the sector. The participants of the meeting, headed by the President of Georgia Mr. Shevardnadze, appreciated the general course of the project, pointed out its “pilot” character and highlighted the need to apply similar reforms to other ministries and government entities of Georgia. According to Mr. Shevardnadze the reform would have a positive effect on the sector as a whole and, in particular, on the elimination of corruption within the sector. The President of Georgia announced his support of the reform and called on the necessary actions and consensus building to aid the future development of the project. The President requested the Minister of Transport and Communications, TRRC and the Consultant to provide him with necessary materials about the reform for President’s annual report to the Parliament. The Minister of Finance, Mr. Noghaideli, objected to the concept of self- financing the Modal Transport Administrations. The President requested the Minister of Transport and Communications and the Consultant, to clarify the issue of self-financing with the Ministry of Finance and co-ordinate the facilitation of the reform. In the implementation phase (C), the Consultants would assist the MOTC in implementing the restructuring program. Consultant will assist Modal Transport Administrations in preparing their Business Plans, annual budgets and financial analysis to show how the restructuring plan can be carried out in a way, which is budget neutral as agreed in the Development Credit Agreement. In phase C, Consultant will continue help in consensus building when requested to assist the project’s presentation to the parliament. This task requires holding a number of meetings with different parliamentary committees and senior Government officials in order to navigate the project through the government successfully. If successful, the Project Team Leader will work in close co-operation with the Minister and TRRC, to arrange for selection and recruitment, discuss the project related issues with the stakeholders, and give advice and recommendations to the Minister.

5.4. PRE-CONDITIONS FOR IMPLEMENTATION The process of changing from the current structure to the recommended one will not be a simple procedure. A fundamental issue that cannot be addressed in this report is the question of whether re-organisation can proceed without improving the employment conditions for the staff

MAIN REPORT July 2001 Dornier SystemConsult remaining within the Ministry and joining the new Transport Administrations. These issues need a detailed analysis of existing legislation opportunities and political agreements that will be specially made. Reform of the Ministry presumes a series of organisational decisions in which process the restructuring principles must be established gradually but firmly. The underlying methodology implies: 1. at each state of the restructuring process the organisational decisions made must take into account the level of conceptual and professional readiness of the policy makers as well as of the Ministry staff involved in the reform process; 2. special attention towards the social consequences of the political decisions which imply organisational decisions with minimal social pain for the personnel of the Ministry. Assuming the above problems can be solved, the proposed steps in the reorganisation process are described in the next section.

5.5. RECOMMENDED ACTION PLAN The following is a list of short-term actions necessary to prepare for the implementation of the proposed reforms.

1. Approve MOTC reorganisation structure, including the three modal administrations for aviation, maritime and land transport. 2. Prepare legislation on new organisation and statutes 3. Parliamentary approval 4. Prepare and publish mission statements, strategic directions, and interim policies for transport and communications (separately). 5. Secure interim budgets and funding sources for self-funding agencies 6. Establish MOTC internal taskforce for restructuring 7. Publish the new positions 8. Staff recruitment process of MOTC and the Modal Administration including Directors and managers 9. Implementation of the internal taskforce for the restructuring of the transport administrations. The task force will prepare the operational manual and decentralise the decision-making. 10. Prepare and approve business plans (enterprises & administrations) 11. Prepare long term policy statements 12. Create Safety Agency and procure chairman and staff

Further actions emerging from the sector restructuring approach are obtainable from the attached detailed Technical Reports (I) to (VI).