Major Change of Batumi Bypass Road Project (GEO 50064)

ECONOMIC AND FINANCIAL ANALYSIS

A. Background and Scope

1. This document contains an updated economic and financial analysis of the Batumi Bypass Road Project, inclusive of the proposed major change in scope. The original scope centers on the construction of a 14.3 kilometer (km) bypass around Batumi, currently under construction and with expected completion in late 2022 (Batumi Bypass component). The existing road through Batumi carries significant flows of transit and domestic long haul traffic, causing congestion, road safety and environmental problems. It carries substantially all merchandize trade between Georgia and Turkey, Turkey and Azerbaijan, and Turkey and Armenia. Arriving transit traffic passes through the Sarpi border, 18km south of Batumi, making its way through Batumi before proceeding towards Tbilisi and further east. The bypass will, when complete, form part of the E60-E70-E692 East-West Highway network.

2. The proposed increase in scope is made possible without additional financing, due to lower than expected contract prices for the Batumi Bypass. It extends the project to include two additional components which are strategically important to enhance Georgia’s role as a transport hub: (a) relocation of the bridge carrying the E60 (Georgian designation: S2) over the Rioni river just north of the city and port of Poti, plus 2 km of approach roads (the Poti bridge component), and (b) a new 16.2 km two lane bypass road, between Bakurtsikhe and Tsnori on the S5 highway between Tbilisi and Azerbaijan via the border crossing point (BCP) at Lagodekhi (Bakurtsikhe-Tsnori road component).

3. Poti bridge component. The existing road crossing the Rioni river is carried on a 180m diversion weir, one of a pair of hydraulic structures built in the late 1950s to reduce the risk of flooding to Poti city. The carriageway is 6.2m wide, insufficient for two-way truck-trailer traffic. The weir structure itself underwent emergency rehabilitation from 2004 to 2006.1 Traffic on the E60 between Senaki and Poti in 2015 was approximately 5,500 vehicles per day (vpd), of which 600 were heavy goods vehicles (i.e. trucks with at least three axles).2 The relocation of the Poti bridge is part of a planned longer term upgrade of the Poti-Grigoleti road.

4. Bakurtsikhe–Tsnori road component. The existing Bakurtsikhe–Tsnori road carried approximately 4,100 vpd in 2017 (of which 240 were heavy goods vehicles) through around 24 settlements. The existing two lane road is in poor condition and hazardous for pedestrians. The proposed bypass will divert approximately half of total traffic.

5. Economic benefits arising from the three road components are to a close approximation independent.

B. Economic Analysis at Appraisal

6. The estimated economic internal rate of return (EIRR) of the Batumi bypass road at appraisal in 2017 was 16.1%.3 The appraisal was undertaken at 2016 prices.

1 The weir is owned by Georgian Amelioration Ltd, the irrigation and drainage service agency of the Ministry of Environmental Protection and Agriculture. Repairs to the weir are described in Spasic-Gril, L, 2006, Emergency Underwater Rehabilitation of the Poti Main Diversion Weir, Georgia. Thomas Telford, London 2 Roads Department, Ministry of Regional Development & Infrastructure, Georgia, 2017. Feasibility Study for the Construction of Poti-Grigoleti-Kobuleti Bypass. Tbilisi 3 Batumi Road Bypass Road Project (RRP GEO 50064), Economic and Financial Analysis, March 2017 2

7. As a new alignment, the benefits quantified at appraisal depended on an estimate of traffic diverted from the existing road through Batumi city. The scope of benefits included (i) vehicle operating cost (VOC) savings, (ii) journey time savings, (iii) generated traffic benefits and (iv) crash cost savings. Journey time savings accounted for approximately two-thirds of total benefits.

C. Economic Reevaluation

8. This economic re-evaluation brings the 2016 evaluation of the Batumi bypass to 2019 prices, reflects currently expected outturn costs, and extends it to include the Poti bridge and Bakurtsikhe–Tsnori road components. In order to harmonize the evaluation of the three components, each has 2042 as its final year and in each case the residual value is taken as 20% of the initial investment cost. Both the Poti bridge and the Bakurtsikhe–Tsnori bypass components are assumed to be constructed during 2020-21, with first benefits in 2022.

9. In Georgia, Gross Domestic Product (GDP) per capita has risen by 15% since 2016 at constant prices. However, journey time savings in the original appraisal already allowed for expected growth in real-term values of time, and therefore no further adjustment has been made. VOC savings and generated traffic benefits have been adjusted by use of the MUV index.4

10. Poti bridge component. The Poti bridge component forms the first of a proposed three stage upgrade and re-alignment of the Poti-Grigoleti road. The consultants’ evaluation compared three alternative alignments, including three alternative sites for the proposed bridge.2 The scope for alternatives is limited as all possible alignments must follow a narrow strip of land bordered by an environmentally sensitive area to its east and urban development to its west.5 The selected alternative was chosen principally on environmental grounds, but was also the option with the lowest cost.6 The estimated financial cost of the Poti bridge project is $21.5m including value added tax (VAT), or $18m at economic prices excluding VAT. The E60 via Poti bridge is one of two routes to Poti port.7 Traffic travelling to or from Tbilisi via Samtredia may take the southern route via Grigoleti (currently being re-built to a four lane standard between Samtredia and Grigoleti) or the shorter northern route via Senaki. Traffic counts in 2017 showed that traffic volumes on the northern route were about 30% higher than those between Grigoleti and Poti. While the carriageway width of the existing Poti bridge is unsatisfactory, the small delays arising from this do not give rise to significant diversions and therefore few economic benefits. The situation if the hydraulic structure were to fail, however, would be far more serious, both for transport and for Poti city. The need for emergency repairs carried out on the weir fifteen years ago (para 3) suggests that there is a material probability that this could happen.

4 MUV: manufacturers’ unit value index, a proxy for the price of developing country imports of manufactures in dollar terms 5 South of Poti, urban development and road connections run along a narrow line of dunes between the sea and Kolkheti National Park. The latter contains Ramsar-designated wetlands 6 The estimated cost of the selected bridge (alternative 1) was 7% below the cost of alternative 2 and 24% lower than alternative 3. 7 In terms of cargo turnover Poti port is the largest in Georgia. Its 2015 traffic was 5m tons of bulk. liquid and ro-ro freight, plus 325,000 TEUs. Expansion possibilities are highly constrained, however, and there is a risk that trade will be diverted to the new bulk and container facilities currently under construction at Anaklia, approximately 30km north of Poti 3

11. Bakurtsikhe–Tsnori road component. Evaluation of this component is based on a feasibility study prepared for the government in 2018.8 This feasibility study was done at 2018 prices and has not been adjusted for price changes. Timing has however been adjusted to be consistent with construction in 2020-21 (in place of 2019 as assumed in the original evaluation). As with the evaluation of the Batumi Bypass component, the scope of benefits includes VOC, journey time and crash cost savings. The consultants’ evaluation considered three alternative bypass alignments. The selected alternative had the lowest environmental impact and was least disruptive to existing land parcels, but no comparative economic evaluation was undertaken. Approximately 70% of benefits arise from VOC savings.

D. Demand Estimation

12. Historic traffic growth on both the Kobuleti-Batumi and the Bakurtsikhe–Lagodekhi roads has been strong. From 2009 to 2015 traffic recorded at the automatic traffic counter at km95 of the Kobuleti-Batumi road grew at 8% per annum, with annual growth of heavy goods traffic at slightly over 20%. Traffic between Bakurtsikhe and Lagodekhi on the S5 from 2009 to 2016 grew at just over 4% per annum.

13. Forecast GDP growth is 5.0% and 4.9% for 2019 and 2020,9 rising to 5.2% in 2023.10 Assumed demand elasticities are 1.2 falling to 1.05 for passenger traffic and 1.0 for goods vehicles.

14. Batumi Bypass component. Base year and forecast traffic estimates are summarized in Table 1. It is estimated that around 62% of goods traffic and 43% of total traffic will divert to the bypass, based on origin and destination (OD) surveys originally carried out in 2009.

15. Bakurtsikhe–Tsnori road component. Principally based on OD survey results, between 50 and 55% of vehicles are assumed to divert. Conservatively, it is assumed that there will be no net additional traffic generated.

16. Poti bridge component. Traffic forecasts for Poti bridge as a standalone project have not been prepared. Traffic between Samtredia and Poti dependent on Poti bridge is estimated at approximately 3,000 vehicles per day.11

Table 1: Base and Forecast Traffic: Batumi Bypass Component AADT without Project AADT with Project Year Existing Road Existing Road Bypass Diverted Bypass Generated 2015a 18,245 N/A N/A N/A 2023b 27,508 15,365 12,143 1,506 2030 36,713 20,523 16,190 2,012 2040 49,960 27,953 22,006 2,742 AADT = annual average daily traffic in vehicles per day, N/A = not applicable. a Base year for traffic. b Expected opening year. Source: ADB. 2017. Report and Recommendation of the President for the Batumi Bypass Project. Manila.

8 Roads Department, Ministry of Regional Development & Infrastructure, Georgia, 2018. Preparation of Feasibility Study for Bakurtsikhe–Tsnori Road Section. Koblenz. 9 ADB. 2019. Asian Development Outlook. Manila. 10 IMF. 2018. World Economic Outlook. Washington, DC. 11 Rebel Group for Global Infrastructure Facility, 2017. East West Highway Corridor Development Project – Private Sector Participation and Long-Term Financial Sustainability Options, D1 – Corridor Traffic Study. Rotterdam.

4

Table 2: Base and Forecast Traffic: Bakurtsikhe–Tsnori Road Component AADT without Project AADT with Project Year Existing Road Existing Road Bypass 2017a 4,127 N/A N/A 2022b 5,081 2,327 2,754 2030 7,294 3,340 3,954 2040 10,475 4,799 5,676 AADT = annual average daily traffic in vehicles per day, N/A = not applicable. a Base year for traffic. b Expected opening year. Source: Roads Department Georgia.

E. Economic Costs

17. Investment costs. The economic costs of all three components comprise (i) capital investment, which includes civil works and consulting services for construction supervision, (ii) consulting services for environmental monitoring, project implementation support etc., (iii) land acquisition and resettlement and (iv) road maintenance. Costs related to taxes, duties, and financing charges during implementation are excluded. Table 3 gives a breakdown of the investment costs. Construction of the Batumi bypass started in 2017 and is expected to be complete at the end of 2022. Implementation of the other two components is expected to take place over a two year period from 2020.

Table 3: Investment Costs: Batumi and Bakurtsikhe–Tsnori Bypasses, and Poti Bridge Financial Costa Economic Cost, 2019 Prices Section $m $m $m/km Batumi bypass: Bypass construction 126.30c 103.38 7.23 Consulting services 8.89d 7.54 0.53 Land and resettlement 49.9e 41.90 2.93 Total cost 185.1 152.80 10.70 Bakurtsikhe–Tsnori: Total cost 40.0b 33.60 2.10 Poti bridge: Total cost 29.6f 24.80 9.90 a Including Value Added Tax. b Includes consulting services ($2 million), land acquisition and resettlement ($4 million), and construction ($34 million). c Contract sum ($120.29 million) plus 5% physical contingencies. d Supervision, monitoring, implementation support, and audit. e Allocated amount ($42.3 million) plus Value Added Tax. f Includes consulting services ($1.5 million), land acquisition and resettlement ($0.36m), and construction ($27.74 million) Source: Asian Development Bank staff and consultant estimates.

18. The initial investment cost of the Batumi Bypass project is approximately 30% less than that assumed at appraisal, due to good competition for procurement packages and to some extent lower oil prices.

19. All predicted project costs and benefits are measured in 2019 economic prices expressed in $. Traded goods are measured at world prices and non-traded inputs at domestic 5 prices less indirect taxes multiplied by a standard conversion factor (SCF) estimated at 0.99.12 The shadow wage rate factor (SWRF) adopted at appraisal at 0.7 was applied to unskilled labor used in road construction. A SWRF of 1.0 was applied to skilled and professional labor.

20. Maintenance costs. In the case of the Batumi bypass an annual routine maintenance cost of $2,150 per km was used. Maintenance cost assumptions for the Bakurtsikhe–Tsnori road are shown below.

Table 4: Maintenance Interventions, Bakurtsikhe–Tsnori Road Unit Cost Intervention Financial Economic Routine maintenance $4,917/km $4,167/km Pothole patching (annual) $28/m2 $24/m2 Crack sealing (annual) $0.79/m2 $0.67/m2 Edge break repair (annual) $14.2/m2 $11.7/m2 km = kilometer, mm = millimeter, m2 = square meters. Source: Asian Development Bank estimates.

21. Economic benefits. Economic benefits considered at re-evaluation were (i) VOC savings, (ii) time savings and (iii) crash cost savings. They are taken from the source appraisal documentsError! Bookmark not defined.,8, adjusted for timing changes and, in the case of Batumi bypass, VOC savings adjusted by the MUV index as described in para 9. Crash cost savings for both the Batumi and the Bakurtsikhe–Tsnori bypasses were estimated using the International Road Assessment Programme (iRAP) approach to valuing fatalities and injuries. In the case of the Batumi bypass fatalities were assumed to drop from 18 per 100 million vehicle-km to six in the with-project case. In the case of Bakurtsikhe–Tsnori, the incidence of fatalities and injuries was assumed to drop by 35%.

22. No quantified benefits for the Poti bridge component are included in the base case scenario presented in Table 5 and Annex 1. However, a rough estimate is included as an optimistic scenario in the sensitivity analysis.

F. Results of Economic Reevaluation

23. The results of the economic re-evaluation are in Table 5, with detailed resource flows shown in Annex 1. The economic indicators provided are: EIRR, net present value (NPV) and benefit-cost ratio (BCR). A 12% discount rate was used, same with the original project, to allow like-to-like comparisons. As a result of the large expected cost saving in the construction cost of the Batumi Bypass the expanded project returns more favorable indicators than those estimated at appraisal, even with no quantified Poti bridge benefits. The expanded project remains economically viable.

24. Sensitivity tests were carried out to determine the effect of variations in key input parameters. Table 6 shows switching values of 155% with respect to construction costs and 64% with respect to benefits, meaning that the project would still be economically viable if construction costs were to rise by up to 55% or the benefits to fall to 64% or less of base case

12 Using the ADB simplified method based on merchandize imports of $7.293bn, exports of $2.384 bn and taxes on trade of $51m (averages in current $ for 2010–2014 from World Bank data).

6 values. Project EIRR falls to 12.4% if both costs were to rise by 20% and benefits fall by 20%. Economic viability remains sound under all scenarios tested. A scenario is also included were the existing Poti bridge weir structure fails, and traffic between Samtredia and Poti would incur the costs of travelling an additional 9km. This scenario includes the probability weighted benefits of avoiding these diverted traffic costs.

Table 5: Project Economic Indicators Component NPV BCR EIRR ($m) (ratio) (%) Batumi bypass 100 1.9 19.3 Bakurtsikhe–Tsnori bypass 1.4 1.1 12.7 Poti bridgea (16.4) - - Total 85 1.6 17.1 BCR = benefit-cost ratio; EIRR = economic internal rate of return; NPV = net present value. Source: Asian Development Bank estimates. a No quantified benefits included.

Table 6: Sensitivity Analysis EIRR NPV Switching Value Case (%) ($m) (%) Base case 17.1 +85.0 Cost +20% 14.9 +53.8 155 Benefits -20% 14.4 +36.9 64 Cost+20% & benefits -20% 12.4 +6.2 Poti bridge benefits included 18.2 +108.0 EIRR = economic internal rate of return, m = million, NPV = net present value. Source: Asian Development Bank estimates.

G. Financial Analysis

25. Both the original and revised scope of the project does not entail revenue generating activities. As such, a financial analysis of the project was not conducted. Instead, aspects of financial sustainability have been assessed from the viewpoint of the ability to ensure the upkeep of the assets created and improved under the project.

26. An assessment of MRDI’s road asset management practices and capabilities were undertaken in February 2019. The RD carries out annual road conditions surveys for the international and secondary road networks. The 2018 surveys revealed that over 85% of international roads and 60% of secondary roads are in good or fair condition (Annex 3; Figures 1a and 1b). The ADB and the World Bank have supported further development of (i) a road asset management system (RAMS) that is being fed into a five-year rolling planning and programming process, and (ii) a GeoRap system that will adopt the approaches of iRAP that aim at safer roads investment planning and policy and performance tracking.

27. Baseline conditions for the year 2004 reflect the decades of underfinancing of the sector. About 55% of international roads and 70% of secondary roads were in bad condition. Steady increase in road sector funding led to major backlog recovery and current 5-year plan aims to fully recover rehabilitation backlog in the road network. The remaining 15% of secondary roads are planned to be maintained with gravel standard due to low traffic figures. In parallel to backlog recovery, financing for maintenance will also increase by shifting of rehabilitation funds towards routine and preventive maintenance budget to achieve higher service levels and an increased lifecycle of road assets. 7

28. During 2012–2018, the compounded annual growth rate of road-related revenues was 16%, ranging between 1.2% and 2.1% of the gross domestic product (Annex 3; Figure 2). Substantial increase of road-related revenues over the past three years is mostly due to increase of excise fuel taxes and overall traffic volumes. Furthermore, there are several new revenue sources that will be introduced in 2019/2020 including: (i) driver license fees; (ii) vehicle ownership tax; and (iii) annual vehicle inspection fees. RD’s approved maintenance budgets are shown in Table 7. In current US dollar terms, the total has remained roughly constant at approximately $70 million per year, equivalent to $12,000 per km per year for the entire network.

Table 7: Roads Department Road Maintenance Approved Budgets, 2013–2018 2013 2014 2015 2016 2017a 2018

GEL million ($m) Routine maintenance 30.5 (18) 32 (18) 34 (15) 46 (17)b - - Periodic & routine - - - - 86 (34) b 75 (30) maintenance Periodic maintenance 88 (53) 100 (57) 120 (53) 112 (47) - - Rehabilitation - - - - 105 (42) N/A Exchange rates (GEL per $) 1.66 1.77 2.27 2.37 2.51 2.50 - = not applicable. a Periodic and routine maintenance moved from capital budget (periodic maintenance and rehabilitation) to recurrent budget and combined contractually from 2017 onwards. b Table shows actual expenditure rather than approved budget for these years. Source: Asian Development Bank estimates.

29. The RD has no direct labor force. It contracts out all its maintenance and construction activities. Since 2016, the government has been moving toward adopting a performance-based maintenance (PBM) approach. Under the original project (output 2), work is progressing on the application of PBM contracts for routine and periodic maintenance, with preliminary network assessment already completed and full terms of reference for the PBM contract being finalized. While all performance-based contracts are being carried out under externally-funded projects, this approach is being considered for replication and roll out across Georgia. The RD is looking into options for gradual introduction of service level-based payments for maintenance contracts funded by the state budget.

30. Recognizing the need to expand its revenue base as well as tolling potential of newly build highway sections, the government has identified seven priority road sections for tolling. A feasibility study will be commissioned under World Bank financing to identify and prepare sustainable priority tolling projects.

31. The government’s continuous efforts to advance the tolling, RAMS and PBM agendas will further improve the overall road maintenance situation. It is therefore concluded that the RD has sufficient financial capacity, within the government’s budgetary proceeds, to meet recurrent expenditures to adequately operate and maintain the project roads.

8 Annex 1

Detailed Results of the Economic Analysis ($ million, 2019 prices, undiscounted) Investment and Maintenance Costsa VOC Benefits Time Saving Benefits Bakurtsikhe– Poti Bakurtsikhe– Bakurtsikhe– Other Year Batumi Tsnori Bridge Batumi Tsnori Batumi Tsnori Benefits Total Benefits Net Benefits 2017 15.70 0 0 0 0 0 0 0 0 (15.70) 2018 29.14 0 0 0 0 0 0 0 0 (29.14) 2019 28.84 0 0 0 0 0 0 0 0 (28.84) 2020 28.54 16.78 12.4 0 0 0 0 0 0 (57.73) 2021 28.23 16.78 12.4 0 0 0 0 0 0 (57.43) 2022 22.34 0.07 0 0 1.84 0 0.71 0.16 2.71 (19.70) 2023 0.03 0.07 0 0.59 2.06 27.32 0.77 7.52 38.27 38.18 2024 0.03 0.07 0 3.17 2.42 29.70 0.87 9.89 46.05 45.95 2025 0.03 0.07 0 3.62 2.84 31.27 0.98 10.41 49.13 49.03 2026 0.03 0.07 0 3.67 3.34 32.38 1.13 10.84 51.36 51.26 2027 0.09 0.07 0 3.58 3.90 33.46 1.30 11.24 53.48 53.32 2028 1.08 0.07 0 3.55 4.54 34.55 1.52 11.71 55.87 54.72 2029 0.03 0.07 0 6.18 5.30 35.71 1.77 12.16 61.12 61.01 2030 0.03 0.07 0 6.73 5.50 36.70 1.88 12.60 63.41 63.30 2031 0.03 0.07 0 7.08 5.18 37.51 1.82 13.00 64.59 64.49 2032 0.03 0.07 0 7.40 4.81 38.32 1.76 13.39 65.68 65.58 2033 0.03 0.07 0 8.03 4.66 39.22 1.73 13.83 67.46 67.35 2034 0.09 0.07 0 8.56 4.58 40.13 1.71 14.27 69.25 69.08 2035 1.08 0.07 0 9.47 4.46 41.03 1.67 14.75 71.38 70.23 2036 0.03 0.07 0 5.22 4.30 40.26 1.62 15.22 66.62 66.52 2037 0.03 0.07 0 4.66 4.12 38.93 1.57 15.67 64.94 64.84 2038 0.03 0.07 0 4.34 3.91 37.04 1.51 16.12 62.91 62.81 2039 0.03 0.07 0 4.41 3.68 36.25 1.44 16.58 62.36 62.26 2040 0.03 0.07 0 4.79 3.42 37.24 1.37 17.07 63.90 63.79 2041 0.03 0.07 0 5.25 3.18 38.28 1.30 17.57 65.59 65.49 2042 (30.53) -6.64 -5.0 6.85 2.96 41.76 1.24 18.34 71.15 113.28 NPV at 12% 85 EIRR 17.1% BCR 1.6 EIRR = economic internal rate of return, NPV = net present value, VOC = vehicle operating cost, other benefits are Masalli–Shorsolu crash cost and generated traffic benefits. Source: Asian Development Bank estimates. a Negative costs arise in years where overlays are triggered in the without project case. Annex 2 9

LIST OF PARAMETER VALUES/ASSUMPTIONS

Price base year: 2019 Discount year: 2017 Currency of analysis: $ Construction start year: 2017 (Batumi), 2020 (Poti and Bakurtsikhe–Tsnori) Construction end year: 2022 (Batumi), 2021 (Poti and Bakurtsikhe–Tsnori) First year of benefits: 2023 (Batumi), 2022 (Poti and Bakurtsikhe–Tsnori) Appraisal period: 20 years (operation) plus implementation period Numeraire used: World price numeraire Income elasticity of demand: 1.2 dropping to 1.05 (passenger vehicles), 1.0 (goods) Value of time (in work, 2019): $4/hour and $2.71/hour (car passengers, Batumi and Bakurtsikhe–Tsnori ,respectively) - $3/hour (bus passengers, Batumi) Value of time (non-work, 2019): $1.60/hour and $0.89/hour (car passengers, Batumi and Bakurtsikhe–Tsnori respectively) - $1.2/hour (bus passengers, Batumi) GDP growth assumption: ADO 2019: 5.0% and 4.9% (2019 and 2020, respectively) and International Monetary Fund World Economic Outlook, Oct 2018: 5.2% (2023) Shadow price of labor: 0.70 (unskilled) Standard conversion factor: 0.99 Conversion factor applied to works, LAR and physical contingencies: 0.99 Conversion factor applied to supervision: 1.00 Conversion factor applied to taxes, duties, profits, transfers: 0.00

10 Annex 2

Figure 1a: International Road Condition: Actual (2004–2018) and Projected (2019–2022)

80.0%

70.0% 71.0% 68.5% 66.8% 67.8% 65.1% 65.5% 65.8% 64.5% 65.5% 63.0% 60.0% 59.7% 55.0% 50.0%

40.0% CONDITION CONDITION % 30.0% 25.0% 25.1% 24.7% 23.0% 22.0% 20.5% 20.0% 19.7% 19.9% 20.0% 20.2% 20.0% 19.0%

10.0% 10.0% 8.6% 8.8% 7.0%7.7% 6.9%7.3% 6.8% 7.5% 7.5% 7.0% 6.6% 6.2% 5.4%6.3% 6.4% 5.5% 6.5% 6.0% 4.8% 5.0% 5.0% 4.0% 0.0% 2004 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Good IRI < 4 Fair 4 < IRI < 6 Poor 6 < IRI < 8 Bad IRI > 8

Figure 1b: Secondary Roads Condition: Actual (2004–2018) and Projected (2019–2022)

80.0%

70.0% 70.0%

60.0% 54.1% 50.0% 51.2% 47.7% 44.2% 40.0% 40.7% 41.1% 40.3% 38.8% 38.5% 36.4% 36.9% 36.5% 35.4% 34.5% 35.1%

CONDITION CONDITION % 33.2% 30.0% 30.7% 30.5% 26.6% 23.1% 22.9% 23.7% 21.2% 22.1% 20.0% 19.3% 19.3% 19.2% 19.6% 20.2% 19.6% 16.9% 16.7% 15.0% 14.5% 10.0% 10.0% 8.4% 8.9% 9.4% 9.2% 9.1% 8.6% 9.1% 8.1% 7.2% 6.4% 5.0% 5.6% 0.0% 2004 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Good IRI < 4 Fair 4 < IRI < 6 Poor 6 < IRI < 8 Bad IRI > 8

Annex 2 11

Figure 2: Road Sector Related Revenues (GEL million) 900

782 800 695 700

600

500 415 415 407 373 387 400 321 313 300 246 222 173 218 206 200

100

0 2012 2013 2014 2015 2016 2017 2018 Traffic Offences 32 62 53 54 50 55 84 Transit Fees 20 21 21 47 27 32 39 Excise Tax (Cars) 88 112 129 117 111 109 123 Excise Tax (Natural Gas) 13 19 22 21 12 30 35 Excise Tax (Diesel) 65 68 71 82 87 203 226 Excise Tax (Petrol) 96 92 92 95 129 265 275 Total Revenue 313 373 387 415 415 695 782 RD Expenditures* 173 246 218 206 222 321 407

Note: Expenditures includes all activities related to Rehabilitation, Periodic, Routine, winter, Riverbank Protection and Emergency.