PUBLIC DOCUMENT OF THE EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT Approved by the Board of Directors on 7 July 20201 GEORGIA BAKURIANI MUNICIPAL SERVICS PROJECT [Redacted in line with the EBRD’s Access to Information Policy] [Information considered confidential has been removed from this document in accordance with the EBRD’s Access to Information Policy (AIP). Such removed information is considered confidential because it falls under one of the provisions of Section III, paragraph 2 of the AIP] 1 As per section 1.4.8 of EBRD’s Directive on Access to Information (2019), the Bank shall disclose Board reports for State Sector Projects within 30 calendar days of approval of the relevant Project by the Board of Directors. Confidential information has been removed from the Board report. 1 PUBLIC PUBLIC TABLE OF CONTENTS Page TABLE OF CONTENTS ........................................................................................... 2 ABBREVIATIONS / CURRENCY CONVERSIONS ............................................. 3 PRESIDENT'S RECOMMENDATION ................................................................... 4 BOARD DECISION SHEET ..................................................................................... 5 ADDITIONAL SUMMARY TERMS FACTSHEET .............................................. 6 1. STRATEGIC FIT AND KEY ISSUES ............................................................ 8 1.1 STRATEGIC CONTEXT................................................................................ 8 1.2 TRANSITION IMPACT ............................................................................... 10 1.3 ADDITIONALITY ....................................................................................... 11 1.4 SOUND BANKING - KEY RISKS ................................................................ 11 2. MEASURING / MONITORING SUCCESS ................................................. 12 3. KEY PARTIES ................................................................................................ 13 3.1 BORROWER .............................................................................................. 13 3.2 MDF ......................................................................................................... 13 4. MARKET CONTEXT .................................................................................... 13 5. FINANCIAL / ECONOMIC ANALYSIS ..................................................... 14 5.1 SOVEREIGN ASSESSMENT ........................................................................ 14 5.2 ECONOMIC ANALYSIS .............................................................................. 14 5.3 PROJECTED PROFITABILITY FOR THE BANK .......................................... 14 6. OTHER KEY CONSIDERATIONS .............................................................. 14 6.1 ENVIRONMENT ......................................................................................... 14 6.2 INTEGRITY ............................................................................................... 15 ANNEXES TO OPERATION REPORT ................................................................ 16 ANNEX 1 – PROJECT IMPLEMENTATION ..................................................... 17 ANNEX 2 – TRANSITION IMPACT SCORING CHART .................................. 18 2 PUBLIC PUBLIC ABBREVIATIONS / CURRENCY CONVERSIONS CDP Corporate Development Programme ECEPP EBRD Client e-Procurement Portal EBRD European Bank for Reconstruction and Development EFF Extended Fund Facility EIRR Economic Internal Rate of Return E&S Environmental and Social ESAP Environmental and Social Action Plan ESDD Environmental and Social Due Diligence ESP Environmental and Social Policy ETI Expected Transition Impact GDP Gross Domestic Product GET Green Economy Transition GHG Green House Gases GPN General Procurement Notice GOG Government of Georgia HR Human Resources EFF Extended Fund Facility IFI International Financial Institution IFRS International Financial Reporting Standards IMF International Monetary Fund MDF Municipal Development Fund MRDI Ministry of Regional Development and Infrastructure NGB National Bank of Georgia PIU Project Implementation Unit PM Particulate Matter PPAD Procurement, Policy and Advisory Department PP&R Procurement Policies and Rules PSC Public Service Contract PSD Project Summary Document RAROC Risk-adjusted Return on Capital SDG Sustainable Development Goals SSF EBRD Shareholder Special Fund TC Technical Co-operation TI Transition Impact UN United Nations Organisation VAT Value-added Tax CURRENCY CONVERSION (as of 20 May 2020) EUR 1 = GEL 3.51 USD 1 = GEL 3.20 3 PUBLIC PUBLIC PRESIDENT'S RECOMMENDATION This recommendation and the attached Report concerning an operation in favour of Georgia (the “Borrower”) are submitted for consideration by the Board of Directors. The facility will consist of a sovereign loan to the Borrower in the amount of up to EUR 5 million for the benefit of Bakuriani City, located in Borjomi region. The operation will improve the quality of municipal services and safety measures in Bakuriani through the acquisition of specialised municipal vehicles and modern buses for passenger transportation (the “Project”). The Project is in line with a broader engagement of the Bank in the public sector in Georgia and aims to support development of municipal infrastructure in Bakuriani. The expected transition impact of the Project is to derive from the Well-Governed and Inclusive qualities by supporting capacity building at the municipal level, and by supporting gender inclusion. [REDACTED] Advance contracting procedure is being used in line with the Bank’s Procurement Policy and Rules for the Project, and therefore retroactive financing may be required in the amount of up to 20 per cent of the loan as defined by the Operations Policy for Retroactive Financing. I am satisfied that the operation is consistent with the Bank’s Strategy for Georgia, the Municipal and Environmental Infrastructure Sector Strategy, the Green Economy Transition approach, the Strategy for the Promotion of Gender Equality, the Economic Inclusion Strategy and with the Agreement Establishing the Bank. I recommend that the Board approve, on a no-objection basis, the proposed loan, substantially on the terms of the attached Report. Suma Chakrabarti 4 PUBLIC PUBLIC BOARD DECISION SHEET GEORGIA – Bakuriani Municipal Services Project - DTM 51438 Transaction / Board Board approval2 is sought for a sovereign loan of up to EUR 5 million, in favour Decision of Georgia to finance the acquisition of specialised municipal vehicles (such as street cleaning and snow removal, waste collection, universal multi-functional trucks and loaders for road works, including for repairs of water, wastewater and street lighting networks) and modern buses for passenger transportation. Client Georgia as the Borrower. Main Elements of the Transition impact: Proposal Well-governed – The Project will enhance the capacity at the municipal level and support the introduction of a tariff methodology, ticketing system and a Public Service Contract Inclusive – The Project will promote gender equality and women’s participation in the newly established Company, and will promote women’s access to male dominated jobs in municipal services. Additionality: Financing structure - long-term financing necessary to structure the Project is not available in the country. Standard-setting: [REDACTED] Sound banking: The transaction is a sovereign loan. The Bank’s Standard Terms and Conditions apply. [REDACTED] Key Risks In light of the current uncertainties, Georgia has a moderate to high creditworthiness risk with an affordable debt burden. The country’s sovereign credit rating stands at BB negative from Fitch, BB stable from S&P and Ba2 stable from Moody’s. The Municipal Development Fund of Georgia (“MDF”) has successfully implemented many IFI-funded projects and is experienced in carrying out procurement and contract administration in line with IFI requirements. [REDACTED] Strategic Fit Summary The Project is consistent with the Bank’s Municipal and Environmental Infrastructure Sector Strategy, the Country Strategy for Georgia, the Green Economy Transition (“GET”) approach, the Strategy for the Promotion of Gender Equality and the Economic Inclusion Strategy. 2 Article 27 of the AEB provides the basis for this decision. 5 PUBLIC PUBLIC ADDITIONAL SUMMARY TERMS FACTSHEET EBRD Transaction A sovereign loan of up to EUR 5 million to Georgia, represented by the Ministry of Finance, to improve the quality of municipal services and safety measures in Bakuriani City (the “City” or “Bakuriani”), located in Borjomi region. Existing Exposure Total amount of sovereign exposure: EUR 355.17 million (21 projects) [REDACTED] Maturity / Exit / Ten-year maturity [REDACTED] Repayment Potential AMI eligible None. financing Use of Proceeds The loan proceeds will finance the acquisition of ca. 15 units of specialised municipal vehicles and ca. 10 units of modern diesel [REDACTED] buses. Procurement of the loan financed contracts will be carried out in accordance with the Bank’s Procurement Policies and Rules (“PP&R”). [REDACTED] The tender for buses was launched on 18 October 2019 and for specialised vehicles on 23 December 2019, following the open tendering procedures for buses and simplified open tendering for specialised vehicles in line with PP&R Section III Article 3. Subject to the timing of the loan agreement signing, the retroactive financing may thus be required in the amount of