Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: ICR00002572
IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-81480)
ON A
LOAN Public Disclosure Authorized IN THE AMOUNT OF US$ 60.00 MILLION
TO
GEORGIA
FOR A REGIONAL DEVELOPMENT PROJECT
Public Disclosure Authorized June 18, 2018
Social, Urban, Rural And Resilience Global Practice Europe And Central Asia Region Public Disclosure Authorized
CURRENCY EQUIVALENTS
(Exchange Rate Effective Mar 29, 2018)
Currency Unit = GEL 0.41 GEL = US$1 US$ = 2.41 GEL
FISCAL YEAR July 1 - June 30
Regional Vice President: Cyril E. Muller Country Director: Mercy Miyang Tembon Senior Global Practice Director: Ede Jorge Ijjasz-Vasquez Practice Manager: David N. Sislen Task Team Leader(s): Rosanna Nitti, Vica Rosario Bogaerts, Dmitry Sivaev ICR Main Contributor: Dmitry Sivaev
ABBREVIATIONS AND ACRONYMS
aRAP Abbreviated Resettlement Action Plan BP Bank Policies CPF Country Partnership Framework EMF Environmental Management Framework EMP Environmental Management Plan GNTA Georgia National Tourism Agency Administration GoG Government of Georgia IFI International Financial Institution IFP Invitation for Bidding MDF Municipal Development Fund MRDI Ministry of Regional Development and Infrastructure of Georgia NACHP National Agency for Cultural Heritage Preservation NCB National Competitive Bidding O&M Operation and Maintenance OP Operational Policies PAD Project Appraisal Document PAP Project Affected Population PDO Project Development Objective PIU Project Implementation Unit RDP Regional Development Project RDP2 Second Regional Development Project RDP3 Third Regional Development Project SECHSA Strategic Environmental, Cultural Heritage, and Social Assessment TOR Terms of Reference TTL Task Team Leader
TABLE OF CONTENTS
DATA SHEET ...... 1 I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES ...... 6 A. CONTEXT AT APPRAISAL ...... 6 B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) ...... 9 II. OUTCOME ...... 11 A. RELEVANCE OF PDOs ...... 11 B. ACHIEVEMENT OF PDOs (EFFICACY) ...... 12 C. EFFICIENCY ...... 16 D. JUSTIFICATION OF OVERALL OUTCOME RATING ...... 17 III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME ...... 17 A. FACTORS DURING PREPARATION ...... 17 1. FACTORS DURING IMPLEMENTATION ...... 18 IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME .. 21 A. QUALITY OF MONITORING AND EVALUATION (M&E) ...... 21 B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE ...... 23 C. BANK PERFORMANCE ...... 25 D. RISK TO DEVELOPMENT OUTCOME ...... 28 V. LESSONS AND RECOMMENDATIONS ...... 29 ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS ...... 32 ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION ...... 40 ANNEX 3. PROJECT COST BY COMPONENT ...... 42 ANNEX 4. EFFICIENCY ANALYSIS ...... 43 ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS ... 51 ANNEX 6. SUPPORTING DOCUMENTS ...... 61 ANNEX 7. DETAILED DISCUSSION OF ACHIEVEMENT OF THE PDO AND RESULTS ATTRIBUTION62 MAP ...... 79 The World Bank Regional Development Project (P126033)
DATA SHEET
BASIC INFORMATION
Product Information Project ID Project Name
P126033 Regional Development Project
Country Financing Instrument
Georgia Investment Project Financing
Original EA Category Revised EA Category
Financial Intermediary Assessment (F) Financial Intermediary Assessment (F)
Organizations
Borrower Implementing Agency
Ministry of Finance Georgia Municipal Development Fund
Project Development Objective (PDO)
Original PDO The Project Development Objective is to improve infrastructure services and institutional capacity to support the development of tourism-based economy and cultural heritage circuits in the Kakheti region
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FINANCING
Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) World Bank Financing
60,000,000 60,000,000 57,266,743 IBRD-81480 Total 60,000,000 60,000,000 57,266,743
Non-World Bank Financing Borrower 15,000,000 15,000,000 14,917,933 Total 15,000,000 15,000,000 14,917,933 Total Project Cost 75,000,000 75,000,000 72,184,676
KEY DATES
Approval Effectiveness MTR Review Original Closing Actual Closing 20-Mar-2012 31-May-2012 26-May-2014 31-Dec-2016 31-Dec-2017
RESTRUCTURING AND/OR ADDITIONAL FINANCING
Date(s) Amount Disbursed (US$M) Key Revisions 24-May-2016 56.16 06-Jun-2016 56.16 Change in Loan Closing Date(s) 28-Nov-2017 59.25 Change in Results Framework Reallocation between Disbursement Categories
KEY RATINGS
Outcome Bank Performance M&E Quality Moderately Satisfactory Satisfactory Modest
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RATINGS OF PROJECT PERFORMANCE IN ISRs
Actual No. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 30-Mar-2013 Satisfactory Satisfactory 40.50
02 17-Dec-2013 Satisfactory Moderately Satisfactory 45.75
03 29-Jun-2014 Satisfactory Satisfactory 49.02
04 09-Feb-2015 Satisfactory Satisfactory 52.37
05 26-Aug-2015 Satisfactory Satisfactory 54.52
06 25-May-2016 Satisfactory Satisfactory 56.31
07 22-Jun-2016 Satisfactory Satisfactory 56.31
08 22-Dec-2016 Satisfactory Satisfactory 59.40
09 19-Jun-2017 Satisfactory Satisfactory 59.40
10 28-Dec-2017 Moderately Satisfactory Satisfactory 59.49
SECTORS AND THEMES
Sectors Major Sector/Sector (%)
Public Administration 3 Sub-National Government 3
Education 1 Workforce Development and Vocational Education 1
Transportation 45 Urban Transport 45
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Water, Sanitation and Waste Management 45 Other Water Supply, Sanitation and Waste 45 Management
Industry, Trade and Services 6 Agricultural markets, commercialization and agri- 6 business
Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Private Sector Development 29
Jobs 9
Job Creation 9
Regional Integration 20
Urban and Rural Development 70
Urban Development 38
Urban Infrastructure and Service Delivery 37
Urban Planning 1
Rural Development 9
Rural Infrastructure and service delivery 9
Cultural Heritage 23
ADM STAFF
Role At Approval At ICR
Regional Vice President: Philippe H. Le Houerou Cyril E Muller
Country Director: Asad Alam Mercy Miyang Tembon
Senior Global Practice Director: Laszlo Lovei Ede Jorge Ijjasz-Vasquez
Practice Manager: Wael Zakout David N. Sislen Rosanna Nitti, Vica Rosario Task Team Leader(s): Ahmed A. R. Eiweida Bogaerts, Dmitry Sivaev
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ICR Contributing Author: Dmitry Sivaev
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I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES
A. CONTEXT AT APPRAISAL
1. In 2010, Georgia was beginning an economic recovery and looking to unlock new avenues of inclusive growth. In 2008-2009, the Georgian economy experienced a sharp economic downturn resulting from the twin shocks of the August 2008 conflict with Russia and the global financial crisis. To stimulate growth, the national authorities launched a counter-cyclical fiscal stimulus and realigned public expenditures to social and infrastructure investments. Simultaneously the country was continuing to implement ambitious economic reforms that combined a focus on macro- economic stability with efforts to stimulate foreign trade. At that time Georgia was already recognized for having one of the most competitive business environments in the world, however it wasn’t enough to drive growth in the lagging regions of the country outside rapidly developing Tbilisi, and a new seaside tourism hub, Batumi. While many of the lagging regions had clear potential for tourism and agriculture development, there was a need to identify and address the binding constraints that impeded growth of these industries. 2. Regional development became the priority of the national government and its cooperation with the World Bank. In June 2010, the Government of Georgia approved the State Strategy on Regional Development for 2010-2017. Its main objectives were to create a favorable environment for regional socio-economic development and to improve living standards through a well-balanced socio-economic development policy, increased competitiveness, and greater socio- economic equality among the regions. While the government was already running several regional development initiatives that focused primarily on investment attraction, it realized that more needed to be done to unlock the economic potential of the less developed regions. The focus on regional development was reflected in the Country Partnership Strategy Progress Report (CPS-PR) for FY10-FY13 presented to the Board in April 2011, and resulted in the Government asking the Bank to support regional development efforts though a programmatic approach. 3. Kakheti was a natural candidate to become the first region covered in the proposed Regional Development Program of the World Bank in Georgia. Kakheti has long been the heart of Georgia’s ancient culture, history and economy. It holds many historical and architectural monuments, some as old as the 4th century, and is home to three natural protected areas. The region is also the ancient center of Georgian winemaking that continues to be one of the most vibrant parts of the Georgian economy. Furthermore, Kakheti is located next to the capital city of Tbilisi, and is less than a 3-hour drive from the Tbilisi international airport. At the same time, Kakheti was a lagging region with GDP per capita equal to 60% of the country average. 4. The circumstances presented a strong rational for Bank engagement. On the back of the release of World Development Report 2009, “Re-shaping Economic Geography”, the World Bank possessed cutting edge expertise on territorial development. The Bank had also already gained a substantial experience of operating in the Kakheti region that it could build on. Georgia Secondary and Local Roads Project and East-West Highway Project contributed to improved connectivity between Kakheti and Tbilisi. The Regional & Municipal Infrastructure Development Project and its Additional Financing improved water services and urban roads in several Kakheti’s cities and villages. Additionally, the proposed regional development project was leveraged by multiple complementary activities of other donor agencies.1
1 In 2010, the UNDP helped the Government to prepare a Regional Development Strategy for Kakheti (2010-2014), which included a priority action plan for development of tourism and agriculture/agro-processing sectors, and thus, provided a natural starting point for the project identification. The EU had started a capacity-building program for the Georgia National Tourism Administration (GNTA) on managing destinations, and USAID and the Swiss Development Corporation (SDC) were supporting the agricultural and rural development sectors. The Swedish International Development Agency (SIDA) had provisionally agreed to provide parallel funds of about US$7-8 million, subject to signing the Administration Agreement between the SIDA and the Bank.
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5. A new and innovative project concept was well suited to address the complicated development challenges of the Kakheti region. The conceptual approach used in the Regional Development Project (RDP) had not previously been utilized in Georgia or in Eastern Europe by any of the major International Finance Institutions (IFIs). The Project was the first in the World Bank which attempted to operationalize the conceptual framework developed by the 2009 World Development Report on territorial development. This implied combining basic infrastructure and accessibility investments, addressing government capacity limitations and targeted support for the key sector in the region to promote economic growth within a defined territory. The interventions supported by the Project were supposed to achieve economic development outcomes by addressing multiple elements of the tourism supply chain in Kakheti: urban centers, cultural heritage sites, transport accessibility, accommodation and other privately-provided services, and promotion and management of destinations. By applying the hub and spoke approach of destination development the Project aimed to simultaneously develop new growth poles in the region and spread the benefits of the tourism economy across the target region. This approach was also aimed at development and diversification of the tourism offering that could keep visitors in the region for longer and increase their average spending.
Theory of Change (Results Chain) 6. The Project aimed to unlock and support the faster growth of the Kakheti region tourism economy through improvements in urban and tourism infrastructure including cultural heritage sites and strengthening the capacity of both public and private actors engaged in the tourism sector. The premise of the results chain was that a more attractive, accessible region, with better managed and promoted tourism offerings and a more diverse range of higher quality tourism services would attract more visitors and unlock opportunities for private investment, and the resulting development of the tourism industry would result in more jobs and self-employment opportunities and higher wages for the residents. The tourism circuit model was expected to spread the benefits of tourism across the region, while further enhancing the region’s appeal to visitors through diversifying its offering to tourists. (Figure 1) Figure 1. Results chain of the Regional Development Project
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Project Development Objectives (PDOs) 7. The objective of the Project was to improve infrastructure services and institutional capacity to support the development of a tourism-based economy and cultural heritage circuits in the Kakheti region. No revisions to the PDO were made throughout the Project.
Key Expected Outcomes and Outcome Indicators 8. The implementation of the Project was expected to yield three main outcomes contained in the PDO statement. They are as follows: (a) to improve infrastructure services – implying better accessibility through improved road quality, better water supply due to improved water and sanitation infrastructure, and enhanced attractiveness of tourism destinations through improved urban spaces, rehabilitated cultural heritage sites, and provision of facilities for basic tourism services; (b) to improve institutional capacity – meaning enhanced ability of the public sector actors (at national and regional level) and private sector to improve, develop and promote tourism offering of the region, and (c) to support development of the tourism-based economy and cultural heritage circuits – meaning emergence and growth of businesses in hotels, restaurants, entertainment and other activities adjacent to tourism, and creation of jobs in these businesses in locations that are not limited to main urban centers, but also include more peripheral parts of the region with cultural heritage attractions (tourism circuits). The first two outcomes were expected to be achieved through activities in the two Project components: improving infrastructure services (Component 1), and building institutional capacity (Component 2). The third objective – development of the tourism-based economy and cultural heritage circuits - was expected to be met through the combined and cumulative effects of achievement of the two prior objectives, which explains why no intermediate results indicators are attached to this objective. (see Annex 1-B for the table linking performance indicators to different objectives of the project)
Components
9. Component 1: Infrastructure Investment (Appraisal: US$ 71.1 million including IBRD: US$56.9 million, and Borrower: US$14.2 million; Actual: US$69.0) included two subcomponents.
Component 1.1 (IBRD: US$46.9 million; Borrower: US$11.8 million): Provision of financial resources to local-self- governments (LSGs) to carry out Investment Subprojects for the following activities: (a) urban regeneration that promoted an integrated approach for renewal of Telavi and Kvareli towns and the heritage village of Dartlo and included rehabilitation of municipal infrastructure and utilities in the central historical areas, conservation and upgrading of public spaces and cultural buildings, and conservation of building facades with vernacular architecture; and (b) tourism circuit development which promoted an integrated approach to upgrading and rehabilitation of the eleven most attractive cultural heritage sites located along the main tourism circuit/route in Kakheti2 and included rehabilitation of some of the cultural heritage sites, landscaping and public parking, construction of information kiosks, cafes and public toilets, and improving access roads.
Component 1.2 (IBRD: US$10 million; Borrower: US$2.5 million: Provision of financial resources to LSGs to carry out Investment Subprojects for public infrastructure to attract private sector investments in tourism and agro-processing, through support, of a selected number of private sector entities which would show interest and capacity to invest in Kakheti
2 The main tourism and culture heritage circuit has been identified in the Kakheti Tourism Development Strategy connecting the following culture heritage sites, which were targeted for upgrading: Ujarma, Old and New Shuamta, Ikalto, Alaverdi, Bodbe, Gurjaani, Akhtala, Mirzaani, Ninotsminda, Khirsa and David Gareja.
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in the tourism or agro-processing, but seek complimentary public infrastructure (e.g. roads/sidewalks, water/sanitation, public facilities within vicinity of their future investments) necessary to make their investments viable.
10. Component 2: Institutional Development (Appraisal: US$ 3.9 million including IBRD: US$3.1 million, and Borrower: US$0.8 million; Actual: US$5.5 million) aimed to enhance the institutional capacity and performance of the Georgia National Tourism Administration (GNTA), the Agency for Culture Heritage Preservation of Georgia (ACHP), the Project Implementing Entity (Municipal Development Fund), and other local and regional entities to carry out the activities, such as (i) destination management and promotion, including local outreach campaign; (ii) setting up geo- tourism routes and tourism portal; (iii) skilled workforce development and capacity building; (iv) construction supervision and sustainable management of cultural heritage sites; and (v) performance monitoring & evaluation activities.
B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE)
11. The project was restructured two times. In 2016 the loan closing date was extended by 12 months from December 31, 2016 to December 31, 2017 to enable the Project to complete some of the already started sub-projects that experienced implementation delays as well as technical assistance activities necessary to ensure achievement of the project targets and designed outcomes. The implementation delays were mainly caused by: (1) extreme weather conditions and subsequent limited access to the project sites in the mountainous sub-regions, where the construction season was limited to less than 5 months a year; (2) low quality of the detailed designs developed by the project counterpart agencies, requiring modifications and upgrades, and resulting in variation orders and delays in construction, (3) an overall slowdown in project implementation after the change of government in the aftermath of the national elections in October 2012 , which reflected the adjustments in project implementation that were needed to address quality issues and prevent them in the future. (discussed in Part III)
12. The second restructuring took place in November 2017 and included reallocation of funds between disbursement categories and revision of the Monitoring & Evaluation (M&E) Results framework. Reallocation of funds was needed to increase the allocation for Consultancy Services to cover extended contracts of supervision services. Changes in the Results Framework were made to address design weaknesses affecting selected indicators in the original Results Framework, which led to a mismatch between outcome targets and the nature of interventions that the Project supported. The change was intended to ensure accurate evaluation of achievement of the PDO at the Project closing (see Table 1 for details on the Results Framework revision). Admittedly the decision to revise the results framework should have been made earlier. However, given that the majority of investments captured by the altered indicators were completed in the first year of the project, it is not clear whether a revision (even at mid-term review) would have allowed for substantial changes in data collection.
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Table 1. Revision of the Results Framework in the 2017 Project Restructuring
Indicator at appraisal Indicator after Rational restructuring Increased weighted average Deleted The indicator wasn’t relevant for the Project. From number of hours per day of the start the project only envisioned investment in piped water services in distribution networks, and sewerage network pipes, project areas. Baseline: 8; in major cities. Project activities didn’t include full Target: 24. water system rehabilitation with all hydraulic components such as a drainage basin, a raw water collection point, purification facilities, water storage PDO facilities, pumping stations – all of which would indicators have been required for achievement of the target value of the indicator.3 Increase volume of private Increased (direct and Wording corrected to reflect the methodology sector investments; Baseline: indirect) volume of applied for the calculation 0; Target: 50 private sector investment; Baseline: 0; Target: 50 Intermediate Number of people in urban Roads Constructed Indicator replaced with a more relevant and Results areas provided with access to and rehabilitated. measurable indicator capturing the same output. The indicators all-season roads within a Baseline: 0 Km, original indicator was considered irrelevant, given 500-meter range under the Target: 20 Km. that the projects main ambition was related to project. Baseline:0, Target: enabling tourism, rather than benefiting the local 50,000. population. According to data collected by the M&E consultant the target for the original indicator has been exceeded before project closing. Number of established and Number of established The target value revised downward to reflect the operating destination and operating decision that three DMOs in Kakheti were management offices. destination unnecessary. The decision was a product of extended Baseline: 0; Target: 3 management offices. discussions held between GNTA, MDF, Kakheti Baseline: 0; Target: 1. regional government and the Bank team. The decision was finalized in May 2017.
3 Even though the indicator wasn’t used in this evaluation and the original target couldn’t have been reached. The team has collected anecdotal evidence suggesting that the water infrastructure upgrades in Telavi and Kvareli have increased reliability of the network and extended the hours of service, potentially through reduction of losses.
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II. OUTCOME
A. RELEVANCE OF PDOs
Rating: High
Assessment of Relevance of PDOs and Rating 13. The Project objective and design were the result of a long period of identification studies and consultations with national and local authorities which ensured its prolonged relevance. The long period of the Project conceptualization (lasting over 2 years) ensured that the Project objective was informed by a deep understanding of key developmental challenges and opportunities, and aligned with the government priorities. 14. At the Project closing, its objective remained highly relevant for key priorities of national and regional development in Georgia. Rural poverty and regional disparities remain among the most important issues for Georgia, and tourism (alongside agriculture) continues to be the industry that has the highest potential for bringing economic opportunities to the most remote parts of the country. The Georgia Socio-Economic Development Strategy 2020 clearly identifies regional development as a critical priority, recommends that regional policies should aim to make the most of the unique competitive advantage of regions and recognizes the importance of investment into regional infrastructure for eliminating regional development disparities.4 The Kakheti Regional Development Strategy 2014-2021 identified tourism as one of the two key drivers of the regional economy and recognizes the contribution of investments completed under RDP to building the potential of the industry. The priorities for tourism development listed in the Kakheti Strategy are closely aligned with the RDP supported interventions: further development of tourism offering through unlocking new destinations, improvement of urban infrastructure and development of human capital to improve service quality.5 15. The Project remained highly relevant to the World Bank Country Partnership Strategy for Georgia. The interventions supported by the Project are in line with one of the two core priorities of the 2014-2017 Country Partnership Strategy (CPS) for Georgia: “Enabling private sector led job creation through improved competitiveness”, and specifically with the subcomponent (ii): Providing Infrastructure and Services to Facilitate Growth.6 The 2018-2021 Georgia CPF, approved after the closing of the project, confirms importance of tourism as a key contributor to growth in Georgia and identifies a goal of broadening integrated development of tourism as a driver for lagging regions, which is largely inspired by the example of Kakheti. Additionally, the CPF includes a number of priority areas that were addressed by the project including: addressing spatial inequalities, increasing economic participation in the regions improving connectivity and integration and leveraging private finance to achieve development goals7. 16. Replication of the RDP concept in Georgia, other ECA region countries and globally proves the broad applicability of the approach taken by the Project and confirms its relevance. The rapid expansion of the regional development program in Georgia after the initiation of the RDP in Kakheti provides a tangible confirmation of sustained relevance of the project objectives and design. Today the regional development program includes 3 projects covers four regions (RDP2 – focuses on Imereti region, and RDP3 focuses on Smrske-Javaheti and Mtskheta-Mtianeti regions), and provides a combined investment of US$159 million. Since 2011 the Project design has been replicated in Armenia and Albania, currently similar projects are under discussion or preparation in China, Philippines, Indonesia and Montenegro.
4 Government of Georgia (2010) National Socio-Economic Development Strategy 2020 5 Government of Georgia (2013) Kakheti Regional Development Strategy 2014-2021 6 World Bank (2014) Georgia Country Partnership Program 2014-2017. 7 The World Bank Group (2018) Country Partnership Framework for Georgia
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B. ACHIEVEMENT OF PDOs (EFFICACY)
Rating: Substantial
Assessment of Achievement of Each Objective/Outcome 17. The PDO was to improve infrastructure services and institutional capacity to support the development of tourism-based economy and cultural heritage circuits in the Kakheti region. This objective can be broken down into three outcomes: (i) Improve infrastructure services, (ii) Improve institutional capacity, (iii) Support development of a tourism-based economy and cultural heritage circuits – all related to the Kakheti region. Overall the Project has met or exceeded the targets for all of its intermediate and PDO level indicators and overall has substantially achieved the stated objective.8 The section below summarizes the evidence for the Project’s contribution to each of the PDO elements, while Annex 7 lists the outputs under each of the RDP component broken down by location and sub-projects, it also presents further evidence for achievement of each of the elements of the PDO, and discusses attribution of the observed results to the Project activities. 18. Improve infrastructure services in the Kakheti region. This objective was addressed under Component 1 Infrastructure Investments, which included Component 1.1: Financing local governments to carry out the investment sub- project for urban regeneration/renewal, and creation of tourism routes and circuits; and Component 1.2: Provision of investment resources to LSGs to carry out investment subprojects for public infrastructure to attract private sector investments in tourism and agro-processing. • Urban regeneration and renewal efforts were concentrated in three main locations that were selected as hubs of the Kakheti tourism offering: Telavi, Kvareli and Dartlo Cultural village. The comprehensive regeneration of the core areas of the two main tourism hubs - Telavi and Kvareli included investment in urban infrastructure (10 km of roads, 14.5 km of mainline water pipes, 2.27 km sewerage pipeline), renovation of building facades on selected streets and in some instances more comprehensive structural repairs to buildings (217 buildings in total), improvement of streetscapes (almost 130,000 m2 of public spaces improved), installation of street lighting (1884 units improved), and renovation (or creation) of tourist destinations such as the Telavi Museum9. These operations resulted in reduced transport costs (reduced weighted average vehicle operating costs dropped to 71% vs baseline of 100%), improved water connections for 907 households (exceeding the target of 500 households), and an overall transformation of the historic centers of the main towns of the region. The number of residents directly benefiting from the infrastructure improvements conducted by the project reached 32,319 (exceeding the target of 30,800 by 5%). • Tourism circuit development: this subcomponent improved 11 tourist attractions and cultural heritage sites. The Project supported interventions included: (1) improvement of “last mile” accessibility of the attractions by providing hard surface roads that would make sites accessible in any weather and season (7.7 km of roads rehabilitated); (2) development of basic infrastructure at the sites (21.5 km of pipelines, 3 new water pumps, 15 km of power line, 9 small structures for tourist service provision) ensuring that all of the sites have functioning toilets, amenities for provision of basic tourist information and/or commercial services; (3) rehabilitation and improvement of the cultural heritage assets (St. Nino Basilica in Ikalto, rehabilitation of walls and construction of additional facilities for monasteries in Ninotsminda and David Gareji) which simultaneously increased attractiveness to tourist
8 This refers to the indicators as stated at the Project closing. 9 Data based on supervision company reports, aggregated by the MDF, details of all outputs of the component are presented in Annex 7.
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and helped protect invaluable cultural heritage, (4) creation of new tourist destinations (Kvevri school and workshop and Shuamta gateway). • Infrastructure improvements to attract private investments. The subcomponent 1.2 has financed infrastructure improvements including access roads for tourists, improving capacity of main water supply pipelines, and others. All the investments supported privately funded investment projects related to tourism: hotels, wineries and one dairy farm. The component supported 11 projects, exceeding the target of 10. The total leveraged private investments exceeded expectations and reached US$19 million10 (far more than the contractual obligation of US$7.2 million) reaching a leverage of almost 7:1. The results of beneficiary surveys confirm that the provided infrastructure is sustainable and well maintained and that most beneficiary companies are operating at a profit (see Annex 7 for details).11 In interviews, the benefiting business owners conveyed that their initiatives at best would have taken much longer to be implemented without the RDP support, and likely wouldn’t have materialized at all12. Six out of eight beneficiary companies see the impact of activities on their businesses as considerable or significant, and only two see it as partial.13 • Jointly the activities under the Infrastructure Investment Component have substantially improved the quality of infrastructure around core tourism destinations and laid the foundation for further development of the hub and spoke system of tourist destinations in Kakheti. The component achieved all the target PDO and intermediate indicator targets, but the combined outputs and outcomes of the Component were much broader than what was captured by the M&E framework. Through improving accessibility and quality of cultural heritage sites and unlocking private sector investment the component helped diversify tourism services in the region. The interventions comprehensively transformed the urban centers of two main hubs of the region. They improved the quality of life of the local population and made them attractive to tourists and investors in the hotel and restaurant sectors. A survey of households directly benefiting from the project showed that more than 75% of respondents were satisfied or very satisfied with the project in each of the hub locations (Dartlo, Telavi and Kvareli). Between 89 and 91% of respondents in each of the hubs agree that the project has had a positive impact on tourism.14 The survey of investors in Kakheti has shown that 88% of them were aware of urban regeneration works in Telavi and Kareli, 50% said that improvements in infrastructure and services at tourism sites strongly influenced their decision to invest (38% more thought that it influenced it moderately).15 All together the Component has created the physical infrastructure foundation for further development of the hub and spoke system of tourist destinations in Kakheti.
19. Improve Institutional Capacity. Under Component 2 the Project delivered several outputs that contributed to development of public and private sector capacity for development of the tourism industry (detailed discussion of outputs, outcomes and attribution of the results is presented in Annexes 7). • The most critical result achieved by the Component is the establishment of the Kakheti DMO. The DMO lays the foundation of the system for regional tourism management and marketing based on collaboration between national, regional and local governments and the private sector. This represents a major institutional innovation for the country. The Kakheti DMO was set up in November 2017 and took on the responsibility to lead the efforts for development of Kakheti tourism offering and promotion of tourism in Kakheti by means of an inclusive collaboration between regional and national authorities and the tourism industry businesses in the region. In the initial stage the DMO will be supported by the regional government of Kakheti, however it is expected that over
10 Based on funding applications from project beneficiaries. 11 Survey of private sector beneficiaries included 8 companies, covering 10 supported projects, survey conducted by the M&E consultant for the RDP project in the summer of 2016. 12 Based on semi-structured interviews with investors or senior managers responsible for 4 investment projects conducted for the ICR in November 2017. . 13 Survey of private sector beneficiaries included 8 companies, covering 10 supported projects, survey conducted by the M&E consultant for the RDP project in the summer of 2016. 14 Beneficiaries survey conducted in 2016 by the M&E consultant of the RDP project (211 households in Telavi, Dartlo and Kvareli interviewed), results reported in the M&E report commissioned by the project. 15 Investors survey conducted in 2017 included 16 investors accounting for 30% of total investment in the region in 2012-2016.
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time it will be sustained by contributions of private sector members. The Project supported development of the organizational structure of the DMO (including the staffing plan and staff TORs) and a model of interagency collaboration. The Project also supported public-private engagement activities that were held in 2017 and have led to a growing engagement of businesses in the DMO work.16 A critical contribution to the establishment of the DMO was made by the joint effort of the MDF and the World Bank team who persistently and patiently facilitated the inter-agency dialog and coordination process that helped to cultivate a sense of ownership of the DMO initiative at the national and at the regional level, despite initial skepticism. By the completion of this report, the Kakheti DMO was officially established, allocated office space and key equipment (financed by the Project), and staffed by 3 full time employees. It has since held a round of private sector consultations and was coordinating several tourism promotion initiatives including representation of Kakheti in international tourism exhibitions in 2018, organizing the first Kakheti tourism industry conference, and developing public-private initiatives to improve tourist safety (e.g. construction of the first regional dog shelter). • Other results of the Project contributed to the achievement of the capacity building objective: a. Improving the quality of service in the tourism sector through training employees of hotels and restaurants on quality of service. The trainings covered: front office operation, housekeeping, waiter service, kitchen and hotel management, and other aspects of the service culture. The trainees were employees of the tourism industry firms in Kakheti (440 people trained out of total 1100 reported employees in the sector in the region). A survey of foreign visitors indicated that more than 90% of respondents were satisfied or highly satisfied with the quality of services in restaurants, hotels and Guest houses in Kakheti.17 b. Strengthening the capacity of local governments and other agencies in tourist asset management: (a) all project participating municipalities attended a training in September 2017 which helped them start developing models for operation and maintenance of tourism services facilities financed by the project, as a result two municipalities are expected to announce lease agreements for operation of visitor centers in the summer of 2018, (b) visitor management plan and design for the Telavi museum that was supported by the project, has been used to prepare the first exhibition scheduled to open in May 2018. c. Supporting the tourism promotion effort directly by financing printing of promotional materials, supporting the development of the regional tourism promotion strategy and the national tourism strategy that created the framework for the tourism development policy nationwide (the tourism strategy was supported through a separate related TA activity) and development of on-line marketing tools.18 d. Establishing a new standard for Monitoring and Evaluation of the interventions in the tourism sector, including the provision of detailed recommendations for improving data collection practices in the tourism sector at the national level. These recommendations have been applied to adjust the M&E frameworks in RDP2 and are currently utilized in the restructuring of RDP3. The recommendations have been shared with the relevant government agencies, but so far have not been fully adopted.
20. Support Development of Tourism-based Economy and Cultural Heritage Circuits. The overall growth of the tourism industry in Kakheti over the Project period is evident. All three PDO level indicators related to this objective have been exceeded. The expected amount of leveraged private sector investment was exceeded by more than 20% (US$61M instead of US$50M), and the growth in the number of hotel beds in the Project affected areas was exceeded by more than 600% (addition of almost 2000 hotel beds instead of predicted 300). These results are confirmed by additional region-wide indicators of tourism economy growth, such as number of foreign visitors (grew by 721%)19, jobs created in the sector
16 Three consultations between the regional authorities of Kakheti and representatives of the Tourism industry were held in 2017 as a part of delivery of consulting services supported by the project. 17 Survey of Foreign visitors was conducted by the M&E consultant for the RDP project in October-June 2016, and included 522 interviews. 18 the promotional website for Kakheti was developed in 2013, but wasn’t sustained later, a new version of the website will be developed under a consulting contract that will be completed after project closing and co-funded through other projects in the regional development program in Georgia. 19 GeoStat survey of hotels and hotel-type enterprises 2000-2017, it is assumed that every stay in a hotel represents a separate visit. Data
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(grew by 300%) and average salaries of employees (almost tripled) 20, and additional budget revenues generated by the sector (grew 9.7 times) 21. It should be acknowledged that the growth of tourism in Kakheti was a part of the overall national trend, supported by the stable geopolitical environment, national policies relaxing visa requirements, a growing number of direct airline connections to former Soviet Union countries as well as countries in Western and Eastern Europe. However, there are four considerations (discussed in detail in Annex 7) which support the notion that the RDP contributed to the observed expansion of tourism in the Kakheti region: • The emergence of Telavi and Kvareli – the main beneficiaries of the Project investments - as the two main tourism hubs of the region. Over 70% of investment was focused on these two towns. Over the course of the Project, the two hub towns accounted for 86% of total growth in the number of visitors.22 Tax revenue in Telavi municipality grew six times, and in Kvareli municipality 46 times (Kvareli started from a low base of 33,000 GEL in 2010, but by 2017 was second in the region by tax revenue from tourism).23 However, it is also critical to point out that other municipalities that benefited from the project also experienced growth in visitor numbers, which signifies the emergence of tourism circuits (visitor numbers grew 41 times in Gurjaani, six times in Lagodekhi, and three times in Akhmeta).24 This suggests that the tourism offering of the region evolved along the lines of the hub and spoke model proposed in the studies that informed the Project design and was largely shaped by the interventions under the Project. (See Annex 7 for further details including charts). • The accelerated growth of the tourism sector in Kakheti compared to the Georgia average across all major tourism indicators (e.g. the number of hotel beds grew 3.6 times compared to 2.3 times across the country). On selected indicators it even exceeded growth in other tourism centers of Georgia including established ones such as Tbilisi and Adjara, and up-and-coming and well-connected ones such as Imereti and Mtskheta-Mtianeti (e.g. the total annual number of visitors to Kakheti grew 4.7 times between 2010 and 2016 – the highest indicator among Georgian regions).25 • Some of the results directly attributable to the Project have made a substantial contribution on a region wide scale. For instance, all jobs created in the Kakheti tourism sector in 2010-2016 contributed US$2.15 million26 in salaries to the income of the population annually, while the jobs solely created by private investments supported under RDP Component 1.2 have added US$1 million annually to the wage income of the population.27 • Finally, the Project contribution to the observed results is confirmed by the fact that the RDP was the only large scale public sector investment initiative in the region. In fact, all other identified public-sector projects in the region combined invested 4 times less in Kakheti in 2012-2017 than the RDP did. (see Annex 7 for details)
Justification of Overall Efficacy Rating 21. The rating for overall efficacy is Substantial. It is possible to conclude that the Project has substantially achieved its declared objective, since the Project has not only met and exceeded all targets of the intermediate and PDO level results indicators, but also delivered multiple results in addition to those recorded in its M&E framework, such as substantial
retrieved and provided to the team by MDF 20 Calculations based on GeoStat data survey of hotels and hotel-type enterprises 2000-2017, it is assumed that every stay in a hotel represents a separate visit. Data retrieved and provided to the team by MDF 21 Data on municipal tax collection for 200-2017, provided by the Revenue Service of Georgia in response to a request from the MDF. 22 GeoStat survey of hotels and hotel-type enterprises 2000-2017, it is assumed that every stay in a hotel represents a separate visit. Data retrieved and provided to the team by MDF 23 Data on municipal tax collection for 200-2017, provided by the Revenue Service of Georgia in response to a request from the MDF 24 GeoStat survey of hotels and hotel-type enterprises 2000-2017, it is assumed that every stay in a hotel represents a separate visit. Data retrieved and provided to the team by MDF 25 GeoStat survey of hotels and hotel-type enterprises 2000-2017, it is assumed that every stay in a hotel represents a separate visit. Data retrieved and provided to the team by MDF 26 Calculations based on GeoStat survey of hotels and hotel-type enterprises 2000-2017, it is assumed that every stay in a hotel represents a separate visit. Data retrieved and provided to the team by MDF 27 Survey of Beneficiary Investors, conducted by the M&E consultant commissioned for the Project. Part of the jobs created by private investments supported by the Project were in agriculture, rather than in tourism industry.
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improvement in quality of public spaces and increase in municipal tax revenues. The evidence of attributability of the Project outputs to the observed expansion of the tourism sector is strong. It should be acknowledged, however, that some of the assets delivered by the Project in more peripheral tourism circuit locations are yet to be fully utilized, leaving the scope for the legacy of the Project to be expanded further. Usually the visitor numbers tend to grow gradually in response to tourism development initiatives, as reputation of the destination spreads. It is thus reasonable to expect that it will only be possible to measure the full impact of the Project investment on the tourism economy in 5-10 years.
C. EFFICIENCY Assessment of Efficiency and Rating
22. Return on investment generated by the Project is lower than projected at appraisal. While these results are consistent with observed implementation inefficiencies, they also reflect some of the assumptions made when analysis was conducted at the Project appraisal. (Table 3). Attributability of benefits streams is a common challenge for economic analysis of tourism projects, particularly such complex ones, where it is impossible to analyze direct returns on every physical investment, and analysis of the cumulative impact is used instead. Some of the original assumptions may have led to such over attribution. For instance, analysis at appraisal assumed a private investment leverage factor of 2.0, however the survey of private investors in Kakheti leads to a more conservative assessment of the ratio of 1.38.28 To minimize the risk of over-attribution, conservative estimates of benefit streams have been used for the economic analysis of the project at closing. The main parameter that explains the difference between the original estimates and the results at closing is the daily spending by tourism in Kakheti, which according to the results of the tourist survey appeared to be substantially smaller than predicted. This again is partially a result of original overestimation. It is also reasonable to conclude that lower than expected tourist spending can reflect that some of the delivered tourism assets were not fully operational at project closing (including Telavi museum, Kvevri school and a number of visitor centers), which signals that implementation difficulties (that are discussed later) may have impacted these efficiency estimates. (Detailed methodology, assumptions, and results interpretations of the economic analysis is presented in Annex 4).
Table 3: Comparison of estimates of economic and financial returns indicators at appraisal and closing.
Results at Appraisal Results at Closing NPV US$19.79 million US$ 11.68 Million FIRR 19.85 % 16.04 % ERR 26.14 % 21.39 % Source: Calculations of project team, using data form GeoStat, Revenue Service of Georgia, M&E report commissioned for the project.
23. Despite substantial methodological limitations, benchmarking of estimates of unit costs of the investments completed under the projects can be seen as confirmation of the complexity of the project and the observed problems in early phases of implementation. Unit costs of selected assets (covering 25 % of total project costs) were compared to other municipal, urban and regional infrastructure projects in Georgia. The analysis showed higher than average cost of road construction (30% higher cost per kilometer relative to average of comparator projects) and municipal buildings construction (40% higher). Costs of other considered assets were close to comparators: water supply pipes – 12% higher
28 Tourism Development International (2017) Tourism and Project Performance Monitoring and Evaluation Activities in the Kakheti Region.
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than average, street lights – 25% lower than comparator average. These received results are due to vast diversity of assets financed by the project. For instance, roads financed under the project included streets in central Telavi and Kvareli and access roads in remote mountainous locations, and several buildings were also in remote locations and required costly individual water supply solutions. However, this data also confirms observations related to the shortcomings in project implementation. (see Annex 4 and Table 4 for detailed results and discussion) 24. The overall Efficiency rating for the project is “Modest”. The results of Unit Cost analysis and Financial and Economic analysis are confirmed by observed challenges in project implementation (covered in following chapters). Due to issues related to poor subproject design and technical quality of works, or in some instances due to a change in the Project implementation arrangements after the 2012 national elections, several subprojects underwent contract termination, redesign, retendering, or required remediation works. Five major contracts signed in 2012 totaling more than US$7 million were terminated before the contracts’ completion and had to be retendered (for remaining parts of the works), thus delaying delivery and increasing cost of investments. Completion of some sub-projects required tendering for extension or rehabilitation work, which in total exceeded US $300,000. Additionally, delays in implementation lead to extension of the project by one year, and to later than planned opening of several tourism facilities, which might have delayed the project benefit streams. However, it is critically important that the NPV of the project is positive, and EIRR and FIRR exceed target values, even if substantially more pessimistic assumptions are used. (See Annex 4 for detailed sensitivity analysis) Based on this evidence, it is reasonable to conclude that the overall efficiency of the Project implementation has some substantial, though not critical shortcomings, which suggests that efficiency should be rated as “Modest”.
D. JUSTIFICATION OF OVERALL OUTCOME RATING
Rating: Moderately Satisfactory
25. The overall outcome rating of the Project is assessed as Moderately Satisfactory. The Moderately Satisfactory rating is justified by the High relevance of the PDO, Substantial efficacy and Modest efficiency. The rating is justified by the fact that despite overall success in achieving the stated PDO as proven by project outputs (delivered infrastructure and institutional improvements) and outcomes (attributable expansion of the tourism sector), the Project has been held back by inefficiencies in implementation that were partially a result of project design, and to a greater extend a reflection of the challenges of implementation resulting from a change of the government, frequent staff changes within implementing agencies, lack of technical capacity in some of the involved government agencies and inefficient coordination between them, particularly in the earlier period of project implementation. These issues are discussed in detail in the following sections.
III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME
A. FACTORS DURING PREPARATION
26. The Project design was informed by a two-year long period of analytical work, extended dialogue with the government and consultations with stakeholders which allowed for adoption of innovative solution in project design. The original government request for the Project came after the World Bank study of regional disparities in Georgia and completion of the Georgia Secondary and Local Roads Project that substantially improved connectivity within the Kakheti region. The RDP scoping process identified tourism and agriculture as areas of focus. In-depth studies were commissioned
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to identify priority investments in both sectors and their feasibility.29The study of tourism potential of the region showed high underutilized potential, and possibility of “quick wins” which informed the selection of tourism as the main project focus study and laid the foundation for the project design.30 Additionally the Project team conducted multiple consultations with regional and local authorities and with private sector representatives and community members to identify specific investments. Participants in the process reported in interviews that it was an extremely dynamic and inclusive effort, unseen previously in public investment preparation in Georgia.31 These activities ensured both high relevance of the Project concept and informed selection of the key large investments, which proved to be critical for the Project success. Finally, several innovative solutions were used during the preparation stage: for example, the Strategic Environmental, Cultural Heritage, and Social Assessment (SECHSA) was carried out even though it had not been part of Georgia’s environmental legislation at the time of the RDP preparation. This study was undertaken at the Bank’s request to understand how the Project would fit and complement the government-approved Regional Development Strategy for Kakheti, as well as to examine any positive or negative cumulative impacts that various planned investments, including the RDP, might have in the region. 27. The innovative approach resulted in a complex Project design and implementation structure. The RDP Project Appraisal Document envisioned a multitude of diverse activities: reconstruction of 150 houses, integrated urban renewal of two city centers, rehabilitation and redevelopment of 11 cultural sites, establishing a private sector support program and implementing a series of capacity building initiatives for local and regional governments and businesses in the tourism sector.32 Such an approach clearly implied a very large number of contracts (62 contracts of various size and complexity), large amount of complicated design documentation, and required ensuring coordination effort of multiple stakeholders: local, regional governments, Ministry of Regional Development and Infrastructure of Georgia, Georgian National Tourism Administration, Ministry of Culture and Sport of Georgia, National Agency for Cultural Heritage Preservation of Georgia, Agency of Protected Areas of Georgia and other national, regional and local agencies and entities. The highly complex design tested the technical and coordination capacity of the government agencies and resulted in some of the implementation challenges discussed below. 28. Despite the thorough analytical work and extended dialogue that supported project preparation, a rush to finalize engineering designs and start construction might have had a negative effect on the final stages of project preparation. To speed up the start of implementation of the Project, the Government requested the maximum possible retroactive financing, which allowed implementation to start before the Project would become effective. While at the time, this was accepted as a reasonable step by the Bank, with the benefit of hindsight it can be said that the rush in the very final stage of preparation may have been the root cause of some of the implementation challenges experienced later: poor quality of designs, insufficient construction supervision in early stages of implementation, flaws in design and implementation of the M&E framework, underestimation of risks related to capacity of the government agencies involved in implementation, shortage of technical expertise in cultural heritage restoration in Georgia, lack of focus on operation and maintenance of the rehabilitated assets after completion of works. (These issues are discussed in more detail in section 4-C)
1. FACTORS DURING IMPLEMENTATION
• Factors subject to government and/or implementing entities control
29 World Bank (2012) Kakheti Regional Development Study: Agriculture- Policies and Investment for Diversification and Improved Competitiveness; Solimar International/ World Bank (2011) Kakheti Tourism Development Part II: Priority Actions 2012 – 2014.
30 Solimar International/ World Bank (2011) Kakheti Tourism Development Part II: Priority Actions 2012 – 2014. 31 Interviews with representatives of MDF and MRDI involved in the Project preparation phase in 2011-2012. 32 PAD: Regional Development Project.
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29. Pressure from the Government helped to achieve extremely fast Project implementation in the first year. The focus on fast delivery driven by approaching national elections carried over from the Project preparation phase into the early stages of implementation. The government was putting substantial pressure on implementing agencies (primarily the MDF and the NACHP), and on contractors, and closely monitored progress. This ensured an extremely fast pace of implementation. Within 10 months of Project effectiveness (February 2013) disbursement reached 67% (far ahead of formal projections). 30. However, rushed implementation resulted in issues related to quality of design and supervision which, in some cases, resulted in low technical quality of civil works. Due to accelerated implementation, some designs of poor quality were used which led to suboptimal quality of some construction works.33 To address these issues later in the Project cycle, the Bank team requested the MDF to conduct a comprehensive exercise of revising the problematic designs.34 The quality of works was also negatively affected by the fact that in the first months of the Project implementation, the international supervision consultant had not been mobilized, and supervision was conducted by the MDF staff who were overstretched and couldn’t secure the scale of close supervision that was required by this large, fast implementing project.35 All of these issues led to procurement and contract management challenges, because scopes of works had to be revised and numerous contract variation orders, extensions or terminations were required.36 All significant quality issues were later addressed through defects remediation or separate contracts. At closing, the quality of all assets was found satisfactory, however it came at substantial additional cost to the project. 31. Lack of technical capacity in the government agencies caused challenges with environmental and social safeguards compliance and grievance redress in the early stages of the project. Shortly after commencement of the Project implementation, the rating on environmental performance dropped to Moderately Unsatisfactory. At that time the MDF did not have adequate institutional systems and capacity for safeguards management, and the environmental management work was sidelined, which was aggravated by fast implementation and limited supervision of works. Therefore, for an extended time, environmental supervision and reporting remained poor, creating substantial risks for the livelihood of affected communities, health of workers and effectively the reputation and results of the project. Construction companies operated without having adequate arrangements for waste disposal. Obvious deficiencies in protecting workers’ health and safety as well as in managing disturbance of communities residing in and around work sites were identified. On some occasions lack of capacity led to slow response to grievances. In Telavi, 37 grievances submitted in 2014 were not addressed until 2016.37 Resolution of these grievances required additional consultations with affected persons, as well as an appointment of an independent consultant in the summer of 2014 to help address the outstanding grievances and determine whether compensation was made in accordance with the Bank policies.38 The assessment helped address outstanding complaints and confirmed compliance. It has to be pointed out that throughout the project
33 Representatives of the NCHPA have confirmed that in the first year of implementation they were under a lot of pressure to clear designs quickly, which meant that they were often not able to ensure the proper review process was conducted. 34 Aide Memoire of September 2013 requested that the MDF should select firms to update designs of all problematic and stalled projects by the end of 2013. 35 According to the Bank Aide Memoire of the February 2013 mission, the contract with the technical supervision company Steget was signed on September 12, 2012, while the works were ongoing since May-June 2012. 36 According to the Bank Aide Memoires of June and September 2013 missions, the civil works were suspended in a number of investment sites including Batonis Castle and Museum, Dartlo village rehabilitation, Ikalto Monastery Tourism Infrastructure, Shuamta Monastery tourism infrastructure, and Ninotsminda in 2013. This was largely a result of inadequate designs and poor quality of technical supervision and works. 37 These involved claims by affected business owners that the provided compensation did not fully cover losses incurred as a result of the Project. 38 According to AM dated June 2014, the Bank team requested appointment of the consultant during the May-June 2014 mission. According to the AM date September 2014 the consultant was appointed in the summer of 2014.
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implementation cycle MDF substantially improved its capacity for monitoring and ensuring safeguard compliance, which helped resolve the above-mentioned issues and avoid them in the later part of the project. 32. On the one hand, the change of the national government led to a loss of momentum and leadership in Project implementation, and a slowdown related to the change of leadership. The October 2012 elections resulted in a change of the national Government, including the change of heads of all key agencies involved in the RDP implementation. The new PIU leadership needed to reevaluate the Project. During this revision all works in the tourist circuit subprojects were put on hold. This has caused a disruption to project implementation arrangements, a number of contracts for works that were already started had to be terminated and retendered later.39 33. On the other hand, the new government introduced a more thorough process of implementation that in combination with the Bank team support helped to address quality issues. In 2013-2014, a comprehensive review of designs of problematic subprojects was conducted. It helped resolve issues and make corrections necessary to ensure timely completion of all ongoing works, including the most problematic investments: Dartlo village and Telavi museum. All new designs developed later in the project were reviewed by the Bank team to ensure quality. To systematically improve quality of implementation, the MDF underwent an organizational restructuring. It included: (1) transition to outsourcing technical reviews and construction supervision; (2) more than doubling of the safeguards staff (from 5 to 12); (3) hiring a designated Grievance Redress Mechanism/Beneficiary Relations Coordinator and maintaining a regular grievance log to ensure that grievances are addressed promptly; (4) training the PIU procurement team and expanding it from 8 to 12 people. As a result, in the final two years of the Project the quality of environmental and social safeguards, monitoring of works and record-keeping, quality and speed of responses to grievances, and overall quality of delivered works improved substantially. 34. Underperformance of the construction supervision consultant remained an issue throughout the Project. Both representatives of the Bank team and of the MDF have remarked that the quality of services provided by technical supervision consultant were often of low quality. According to the representatives of the MDF, the consultant accepted most of the designs without changes and failed to spot problems during execution. For instance, the Kvevri School building had multiple leakages due to poor drainage of the rooftop terrace, that could have easily been avoided if lack of proper sloping was pointed out when works were underway. It is possible that some of these issues could have been addressed if MDF engaged more closely in managing the contract. However as clarified by the MDF staff they were restricted in their leverage over the consultant due to high risks associated with contract termination, and a number of steps were taken, including a series of letter of complaint about the poor quality of service. 35. Slow and often inefficient inter-agency coordination and frequent changes in personnel impeded implementation progress. The design of the Project dictated a need for close coordination between various agencies that reported to the Ministry or Regional Development and Infrastructure (MDF), Ministry of Culture (NCHPA, National Museum), and Ministry of Economy (GNTA). However, these agencies often lacked experience of project of similar technical content and complexity which slowed down implementation (for example because of slow approval of designs). Later on, coordination was improved after the MDF requested appointing senior point people responsible for the project in each of the agencies involved. Additionally, during Project implementation,
39 According to the Bank Aide Memoire of the May-June 2013 mission, contractors on at least 8 different subprojects were experiencing cash flow issues. This could be a result of a disruption caused by works being put on hold, and thus delays in transactions that these businesses were budgeting. In September 2013, the Bank team recommended that the MDF would conduct a review of the contractor’s performance to identify those whose contracts should be terminated due to underperformance.
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the PIU head changed twice (3 different directors) and PIU program coordinators changed three times, and each of these shifts entailed a period of adjustment and somewhat slower progress. 36. Weak engagement of local authorities in project preparation and implementation led to a lack of ownership and difficulties with establishing operation and maintenance arrangements. While the Operations Manual implied that the subprojects should be initiated by the municipalities, this was not always the case. Even though approval of the proposed investment by the municipal governments was secured for every subproject, in some cases local authorities didn’t consistently engage in project implementation. Most of subprojects implied that after completion the assets would be operated by the municipalities, yet most municipalities lacked capacity or resources to take over the assets.40 This issue could have been avoided through sustained engagement of the local authorities in design and problem resolution in specific subprojects and through more detailed planning for operation and maintenance (O&M) at an early stage of the sub-project lifecycle.41
(1) Factors subject to World Bank control
37. Throughout the Project cycle the Bank team pro-actively worked with the MDF to address challenges that became evident after the early rapid period of implementation during the first year of the Project. As discussed thoroughly in section IV of this report the Bank team supervision was predominantly of high quality, and provided timely technical support, advice and assistance in resolving problem, and adequately used restructurings and rating changes to ensure high quality of implementation. It must be acknowledged however, that some decisions, such as revision of the M&E could have been made and implemented earlier.
(2) Factors outside the control of government and/or implementing entities 38. The external conditions were mostly favorable for the Project’s success. The Project benefited from an overall stable macro-fiscal and geo-political environment during the implementation. This supported rapid expansion of the tourism industry in Georgia and made Kakheti one of the prime benefactors of influx of the international tourism in Georgia during 2015-2017, thus creating incentives for private sector investment in the industry and complimenting the interventions of the Project. Additionally, a devaluation of the national currency in 2016-2017 led to savings of the Project funds, which allowed all major planned investments to be completed without additional financing, even though there were substantial cost overruns due to variation orders to contracts, and need for the remediation works.
IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME
A. QUALITY OF MONITORING AND EVALUATION (M&E)
40 In 2017 Telavi municipality requested the Ministry of Economy to take over the several assets (Shuamta Gateway, Kvevri Workshop, Suampta and Ikalto visitor centers) that were meant to be operated and maintained by it due to lack of experience and capacity. 41 The assessment of the level of the local government engagement by the bank team differs from assessment by MDF, which is provided in the Annex 5.
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M&E Design 39. The original M&E design was ambitious yet unbalanced, and didn’t fully capture the Project results and expected outcomes. The original M&E design included 14 indicators, five of which were at the PDO level. However, later in the implementation process it became apparent that the proposed indicators didn’t fully and accurately reflect the theory of change of the Project, and were not fully adequate for evaluation of project outputs and outcomes. Evaluation of results of Component 1 was partially undermined by the selection of indicators that were of questionable relevance to the specific Project supported interventions (see table 1 in Part I). Evaluation of outcomes of Component 2, on the other hand, was not captured fully in the M&E design. According to the original M&E framework, Component 2 was supposed to be captured by the PDO level indicator “increase of points of sale in renovated cultural heritage sites” – which cannot be attributable to the activities under Component 2, and, thus, is interpreted as an indicator measuring the performance of tourism economy. To ensure more accurate evaluation of results at completion the M&E framework was revised during project Restructuring in 2017. However, the team could and should have made adjustment to the M&E framework earlier.
M&E Implementation 40. M&E methodology and quality of data collection and reporting was robust. The baseline values for all project key indicators were collected prior to the Project appraisal. An international M&E consultant was mobilized by MDF in 2014 and delivered four M&E reports that provided updates on PDO and intermediate indicators, and conducted four surveys (individual beneficiaries, businesses benefiting from co-investments, international tourists, private investors in the region) producing robust and diverse data that was pivotal for evaluation of the Project results. The consultant also produced a set of recommendations for improvement of data collection in the tourism industry in Georgia for Georgia Statistical service. Finally, a close collaboration between the Bank team, the MDF and the M&E consultant helped to identify shortcomings in the M&E framework and methodology, and formulated the lessons learned which were important for the M&E design of the follow-up projects of the regional development portfolio in Georgia, as well as a similar project in Albania. 41. Late initiation of M&E data collection has negatively affected attributability of collected data. The first baseline beneficiaries survey for the Project was conducted in 2013 (by a local consultant). Unfortunately, the survey was conducted after a number of investments were already completed (most significantly facade improvements of the houses that the surveyed beneficiaries owned or lived in), which made it hard to attribute the changes reported between the baseline survey and subsequent survey to the Project interventions. Later on, an international M&E consultant was mobilized. Work of the international M&E consultant can be praised for accuracy and breadth of data collection. Additional surveys of investors and beneficiaries informed the assessment of the Project results presented in this report. 42. M&E indicators covered most aspects of the complex project, which helped maintain focus on problematic issues during implementation. Most M&E indicators were met relatively early in project cycle. However, the intermediate indicator on DMO establishment was one of the few that wasn’t met till late in the process. This was critically important for focusing attention of implementing agencies on the institutional component, which was falling behind implementation schedule.
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Justification of Overall Rating of Quality of M&E Rating: Modest
43. A combination of shortcomings in design and implementation of the M&E framework warrants a “Modest” rating for Quality of Monitoring and Evaluation. While it is true that baseline and outcomes data were collected for all the main M&E indicators, the shortcomings were still substantial. Robust assessment and attribution of the ambitious PDO of the Project required a complex M&E framework and implementation strategy that also accounted for the challenges of results attribution through additional data collection. The combination of the above-mentioned shortcoming with indicator selection, timeliness and methodological consistency of surveys has, to some extent, restricted the robustness of the assessment and attribution of the results.
B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE
44. Overall, the project complied with the requirements of the triggered safeguards policies overcoming several challenges encountered during implementation. At appraisal the Project was classified as Category B. The following WB safeguards related operational policies were triggered: OP/BP 4.01 on Environmental Assessment, OP/BP 4.04 on Natural Habitats, OP/BP 4.11 on Physical Cultural Resources, and OP/BP 4.12 Involuntary resettlement.
45. The Project shows a record of compliance with the mitigation measures that were identified at appraisal: • The Project was in compliance with OP/BP 4.01 on Environmental Assessment. An Environmental Management Framework was prepared by MDF and approved by the World Bank in February 2012. Each sub-project was screened for the potential environmental, social, and cultural heritage impacts as prescribed by EMF, and site-specific safeguard documents were prepared respective of the screening outcome. All Environmental Management Plans (EMPs) and Environmental Reviews were shared with the World Bank while in draft, disclosed, discussed with stakeholders and finalized thereafter. As mentioned before quality of supervision of compliance with environmental standards at work sites was weak in the beginning but reached a satisfactory level later in project cycle. Absence of and non-compliance with waste disposal arrangements was the greatest challenge during implementation, however all significant issues were addressed and the project closed without measurable damage to either public health or the natural environment. This was possible largely due to collaboration of MDF and their effort to enhance capacity for safeguards monitoring and compliance. • Compliance with OP/BP 4.04 has been consistently Satisfactory, because project activities did not affect natural/valuable habitats either inside or outside formally designated projected areas. • Keeping the project compliant with the requirements of OP 4.11 took much effort and caused delays of implementation due to the difficulty of consensus-building on the designs of works to be undertaken on the cultural heritage monuments. The Ministry of Culture and Monument Protection, and - for some sub- projects - the Church authorities, were among decision-makers along with MDF. However, involvement of relevant stakeholders was necessary and streamlining procedures achieved good results while avoiding any loss to structural integrity, authenticity, and/or aesthetic value of the heritage sites targeted by RDP. • The Project was compliant with OP 4.12 Policy on Involuntary Resettlement. A Resettlement Policy Framework was prepared by the MDF and approved by the World Bank in 2011. Resettlement impacts occurred on three sub-projects – Kvareli, Telavi, and Dartlo with the respective Abbreviated Resettlement Action Plans (aRAPs) prepared and implemented. A Kvareli aRAP covered temporary income losses of 33
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people. A Telavi aRAP covered temporary relocation/business interruption impacts for 91 households and 84 businesses. Both Kvareli and Telavi aRAPs were fully implemented prior to the start of physical works. The sub-projects faced certain challenges with addressing the grievances reported during and after implementation, however all complaints were addressed and full compliance was achieved. In Dartlo, an aRAP covered 44 residential buildings whose owners required temporary relocation for the duration of the civil works. The aRAP was implemented in phases, preceding each construction season. It should be noted that the aRAP implementation in Dartlo was challenging given the high mountainous location of the sites and very limited construction season, delays in the original construction schedule, and lengthy negotiations with home-owners. Completion of the Dartlo aRAP without grievances or complaints is a testament to MDF’s improved capacity for ensuring safeguard compliance. • A grievance redress mechanism (GRM) was established at the Project outset, specifically for the resettlement related grievances as described in the aRAPs. At earlier stages of the Project implementation, the MDF experienced some challenges in executing the grievance redress mechanisms as revealed by the situation with resettlements in Telavi (described in section III-B). However, the effectiveness of the GRM was much improved by the Project completion.
46. The Project encountered several systematic procurement challenges that were managed with support of the Bank team. The following three situations deserve detailed description:
(1) Beginning in 2012, the Bank observed low participation of the bidder’s in the procurement process for civil works as well as frequent update/change of the contract cost estimates. Following recommendations of the Bank task team, in May 2012 the MDF held a workshop for all existing contractors and potential applicants to explore possible reasons for low participation. The main difficulty included obtaining bid security from commercial banks, and the contractor capacity requirement in the bidding documents which included the number of years of general experience. The Bank recommended implementation of several measures to address these issues and increase competition.42 After they were implemented, the average number of bids increased from just two bids received in February-April 2012 to four bids registered in June-August 2012.
(2) The Bank team also supported MDF in reducing the number of contract amendments. At a certain point in project implementation with just 20 civil works contracts under implementation, the cumulative amount of amendments exceeded 100. This included time extension, variations, and change in the scope. The Bank team analysis concluded that this situation was partially caused by the same companies being awarded several contracts at the same time and not having the capacity to deliver. To mitigate this risk, the MDF, following the Bank’s recommendation, incorporated an additional qualification criterion for bidders’ capacity assessment – assessment of bidder’s concurrent contract commitments which further reduced the risk of non-performance. For instance, this procedure prevented awarding contracts to a company that later went bankrupt.
(3) Throughout project implementation the MDF experienced challenges with securing high quality of delivered works and supervision services. This at least partially can be attributed to lack of capacity of contract management. Throughout project implementation the Bank team advised MDF to conduct more
42 The flowing measures were implemented: (1) Bid Security: Bid security declaration is used instead of bid security issued by a commercial bank for NCB contracts; (2) Annual Turnover for works with short contract periods: Average Annual Turnover is calculated (for NCB contracts with intended completion periods less than 12 months) by multiplying the estimated cost by a factor of 1.5, without a need to arrive at annual figure; (3) General Experience and Annual Turnover Requirements – Number of Years: Considering the circumstances, the Bank team agreed to reduce the period of General Construction Experience, Annual Turnover from five to three years.;(4) The Cost Estimation of the contract is disclosed in the bidding document and IFB.
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thorough oversight of contract delivery according to agreed delivery schedules and TORs. This resulted in several requests for remediation works under the guarantee periods (e.g. in Kvevri workshop and Alaverdi remediation works) that improved quality. Overall there has been a noticeable improvement in MDF’s contract management capacity, however, the issue remains critical for future work with MDF and has been prominent in other projects, specifically in relation to supervision consultants.
C. BANK PERFORMANCE
Quality at Entry 47. The Bank team should be recognized for preparing an innovative and ambitious Project design that was well informed by the analytical inputs and consultations with stakeholders and identified the largest investments correctly. As pointed out in section I, and III-A, the design used a new conceptual framework and was informed by almost two years of analytical work and dialog with the government. The core success of this process was selection of Telavi and Kvareli as the main tourism hubs and focusing major investments in these towns. The significant attention given to the capacity building component of the Project was also critical to the RDP success and provided an institutional foundation for regional tourism promotion and management in Georgia. The Project design was recognized with a VPU innovation award in 2014. 48. At the same time, the complexity of the approach and the mounting pressure from the government to speed up the Project preparation at the later stage of the cycle and launch contributed to underestimation of some of the Project risk by the Bank team resulting in design flaws. As revealed by the experience of the Project implementation, some aspects of the Project design resulted in complications and inefficiencies at implementation stage:
• Lack of a mechanism for ensuring quality of design documentation. At the preparation stage almost, a full list of investments was included in the Project Appraisal Document (PAD) to limit potential for politically motivated reallocation of funds during implementation. However, due to overestimation of the capacity of the national government agencies, not all designs were validated at the Project appraisal and no clear mechanism for their validation was put in place in the early stages of implementation (before the supervision consultant was mobilized). • Some investments were later proven to be redundant and weak in terms of their sustainability and contribution to the PDO. Specifically, the Project has funded construction of 11 structures intended for tourist services, including three of such structures near Ninotsminda monastery. Only two of these eleven structures were fully operational at the Project closing. And while the arrangements for operation of these structures were under discussion at the Project closing and some were likely to start operating in the summer of 2018, most of the 11 shouldn’t have been built due to weak demand for tourism services and commercial space in the specific locations. Visitor centers should have only been financed if many visitors were already coming to the site, and there was a clear and strong unaddressed demand for a specific service. More caution and deeper analysis were required from the Bank team in the investment selection process. • Unrealistic institutional arrangements for project implementation. The institutional arrangements for the Project implementation aimed to establish a rigorous oversight mechanism and maximize engagement of local authorities. However, the proposed arrangements, overestimated institutional capacity both at the national and at local level. For instance, the process for selection of additional investments implied that subproject proposals should be put forward by the local governments and confirmed by the Supervisory board (that originally included the Prime Minister, four ministers and other senior officials)43. However, this approach was not followed in practice largely due to its complexity. This resulted in several cases where investments were added to the Project without a strong local government ownership and contributed to challenges with operationalization.
43 Municipal Development Fund (February 2012) Georgia Regional Development Project Operations Manual.
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• The client’s capacity for cross-agency coordination was overestimated. With hindsight it is possible to say that coordination among government agencies (discussed in Section III-B) could have been improved if more time and effort was spent to assess capacity of the entities involved and to develop a better approach to agency collaboration. (which for instance were not covered thoroughly in the Operations Manual). • M&E framework and implementation arrangements. As discussed previously (Section IV-B) there were shortcomings in M&E design and baseline data collection.
Quality of Supervision 49. Throughout the supervision cycle the Bank task team was focused on the development impact of the Project as demonstrated through intensive effort to address challenges and improve the implementation approach through gradual course correction. The Bank supervision team offered adequate support to the MDF throughout the project cycle by bringing in an appropriate mix of skills of the Bank specialists and consultants involved in the project supervision (including cultural heritage experts and engineers) and the frequent missions conducted. For the first 3 years of implementation, the Project task team leader (TTL) was based in Georgia, and it helped to ensure close day-to-day engagement. After TTL transition (Summer - Fall 2015) the Bank team conducted at least two dedicated RDP supervision missions per year, and, in addition, the RDP related issues were often part of agenda during preparation and supervision of other regional development operations – RDP2 and RDP3. The Aide Memoires and Implementation Supervision Reports were filed regularly and offer a comprehensive, detailed and candid picture of the project’s progress and challenges. Overall the proactive approach to the Project supervision, paired with responsiveness of the MDF, ensured a gradual adjustment in the implementation approach that was critical for addressing the short-comings of the Project design and issues that emerged during the early stage of the Project delivery. 50. The Bank team took the following critical steps to improve quality of the Project implementation: • To ensure the quality of the design documentation, it was decided that preparation of designs for all new subprojects and problematic subprojects that required improvement of the initial design would be financed from the loan funds. This helped to assure higher quality of designs and was critical for resolving poor design quality issues that emerged at the early stages of the Project and reducing the number of variation orders in the later stages of the Project implementation. Additionally, the Bank team supported MDF in building capacity for supervision and contract management (see section IV-B). While in 2012-2014 there were 114 amendments made to 30 contracts, in 2015- 2017 there were total of 49 amendments in 16 active contracts.44 • To improve the Project performance in terms of the Bank safeguards, it was decided to downgrade the safeguards rating of the RDP to “Moderately Satisfactory” until the compliance with the safeguards requirements was improved45, and, simultaneously, ensure intensified engagement of the World Bank safeguards specialists to work closely with the MDF to build the relevant capacity of the MDF staff. This included detailed review of TORs for MDF’s environmental and social specialists and the consultants performing safeguards related functions for the MDF; on-the-job training and coaching for the MDF’s safeguard specialists; joint review and commenting on supervision consultants’ reports; and numerous field visits undertaken jointly by MDF safeguard specialists and the Bank task team. • The Project closing date was extended for one year through restructuring in 2016 to allow sufficient time for full completion of the Project supported activities after a slow-down of implementation in the post-election years. The extension was critical to ensure achievement of the subprojects that were important for achievement of the PDO (e.g. Telavi Museum construction). • Necessary arrangements were made to ensure close monitoring and facilitation of the operation and management arrangements for most of the financed assets in the last two years of the Project implementation and to ensure
44 Only works contracts are included 45 The Satisfactory rating was restored in June 2014 after key issues were addressed
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sustainability of investments and functional use of the constructed and rehabilitated assets. This included facilitation of the dialogue between the MDF and the local governments and other agencies responsible for operation and management, and conducting a training seminar for local governments on operation of tourism assets. • An implementation review of the project was commissioned by the Bank team in 2016 to address remaining challenges in quality of outputs and implementation arrangements. The recommendations of the review have been applied in the project (e.g. informed revision of the M&E framework, and decision to conduct additional remediation works), and have been used to improve quality of delivery under other regional development projects in Georgia. • Project restructuring was initiated to correct shortcomings in the M&E framework and enable higher quality results assessment. The Bank team also closely collaborated with the MDF and the M&E consultant to ensure robustness of M&E data collection, and requesting a number of additional surveys (including hotels survey and investor survey) that were pivotal for evaluation of the results.
51. The Bank team also should be acknowledged for its persistence in supporting the implementation of the main element of the institutional development component – establishment of the DMO. After the national government changed, the central concept of the Institutional Capacity component was questioned by the authorities, resulting in a delay in implementation. To resolve the stalemate, the Bank team facilitated regular consultations with key stakeholders (GNTA, MDF, NCHPA), and patiently guided the discussion. The Bank team also organized a study tour to Austria focused on the operation of DMOs in mountainous regions. This process helped GNTA develop a deeper understanding of the DMO model and commit it to implementing it in close collaboration with regional government of Kakheti and local business community. This launched a very organic and locally driven process of establishment of the DMO, which points at a much higher chance of success of the organization, than in the case of forced and rushed implementation. This success also has major implications for RDP2 and RDP3 projects. 52. Some of the interventions of the Bank team could have been timelier. Specifically, the Bank team could have revised the M&E framework at an earlier stage (mid-term review, or during the first Project restructuring in 2016). Additionally, the challenges related to operation and management arrangements of the tourism assets could have been identified and addressed earlier in the project cycle. While construction of most of the visitor center facilities were planned from the beginning of the Project and many of them were completed in the first two years of the Project, the potential issues with operating and managing these assets were not identified until the Bank Mid-Term review in 2015, and were not proactively addressed by the Bank team and the MDF until the final two years of the project. While all the issues of legal ownership of assets and responsibility were resolved by the Project closing, and arrangements to ensure start of their operation were advanced, timelier action on this issue could have resulted in more of the visitor centers being operational earlier. 53. The late rating downgrade was justified by the lack of sufficient progress in securing operation and management arrangements for several sub-projects. Project PDO progress was downgraded to MS two months before closing in the final ISR. This was done as a result of the last supervision mission, that established that less than expected progress was made in operationalizing assets (e.g. Kvevri School and Shuamta Gateway, and several smaller visitor centers). It is feasible to suggest that the downgrade could have been made sooner. However, over the last two years of implementation the Bank team was working very closely with the MDF to address the issues of sustainability, and till the last three months of project implementation it appears the arrangements would be put in place in time, or at least clear plans for operationalization would be available in tie for closing. When this was not confirmed during the last mission, the team chose a rating downgrade as an appropriate response.
Justification of Overall Rating of Bank Performance Rating: Satisfactory
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54. Despite some shortcomings in the Project design and supervision, the Bank Performance can be rated as Satisfactory due to innovative and evidence based project identification and pro-active support of the PIU in addressing implementation challenges and adjusting the M&E process to improve quality of evidence. The innovative approach and scrupulous work on identification of correct policy responses were the cornerstones of the overall success of the Project in supporting a rapidly growing tourism industry in the Kakheti region. Additionally, the high level of involvement of the Bank team throughout the implementation stages was critical to enable the course correction and ensuring delivery of the core Project supported assets on time and with good quality, as well as to ensure the future sustainability and proper maintenance of the investments. Despite revealed shortcomings in some aspects of the Project design, and possibly a less than timely response to some of the implementation challenges, the Bank team deserves an overall satisfactory rating.
D. RISK TO DEVELOPMENT OUTCOME
55. The boost that the Project gave to the tourism industry development in Kakheti is likely to be sustained. With visitor numbers in the country continuing to grow and private investments continuing to flow into the region, the prospect for the tourism industry in the region appears to be robust. A lasting contribution of the core visitor attractions (both hubs and spokes) to this process is also very likely. The biggest challenges to the future of the tourism sector are external to the Project and include the risk of geopolitical shifts or conflicts in and around the Caucasus region, macroeconomic stability of Georgia, and industry specific factors (such as agreements with international airlines). However, even if these risks materialize, their negative impact on the Kakheti economy is likely to be temporary, since the main assets developed by the Project and the robust business community of the Kakheti region are likely to withstand such external shocks. 56. Despite the earlier issues with quality of designs and works all major investments supported by the project were in good shape at project closing. Urban infrastructure (roads, water pipes, facades of renovated buildings, parks and public spaces) supported by the project funds in Telavi and Kvareli was well maintained at project closing, except for relatively minor issues highlighted in the latest Aide Memoires that are easily fixable. The same holds for most of the tourism circuits sites, with a couple of problems, that the MDF is expected to address soon.46 57. There is a risk that if the DMO model for tourism management and promotion is not implemented efficiently and not sustained, it will hurt development of the tourism industry, although not critically. The DMO of Kakheti established under the Project is still very new. DMO’s operational model should include cooperation and partnership between the national, regional and local governments and the private sector and is still being finalized. It sustainability will depend on contribution of public duds and from public members. The risk of failure of this model is not insignificant. If the DMO is a success it will give an additional boost to the region through aligning the tourism promotion efforts of the public and private sector along one common agenda. However, as the recent years have shown, the tourism industry has been successfully expanding without these supporting systems, so the Kakheti economy would likely suffer marginal, but not critical losses in case the DMO would not reach its full potential. 58. Operationalization of the currently underused assets is critical for project’s image, but less critical for tourism in Kakheti. Some of the assets built as a part of the project in peripheral locations to support development of tourism circuits are still not fully operational (tourism information centers in Ikalto, Shuamta, Khirtsa, and the Kvevri school) and it is possible that some of them will remain unused and unmaintained primarily
46 The biggest remaining issues: reinforcement of Ikalto ravine to stabilize the road – expected in 2028-19, fixing drainage of the roof terrace in the Kvevri workshop – expected in 2018.
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due to limited potential for commercial use and lack of experience in managing such assets by the local authorities, both of which however could have been avoided through better investment selection.47. After the training conducted by MDF in September 2017 to help local authorities devise strategies and models for managing and funding these assets municipalities responsible for operating visitor centers in Gurjani and Ninotsminda have decided to lease properties to private operators, have held consultations with interested parties, and are expected to announce the lease agreements soon. At the time of completion of this report there was no clarity about the future operation of the Shuamta Gateway and Kvevri workshop, as well as smaller visitor centers in Upper Shuamta and Ikalto. However, given the engagement of the MDF, the recognition by the government of the reputational risks of failing to utilize these assets, it is likely that the solution for operating these assets will be found. Furthermore, most of these assets in danger of under use are relatively small and in peripheral locations and thus less critical for the successful development of the tourism industry than the core tourist attractions in Telavi and Kvareli (the only exception is Shuamta Gateway located on the main road between Telavi and Tbilisi).
V. LESSONS AND RECOMMENDATIONS
The following lessons can be drawn from the RDP experience for the projects in the field of regional and tourism development in general:
1. Successful introduction of an innovative design requires a deep level of understanding of country context and close collaboration with the client government and other stakeholders which requires time and patience. The RDP innovative design was made possible by a long period of structured research into the opportunities and obstacles for regional development, which took over two years. It also relied on a prolonged dialogue with the government, and extensive consultations with businesses, investors and local communities. Full implementation of this process required substantial patience and time. However, as a result, the project design has created a template for many operations including the two regional development projects in Georgia, as well as tourism development projects in Albania and Armenia. Thus, the effort put into the development of the design will have much broader impact than the RDP project. It also needs to be stressed that shortcomings of project design that caused issues in implementation can be largely related to the rushed finalization of project preparation, thus further underlying importance of patience in preparing innovative operations. 2. Correct selection of investments is the main component of success; the success of a tourist circuit development depends on concentrated investments in transformative improvements of core tourist attractions. The success of the RDP was largely secured by the correct identification of Telavi and Kvareli as main hubs of the Kakheti tourism circuits which was informed by a thorough study of the potential of the tourism industry in the region. The revitalization of these towns and their key tourism attractions have made the most substantial contribution to the growth of visitor numbers and allowed them to rise to being most popular destinations in the region. The correct selection of these investments (that accounted for over 70% of loan volume) largely overshadowed the mistakes made at design stage and problems encountered during implementation in terms of the contribution to project results. The Kakheti experience also shows that rehabilitation of more peripherally located cultural attractions and access roads to them has helped to expand the geographic extent of the tourism sector. On the other hand, the most challenging investments conducted by the project include small visitor centers and structures in peripheral locations with unconfirmed demand for services. Overall this experience suggests that similar projects focusing on tourism development should prioritize (a) investing in a few key assets and ensuring that transformational improvement that can substantially
47 In total these assets account for about 4% of total project investment.
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increase their attractiveness is achieved, (2) connecting these hubs to secondary attractions, and improving their quality through rehabilitation of the assets. Supplementary tourist infrastructure and services in peripheral locations should be given lower priority. This lesson has already been reflected in design of the Project for Integrated Urban and Tourism Development in Albania. 3. Importance of crowding in private sector investments to create proof of concept cases and induce a sense of confidence. While key attractions are important to bring in tourism, job creation and economic growth, successful and sustainable development of the tourism industry is impossible without partnership with private sector and ensuring private investments. While growth in visitor arrivals often leads to growth in business activity, the speed of private sector response to this opportunity can be slow in the regions where tourism is not well established and the expertise and skills are limited. For this reason, support for pilot initiatives of the private sector is critical to pave the future path for more investors to come. The RDP experience has shown that most of the subprojects supported through public-private investment (Component 1.2) would have either not happened, or would have taken much longer, and this would have likely slowed down the pace of investment growth overall, and thus economic growth and job creation. It is also critical to acknowledge the success of the project in selectin an effective form of support – provision of public infrastructure, such as access roads. This approach meant that while the provided infrastructure was of critical importance for success of benefiting businesses, it also had a clear public benefit. 4. Importance of balancing the complexity of the Project design with existing capacity of government agencies involved in the Project implementation. Implementation of complex project designs often requires high levels of technical and institutional capacity and coordination efforts from national government ministries and agencies and from local and regional government in the implementation process. This suggests that a thorough assessment of the capacity of the clients and important stakeholders at both national and local levels is critically important at the project preparation stage. Lack of technical skills and capacity (e.g. review of cultural heritage deigns, or operation of tourism assets), lack of experience of collaborative work between specific national and local agencies needs to be identified early and either addressed through simplification of the project design, or through pro-active capacity building activities envisaged both at the project preparation and implementation stages. 5. Critical role of securing operation and management arrangements for all assets and achieving full buy in of local governments before confirming financing and breaking ground. The RDP has shown that lack of rigor in the process of local government engagement and overly formalistic approach to ensuring arrangements for operation of assets (requesting an official letter, without ensuring the recognition of the full extent of commitment) may bring substantial challenges to sustainability of the project assets. It is essential that a full buy in of parties is secured and confirmed prior to implementation of subprojects, this may require additional consultations with the responsible parties about the future of each such asset, particularly if the party (e.g. local government) has no prior experience of operating and maintaining the asset that is proposed. 6. There is a need to develop methodology and guidance on development of M&E of frameworks and core indicators that could be applied for tourism development projects, focusing on measurability and attributability of the projects results. The challenges that the RDP faced in relation to the M&E design and quality of M&E implementation can partially be attributed to the lack of available methodological approach for measuring results of the tourism development projects, including some of the most attributable and applicable core indicators. An overview of the ICRs of the Bank financed tourism development projects confirms that most of them faced challenges of attributability of the project results. The methodology and suggested indicators should include consideration of the impact of external factors on development of the tourism industry in a given region,
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and consider the time lags that are usually expected between the completion of the Project supported interventions and the actual industry response. 7. Strategic Environmental, Cultural Heritage, and Social Assessment (SECHSA) is a powerful tool for ensuring the safeguards compliance, but it should be employed only if sufficient client capacity and time are available. Delivery of SECHSA report was made a condition for the Project appraisal. Because the strategic environmental assessment had not been part of the national legislation and there was no experience of carrying it out in the country, SECHSA took much longer than anticipated. The Project could not get approved meanwhile and the SECHSA was delivered under pressure. It is recommended, therefore, that studies of such scale and complexity are well-timed and capacity for their delivery should be factored in.
The following lessons can be drawn from the RDP experience for further implementation of the regional development program in Georgia:
1. Continuing to build MDF capacity for contract management is critical for ensuring high quality outputs, and will require close oversight and engagement of the Bank teams in the near future. While poor quality of services is not specific to MDFs contracts in Georgia, it has been a systematic issue for the RDP portfolio, with quality of supervision being the most noticeable problem. The experience of the last stages of the RDP project has revealed substantial improvements in contract management and supervision practices on behalf of MDF, and has shown that the MDF team can ensure higher quality of outputs if encouraged to put maximum pressure on contractors, and use all leverage available to them to ensure compliance with terms of reference, work plans and quality standards. In the future the Bank teams should ensure to continue supporting MDF capacity building through trainings and advice, while persisting with instilling the culture of high quality delivery in MDF and among contractors that regularly work with the agency. 2. Effective inter-agency coordination in an environment with a high level of staff turn-over requires a sub-project by sub-project approach, clear division of responsibility and engagement of senior officials. The experience of RDP has showed that the agency staff changes rather frequently which doesn’t allow for development of permanent institutional ties and regular procedures. In this environment, the most effective mechanism is to ensure that for each sub-project that relies on interagency coordination, MDF defines contributions that are expected from a participating agency and confirms a point person for the implementation of that task through engagement of the head of the . agency or a minister. MRIDP should provide MDF with support in cases of inter-agency conflicts.
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ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS
A. RESULTS INDICATORS
A.1 PDO Indicators
Objective/Outcome: Improving infrastructure services Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Reduce weighted average Percentage 100.00 0.00 75.00 71.00 vehicle operating cost due to improved urban roads 30-May-2012 30-Dec-2016 31-Dec-2017 22-Dec-2017
Comments (achievements against targets):
Objective/Outcome: Improving institutional capacity
Objective/Outcome: Supporting development of the tourism based economy and cultural heritage circuits Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Increased (direct and Amount(USD) 0.00 5000000.00 50000000.00 61000000.00 indirect) volume of private sector investment 30-May-2012 30-Dec-2016 31-Dec-2017 22-Dec-2017
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Comments (achievements against targets):
Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Increase number of hotel Number 1610.00 1932.00 1932.00 3016.00 beds in circuit route areas 30-May-2012 30-Dec-2016 31-Dec-2017 22-Dec-2017
Comments (achievements against targets):
Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Increase points of sales Number 248.00 323.00 323.00 337.00 (tickets, souvenirs shops, restaurants, hotels, 30-May-2012 30-Dec-2016 31-Dec-2017 22-Dec-2017 guesthouse and family houses) in renovated culture heritage sites and cities
Comments (achievements against targets):
A.2 Intermediate Results Indicators
Component: Component 1: Infrastructure Investment
Indicator Name Unit of Measure Baseline Original Target Formally Revised Actual Achieved at
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Target Completion Piped household water Number 0.00 500.00 500.00 907.00 connections that are benefiting from 30-May-2012 30-Dec-2016 31-Dec-2017 22-Dec-2017 rehabilitation works undertaken by the project
Comments (achievements against targets):
Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Roads constructed and Kilometers 0.00 20.00 20.00 26.30 rehabilitated 30-May-2012 29-Dec-2017 31-Dec-2017 22-Dec-2017
Comments (achievements against targets):
Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of private Number 0.00 10.00 10.00 11.00 investment proposals approved 30-May-2012 30-Dec-2016 31-Dec-2017 22-Dec-2017
Comments (achievements against targets):
Indicator Name Unit of Measure Baseline Original Target Formally Revised Actual Achieved at
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Target Completion Number of redeveloped Number 0.00 11.00 11.00 11.00 culture heritage sites along the the tourist circuit 30-May-2012 30-Dec-2016 31-Dec-2017 22-Dec-2017
Comments (achievements against targets):
Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of buildings restored Number 0.00 150.00 150.00 217.00 in Telavi, Kvareli and Dartlo 30-May-2012 30-Dec-2016 31-Dec-2017 22-Dec-2017
Comments (achievements against targets):
Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Direct project beneficiaries Number 0.00 30800.00 30800.00 32319.00
30-May-2012 30-Dec-2016 31-Dec-2017 22-Dec-2017
Female beneficiaries Number 0.00 16140.00 16140.00 16867.00
30-May-2012 30-Dec-2016 31-Dec-2017 22-Dec-2017
Comments (achievements against targets):
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Component: Component 2: Institutional Development
Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Production/Distribution of Number 0.00 10000.00 10000.00 19449.00 new maps based on geotourism database 30-May-2012 30-Dec-2016 31-Dec-2017 22-Dec-2017
Comments (achievements against targets):
Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of established and Number 0.00 3.00 1.00 1.00 operating of destination management offices 30-May-2012 30-Dec-2016 31-Dec-2017 22-Dec-2017
Comments (achievements against targets):
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B. KEY OUTPUTS BY COMPONENT
Objective 1: Improving infrastructure services 1. Reduced weighted average vehicle operating costs due to improved urban roads (baseline: 100 percent, target: 75 percent, achieved: 71 percent). Outcome Indicators 2. Increased weighted average number of hours per day of piped water services in Project areas (baseline: 8 hours/day, target: 24 hours/day, indicator was dropped).
1. Number of buildings restored in Telavi, Kvareli and Dartlo (target: 150, achieved: 217) 2. Number of private investment proposals approved (target: 10, achieved:11) 3. Number of redeveloped culture heritage sites along the tourist circuit (target: 11, achieved: 11) 4. Piped household water connections that are benefiting from rehabilitation works undertaken by the project (target: 500, Intermediate Results Indicators achieved: 907) 5. Number of people in urban areas provided with access to all- season roads within a 500-meter range under the project (baseline: 0, target: 50,000, indicator was replaced with indicator 6) 6. Roads constructed and rehabilitated (target: 20 km, achieved: 26.3 km, indicator was added in place of indicator 5) 7. Project beneficiaries (of which female). (Target: 30800.00 (16140.00), achieved: 32319.00 (16867.00))
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1. Water supply pipeline built – 40.0 km 2. Sewerage pipeline built – 2.27 km 3. Street lighting units installed – 1081 units Key Outputs by Component 4. Public spaces improved (including parks, sidewalks) – 149,451 m2 (linked to the achievement of the Objective 1) 5. Trees and bushes planted – 14283 6. New structures for provision of tourism services – 6285 m2 (total floor space) 7. Powerlines built – 15 km
Objective 2: Improving institutional capacity
1. Increase points of sales (tickets, souvenirs shops, restaurants, hotels, guesthouse and family houses) in renovated culture heritage sites and cities (baseline:248, target:323, achieved: 337, at Outcome Indicators PAD stage indicator was attributed to objective 2, however in this ICR it is interpreted as an indicator of achievement of objective 3, see section IV-A for further details)
1. Number of established and operating destination management offices (target: 1, achieved:1) Intermediate Results Indicators 2. Production/Distribution of new maps based on geotourism database (target: 10,000, achieved: 19449)
1. The DMO strategy and structure developed 2. Regional tourism marketing and promotion strategy developed 3. DMO equipment and furniture provided Key Outputs by Component 4. 3 DMO private sector consultations held (linked to the achievement of the Objective 2) 5. Visitor Management Plan and Exhibition Plan for the Telavi museum delivered 6. Training on tourism asset operation for local governments held
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7. The travel website for Kakheti developed (later discontinued by the client) 8. 444 people trained in service provision for hospitality industry
Objective 3: Supporting development of the tourism based economy and cultural heritage circuits 9. Increased volume of private sector investment (target: US$50 million, achieved: US$61 million) 10. Increase number of hotel beds in circuit route areas (baseline: 1610, target: 1932, achieved: 3016) Outcome Indicators 11. Increase points of sales (tickets, souvenirs shops, restaurants, hotels, guesthouse and family houses) in renovated culture heritage sites and cities (baseline:248, target:323, achieved: 337, indicator originally attributed to objective 2) 12. As indicated in the discussion of the Theory of change in Chapter I, paragraph 8 and Figure 1, achievement of this objectives was Intermediate Results Indicators based on outputs and outcomes delivered under Objectives 1 and 2. For this reason no intermediate outcomes can be attributed to this objective. Key Outputs by Component 13. Same as above (linked to the achievement of the Objective 3)
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ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION
A. TASK TEAM MEMBERS
Name Role
Preparation Ahmed A. R. Eiweida Team Lead Pedro L. Rodriguez Economic Analysis Darejan Kapanadze Environmental Safeguards Specialist Kosuke Anan Social Safeguards Specialist Ghada Youness Legal Counsel Arman Vatyan Financial Management Specialist Sandro Nozadze Procurement Specialist Deepal Fernando Procurement Specialist Guido Licciardi Team member Nicolas Perrin Team member Joseph Melitauri Team member Sophie Devnosadze Team member Emilia Skrok Team member Meskerem Mulatu Team member Militsa Khoshtaria Program Assistant Guy Tchakounte Tchabo Program Assistant
Supervision/ICR Rosanna Nitti, Vica Rosario Bogaerts, Dmitry Sivaev Task Team Leader Sandro Nozadze Procurement Specialist Djamshid Iriskulov Financial Management Specialist Lisa Fonick Haworth Team Member Darejan Kapanadze Environmental Safeguards Specialist Isabella Micali Drossos Legal Counsel Jose C. Janeiro Team Member
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Damir Leljak Team Member Militsa Khoshtaria Team Member Sophia V. Georgieva Social Safeguards Specialist Paula Restrepo Cadavid Team Member David Jijelava Team Member Tengiz Gogotishvili Team Member
B. STAFF TIME AND COST
Staff Time and Cost Stage of Project Cycle No. of staff weeks US$ (including travel and consultant costs) Preparation FY11 6.057 71,146.44 FY12 28.351 239,600.92
Total 34.41 310,747.36
Supervision/ICR FY12 3.860 23,380.46 FY13 22.993 193,478.46 FY14 15.590 116,954.17 FY15 18.398 142,498.65 FY16 17.456 116,242.52 FY17 15.072 110,689.73 FY18 24.592 105,883.24 Total 117.96 809,127.23
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ANNEX 3. PROJECT COST BY COMPONENT
Amount at Approval Actual at Project Percentage of Approval Components (US$M) Closing (US$M) (US$M) Infrastructure Investment 71.7 66.3 97% Institutional Development 3.9 5.3 141% Total 75.00 71.6 99.3%
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ANNEX 4. EFFICIENCY ANALYSIS
Unit Cost Analysis
Due to a complex structure of the project the direct comparison of unit costs is only possible for some of the outputs delivered under the project. Table. 4 presents the comparison of unit costs for four types of assets delivered under the Propjets: roads, water supply pipeline, municipal buildings, street lights. The analysis covers 25% of total project costs. The comparator values are taken from Regional and Municipal Infrastructure Development Project funded by a World Bank loan, and from other municipal infrastructure development projects implemented in Georgia.
Results of unit cost analysis need to be interpreted with caution due to limited comparability of assets delivered by RDP with other projects. For instance, roads constructed under RDP included roads in urban centers, as well as roads constructed in remote mountainous areas, both of which have specific implications. Similarly, water pipes constructed under the project included pipes laid under urban roads, and pipes laid across mountainous landscapes (David Gareja). Finally, direct comparison of municipal buildings costs is also complicated, as the tourist visitor centers build by the project are not typical structures, and many of them are in remote location which required substantial expenditure co ensure connection to water supply and other utilities, which in case of small buildings led to substantial increase of per m2 costs.
Table 4: Unit Cost Analysis
Average Cost per unit Typology Measurement RDP RMIDP48 EIB49 Roads Per KM per lane GEL 265,501.96 GEL 231,158.01 GEL 174,944.06 Municipal/Public Buildings Per Sq. m. GEL 1,748.24 GEL 1,406.0150 GEL 1,015.12 Water Supply Networks Per Km GEL 113,160.03 GEL 84,942.02 GEL 116,383.59 Street lights per installed pole GEL 1,542.72 - GEL 2,032.00 Source: calculations based on project documentation provided by Municipal Development Fund Economic and financial analysis
Economic analysis at closing replicated the approached used at appraisal stage with several adjustments. At appraisal, the project’s Economic and Fiscal impact were evaluated using on 20-year period. A 12% discount rate has been used for calculation of Net Present Value (NPV). The financial analysis calculated the incremental growth in tax revenue assuming the following benefits streams: increase in tourist arrivals, overnight stays and spending; increase in number and profitability of economic enterprises; property value appreciation, temporary
48 Data from Regional and Municipal Infrastructure Development Project 49 The cost data is taken from two projects implemented in Georgia: WIMP (Water Infrastructure Improvement Project) and MIMP (Municipal Infrastructure Modernization Project). Both projects were implemented by the Municipal Development Fund, financing was provided by the European Investment Bank 50 The calculation is based on an estimated total floor area, precise values were not available.
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job creation. Economic impact analysis assumed the following primary benefits: Economic Benefits from Incremental Tourist Expenditures; Economic Benefits from Temporary Job Generation; Economic Benefits from Secondary Sales. Same core assumptions and same benefit streams were considered at closing.
As it is seen from the above analysis, the values of NPV, FIRR and EIRR at project closing were different than forecasted at Appraisal:
Table 4: Comparison of estimates of economic and financial returns indicators at appraisal and closing.
Results at Appraisal Results at Closing NPV US$19.79 million US$ 11.68 Million FIRR 19.85 % 16.04 % ERR 26.14 % 21.39 %
The values of core effectiveness indicators at the closing were lower than at the initiation of the project. These results at least partially reflect the inefficiencies in project implementation. However, they can also partially be attributed to overly ambitious assumptions that were made for economic analysis at project appraisal:
1) At appraisal it was estimated that the Private Investment Leverage Factor would equal 2.0. Actual Private Investment Leverage factor equaled 1.38. Here the lowest confirmed private investment amounts were used. There was not enough data to evaluate exactly the amount of the investment into the family owned businesses and thus no estimates were made. if the value of 2.0 was used the results would be: NPV - US$ 18,94 and FIRR 19.27%.
2) The original model assumed daily expenditure by tourist of more than US$ 100. The assumption was made on a very small sample of surveyed respondents. The data collected by the M&E consultant for RDP has shown that in 2016 of the project the average daily spending by one-day visitors to Kakheti was US$ 61, and by over-night visitors - US$ 38, resulting in a weighted average spending of US$ 47,8. This much more moderate estimate was used for economic and financial analysis at closing. A 2% annual growth of daily spending was assumed.
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Table 5: KEY Assumptions
Average Macroeconomic Indicators Year actual Disbursement of Project Funds USD/GEL rate
Exchange rate US$/GEL in 2012 1.65 GEL USD Exchange rate in January 2018 2.49 Year 2012 1.65 76,380,537.85 46,291,235.06 Discount rate, % 12% Year 2013 1.65 12,594,328.09 7,632,926.12 Operation and Maintenance costs, % of investment 2% Year 2014 1.75 6,057,401.48 3,461,372.28 GDP growth rate, % 4% Year 2015 2.20 8,273,636.38 3,760,743.81 Inflation, % 4% Year 2016 2.50 10,450,784.61 4,180,313.84 Incremental Capital Output Ratio - ICOR 2 Year 2017 2.50 7,640,505.83 3,056,202.33 Private Investment Leverage Factor 1.38 Total 121,397,194.25 68,382,793.44
Tourism Indicators Project Indicators Total Tourist Arrivals in 2011 1,318,968 Share of Labor costs in Capital Expenditures (Public) 30% Share of Kakheti (average of GNTA, Geostat, Survey) 7.94% Share of Labor costs in Leveraged Capital Expenditures 20% Number of Beds in Kakheti (2012) 1,462 Number of Beds in Kakheti (as of January 2018) 3,614 Increase in number and spending of Tourists/attributable to the project Number of additional % Number of days Daily spend by Tourist arrivals growth rate forecast for 2017-2022 5.0% Year Tourists increase spent (average) tourists attributable to RDP Tourist arrivals growth rate forecast after 2022 3.0% 2011 0% 0 1.32 $42 Long term base line tourism growth rate (no 2.0% 2012 48.38% 14,669 1.54 $43 intervention scenario) Tourism spending growth rate 2.0% 2013 30.71% 28,436 1.76 $44 2014 32.17% 47,512 1.99 $45 2015 18.48% 61,822 2.21 $46 2016 54.36% 113,351 2.43 $47 Average stay in 2012, days 1.32 2017 5% 120,066 2.65 $48 Average stay after 2017, days 2.65 2018 5% 127,138 2.87 $49 Average daily spending per tourist, USD 47.74 2019 5% 134,585 3.00 $50 Local share in tourist spending 90% 2020 5% 142,426 3.00 $51 Hotel occupancy rate 43% 2021 5% 150,681 3.00 $52 Secondary Sales Multiplier factor 2.0 2022 5% 159,372 3.00 $53 2023 3% 164,546 3.00 $54 Breakdown of the tourist spending 2024 3% 169,884 3.00 $55 Personnel Salary (net) 20% 2025 3% 175,389 3.00 $56 Food, utilities & other (local) 30% 2026 3% 181,068 3.00 $57 Food, liquor (Imported) 10% 2027 3% 186,926 3.00 $58 Taxes 20% 2028 3% 192,968 3.00 $59 Investor Profits 20% 2029 3% 199,200 3.00 $61 2030 3% 205,627 3.00 $62
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Taxes 2031 3% 212,257 3.00 $63 VAT 18% Corporate Income Tax (CIT) 15% Personal Income Tax (PIT) 20% Property Tax 1%
Fiscal Impact Analysis
Assumptions used in fiscal impact
When calculating Tax Revenues from Increase in Tourist Arrival, overnight stays and spending the following approach was used: • Tourist spending was calculated by multiplying incremental number of tourists by the average daily tourist spending and average length of stay. The incremental number of visitors is calculated based on the difference between the factual or expected visitor growth rates with the project, and the assumption that without the project it would have been growing at 2% a year. The factual growth rates for 2012-2017 were estimated based on data collected from hotels and hotel type enterprises, it is then assumed that growth will slow down and will constitute 5% until 2022, and go down to 3% afterwards. The daily spending is assumed to grow at 2% a year from the 2016 value based on the estimate from the M&E report.51 • At the beginning of the project, the average stay was forecast to increase from 1.32 days (2012) to 2.00 days starting in 2018. Based on the results of the visitor survey conducted in 016 the average stay in Kakheti (including day trip visitors and overnight visitors) was 2.65 days. The model uses this estimate and assumes that the growth of average length of stay will continue until it reaches 3 days, after which it will remain at that level.
• It is calculated that part of the tourist spending from direct sales will flow to the government, in the form of VAT (18% of sales), PIT (20% of salaries), CIT (15% of profit) and dividend (5%) taxes. In total, taxes will comprise 20% at minimum.
To calculate Tax Revenues from indirect (Secondary) sales the following approach was used: • Tax payments (20%) and expenditure on imported food and liquor (10%) are deducted from tourist spending and as the remainder is paid to Personnel (20%), Local food and wine producers, utilities, etc. (30%) and 20% is left to investors, i.e. 70% of the tourist expenditures will be transformed into local revenues that will be spent locally and that will create secondary economic effects in the region. The National Park Service Money Generating Model52 sales multiplier that equals two is used as an assumption. This implies that each dollar of direct sales generates another dollar in secondary sales in this region. We assumed that the tax rate for the secondary sales is same and equals 20%.
To calculate Tax Revenues from Property Value Appreciation the following approach was used: • Leveraged Capital attracted by the Public expenditures on infrastructure improvements will lead to an equal increase in the value of real assets and property taxes rate of 1% (used for commercial
51 Tourism and Project Performance Monitoring and Evaluation Activities in the Kakheti Region, Georgia - prepared by Tourism Development International (TDI) in November, 2017 52 http://35.8.125.11/mgm2_new/
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properties) was used for calculations. It is assumed that 50% of tax will be collected, because small family guesthouses and restaurants may not report their assets.
To calculate Tax Revenues from VAT and Temporary Job Creation during construction activities the following approach was used: • There were two sources for VAT and Temporary Job Creation – Construction activities during Project implementation (Public funding) and during the construction of privately funded assets, that benefited from infrastructure investment support under the Project; • VAT was calculated on all capital expenditures; • According to the representatives of the construction companies for some projects (Arrangement of visitor Centers in Old Shuamta, New Shuamta and Ikalto and conservation of St Nino church in Ikalto, Rehabilitation of Dartlo houses and Kvareli buildings) labor costs comprise about 30-33% of total costs during the reconstruction works (even as high as 40% in the case of Dartlo) and labor component for other types of work, including construction of assets by the leveraged capital comprises around 25% of total costs. Therefore, following a conservative approach the assumption of 30% labor costs in public investments and 20% - in private investments was adopted. • The PIT (20%) was paid on these expenditures.
Economic Impact Analysis
The economic analysis is based on the financial analysis. Hence, all the assumptions made in financial analysis are valid in the economic analysis.
Financial costs including investments costs and operation and management costs were adjusted in order to correctly assess costs associated with the Project from the point of view of the economy. In order to achieve this, payment of taxes was excluded from the financial costs as tax payments represent just transfer of funds from the point of view of the country. Also, shadow prices have also been considered along with the inefficiency characteristic for a transitional economy. The following assumptions have been made: : • Personal income tax (PIT), which is included in labor cost and comprises 20% has been deducted from the labor costs reflected in the financial costs; • Value Added Tax (VAT) at the current rate of 18% was deducted from the operations and maintenance as well as capital costs used in the financial analyses.
Identification and application of conversion factors required for the economic analysis was carried out in the following two stages: 1. Total project costs were broken down into three components: Foreign Procurement; Local Procurement and Local Labor Force. Based on interviews with contractors it was assumed that 10% of the materials were purchased internationally and 90% locally. Also 25% of construction cost was attributed to labor. 2. Foreign procurement was considered at world prices and conversion factor was not used. Standard Conversion Factor (SCF) was calculated at 0.95 as Georgia has relatively little import or export taxes and average difference between world and domestic prices is very small. Shadow wage factor was calculated by the following formula: SW = W*(1-t)*(1- u), where: SW is the shadow wage, W is the market wage and t is the income taxation and
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u is the unemployment rate of the region. By plugging appropriate numbers for Georgia53 we received shadow wage factor of 0.69.
Then appropriate conversion factors were applied to each group. Conversion factors applied to the mentioned cost items are given in Table 6.
Table 6. Capital Costs Conversion Factors
Foreign Purchases Local Procurement Type of Work materials Labor force Share in total Conversion Share in Conversion Share in Conversion costs, % factor total factor total factor costs, % costs, % Construction 0% 1.0 75% 0.95 25% 0.69 works
Materials 10% 1.0 80% 0.95 10% 0.69
After the application of the conversion factors the resulted capital expenditures (both Public and Leveraged) were used for the economic analysis.
The primary economic benefits of the Project are expected to come from the following streams and related assumptions:
1. Economic Benefits from Incremental Tourist Expenditures 2. Economic Benefits from Temporary Job Generation 3. Economic Benefits from Secondary Sales
Assumptions made during Economic Analysis
To calculate Economic Benefits from Incremental Tourist Expenditures was calculated in the same manner as for financial analysis.
To calculate Economic Benefits from Temporary Job Generation the following approach was used: • Salary payments during Temporary Job Creation: 1) Construction activities during Project implementation (Public funding) and 2) during the construction of assets by Leveraged Capital were calculated as per financial analysis. • The PIT (20%) was deducted from these payments to calculate economic benefits.
To calculate Economic Benefits from Secondary Sales the following approach was used:
53 Income tax in Georgia equals to 20% and average unemployment rate during 2012-2016 equaled 13.16 percent - source: http://geostat.ge/index.php?action=page&p_id=146&lang=eng
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• Non-tax part of Incremental Tourist Expenditures and salaries during Temporary Job Generation were spent locally to create secondary economic effects in the region. We used the National Park Service Money Generating Model sales multiplier that equals two. This implies that each dollar of direct sales generates another dollar in secondary sales in this region.
Sensitivity analysis
The sensitivity analysis clearly shows that while changes in some of the important parameters of tourism development will impact project’s economic and financial outcome, they will not be strong enough to overall undermine the overall positive results of the Project. (Table 7)
Table 7. Analysis of sensitivity of key results of economic and financial analysis to changes in assumptions
Decrease in assumed values Variable NPV ∆ NPV FIRR ∆ FIRR EIRR ∆ EIRR Tourist arrivals growth rate forecast $6,236,484 -$5,448,260 14.39% -1.66% 19.47% -1.92% (±50%)
Tourist Spending Growth Rate $10,765,889 -$918,855 15.83% -0.21% 21.23% -0.16% (±50%)
Private Investment Leverage Factor $10,069,348 -$1,615,396 15.41% -0.63% 21.93% 0.54% (±10%) Secondary Sales Multiplier factor $8,577,358 -$3,107,386 15.05% -0.99% 19.31% -2.08% (±10%)
Increase in assumed values Variable NPV ∆ NPV FIRR ∆ FIRR EIRR ∆ EIRR
Tourist arrivals growth rate forecast $18,094,950 $12,884,636 17.66% 1.61% 23.24% 1.85% (±50%)
Tourist Spending Growth Rate $12,537,586 $852,842 16.23% 0.19% 21.53% 0.14% (±50%)
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Private Investment Leverage Factor $13,300,140 $1,615,396 16.71% 0.66% 20.88% -0.51% (±10%) Secondary Sales Multiplier factor $14,792,130 $3,107,386 16.99% 0.95% 23.50% 2.11% (±10%)
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ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS
Borrower’s ICR
Strategic Context A. Project Background Before launching the Regional Development Project, Georgia had not fully tapped its potential to promote sustainable tourism in promising regions, such as Kakheti. Therefore, in the framework of the Country Partnership Strategy Progress Report (CPS-PR) for FY10-FY13 presented to the Board in April 2011 (Report Number: 58287-GE), the Government of Georgia asked the Bank to support regional development by applying a programmatic approach. The aim of the project was to support the local economy development in Kakheti region by carrying out integrated tourism development approach, focusing on infrastructure, urban regeneration, cultural heritage restoration, skills development and enabling the environment to attract private sector investments.
Kakheti has long been the heart of Georgia’s ancient culture, history and economy - evidenced by records from Stone Age. Kakheti was a key juncture on the Great Silk Road as well. It is a home to a unique cultural heritage which includes the Nekresi Church Remnants (4th century AD), the David Gareja Caved Monastery (6th century AD), the Old Shuamta Basilica (5-6th century AD), the Nino Tsminda Citadel (7th century AD), the Alaverdi Cathedral (11th century AD), the Bodbe Monastery (9-11th century AD), and the Gremi Archangel Monastery Complex (16th century AD) among others. The ancient city of Telavi is its cultural and economic capital, whose early records are cited by the Greek scholar Ptolemy (2nd century AD). Signagi and Kvareli are renowned for their unique architecture and Kakheti is the center of vineyards that cover the beautiful Alazani and Signagi valleys. Telavi, Signagi, Kvareli and Akhmeta also have local food processing plants. Kakheti is also home to three magnificently protected areas: Tusheti in the north, Lagodekhi in the center, and Vashlovani in the south. Tusheti has preserved its unique cultural heritage, traditions, and ceremonies over the years. It is renowned for its lavish landscape and the historical villages - Dartlo and Omalo, which are distinguished by their traditional architecture, where residents have maintained their culture and pattern of life. Kakheti Tourism Development Value Chain analyses conducted by Solimar International Inc revealed huge potential, but identified challenges, to be addressed by Regional Development Project: • The vast majority of overnight visitors to Georgia spend little, come for business or visit friends and relatives (VFR); • The need for urban renovations and improving the quality of municipal infrastructure in vital cultural centers (Telavi, Kvareli, and Dartlo); • The low quality of municipal infrastructure (water, sanitation, access roads and solid waste disposal); • Limited hotel capacity; • A lack of activities to promote visiting the region as an attractive tourism destination; • A lack of investor information, communications and cooperation among investors to achieve a competitive edge; and • Inadequate service skills and limited proficiency in foreign languages.
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There was strong ownership of the Project from the Borrower’s side. A Supervisory Board leaded by the Prime Minister, have been working closely with the Bank to identify, prepare and implement the Project.
B. Project Development Objective The Project Development Objective is to improve infrastructure services and institutional capacity related to the tourism economy in the tourism and heritage circuits of the Kakheti region.
C. Project Components The project has two components: Component 1.1: Infrastructure Investment (WB: $56.3 million; Borrower: $14.1 million) • Urban regeneration: An integrated approach is proposed for renewal of Telavi, Kvareli and the heritage village of Dartlo. This includes a) the rehabilitation of municipal infrastructure and utilities in the central historical areas, b) conservation and upgrading of public spaces and cultural buildings, and c) conservation of building facades with vernacular architecture. The proposed conservation and upgrading activities will help improve livability and hospitality in a culturally-informed manner, enhance attractiveness for visitors, revitalize the urban and rural nuclei, and attract an increased volume of private sector investments.
• Tourism circuit development: Integrated approach to cultural heritage site upgrading and improved management in the most attractive 11 cultural heritage sites located along the main tourism circuit/route in Kakheti. These include a) improved urban landscaping and public parking; b) construction of visitor centers, cafes and public toilets; and c) improving access roads. The main tourism and culture heritage circuit has been identified in the Kakheti Tourism Development Strategy connecting the following culture heritage sites, which are targeted for upgrading: Ujarma, Old and New Shuamta, Ikalto, Alaverdi, Bodbe, Gurjaani, Akhtala, Nino Tsminda, Khirsa and David Gareja, King Erekle (Batoni) Palace and territory.
Component 1.2: Provision of financial resources to LSGs to carry out Investment Subprojects for public infrastructure to attract private sector investments in tourism, agro and food processing. To encourage private sector investments in the region, this component was to support a selected number of private sector entities which showed interest and capacity to invest in Kakheti in a selected number of tourism and agro sector, but seek complementary public infrastructure necessary to make their investments viable (e.g. public facilities within vicinity of the investments, road/sidewalk, water/sanitation, etc). A package of incentives, based on a transparent and competitive process was established to select investors. Under the sub- component 1.2, 11 sub-projects have been implemented that supported companies investing in tourism, agro and food processing sector. Component 2: Institutional Development Component intended to enhance the institutional capacity and performance of the Georgia National Tourism Administration (GNTA), National Agency for Cultural Heritage Preservation of Georgia (NACHP), the Project Implementing Entity (MDF), and other local and regional entities to carry out the following activities: • Destination management and promotion, including local outreach campaign; • Geo-tourism routes and tourism portal; • Skilled workforce development and capacity building; • Construction supervision and sustainable site management of cultural heritage; and
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• Performance monitoring & evaluation activities. (For the additional details, please refer to project appraisal document)
Project Restructuring, Disbursement Categories Adjustment and Project Extension In October of 2017, MDF addressed the World Bank requesting reallocations of the Loan No 8148-GE proceeds and modification of indicators as part of the project restructuring. Both requests had solid backgrounds from MDF:
Disbursement Categories Adjustment and Project Extension
A number of sub-projects that were in mountainous parts of Kakheti, for instance in village Dartlo, where weather conditions are harsh and constructions season lasts for only 3.5 months from July to mid of October, making it difficult for MDF to complete all the sub-projects before the Project closing date (31 December 2016). For this reason, MDF requested extension of the closing date for one year until 31 December 2017. The World Bank approved the extension and sent an official notice to MDF on 9 June 2016. Additionally, extended supervision contract ensured high quality of construction works, which increased consulting component expenses. Eventually, the proceeds under the project component “Consultants services and Training” was not enough to fully finance the supervision contract mentioned above and other services. Consequently, the reallocations of the loan proceeds within the relevant withdrawal categories were requested by MDF to meet all obligation under the Loan Agreement.
Please refer below to disbursement categories before and after the adjustment:
Category Amount of the Amount of the Loan Percentage of Loan Allocated after Re-allocation Expenditures to be (expressed in USD) (expressed in USD) Financed (inclusive of taxes) 1) Works and Goods 55,681,000 54,501,000 80% 2) Consultants' services and Training 2,294,000 4,125,000 80% 3) Operating Costs 1,224,000 1,224,000 80% Amount payable under section 2.03 of this 4) Front-end Fee 150,000 150,000 agreement in accordance with Section 2.07 (b) of the General Conditions 5) Interest Rate Cap or Amount due pursuant Interest Rate Collar to Section 2.07 (c) of Premium this Agreement Total Amount: 60,000,000 60,000,000
Indicators modification In addition to loan reallocation, MDF requested modification of indicators as part of the project restructuring. The results of the Indicators assessment revealed that several indicators included in the framework were not best fit for evaluating the achievement of the PDO of the project and not well aligned
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with the interventions conducted under the project. Therefore, to benefit from expert’s advice for the validation and improvement of the design and methodology for measurement of the Project indicators, the proposed changes supported more accurate and precise evaluation of the Project outputs and outcomes and achievement of the PDO at Project closing. (For the additional details, please refer to Restructuring Paper with Report No RES29418)
Project Preparation, Design, and Performance Project Preparation and Design The project preparation and design process were concentrated on the primary objective of the Project, to improve infrastructural services, cultural heritage circuit, institutional capacity related to the tourism sector and in total tourism economy in Kakheti region. It was necessary to consider the complex approach to achieve ambitious project development objective. As a pilot project, RDP was a great challenge for the government of Georgia and the implementing agency. Diverse nature of sub-projects of RDP considered involvement of various stakeholders, like GNTA, NCHPA, Municipalities of Kakheti Region, Patriarchate of Georgia, Ministries and many other. More critical was that mentioned agencies did not have experience of active cooperation between each other previously. Regardless of the fact that MDF had experience of implementing municipal development projects with the support of the Bank, it had no exposure of implementing such a diversified and complex project like RDP. Considering MDF’s experience and future challenge, implementing agency’s capacity was indicated as Low and Overall Implementation Risk as Moderate in the PAD. However, later, WB raised Overall Implementation Progress to Satisfactory level. Project Performance Despite the fact that RDP was complex and challenging for the implementing agency, MDF managed to implement all the sub-projects successfully and achieved PDO and intermediary indicators.
Achievements of project Urban Regeneration An integrated approach was proposed for renewal of Telavi, Kvareli and the cultural heritage village Dartlo. The approach included a) the rehabilitation of municipal infrastructure and utilities in the central historical areas, b) conservation and upgrading of public spaces and cultural buildings, and c) conservation of building facades with vernacular architecture. • Urban renovations and improving the quality of municipal infrastructure for Telavi Town In the central part of Telavi Town 156 buildings were rehabilitated, water pipeline with a length of 3.2 KM and wastewater pipeline with 1.62 KM was arranged. Under the sub-project of outdoor lighting rehabilitation, 448 units of lighting poles and additionally 810 units of lighting for buildings were installed. Landscaped territory covered 22,217 m2 that included various stone and asphalt pavement of 15,225 m2, grass cover with 8,559 m2, etc. 55 units of recycling bins, 73 wooden benches, 432 trees and 4,769 bushes were arranged. Under the project Nadikvari Park was rehabilitated, which has a beautiful view over Telavi town. • Urban renovations and improving the quality of municipal infrastructure for Kvareli Town In Kvareli Town ten buildings was rehabilitated. Under urban regeneration sub-project grass cover of 1,528 m2 was arranged, 3,305 bushes were planted and PE small diameter pipes of 1.729 KM were installed. Underground utility rehabilitation included installation of steel pipes with 3.875 KM, installation of PVC sewerage pipes with 0.650 KM and aluminum cables of 6.300 KM. Additionally, 6.82 KM road was rehabilitated, 269 units of lighting poles and 191 units of lighting for Bicycle lane were installed. • Rehabilitation of the Village Dartlo Restoration of the village Dartlo sub-project rehabilitated and restored 51 residential houses, which is up to 70% of the Dartlo buildings. Rehabilitation works significantly improved the architecture of the village and
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enhanced the attractiveness of Dartlo for visitors. Dartlo has become the best preserved architectural jewel of Tusheti. Tourism circuit development Under tourism circuit development component MDF improved infrastructure in the most attractive 11 cultural heritage sites located along the main tourist route in Kakheti. Rehabilitation works include a) enhanced urban landscaping and public parkings; b) construction of visitor centers, cafes and public toilets; and c) improving access roads, and rehabilitation of cultural heritage sites. Upgraded sites: Dzveli and Akhali Shuamta, Ikalto, Ninotsminda, Ujarma, Davit- Gareji, Gurjaani, Alaverdi, Khirsa, Bodbe, Akhtala, Telavi historical museum and the palace of King Erekle II (Batoni Palace). Support for private sector investments To encourage private sector investments in the region following infustructural investments by the central government resulting in increased tourism economy, PPI component supported a selected number of private entities, which expressed interest and capacity to invest in Kakheti region in tourism, agro and food processing. MDF funded complementary public infrastructure necessary to make their investments viable. In total 11 private investment proposals were approved and implemented supporting private entities operating in Kakheti in tourism, food processing, and agro sector. Eventually, private entities invested 19 million USD by the support of PPI component, under which MDF disbursed nearly 2.4 million USD. Institutional Development Institutional development – an important component of RDP enhanced capacity of implementing agency – MDF, Georgia National Tourism Administration (GNTA), National Agency for Cultural Heritage Preservation of Georgia (NACHP) and other local and regional entities through following sub-projects: • Preparation of visitor management plan and interior design for Batoni Museum (Telavi Historical Museum) Under the assignment consultant developed visitor's scheme and route adhering to international museum standards, prepared detailed designs of showcases by exhibition themes and concepts, determined lighting concepts for the exhibition space, prepared management plan and financial estimations, developed mechanisms for concentration of visitor's attention on the complex's sections of historical importance, etc. Approved visitor management plan and acquired knowledge are used extensively by Telavi Historical Museum, Ministry of Culture and Sport of Georgia and NACHP. Based on visitor management plan various artifacts was selected for planned exhibition in May 2018. Additionally, museum budget was prepared according to financial estimations, which was part of the visitor management plan. Telavi Historical Museum, Ministry of Culture and Sport of Georgia and NACHP were actively involved in the processes. • Workforce development and capacity building for tourism and hospitality industry Under the sub-project in-depth research and assessment of tourism labor market of Kakheti region was done. Evaluation of the capacity of local vocational education providers was prepared. Detailed action plan for the delivery of demand-driven trainings was developed. According to action plan, training and improved technical expertise in hotel and restaurant operations was conducted. The training covered all municipalities of Kakheti delivering services to 444 beneficiaries. Sub-project was a massive support to GNTA, tackling one of the primary challenges in tourism sector – low quality service. The training covered the following courses: ✓ Front office operation ✓ Housekeeping ✓ Waiter service ✓ Kitchen ✓ Hotel management ✓ Wine guide ✓ Sommelier ✓ Service plus
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✓ First aid and safety
• Supervision of civil works for Regional Development Project Subproject included not only civil works supervision but also detailed design reviews of cultural heritage sites and tourism circuit sub-projects. Both of these services were great support and experience for MDF. Design review process adopted under the sub-project is still extensively used, new procedures helped the agency to identify the most optimal way of design review process and developed skills for identification of major design flows in project documentation. Design review procedure included active involvement of NCHPA for all cultural heritage sites. • Tourism, marketing, promotion, online coverage and destination management for Kakheti and Imereti Regions in Georgia Under the sub-project sustainable destination Management Office in Kakheti with all relevant responsibilities, the organization structure, the concept of the advisory board, the job description and tasks of the working program was developed. Kakheti DMO located in the center of Telavi, well-staffed and fully equipped (computers, digital equipment, and furniture) for proper functioning.
Key Factors Affecting Implementation of the Project Influencing factors out of control of the government of Georgia and implementing agency 1) Delays of construction period due to bad weather conditions and landslides; 2) Small construction period (yearly three months) of sub-projects implemented in mountainous part of Kakheti (Tusheti) that extended overall project implementing period Influencing factors under the control of government 1) Change of the government: In autumn 2012, Georgia underwent a development that is already described as historical. The Georgian parliamentary elections on 1 October led to change in government, which was the proof of country’s democratic maturity. The more important fact was that Georgia experienced a peaceful, non-violent, constitutional change of power for the first time in the country’s modern history, after fall of the Soviet Union. Change of government influenced project implementation. First of all new management was appointed in MDF, who started review and analyses of ongoing and planned sub-projects, of course, this process slowed down RDP implementation for a while during 2013. For instance, due to revision and modification of some detailed designs, MDF decided to retender construction works for several sub-projects. 2) Counterpart funding: The government of Georgia provided counterpart funding in an adequate and timely manner. 3) Inter-governmental coordination: Many governmental agencies were involved in the implementation process of RDP, and maybe lack of coordination between agencies had negative impact on the smooth implementation of the project. Influencing factors under the control of implementing agency 1) During the implementation period, MDF kept being stable if we don’t take into account the change in government, which itself slowed down the implementation process. There were changes in PMU, however, in general project management has been carried out smoothly.
Monitoring and Evaluation (M&E) The purpose of the monitoring and evaluation project was to achieve a more detailed understanding of the current state of the tourism industry in Kakheti and deploy mechanisms to monitor the implementation and effectiveness of activities undertaken from the initiation of RDP. Consultant verified baseline values of all results indicators of RDP results framework, and surveyed and monitored PDO and intermediary indicators.
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The consultant also surveyed households in Telavi, Kvareli, and Dartlo. The objective of the Telavi/Kvareli household survey was to compare the household data collected in 2016 with the baseline household data that was collected in 2012 to monitor the following: • Change in household economic status • Attachment to the renovated sites • Opinion on the project activities The objective of the Dartlo Household Survey was to establish similar baseline household data for Dartlo in 2016. Overall, the sub-project enabled MDF to monitor and evaluate key performance indicators and to understand the project implementation process. For instance, based on indicators assessment MDF revealed that several indicators included in the framework were not best fit for evaluating the achievement of the PDO of the project and not well aligned with the interventions conducted under the project. Based on this conclusion MDF requested improvement of the design and methodology for the measurement of the Project indicators, which was approved by the Bank. The proposed changes supported more accurate and precise evaluation of the Project outputs and outcomes and achievement of the PDO at Project closing.
Project Financial and Procurement Compliance
Financial activities
MDF as the implementing agency deployed qualified financial accounting staff and opened designated account for independent accounting. Followed unified approaches to financial management, accounting, and reimbursement and kept unified and complete records and account files. Independent auditors regularly verify compliance with these requirements. Please refer to the audit report on MDF website.
Procurement activities
The procurement activities are carried out by Guidelines Procurement under IBRD Loans and IDA Credits.
Evaluation of Project Outcomes The project design was in line with development objectives. The investments in Urban Regeneration, Tourism Circuit Development, PPI component for encouraging private sector investments, and institutional development were consistent with the project development objectives. The achievement of project indicators Under the Monitoring & Evaluation sub-project, the consulting firm conducted in-depth surveys and evaluation of development and intermediary indicators that showed significant growth in tourism sector of the Kakheti region. It should be noted that some tourism-specific projects such as rehabilitation of Batoni Museum, and several visitor centers near cultural heritage sites remained under construction while the research was undertaken. As a result, the impact in the long term is likely to be even more significant than those reported by the consultant. For the details, please refer to contract – Tourism and Project Performance Monitoring and Evaluation Activites in the Kakheti Region, Georgia, Final Report. Implementation of Resettlement Policies and Environmental Management Plan Implementation of Environmental Management Plan Under Regional Development Project, all the SPs were implemented in compliance with the Georgian legislation and environmental and social requirements of the donor organization (WB). Any construction activities within the protected areas or buffer zones, as well as within general or particular protection zone
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for cultural heritage monuments, were carried out after obtaining relevant consent from the regulatory agencies. For each SP, MDF prepared environmental documentation (EMP, ER) and discussed with stakeholders. Potential impacts at the construction phase as well as during operation of the infrastructure supported by the project were considered, and proper mitigation measures were taken during the project implementation. Additionally, MDF conducted regular on-site monitoring during civil works to verify contractors’ adherence to the requirements set out in the environmental documentation, to identify any outstanding environmental issues or risk, and to ensure proper application of the prescribed remedial actions. Environmental chapters of quarterly progress reports on the project implementation were shared with the World Bank to carry more comprehensive, analytical information on the status of environmental performance under the RDP. Apart from that MDF environmental staff actively reviewed reports provided by the Supervision Company and took actions if deemed necessary. During the project implementation, no apparent environmental issue was reported, and no complaint was received from the public regarding the environmental management. Restoration/conservation of historical buildings did not affect the structural stability of the existing constructions, depreciate the historical and aesthetic value of heritage sites nor disrupt the natural balance of ecosystems. Eventually, RDP has brought significant positive impacts on the environment, such as: • Reduced pollution to the ground, surface bodies, and rivers • Improved stormwater collection system and drainage capacity; • Arranged landscape instead of cleaned asbestos-containing waste collection site Improved wastewater system and installed treatment units for the visitor centers and hotels. All the abovementioned points will help to improve environment and give more potential to productive water usage. Moreover, these positive impacts contribute to the enhancement of public health, improvement of urban life, and development of tourism potential. Implementation of Resettlement Policies All the sub-projects were implemented in compliance with the Georgian legislation and social requirements of the donor organization (WB). Before construction works, MDF conducted several individual and public meetings with the project affected persons (PAP) and provided all related information. PAPs usually expressed views and ideas during the meetings that had been taken into consideration. Additionally, written consents regarding sub-project implementation were received from PAPs. Besides, MDF hired independent consultants to prepare Resettlement Action Plans. The land acquisition and resettlement were conducted according to the consolidated Resettlement Plan of Regional Development Project (RDP). Despite the fact that there were some social risks during the process of project implementation, the issues related to land acquisition and resettlements were appropriately addressed as the grievance redress mechanism was properly developed and made accessible to all PAPs. Under the project, all the affected persons have been reasonably resettled and compensated in full amount.After the implementation of the project, the aforementioned persons life conditions have improved compared with that before the project. Their livelihoods have been positively recovered ordeveloped. Project Sustainability A distinctive feature of the RDP is that it strongly emphasized stakeholders ownership and sustainability of the investments. All state agencies, municipalities on regional and local levels were involved in the design preparation of the project, and later all the agencies were a part of implementation and supervision process. In order to strengthen stakeholder’s ownership, before launching of sub-projects, MDF organized public discussions with dwellers, local governments and other stakeholders. Additionally, MDF screened all investments against Operations manual criteria and as a standard practice signed subproject investment agreements with benefiting LSGs, where responsibilities for operating and maintaining assets are assigned to them. Evaluation of Bank and Borrower Performance Bank Performance
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• Realistic project design and proper project identification • In-depth assessment of the project and evaluation • Quality supervision of civil works and detailed designs Bank team with task team leader, co task team leader, experts and consultants actively supported MDF in project initiation, planning, further implementation, and project closing. The team had excellent and efficient work style, full understanding of policies and procedures. WB frequently supported MDF with expert’s advise that eventually reflected on the successful implementation of the project. Borrower Performance Government's Performance: The government of Georgia actively supported the project during proposal, approval, planning, implementation, evaluation, and closing process. The government ensured proper coordination, execution, and control by maintaining the supervisory board of MDF, chaired by the Prime Minister of Georgia, and comprising of ministers of effected ministries and the Governor of Kakheti. The Board’s functions included (a) overall supervision of the project implementation; (b) inter-agency coordination to achieve the project objectives and (c) review and approval of the annual work program budgets and reports. Additionally, sufficient and timely provisions of credit funding and domestic counterpart funding ensured smooth project implementation. Implementing Agency Performance: By the lead of the government, the implementing agency actively contributed in design and construction of sub-projects and supervision of civil works; obtained approval on all necessary documentation from the World Bank, as well as local governments and various states agencies. All the procedures mentioned above ensured the completion of quality civil works, increased institutional capacity and eventually achievement of expected results. Lessons learned The Regional Development Project was a pilot for the government of Georgia and for the implementing agency. The project was challenging, experiential and lead to the development of new approaches. The expertise of MDF as well as of other state agencies increased significantly based on lessons learned during the project implementation: • Proper evaluation and review of detailed designs, as well as adequate supervision for civil works, was an important challenge for MDF. However, by the support of WB, which included active civil works supervision from WB monitoring team and detailed design review, quality increased significantly year by year. This process was supported by the independent consulting company, which reviewed all the detailed designs for cultural heritage sub-projects and monitored construction works. Eventually, based on lessons learned MDF gained capacity to identify major flaws in design documentation that decreased the number and volume of contract amendments. Advanced supervision management and active involvement of project managers in implementation process reduced the number of defects after completion of construction works. • Strong government ownership and proper coordination among relevant state agencies are vital for project success. Several stakeholders were involved in project implementation, which initially was a challenge for the implementing agency. Assigning focal point persons from each stakeholder, was part of the coordination strategy,which proved to have positive impact on performance. • Severe weather conditions, which had an impact on the construction schedule, were common in mountainous regions of Georgia, eventually risking the project implementation process. Based on lessons learned, MDF beforehand identifies future risks that could hamper successful and timely completion of sub-projects, and takes actions accordingly.
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Conclusion In conclusion, we would like to state that Regional Development Project was massive support for Kakheti region as well as for the whole country. It brought significant social, economic and environmental benefits. The project laid a solid ground for cultural heritage preservation and potential for boosting investments from private entities in the tourism sector. RDP was a significant factor in the spectacular growth of tourism sector in Kakheti region between 2012 – 2017. Data obtained from various sources explicitly shows how tourism sector development impacts Kakheti, we can see a high increment in number of hotels and restaurants, increase in monthly remunerations of employed persons in tourism-related activities, and robust growth of taxes paid in Telavi and Kvareli municipalities, where most of RDP investments were spent. Please see the data below:
Description 2012 2017 Number of Hotels and Restaurants 343 506 registered by years in Kakheti Region
Description 2012 2017 Average monthly remuneration of 241 497 employed persons in hotels, restaurants and tourism-related activities
Taxes paid from Tourism Related Activities in Kakheti Municipalities
Year Akhmeta Gurjaani Dedoplistskaro Telavi Lagodekhi Sagarejo Sighnagi Kvareli 2012 33,634 110,441 92,600 1,567,298 105,118 194,157 125,645 48,495 2013 20,941 175,625 124,056 1,219,861 120,462 104,666 112,707 247,134 2014 26,316 160,822 118,470 1,169,952 178,048 102,660 135,536 740,396 2015 25,941 160,968 44,112 5,502,934 184,554 100,043 391,040 1,002,551 2016 36,209 436,001 40,625 3,157,650 240,563 376,167 227,625 902,058 2017 51,936 900,735 51,442 3,376,600 285,256 139,176 295,544 1,505,448
Total 216,167 2,107,613 628,350 16,937,076 1,268,441 1,203,530 1,449,657 4,524,265
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ANNEX 6. SUPPORTING DOCUMENTS
1. Regional Development Project: Project Appraisal Document (February 2012) 2. Loan Agreement and Project agreement and their amendments 3. Regional Development Project: Implementation Review (December 2016) 4. Project Procurement plan 2012-04 and 2017-09. 5. RDP1 Aid Memoirs: June 2011, December 2011, February 2012, February 2013, May-June 2013, September 2013, May 2014, September 2014, April 2015, September 2015, June 2016, June 2017. 6. Internal Implementation Status Reports for RDP1: March 2013, December 2013, June 2014, February 2015, August 2015, May 2016, June 2016, December 2016, June 2017, December 2017. 7. Monthly Site Inspection Reports 2016-2017. 8. Internal Implementation Status reports for RDP2 and RDP3: September 2012, June 2013, June 2014, October 2014, June 2015, January 2016, March 2017. 9. RDP1 Restructuring Papers: June 2016, November 2017 10. Regional Development Program of Georgia (2015-2017) 11. Georgia Regional Development Strategy 2010 12. Kakheti Regional Development Strategy (2014-2021) 13. Georgia Country Partnership Framework (2014-2017) 14. Georgia Country Partnership Framework (2019-2022) 15. Kakheti Tourism Development Report (prepared by Solimar in 2011). Part I: Tourism Development Potential and Part II: Priority Actions 2012 – 2014. 16. Kakheti Regional Development Study: Agriculture- Policies and Investment for Diversification and Improved Competitiveness.
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ANNEX 7. DETAILED DISCUSSION OF ACHIEVEMENT OF THE PDO AND RESULTS ATTRIBUTION
This Annex offers detailed discussion of results achieved under each of the three outcomes of the project PDO and discusses their attribution to the Project.
PDO element 1: Improve infrastructure services
Tables 7 – 12 present a detailed overview of outputs and outcomes achieved under the first element of the PDO, from the project objective indicators, to outputs sorted by locations and subprojects.
Table 7. PDO-level indicator capturing improvement of infrastructure services. PDO-level Results Indicator Baseline Target Actual Status Reduce weighted average vehicle operating cost due to 100% 75% 71% Exceeded improved urban roads54
Table 8. Intermediate results indicators for components 1.1
Intermediate Results Indicator Baseline Target Actual Status Piped household water connections benefiting from 0 500 907 Exceeded rehabilitation works undertaken by the project Roads constructed and rehabilitated55 0 20 km 26.3 km Exceeded Number of redeveloped culture heritage sites along the 0 11 11 Achieved tourist circuit Number of buildings restored in Telavi, Kvareli and Dartlo 0 150 217 Exceeded Direct project beneficiaries 0 30,800 32,319 Exceeded Female Beneficiaries 0 16,140 16,867 Exceeded
Table 9. Intermediate results indicators for components 1.2
Intermediate Results Indicator Baseline Target Actual Status Number of Private development proposals approved 0 10 11 Exceeded
54 The results are calculated using the Road Economic Decision Model used previously in multiple infrastructure investment projects in Georgia and Elsewhere assuming the characteristics of vehicle fleet typical for Georgia, and accounting for the total improvement to the road network accomplished under the project. Detailed description of the methodology used for the calculation of the outcome is presented in final M&E report of the project. The observed values are calculated specifically for the town of Kvareli, which accounted for 25% of total road rehabilitation, and represented a case of the most concentrated and impactful road rehabilitation intervention of the project. 55 Indicator added in the restructuring in the last year of implementation; final value includes roads constructed under component 1.2.
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Table 10. List of outputs under subcomponent 1.1 - Urban Regeneration by location
Location Description Actually Completed Restoration of buildings on Cholokashvili street and Erekle II avenue in Telavi Town Number of rehabilitated buildings: 88 Restoration of buildings around Batonis Tsikhe (Castle) area, Tavisupleba square and Nadikvari street in Telavi Town Number of rehabilitated buildings: 55 Additional Works for Restoration of buildings in Telavi Town Number of rehabilitated buildings: 13 Rehabilitation of Underground Utilities in Telavi Streets (Central Part of Telavi Water pipeline length: 7.915 KM Town) Wastewater pipeline (collector): 1.62 KM Rehabilitation of Roads in Telavi streets (Central Part of Telavi Town) Length of rehabilitated road: 3.22 KM Rehabilitation of Outdoor Lightings in Telavi streets (Central Part of Telavi Arranged outdoor lighting poles: 220 units Town) Arranged lighting for buildings: 2898 units Landscaped territory: 22,217 m2; Stone pavement - 927 m2 Traventine pavement - 6,794 m2 Granite pavement - 1,385 m2 Asphalt pavement - 635 m2 Urban Regeneration Works in Telavi Basalt pavement - 5,484 m2 Streets (Central Part of Telavi Town) Grass cover - 8,559 m2 Lighting poles - 263 units Wodden benches - 73 units Recycle bin - 55 units Trees - 431 units Bushes - 4,769 units Landscaped territory: 28,000 m2; Asphalt pavement - 1,285 m2 Rehabilitation of Nadikvari Park in Telavi Concrete trails - 4,052 m2 Town Trees - 191 units Bushes - 5,420 units Flowers - 8,520 units Rehabilitation of Batonis Tsikhe (Museum) in Telavi Town Landscaping of Batoni Castle territory - 15,400 Phase 2 of Rehabilitation of Batonis m2 Tsikhe (Museum and territory) in Telavi Museum building area - 2,597 m2 Town Phase 2 of Rehabilitation of Batonis Telavi Tsikhe (Castle) in Telavi Town Area of restored Batoni Palace - 820 m2
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Site cleanup and reinstatement at Vardisubani, entrance to Telavi Landscaped territory: 27,824 m2 Landscaped territory - 540 m2 Arranged asphalt sidewalk - 1,402 m2 Rehabilitation of Main Entrance Street to Arranged irrigation system - 540 m2 Telavi (Ketevan Tsamebuli) Arranged bridges - 2 units Arranged outdoor lighting poles:145 units Supply of chairs and armchairs for Batonis Chairs and armchairs - 173 units Tsikhe Complex Supply of computer and electronic Computer equipment (Smart TV's, projector, equipment for Batonis Tsikhe Complex computers, printers, scanners, IP telephones etc.) - 66 units Supply of show-cases and office furniture Showcases and parts of showcases: 203 units for Batonis Tsikhe Complex Number of rehabilitated buildings: 10 Restoration of Buildings in Kvareli Streets Rehabilitated gates and fences on Chavchavadze (Central Part of Kvareli Town) and Kudigora Streets
Urban Regeneration Works in Kvareli Land improvement with arrangement of lawns – Streets (Central Part of Kvareli Town) 1528 m2; Planting of bushes – 3305 pcs; Installation of granite slabs – 1434 m2; Installation of PE small diameter pipes – 1729 m; Arrangement of water supply manholes – 9 units;
Rehabilitation of Underground Utilities in Installation of steel pipes - 3.875 KM Kvareli Town Installation of PVC sewerage pipes -0.650 KM Aluminum cables - 6.300 KM; Rehabilitation of Central Roads in Kvareli Town Length of rehabilitated road: 6.82 KM
Rehabilitation of Outdoor Lighting in Kvareli Central Roads Arranged outdoor lighting poles:453 units
Additional Works for Rehabilitation of Outdoor Lighting in Kvareli Central Roads Arranged outdoor lighting poles:98 units Kvareli Arranged Lighting for Bicycle Lane - 82 units Restoration of buildings and arrangement Number of Rehabilitated houses - 51 houses of tourist zone in village Dartlo (Includes 11 houses completed in 2012. House Dartlo
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owners refused to renew houses in Dartlo Phase 2 of Restoration of buildings and rehabilitation second phase 2014 - 2017) arrangement of tourist zone in village Dartlo and other villages of Tusheti
Table 11. List of outputs under subcomponent 1.1 - Tourism circuit development by location
Location Works Description (by contract) Output
Integrated revitalization of cultural Rehabilitated road length - 3.6 KM heritage sites in Dzveli Shuamta, Shuamta Gateway visitor center area - 612 Akhali Shuamta and Ikalto m2; New Shuamta (WC) area - 67 m2; Integrated revitalization of CH sites Old Shuamta visitor center area - 113 m2 in Dzveli Shuamta, Akhali Shuamta, Ikalto visitor center area - 223 m2; Ikalto and Preservation works of Rehabilitated Saint Nino Basilica Ikalto Church Construction of Averi school- Dzveli Shuamta, workshop “Keri’s Sakhli” in Ikalto village Akhali Shuamta and Kvevri workshop area - 2,200 m2 Ikalto
Kitchen equipment (pizza oven, conventional Supply and Installation of oven, fridges, dough maker, kitchen vent Equipment for Kitchen and Café etc.) - 25 units; Tables - 25 units; Chairs - 100 units
Security Network - (cameras, alarm devices, Supply and Installation of Security movement detectors, crash detectors, video Network recorders, monitors, smoke detectors etc.) - 74 units. Integrated revitalization of CH sites in Nninotsminda, Ujarma and David- Gareja Number of buildings: 10 Building area - 2,600 m2 Small Rehabilitation works and Length of water pipeline - 17 KM Arrangement of Tourist Nninotsminda, Power supply cable - 15 KM infrastructure for Cultural Heritage Ujarma, David- Sites of Ninotsminda and David Gareja, Gareja Restoration/Rehabilitation of Damaged and Partially Collapsed Heritage Walls in David – Gareja Monastery Complex Rehabilitated walls - 3 units
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Integrated Revitalization of CH Sites Rehabilitated road length: 3.18 KM in Gurjaani and Khirsa Gurjaani and Khirsa visitor centers area: 232 m2 Khirsa, Gurjani, Water Supply System Rehabilitation Akhtala park Works for Kovladtsminda Visitors Arranged water supply pipeline length - Center 1.463 KM Arranged outdoor lighting poles:222 units Landscaped territory: 17,300 m2 Integrated revitalization of Akhtala Length of Bicycle lane - 0.960 KM mud site attraction Length of arranged walking trail - 0.920 KM
Integrated Revitalization of Cultural Landscaped territory: 3,345 m2 Heritage Sites in Alaverdi and Bodbe Alaverdi visitor center (Matsoni House) - 238 m2 Additional and defects remediation Rehabilitated road length - 0.3 KM works for Alaverdi touristic Landscaped territory - 800 m2 infrastructure Arranged lighting - 11 units Kitchen equipment - Conventional oven, Supply of equipment for CH sites pizza over, working tables, gas oven, (Alaverdi) - Kitchen Dishwasher, fridges, plates, knives, forks, etc.)
Supply of equipment for CH sites Security Network - (cameras, alarm devices, (Alaverdi) movement detectors, crash detectors, video Alaverdi and Bodbe recorders, monitors, smoke detectors etc.)
Arrangement of the water drainage system in Zemo Omalo Arranged drainage channel length - 0.410 Omalo KM Number of rehabilitated road sections: 8 Tusheti units (Road section length 40 -125 meters); Safety Measure of Tusheti road Arranged retaining walls: 8 units
Ujarma, Gurjaani, Defects remediation works under tourist Khisra, Akhtala infrastructure arranging for cultural heritage resort in Gurjaani sites of Ujarma, Gurjaani, Khisra and Town Defects remediation works Akhtala resort in Gurjaani Town
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Table 12. List of outputs under component 1.2 - Public Private Investment by sub-project and location
Investment description Output of the investment
Rehabilitation of Infrastructure and Access road Rehabilitated road length - 0.8 KM to “Hotel and Restaurant” in Village Vejini Arranged outdoor lighting poles:27 units Rehabilitation of access road to "Kakhetian Traditional Winery" in Village Velistsikhe Rehabilitated road length - 1.63 KM Rehabilitation of access road to "Viniveria" Ltd hotel at Village Vardisubani Rehabilitated road length - 0.17 KM Rehabilitation of access road to Twins Old Rehabilitated road length: 0.36 KM Cellar in Village Napareuli Length of arranged sidewalk - 0.456 KM Rehabilitation of access road to "Schuchmann Wines Georgia" wine cellar and hotel in Village Rehabilitated road length: 0.86 KM Kisiskhevi Length of arranged sidewalk- 1.568 KM Rehabilitation of infrastructure and access road Rehabilitated road length: 1.22 KM to "Chateau Telavi" wine cellar in Village Length of rehabilitated water supply pipeline - 0.331 Saniore KM Rehabilitation of inner access roads to Lopota Lake Rehabilitated road length - 2.18 KM Rehabilitation of access road to hotel “Royal Batoni” Located at Ilia Lake in Kvareli Town Rehabilitated road length - 0.22 KM
Rehabilitation of access road, power and water supply, sewage system and telecommunication Rehabilitated road length - 1.14 KM for “Kvarlis Baga” Ltd Arranged water well - 3 units Length of water supply pipeline - 0.8 KM Rehabilitation of access road to "Shalauri" wine cellar Located in Village Shalauri in Telavi Municipality Rehabilitated road length - 0.9 KM Enhancing water supply system for the village Omalo and arrangement of the sewage system Rehabilitated water supply pipeline length - 2.650 KM for the hotel “Samzeo” in Omalo Wastewater treatment unit - 1 unit
Attribution of results on infrastructure and services improvement
This presented data (tables 7-12) clearly shows the direct contribution of the project to the improvement of infrastructure and basic services in the region. The financed activities have directly benefited the investors selected under component 1.2, the local population in Telavi, Kvareli, Dartlo and Gurjani, and
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delivered a critical overhaul of the road infrastructure, public spaces and cultural heritage sites thus laying the foundation for the hub and spoke system of tourism attractions to take shape in Kakheti.
PDO element 2: Improved institutional capacity
Table 13. Intermediate results indicators for components 2
Intermediate Results Indicator Baseline Target Actual Status Production/Distribution of new maps based on 0 10000 19.449 Exceeded ecotourism database Number of established and operating of destination 0 1 1 Achieved management offices 56Number of established and operating of destination management offices
Table 14. List of outputs under component 2 - Institutional development
Activities Outputs Preparation of Visitor Outputs included: visitor management plan adhering to international Management Plan and museum standards, detailed design of showcases, lighting concepts for the interior design for Batonis exhibition space, organizational plan and estimations of financial plan. Tsikhe
The consultant delivered a regional assessment of the tourism labor market, assessment of the capacity of potential local education vocational/technical Skills Development and providers, preparation of detailed action plans for delivery of demand- Capacity Building driven trainings, conducting the trainings on service culture in Hotel and Trainings Restaurant Operations. Most of training participants were employed in hotels and restaurants from all municipalities of Kakheti. A total of 444 people completed the training. The consultant delivered four reports:
Phase 1: Status quo analysis Phase 2 Develop a Monitoring and Evaluation Strategy Phase 3: Test and Oversight data collection Performance Monitoring Phase 4: Final Results Reports and Evaluation
Assignment included measuring of project indicators, accommodation surveys for Telavi, Kvareli and Dartlo dwellers, Foreign visitor survey in Kakheti region, survey of private sector entities, collection of data on accommodation occupancy via an on-line survey.
56 Target was revised down during restructuring due to reevaluation of the objective. It has been agreed between the Bank team and the client that it makes no sense to establish three DMOs in a small region of Kakheti, and one was an optimal amount.
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The consultant is co-funded with RDP2 project, some of the relevant deliverables will be finalized after project closing. The following deliverables were completed before project closing: Tourism marketing, 1) Inception report promotion, media coverage 2) DMOs model for Kakheti and Imereti Region (in draft). The report and destination included proposals for organizational structure of the DMO, including management staffing and staff TORs, and proposed model of coordination with GNTA. 3) Marketing and promotion strategy for Kakheti (in draft)
Consulting services for supervision of civil works Detailed Design review of Cultural heritage site investments (Including to be implemented in arrangement of visitor centers). Kakheti region under Supervision of all RDP construction works Regional Development Project
Printing materials for Kakheti Festival, New Various materials (banners, flyers, bags): 412 units Nadimi"
Domestic promotion Maps - 5150 units materials printing
Supply of computer Equipment (Computers, Printer, Projector, TVs, cameras, photo camera equipment for DMO etc.) - 13 units Supply of furniture for Furniture (Closet, working desk, armchairs) - 13 units DMO
Due to M&E design flaws there were no PDO level indicators in the framework suitable for the assessment of achievement of this sub-objective. However, the overall assessment of the achievement of this sub- objective can be informed through overview of the outputs of Component 2 of the Project and the impact that they have had. This section discusses the results of each of the activities under Component 2, as they were listed in Annex 2 of the PAD.
At appraisal, the Project intended to achieve the objective of instructional development through four types of intervention. The following section discusses outcomes of each of them and their contribution to fulfilling the project objective.
1) Destination management and promotion including local community outreach. a. The core ambition of the component was to establish tourism management offices (later during the Project implementation the target was reformulated as establishing one Destination Management Offices). Additionally, it aimed to develop the Kakheti tourism strategy, support development of a tourism network between GNTA and local level destination managers, launch information outreach campaigns among others.
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b. Outputs. The activity delivered two main outputs, but additional information and data confirming the achievement of the set intent were collected as a part of World Bank supervision activities. i. Consultancy services for regional marketing and promotion focused on development of DMO operational model and producing Kakheti marketing strategy. This consultancy was provided with a substantial delay. The contract with a consultant was signed in summer 2017, as a result of a very long process of development of the TOR by GNTA, which potentially reflected the initial lack of commitment of the government to the DMO model for destination marketing and management. However, the consultancy, when started, made a critically important contribution to establishing the DMO. The consultant held consultations with stakeholders, produced a draft marketing strategy for the region, proposed an organizational structure for the DMO, including the staffing, staff TORs, and model of coordination with GNTA. The consultancy has also delivered a Kakheti tourism marketing and promotion strategy, that received an overall approval of the DMO in March 2018, while the consultant was responding to final comments. Equipment and furniture for the DMO office were also financed by the Project. ii. Visitor management plan and the interior design for the Batoni’s Museum. The preparation of on the visitor management plan and museum design was completed in 2015-2016. Construction works in the museum were completed days before the Project closing and the management plan and design are now used for final design and arrangement of the exhibition ahead of the opening, scheduled for later in 2018. iii. Building capacity of local governments. This objective was addressed under supervision effort of the Bank team and focused on supporting local governments in managing tourism assets delivered by the Project. A workshop on tourism asset management for Kakheti local authorities was held in September 2017. The workshop helped to advance a dialogue with the local governments on possible operation and management modalities for the tourism facilities built by the Project.
c. Outcomes: The core objective of applying a system for destination management and promotion in the region was achieved, even though it encountered substantial challenges and delays. It also made important contribution to building capacity of local governments and supporting tourism promotion. i. Despite a very slow and difficult transition to the new government, delays in TOR preparation and skepticism of the new government in the suitability of the proposed DMO model, the Project has managed to achieve the objective indicator of DMO establishing through an inclusive and collaborative effort. After the change of the national government, the new administration of the GNTA was not convinced about the concept of destination management organizations, and this has dramatically delayed the preparation of the TOR for the consultancy that was supposed to shape the model of the DMO. While it also slowed down the administrative process of setting up the DMO, it should be noted that these initial disagreements were overcome through a sustained dialog between the GNTA, Kakheti regional Government, MDF and the Bank team that achieving mutual ownership of the proposed model. The establishment of the first DMO in the country led to a shift in attitudes to tourism promotion and management activities at a regional level, and laid the foundation of a system for management and promotion of tourism that is based on collaboration between national, regional and local public-sector actors and close engagement of the businesses operating in the industry. ii. The institutional capacity activities, including the tourism assets management workshop, that the Project provided to the municipalities, has helped avert the situation when all the local authorities could have followed the example of Telavi municipality, and requested to transfer the ownership and operation responsibilities for the assets built by the Project to the national government. As a result, today Khirtsa and Gurjani municipalities are developing plans to rent the facilities to private operators. This model of operating is very innovative for them, and the local authorities
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were not capable to implement it prior to the workshop. The improved engagement of local authorities was supported by success of other components of the Project. Prior to the Project implementation local authorities didn’t see their role in promoting tourism and didn’t see how they can benefit from such activities. Currently, after having seen their tax incomes grow substantially due to expansion of tourism, they started to pay more attention to the needs of private firms and businesses and realized importance of cooperation with national and regional tourism management and promotion efforts. iii. Contrary to expectations, this activity didn’t deliver a large program of community engagement. While this element is overall peripheral to the Project PDO, it is possible that it could have enhanced the Project’s impact by informing the local population about the professional opportunities provided by the tourism industry. However, the fact that the Project has reached its targets for the total number of sales points (shops and restaurants) suggests a high level of awareness of the local entrepreneurs of the opportunities that the tourism development has presented for the region.
2) Geo-tourism routes web-site a. The component supported development of a website that would be an entry point for all information on tourism in the region; develop a set of activities for coordinating private operator’s efforts for attracting tourists to the region; and develop catalogs, or booklets that could help promote the region.
b. Outputs. i. Production and printing of promotional materials. The Project directly financed printing of over 5,000 promotional maps and leaflets, but many more were printed using the designs supported by the project. ii. Development of the travel website: the website development was complete in 2013 and was financed by the Government of Georgia, however the website later wasn’t regularly maintained, due to lack of readership and high cost.
c. Outcomes: i. The component became substantially less relevant by the end of the Project implementation. In the era of social media platforms, a separate website for the region was struggling to generate a sufficient number of visitors. Its maintenance was not justified, and this resulted in it being taken down. The survey of foreign visitors revealed that only 6% of them have obtained information about Kakheti from government provided materials, while other internet sources, friends and family were by far the dominant channels. Core information about Kakheti region and its key destinations is available on the GNTA website. The GNTA website itself was developed in the period of the Project implementation, and it made the need for a separate Kakheti website less obvious.57 ii. The delivery of the sub-component was held back by slow implementation of the sub-component on DMO development. Promotional campaign was more challenging to maintain without a dedicated team and institutional structure in place. Thus, it is critical that the PIU and the Bank team focused their efforts on ensuring that the main institutional structures for tourism promotion area set up. While the full scope of promotional activities promised in the PAD may not have been delivered, it is more important that the foundation was laid for systematic tourism promotion work in the future.
57 https://georgia.travel/en_US/kakheti
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iii. While not all of the individual deliverables envisaged under this activity were delivered and sustained, as planned, the core ambition of spreading the word about Kakheti tourism offering was achieved. This can be confirmed by the fact that Kakheti tourism was featured in such publications as National Geographic58, Wall street Journal59, Euronews60, and the Telegraph has called Kakheti one of the 10 extraordinary destinations to visit. While it is hard to attribute this results directly to the activities supported by the project, they are indirectly a result of increased attention to the region resulting partially from the infrastructure investment that uncovered regions attractions and made them accessible, and partially a reflection of national level tourism promotion efforts driven by GNTA, that were stimulated by the implementation of the RDP project, and supported through other World Bank initiatives, such as the development of the Georgia National Tourism Strategy.
3) Develop a skilled work-force and build capacity i. The activity aimed to deliver an integrated program of workforce skills development for the tourism industry. b. Outputs. i. Under this sub-component, a training program was developed based on a thorough analysis of skills needs of Kakheti tourism sector. Results of analysis suggested a core need for trainings on culture of service, that focus on essential skills for restaurant and hotel industries. The trainings were held in Kakheti in 2013-2014 and covered all of the municipalities included in the Project. A total of 444 people (predominantly employees and trainees of hotels and restaurants) were trained. The training materials and action plans were handed over to national government authorities which are considering the potential further replication of this course in other country regions. c. Outcomes: i. The interviews conducted with the training participants four years after they completed the training course have confirmed that the trainings were highly relevant and valuable, and it contributed to adoption of improved service practices in the participating establishments (e.g. hotels reported that they changed the way the handle training and managing maids). ii. The trainings have potentially helped create a critical mass of trained service industry professionals contributing to the overall improvement of quality of tourism services in the region. Developed work force skills and capacity, through conducting service culture trainings for 444 employees of hotels and restaurants in Kakheti (this represented 46% of the total count of employees in the industry in 2014). The high quality of service has been confirmed by the results of the foreign visitor survey, which showed that visitors are either satisfied or highly satisfied with the quality of services provided in Kakheti. Figure 2.
Figure 2. Satisfaction of foreign visitors with tourism services In Kakheti
58 https://www.nationalgeographic.com/travel/best-trips/best-fall-trips-2016/best-fall-trips-kakheti-province-georgia-wine/ 59 https://www.wsj.com/articles/is-the-country-of-georgia-the-next-great-wine-destination-1460045910 60 http://www.euronews.com/2015/06/22/kakheti-georgia-s-cradle-of-wine
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Source: Survey of foreign visitors61
4) Evaluating and monitoring performance. i. At appraisal, this sub-component aimed to draw a baseline for the tourism economy in Kakheti and collect information about the tourism performance throughout the Project cycle: tracking the volume of tourism, the dynamics of business activities in the tourism sector, economic outcomes resulting from the development of the tourism industry. b. Outputs: i. The subcomponent delivered four monitoring evaluation reports, including the final report produced in 2017. The reports provided an overview of the results of the comprehensive data collection exercise. The exercise combined secondary data accumulation and four original surveys: private beneficiaries, accommodation providers, local beneficiaries, and international visitors. As a part of data collection, the Project introduced a monthly online occupancy survey system (RIBOS) that has never been used in Georgia before. The activity has delivered recommendations on introducing the system for monitoring the development of the tourism industry, and ensuring greater quality of collected data. Sadly, at the moment, there is limited evidence suggesting that the Georgia Statistical Agency is adopting these recommendations. c. Outcomes: i. The activity has achieved its main objectives. The sub-component produced a comprehensive and robust study that enables an overall accurate assessment of the dynamics of the tourism economy in the region and was the major source of information for this report. The data collected under this activity helped to partially mitigate the shortcomings of the M&E framework. While some of the elements of the expected results listed in Annex 2 of the PAD were not achieved in full (e.g. no robust data was collected on informal enterprises, due to methodological difficulties that were underestimated at the start of the project), in many other aspects related to both data collection and providing support for capacity building the component has exceeded the targets that were set originally.
Additionally, the sub-component included several activities focused on supporting capacity for delivery of Component 1:
61 Survey was conducted in June- October 2016, in 6 most popular tourist locations in Kaheti. Total number of respondents was 522.
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5) Supervising Construction and sustainable management of cultural heritage sites. 6) Technical support of private sector evaluation and selection committee. 7) Feasibility studies and designs. (the full list of financed designs is not included, due to large column)
Attribution of results on institutional capacity building
The key results of the Component related to the transformation of the approach to regional tourism management and promotion. These could be interpreted as the direct results of the Project implementation, even if not exclusively the result of specific activities funded under Component 2. The implementation of the RDP was the main driver of a collaborative effort of several Georgian Government agencies (GNTA, MDF, NACHP) and the World Bank to establish an institutional model for development, management and proportion of tourism. It is clear that without the RDP, the government would not have engaged in the difficult process of establishing a new regional tourism management institution, and it is also clear that without the technical inputs provided by the Project, the establishment of the DMO would have been technically a difficult task for the government, given the lack of relevant knowledge and experience (as confirmed in interviews with GNTA officials and with leadership of the regional government of Kakheti and of the DMO).
PDO Element 3: Support Growth of Tourism Economy in Cultural Heritage Circuits in Kakheti
Three out of four PDO indicators of the Project focused on the development of the tourism economy and all the three indicators were exceeded. (table 15)
Table 15. PDO-level indicator capturing improvement of infrastructure services. PDO-level Results Indicator Baseline Target Actual Status Increase number of hotel beds in circuit route 1,610 1,932 3,588 Exceeded areas Increase points of sales (tickets, souvenirs shops, 248 323 337 Exceeded restaurants, hotels, guesthouse and family houses) in renovated culture heritage sites and cities Increased (direct and indirect) volume of private 0 50,000,000 61,000,000 Exceeded sector investment
The growth of the tourism economy in recent years is Kakheti is unquestionable. Several indicators confirm the trends identified by the PDO indicators. - Between 2010 and 2016 the total number of visitors to Kakheti has increased by 305%, while the number of foreign visitors has increased by 721%.62 - In the same period the Total Number of Hotels in the region has tripled, and the total number of hotel beds has increased 3.6 times. The number of hotel and restaurants enterprises officially registered in the region has been growing every year since 2010, and has more than doubled by 2016 reaching over 500 new enterprise registrations.63
62 GeoStat survey of hotels and hotel-type enterprises, it is assumed that every stay in a hotel represents a separate visit. 63 Revenue service of Georgia
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- The total employment in restaurants, hotels and tourism related enterprises has almost tripled. And the average wages in the industry have grown more than 300%. This amounted to producing additional annual income of 5.5 million Gel (US$2.15 million) for the population of the region.64 - Total annual tax revenue (including VAT, Income Tax, Profit Tax, Property Tax) generated by tourism related activities in Kakheti has increased 9.7 times (in nominal Gel value, equivalent to an increase of 6.1 times in US$ value) between 2010 and 2016.65
Figure 3. Growth of key parameters of the tourism economy in Kakheti
Source: GeoStat and Revenue Service
Attribution of results in tourism economy development
Attribution of results is always challenging for tourism projects. It is true that there are other conditions that have unquestionably contributed to the growth of the tourism industry: geopolitical stability, improvement of the major road connecting Kakheti to Tbilisi, improved airline connectivity of Georgia, and the implementation of the national strategy of tourism development that saw a nationwide growth in visitor numbers and in private sector activity. However, there are several reasons to believe that the interventions of the project made a substantial contribution to the observed outcomes:
- The largest tourism benefits occurred in the locations that were the main beneficiaries of the Project. Seventy percent of the investment under the Project was concentrated in the main tourism hubs of Telavi and Kvareli and that is where the tourism economy flourished. o Telavi and Kvareli accounted for 86% of total growth in the number of visitors (counted by hotel stays) to Kakheti between 2010 and 2016. The number of visitors to Telavi went from 11,000 to 82,500 a year, and over this time the town and the surrounding municipality established itself as the main tourism hub of the region, as its share in total number of visitors has gone up from 31% of regional total, to 51%. The number of visitors to Kvareli has gone up from 700 to 25,500 and the municipality went from the fourth most popular destination in the region to the second most
64 Calculations based on GeoStat data 65 Revenue service of Georgia, data was collected for the final report of the M&E consultant for RDP1 project.
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popular. The timeline of rapid growth of visits in the municipalities is also closely aligned with the completion of core urban regeneration investments in both towns (late 2012- mid 2013) o The Telavi and Kvareli municipality also registered by far the largest increase in tax income collection from tourism related activities. In Telavi it grew more than 10 times between 2010 and 2017 and now makes up more than 60% of the total for Kakheti. Over the same time period, Telavi has seen its tax income from tourism related activities grow 46 times (starting from a very low base of 33 thousand GEL) and is now ranked second among Kakheti municipalities, ranking seven out of eight in 2010.
Figure 4. Growth of key parameters of the tourism economy in Kakheti
Source: GeoStat, upon special request from MDF
- Another reason to attribute the results of the Project to the major investment is that even though the tourism industry was rapidly expanding all across Georgia, Kakheti still stands out on a number of key indicators during the period under consideration. o Between 2011 and 2016 the total number of visitors in Kakheti grew 4.6 times, while in Georgia overall it grew 3 times. Kakheti showed the fastest rate of growth among all Georgia regions. The number of foreign visitors grew 5.25 times, which was on par with Imereti region (which in the same period had opened an international airport with low cost flights connecting to Western Europe) o The total number of hotel beds in the region increased between 2010 and 2015 by 260%, far ahead of national rate of 130%. The pace of expansion of the hotel sector was the highest among regions in the country, even ahead of such booming tourism markets as Tbilisi and Adjara. o The rate of new business registration in hotel and restaurants industry in Kakheti was above the national average (101% growth between 2010 and 2017, vs 94% growth across Georgia on average). The only regions where growth was more rapid in this period are established urban centers of Tbilisi and Adjara.
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o The total tax revenue from tourism related services in Kakheti annually has grown almost 10 times. The second fastest growth was registered in Samegrelo, where revenue rose 3.5 times. All other regions were far behind.66
- In some respects, the results directly attributable to the Project interventions have had a substantial contribution to the overall growth of the industry. The survey of investors in the regions has suggested that 69% of large private investors in Kakheti reported that RDP interventions were “Very important” or “Quite important” for their decision to invest in the region. The total amount of tourism jobs created in the tourism sector in Kakheti in 2010-2016 was 687, and the private projects supported by component 1.2 created 320 jobs, at least of half of which were in the tourism industry. The total population income impact of the tourism industry growth through job creation and wage growth in Kakheti over this period was US$2.15 million annually, while the only the jobs created by investments supported under component 1.2 have added US$1 million of income to local population annually. - Finally, the important role of RDP in delivering the observed tourism growth is proven by the fact that it dwarfed all other public investments in the region in the same time. In fact, RDP total investment in the region was 4.3 times larger than the total investment by all other identified activities combined. And most of the other investment projects did not focus on tourism related infrastructure. Table 17 offers the overview of all other large investments in the Kakheti region from 2012-2017.
66 Data calculated by Revenue service upon request by the MDF. This data doesn’t include taxes paid by the large enterprises that have branches in multiple regions and municipalities, which prevents desegregation. This may create a bias against more established tourism destinations that have more chain enterprises: hotels and restaurants.
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Table 16. Comparison of investment under regional development project to all other major public sector investments in Kakheti during the project implementation period.
Municipality Donor Start End Project Value (GEL)
Telavi EIB Rehabilitation of Usakhelo Ravine in Telavi 12/17/2016 12/15/2017 1,442,681 Telavi EIB Telavi Ravine Rehabilitation 11/18/2016 12/18/2017 1,506,657 Lagodekhi EIB Rehabilitation of roads in Lagodekhi municipality 8/5/2016 12/5/2016 (villages: Bolokiani - Kartubani; Natsisqvilari - 1,053,022 Kartubani) Lagodekhi EIB Rehabilitation of water supply system source unit 5/2/2012 1/28/2013 in Lagodekhi town 1,278,446 Gurjaani EIB Rehabilitation of Gurjaani town water supply 9/1/2014 12/25/2015 system 3,180,624 Lagodekhi GOG Construction of buildings in Akhalsofeli, 12/13/2013 4/16/2015 Tsodniskari, Mskhalgori and Shilda 2,360,974 Telavi GOG Rehabilitation of Chavchavadze avenue in Telavi 10/10/2013 2/28/2014 1,442,750 Signaghi WB Rehabilitation of road between villages Bodbe and 1/9/2015 9/21/2015 Bodbiskhevi 2,808,608 Gurjaani, WB Asphalt pavement in Gurjaani town (Besiki, 10/25/2014 4/30/2015 Dedoflistskaro Baratashvili, Chavchavadze streets) and in village 1,589,777 Mirzaani Lagodekhi WB Connecting road rehabilitation of villages 12/17/2015 6/30/2016 Tsodniskari - Tela - Pataragori - Kabali 2,341,602 Gurjaani WB Rehabilitation of culture center building in village 10/2/2015 12/1/2016 Bakurtsikhe 2,033,454 Telavi WB Rehabilitation of Telavi wastewater collectors 12/27/2016 12/22/2017 3,437,817 Sagarejo GOG Rehabilitation of water supply system for Udabno 1/1/2016 7/1/2016 village 4,369,366 Gurjaani GOG Installation water meters for residential buildings 6/1/2017 2/1/2018 in Gurjaani Town 915,995
Total investment by all other public sector initiatives in Kakheti: 29,761,772 Total Investments by Regional Development Project 127,895,129 Source: information collected by the MDF
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MAP
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