Project Number: 43405-013 MFF Number: 0055 September 2020

Proposed Extension of Facility Availability Period Georgia: Urban Services Improvement Investment Program

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CURRENCY EQUIVALENTS (as of 31 August 2020)

Currency unit – lari (GEL) GEL1.00 = $0.324412 $1.00 = GEL3.082500

ABBREVIATIONS

ADB – Asian Development Bank COVID-19 – coronavirus disease DMF – design and monitoring framework GNERC – Georgian National Energy and Water Supply Regulatory Commission km – kilometer m3 – cubic meter MFF – multitranche financing facility MLD – million liters per day OCR – ordinary capital resources PPP – public–private partnership UWSCG – United Water Supply Company of Georgia WSS – water supply and sanitation WWTP – wastewater treatment plant

NOTE

In this report, “$” refers to United States dollars.

Vice-President Shixin Chen, Operations 1 Director General Werner E. Liepach, Central and West Asia Department (CWRD) Director Yong Ye, Urban Development and Water Division (CWUW), CWRD Country Director Shane Rosenthal, Georgia Resident Mission (GRM)

Team leaders Heeyoung Hong, Principal Urban Development Specialist (Finance), CWUW, CWRD Murman Katsitadze, Associate Procurement Officer, GRM, CWRD Team members Kamel Bouhmad, Portfolio Management Specialist, GRM, CWRD Lana Devdariani, Operations Assistant, GRM, CWRD Leah Luna, Senior Operations Assistant, CWUW, CWRD Maritess G. Marcelino, Senior Project Officer, CWUW, CWRD Tea Papuashvili, Project Analyst, GRM, CWRD Patricia Rhee, Principal Counsel, Office of the General Counsel

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

I. PROPOSED EXTENSION OF MULTITRANCHE FINANCING FACILITY AVAILABILITY PERIOD 1 II. BACKGROUND 1 III. IMPLEMENTATION PROGRESS 1 A. Multitranche Financing Facility Performance 1 B. Tranche 1 Performance 3 C. Tranche 2 Performance 3 D. Tranche 3 Performance 4 E. Tranche 4 Performance 4 F. Tranche 5 Performance 4 G. Tranche 6 Performance 4 IV. RATIONALE FOR PROPOSED EXTENSION OF MULTITRANCHE FINANCING FACILITY AVAILABILITY PERIOD 5 V. DUE DILIGENCE 6 VI. THE PRESIDENT’S RECOMMENDATION 6

APPENDIXES 1. Revised Design and Monitoring Framework 7 2. List of Linked Documents 12

I. PROPOSED EXTENSION OF MULTITRANCHE FINANCING FACILITY AVAILABILITY PERIOD

1. An extension of the availability period of the multitranche financing facility (MFF) for the Urban Services Improvement Investment Program in Georgia is proposed for Board consideration.1 The proposed 3-year extension of the availability period from 29 March 2021 to 29 March 2024 will allow the remaining outputs under Tranches 3, 4, 5, and 6 to be completed.2 Tranches 1 and 2 will be closed on 29 March 2021. The revised design and monitoring framework (DMF) is in Appendix 1.

II. BACKGROUND

2. The Board approved the MFF on 30 March 2011 for up to $500 million, including (i) $250 million from ordinary capital resources (OCR) and (ii) $250 million from concessional OCR. The original MFF availability period was 8.5 years ending 30 September 2019.3 On 3 September 2018, the President approved extending the MFF availability period to 10 years from 30 September 2019 to 29 March 2021.4 The current MFF availability period expires on 29 March 2021 and consists of six tranches, all with the same closing date (29 March 2021).

3. The MFF’s envisaged impact is the improved health of residents in the secondary towns of Georgia, and the outcome is improved water supply and sanitation (WSS) services in these towns.5 The expected outputs are improved infrastructure, more effective institutions, and project implementation support. The Ministry of Regional Development and Infrastructure is the executing agency and implementing agency for output 2, and the United Water Supply Company of Georgia (UWSCG) is the implementing agency for outputs 1 and 3.6 The Government of Georgia has requested the Asian Development Bank (ADB) to extend the MFF availability period by 3 years to complete the ongoing activities under Tranches 3, 4, 5, and 6.7

III. IMPLEMENTATION PROGRESS

A. Multitranche Financing Facility Performance

4. The MFF is making good progress towards achieving the DMF outcome targets: 65% of secondary town residents have access to safe sanitation stands, against a target of 88%, while 88% have 24-hour access to a potable water supply, against a target of 95% (Appendix 1). As of 31 August 2020, $477.6 million equivalent has been committed, $412.7 million awarded (86%),

1 Asian Development Bank (ADB). Georgia: Urban Services Improvement Investment Program. 2 ADB. 2018. Staff Instruction on Business Processes for Multitranche Financing Facility. Manila. Extension of MFF availability beyond 10 years requires Board approval. 3 An amendment to the framework financing agreement in November 2012 expanded the program scope to cover other secondary towns. 4 ADB (Central and West Asia Department). 2018. M0055-GEO (MFF): Urban Services Improvement Investment Program—Request for a Minor Change of an MFF (Extension of the MFF Availability up to 10 Years). Memorandum. 7 August (internal). Between September 2018 and August 2020, the UWSCG awarded six new works contracts totaling $82 million. 5 Editorial word change is made from “secondary towns” to “cities” in the DMF to reflect terminology used in the Regional Development Program of Georgia 2018–2021. 6 The UWSCG is a state-owned limited liability entity established on 14 January 2010. It provides WSS services to urban settlements throughout the country, except for Tbilisi, Mtskheta, Rustavi, Gardabani Municipality, and Adjara Autonomous Republic. 7 Letter from the Government of Georgia dated 1 September 2020 concerning its request to extend the current MFF availability period and its commitment to strengthen implementation arrangements (accessible from the list of linked documents in Appendix 2). 2 and $311.6 million disbursed (65%) under the MFF. The MFF is on track based on three criteria: timeliness of tranche processing, compliance with undertakings, and tranche performance.

5. Timeliness of tranche processing. All six tranches have been approved, with the last tranche made effective on 2 March 2017 (Table 1). The government confirmed that no additional periodic financing request will be made during the extended MFF availability period (footnote 7).

6. Compliance with key undertakings. The six constituents (road map, policy and institutional framework, strategic context, investment program, financing plan, and undertakings) of this MFF have been substantially met or are on track to be met.8 With ADB assistance, the government developed and applied the Sector Development Plan 2011–2020, which guided physical and nonphysical investments.9

7. The government has visibly improved the program undertakings, and the physical investment targets have been substantially met. As of 31 August 2020, the MFF output achievements exceeded the original targets in the following areas: (i) 12 covered cities against the planned six,10 (ii) 70,613 cubic meters (m3) of reservoir capacity versus the planned 60,000 m3, (iii) 142 kilometers (km) of transmission mains versus the planned 110 km, and (iv) a 1,031 km water supply network versus 350 km. While implementing the MFF, the UWSCG faced start- up delays, frequent changes to engineering designs, poor contract management, and ineffective program management organization.

8. Key achievements under the policy and institutional framework are (i) a complete asset inventory and valuation, geospatial WSS utility management system, central water laboratory, and grievance redress mechanism at the UWSCG; (ii) capacity development of the Georgian National Energy and Water Supply Regulatory Commission (GNERC) and UWSCG; (iii) enhanced tariff-setting methodology and investment appraisal and monitoring rules by the GNERC; and (iv) a new Energy and Water Supply Law. However, progress in WSS governance and financial sustainability has been slow, although the UWSCG recently engaged an advisory team to support corporate restructuring, private sector partnership, and public–private partnership (PPP). Some pending policy and institutional framework targets—meters for all, nonrevenue water reduction, PPP, performance benchmarking, tariff rationalization, and a new law on water resources management to replace the 1997 water law—are on track to be met through the government policy reforms envisaged under the forthcoming sector development program. 11 ADB is working with the government to update the earlier urban WSS Sector Development Plan with a new WSS policy, and to update and expand targets for the WSS Sector Framework 2021–2030.

9. Tranche performance. Tranches 1, 2, 3, and 4 are rated on track, while Tranches 5 and 6 are rated for attention because of noncompliance with the financial covenant.12 Safeguard compliance for each tranche is satisfactory. Project procurement-related performance for

8 Performance Overview, and Policy and Institutional Reform Framework 2011–2019 Progress (accessible from the list of linked documents in Appendix 2). 9 ADB. 2010. Technical Assistance to Georgia for Developing an Urban Water Supply and Sanitation Sector Strategy and Regulatory Framework. Manila. 10 The six original cities are Anaklia, Kutaisi, Marneuli, Mestia, Poti, and Zugdidi. The six additional cities are Abasha, Bolnisi, Chiatura, Gudauri, Jvari, and Ureki. 11 ADB. Georgia: Sustainable Water Supply and Sanitation Sector Development Program. 12 On 7 August 2020, ADB received a letter from the UWSCG requesting to defer the operating ratio covenant with a set of financial management actions to bring the operating ratio into compliance by 2023. Tranches 5 and 6 will be rated on track upon deferment of the operating ratio covenant, which will be processed after the proposed MFF extension. 3

Tranches 3, 4, and 6 is satisfactory.13 As of 31 August 2020, all tranches (i) either meet or are on track to meet the DMF indicators; and (ii) comply with the environment, resettlement, and indigenous peoples safeguards covenants. Compliance with covenants and the status of summary contracts financed under each tranche are in Appendix 2.14 An overview of the MFF tranches is in Table 1.

Table 1: Overview of the Multitranche Financing Facility Tranches Tranche Disburse- and Effective- Approved Elapsed Contract ments Loan Approval ness Signing Amount Time Awards ($ million) Project Number Date Date Date ($ million) (%) ($ million) (%) (%) Rating 1. 2749- 12-Apr-11 15-Jun-11 10-May-11 74.0 94 69.8 94 69.8 94 On track COL 2. 2807- 23-Nov-11 19-Dec-11 1-Dec-11 36.6 93 32.5 89 33.1 91 On track COL 3. 3078- 5-Dec-13 17-Mar-14 19-Dec-13 90.0 92 76.6 85 64.1 71 On track COL 4. 3238- 11-Dec-14 30-Mar-15 5-Feb-15 108.0 90 99.8 92 65.3 60 On track OCR 5. 3291- 29-Sep-15 19-Jan-16 26-Oct-15 43.0 89 34.9 81 24.3 56 For OCR attention 5. 3292- 29-Sep-15 19-Jan-16 26-Oct-15 32.0 89 25.1 78 24.5 76 For COL attention 6. 3441- 4-Oct-16 2-Mar-17 15-Dec-16 94.0 85 74.0 79 30.6 33 For OCR attention Total 477.6 412.7 86 311.6 65 COL = concessional ordinary capital resources lending, OCR = ordinary capital resources, m = million. Note: Figures as of 31 August 2020. The multitranche financing facility and its six tranches end on 29 March 2021. Tranches 5 and 6 will be rated on track upon the proposed multitranche financing facility extension.

B. Tranche 1 Performance

10. The UWSCG constructed (i) 42,500 m3 reservoirs in Anaklia, Kutaisi, Mestia, Poti, and Ureki; (ii) two water treatment plants, one with a capacity of 21.1 million liters per day (MLD) at Poti and one with a 3.5 MLD capacity at Mestia; (iii) 92.2 km of transmission mains in Anaklia, Kutaisi, Mestia, Poti, and Ureki; and (iv) 95 km water distribution networks in Kutaisi and Poti. The UWSCG also established and equipped a central water laboratory in Tbilisi. Tranche 1 funded the UWSCG’s institutional development under a management consultant contract, and the preparation and approval of a tariff-setting methodology for the GNERC. Of the five awarded works contracts, one remains to be closed by March 2021.

C. Tranche 2 Performance

11. The UWSCG constructed or rehabilitated (i) 143.7 km water distribution networks in Anaklia, Mestia, and Ureki, (ii) a 4.3 MLD wastewater treatment plant (WWTP) in Anaklia, and (iii) 117.7 km sewerage networks in Anaklia and Mestia. All four works contracts are either closed or in a defects notification period ending in December 2020.

13 ADB. 2019. Follow-Up Review of PPRR Recommendations. Manila. The Office of Anticorruption and Integrity confirmed that the UWSCG and supervision consultants fully implemented 17 of the 18 project procurement-related review recommendations. One outstanding recommendation involves the supervision consultants’ timely review of detailed design to identify defects or omissions. 14 Summary Contracts Status (accessible from the list of linked documents in Appendix 2).

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D. Tranche 3 Performance

12. The UWSCG constructed (i) a 9,500 m3 reservoir in Kutaisi, (ii) 34 km of transmission mains in Abasha and Kutaisi, (iii) 316 km water distribution networks in Abasha, Gudauri and Kutaisi, (iv) a 6.5 MLD WWTP in Ureki, and (v) a 65 km sewerage network in Ureki. The three ongoing works contracts cover the construction of (i) WSS systems in Gudauri, (ii) transmission mains in Abasha, and (iii) six WWTPs with a total capacity of 10.6 MLD in Gudauri. Tranche 3 (i) supported asset inventory and valuation of the UWSCG across 51 service centers, (ii) provided training of trainers’ programs for Georgian Technical University and the UWSCG with a focus on hydraulic modeling and leak detection, and (iii) engaged a team of experts to support corporate restructuring and PPP. Of the six awarded works contracts, four will be completed by March 2021. The two other contracts in Gudauri—(i) WSS systems (contract awarded in December 2018, and work commenced in March 2019), and (ii) one WWTP (contract awarded in January 2019, and work commenced in July 2019)—are expected to be completed by end of 2021.

E. Tranche 4 Performance

13. The UWSCG constructed (i) a 9,900 m3 reservoir in Zugdidi, (ii) 322 km water distribution networks in Jvari and Zugdidi, and (iii) 48 km of 190 km (25%) sewerage networks in Gudauri and Poti. Two contracts—construction of a water supply system in Zugdidi, and an 11.6 MLD WWTP in Poti—will be completed by March 2021. Three ongoing construction works will be extended beyond the MFF availability period: (i) a water supply system in Jvari (end of 2021), (ii) a 32 km water distribution network in Gudauri (end of 2021),15 and (iii) a 122 km sewerage network in Poti (2023). Construction of the Poti network faced significant delays in procurement and mobilization of the works contractor.16 This issue was resolved. The works are expected be completed in 2023.

F. Tranche 5 Performance

14. Expected key outputs include (i) a 22.0 MLD WWTP in Zugdidi (to be completed by December 2020) and a 6.7 MLD WWTP in Mestia (to be completed by December 2022); (ii) a 197 km sewerage network constructed in Zugdidi, of which 158 km (89%) has been achieved as of 31 August 2020; (iii) 23 sewage pumping stations constructed in Zugdidi; (iv) a service center in Zugdidi staffed with at least 30% women (achieved in 2017); and (v) a public awareness campaign rolled out in Zugdidi. There are three ongoing works contracts, two in Zugdidi and one in Mestia. The two contracts for the construction of a WWTP and 178 km sewerage network in Zugdidi will be completed by the end of 2020. The WWTP contract in Mestia was awarded in November 2019 and is expected to be completed in 2022.

G. Tranche 6 Performance

15. Expected key outputs include (i) 19,113 m3 reservoirs in Chiatura and Marneuli, of which 8,713 m3 (46%) in Chiatura has been constructed; (ii) 33.7 km of transmission mains in Chiatura and Marneuli, of which 16 km (47%) in Chiatura has been achieved; (iii) 269 km water distribution networks in Chiatura and Marneuli, of which 155 km (58%) has been achieved; (iv) one 14 MLD WWTP in Marneuli; (v) a 203.5 km sewerage network, of which 36.7 km (18%) has been achieved in Marneuli; and (vi) a 30 km sewer interceptor (ongoing) in Bolnisi. Three works contracts are ongoing: (i) a water supply system in Chiatura, (ii) WSS systems in Bolnisi and Marneuli, and (iii)

15 Some works contracts are financed by multiple tranches. 16 The original works contract was awarded in December 2015; however, due to poor performance of the contractor, the contract was terminated and rebidded in 2017. The contractor commenced work in November 2018. 5 a WWTP in Marneuli. The water supply system contract in Chiatura will be completed in February 2021 while the other two contracts will remain open until 2022. The WSS systems contract in Bolnisi and Marneuli was rebidded, and awarded in December 2018. The WWTP contract in Marneuli was awarded in December 2019. In addition, the two contracts faced construction delays as the municipalities of Bolnisi and Marneuli had been under lockdown because of the confirmed coronavirus disease (COVID-19) cases.17

IV. RATIONALE FOR PROPOSED EXTENSION OF MULTITRANCHE FINANCING FACILITY AVAILABILITY PERIOD

16. As of 31 August 2020, the MFF has significantly improved access to WSS services, benefiting over 300,000 people in 12 cities. A total of 22 works, 18 goods, and 47 consulting services contracts have been awarded; and eight works, 18 goods, and 29 consulting services contracts have been completed. 18 Of the 14 ongoing works contracts, eight with an estimated undisbursed balance of $87 million will likely be extended beyond the current MFF availability period. Without ADB’s continued support, the risk of incomplete works, construction delays, and cost overruns for the country’s largest national urban WSS development program remains high. ADB and the UWSCG have thoroughly reviewed past and current implementation progress rates and concluded that March 2024 is sufficient to complete all ongoing works.19

17. ADB and the government explored two options: (i) allow the current MFF availability period to lapse, and (ii) extend the current MFF availability period by 3 years from 29 March 2021 to 29 March 2024. The first option would involve canceling undisbursed amounts under the tranches, requiring the government to cover the funds shortfall. However, given the current fiscal situation, the government will be unable to finance the remaining works from its own budget funds and will have difficulty accessing other sources of funds.20 This could negatively impact its infrastructure financing in the short to medium term.

18. Continuity. The option to extend the MFF availability period is preferred, as this will allow the government to complete the ongoing contracts, achieve the development impacts foreseen under the MFF, and provide an important infrastructure leverage over policy reforms. ADB’s support can continue to assist the government in its endeavors to complete the national WSS development program successfully and strengthen the UWSCG’s capacity and performance. This will also hasten economic recovery post-COVID-19, particularly in regions, while preventing and mitigating the impact of future pandemics. Since all works contracts have already been awarded, the UWSCG does not anticipate further procurement delays. The implementation and monitoring of appropriate risk mitigation measures will minimize contract management delays.

19. Complexity. This $500 million MFF is complex, with activities and locations sequenced and interweaved among the different tranches. It is operational in 12 cities spread across the country, requiring multiple works contracts, as well as additional time and resources for contract management. The works also entailed the construction of 11 design-and-build WWTPs using biological treatment, which is new to the country. Moreover, the UWSCG had been established

17 Marneuli and Bolnisi were locked down in March–May 2020 due to a confirmed case of COVID-19. Although works were eventually allowed in May, the contractors continued to face difficulties remobilizing their workers back to Georgia in the next months as some borders remained closed. 18 National Monitoring and Evaluation Specialist’s report on the status of the Urban Services Improvement Investment Program, 15 June 2020 (unpublished). 19 Gantt Chart of Works Contract (accessible from the list of linked documents in Appendix 2). 20 The government has required significant development financing of about $1.53 billion in 2020 because of the COVID- 19 pandemic. 6 just 1 year before the MFF began in 2011, and was inexperienced in handling such a large program with works and contracts using new technology and systems, although it incrementally built capacity over time. An Independent Evaluation Department study found “growing evidence that, particularly in the water and sanitation sector, a fixed 10-year limit is inadequate to implement the complex, sequenced, and interlinked individual projects that comprise sector-type MFFs in multiple locations.”21

20. Accountability. The government has frequently communicated to ADB its commitment to complete the MFF. In a letter dated 1 September 2020, the government confirmed its intent to implement a set of risk mitigation measures, all of which are being actioned by the UWSCG: (i) engage additional technical consultants and appoint technically qualified staff fully dedicated to the MFF to strengthen contract management and construction supervision (ongoing), (ii) restructure the Investment Program Management Office to improve its functions (completed),22 and (iii) appoint staff from the technical design department to ensure the timely review of any changes to engineering designs (ongoing). It shall also maintain key program management staff for the extended MFF availability period. Extending the MFF availability period will help the UWSCG prepare for change and human resources management, strengthen operation and maintenance capacity, and efficiently manage the next generation of WSS systems. ADB’s continued support for the WSS infrastructure development will reconfirm ADB as the government’s lead development partner for the sector, and will incentivize the government to continue advancing its policy reform agenda for improved WSS performance and sustainability.

V. DUE DILIGENCE

21. Impacts, outcome, and outputs. The proposed extension to the current MFF availability period will not change the approved impact, outcome, and outputs of the program. The adjustment will reflect the revised targets and target dates related to the completion of Tranches 3–6, update names of the ministries and agencies, and clarify performance indicators that are unclear or lack baselines. New technical, safeguards, and financial due diligence is not required because the design and scope of the program remain unchanged.

22. Implementation arrangements. Other than the extension of the current MFF availability period, no other changes to the MFF implementation arrangements are planned. The implementation of projects under the MFF will continue to follow ADB’s policies and procedures.

VI. THE PRESIDENT’S RECOMMENDATION

23. The President recommends that the Board approve the extension of the availability period of the multitranche financing facility for the Urban Services Improvement Investment Program in Georgia from the current end date of 29 March 2021 to 29 March 2024 as described in para. 1.

21 Independent Evaluation Department. 2019. ADB’s Multitranche Financing Facility, 2005–2018: Performance and Results Delivered. Manila: ADB. 22 Procurement, safeguards, project management, and supervision teams were scattered across different departments of the UWSCG, leading to poor communication and implementation delays. In June 2020, the UWSCG management restructured the Investment Program Management Office and relocated all project implementation staff under one division, with clear roles and responsibilities. Appendix 1 7

REVISED DESIGN AND MONITORING FRAMEWORK

Impact

Improved health of residents in the cities of Georgia (program defined)a

Data Sources Performance Targets and/or and/or Reporting Assumptions Design Summary Indicators Mechanisms and Risks Outcome Current Program Improved water supply By end of Investment Program (2021): Annual Assumptions and sanitation services in (i) Residents’ access to safe sex-disaggregated The government the secondary towns of sanitationb increased from 25% in socioeconomic ensures that water Georgia 2011 to 88% by 2021 surveys undertaken company staff and (ii) Residents’ access to 24-hr potable as part of the PPMS management water supply increased from 74% to determine public contractors deliver in 2011 to 95% by 2021 satisfaction with the services WSS quality efficiently. (100% female headed households in the region will be covered) National statistics Risks for water supply Political systems quality and effluent interfere with the discharge by the enforcement of MOEPA, MA, and legislative and UWSCG regulatory control. Overall Program Improved water supply By the end of the program (2024): and sanitation services in (i) Percentage of residents with Georgia access to safe sanitationb increased from 25% in 2011 to 88% (ii) Percentage of residents with access to a 24-hr potable water supply increased from 74% in 2011 to 95%

(100% of female-headed households in the region covered) Outputs Component 1: Infrastructure Improvement Current Program Water supply system (i) 60,000 m3 reservoirs, 110 km of Semiannual Assumptions efficiency improved water transmission mains, and 350 progress reports Ongoing donor- through rehabilitation and km distribution networks are prepared by the financed projects replacement, and rehabilitated, reconstructed, or UWSCG are efficiently coverage expanded newly constructed implemented. (ii) 36 MLD capacity water treatment Disbursement and plants constructed reimbursement Risks (iii) Nonrevenue water progressively records maintained Sudden increase reduced from over 60% to 30% by the UWSCG in the cost of (baseline and target to be construction items established at Investment Program PPMS reports tranche inception) prepared by the (iv) Energy savings achieved through UWSCG efficient pumping systems (baseline and target to be UWSCG annual established at Investment Program work plans Tranche 1 inception) 8 Appendix 1

Data Sources Performance Targets and/or and/or Reporting Assumptions Design Summary Indicators Mechanisms and Risks (v) Residual chlorine at tail ends of As-built drawings water supply system maintained developed by between 0.2 and 0.4 parts per contractors million Project component completion and commissioning certificates provided by the construction supervision consultant Overall Program Unchanged By 2024: (i) Reservoirs with a total capacity of 80,513 m3, 348 km of water transmission mains, and 1,150 km of water distribution networks rehabilitated, reconstructed, or newly constructed (ii) Water treatment plants with a total capacity of 24.6 MLD constructed (iii) Percentage of nonrevenue water progressively reduced from more than 70% to 30% (iv) Deleted (v) Unchanged Current Program Sewerage and sanitation (i) Access to sewerage network system efficiency increased from 83,000 people in improved through 2011 to 311,000 persons in 2019 rehabilitation and (ii) Sewer cleaning vehicles procured reconstruction, and and made operational by 2011 coverage expanded (iii) Sewage pumps operating on a daily basis and discharging sewage to treatment plants (iv) Sewage treatment plants rehabilitated or constructed to treat and safely discharge sewage Overall Program Unchanged By 2024: (i) Number of residents with access to a sewerage network increased from 83,000 in 2011 to 462,000 (ii) Unchanged (iii) Deleted (iv) Deleted (v) Replaced indicator for (iii): a 775 km sewerage network constructed (vi) Replaced indicator for (iv): 11 WWTPs with a total capacity of 69 MLD rehabilitated or constructed to treat and safely discharge sewage Component 2: Institutional Effectiveness Current Program Business plans developed UWSCG develops long-term capital Semiannual Risks and implemented improvement plans, asset progress reports Poor enrollment in Appendix 1 9

Data Sources Performance Targets and/or and/or Reporting Assumptions Design Summary Indicators Mechanisms and Risks strengthening plans, resource prepared by the the WSS mobilization and expenditure UWSCG management management plans. program Financial management (i) UWSCG operating ratio improved UWSCG annual improved, MIS and from 1.8 in 2010 to 1 by 2019, work plans accounting systems indicating improved financial developed management (ii) UWSCG revenue collection efficiency improved from 49% in 2010 to 95% by 2019 (iii) Sex-disaggregated consumer database created for UWSCG to develop targeted marketing campaigns for female household heads Geospatial WSS utility Calibrated network models developed management systems for water and sewerage networks operationalized based on GIS maps Management capacity of (i) WSS management program with the UWSCG enhanced Georgian universities operationalized (ii) 30% of key management staff in UWSCG comprised of women (iii) UWSCG staff trained on financial management and accounting (30% number of women) (iv) Sex-disaggregated database for human resource management in place (v) MEPNR confirms treated sewage meets discharge standards Sector regulatory capacity (i) GNEWSRC staff approve tariff and of the GNERC, MEPNR, monitor WSS service delivery and MA developed (ii) MEPNR staff monitor treatment facility performance and effluent discharge standards (iii) MA staff monitor drinking water quality standards Overall Program Unchanged Unchanged Unchanged Unchanged Unchanged (i) UWSCG operating ratio improved from 1.8 in 2010 to 1.0 by 2023, indicating improved financial management (ii) Unchanged (iii) Sex-disaggregated consumer database created to enable the UWSCG to develop targeted marketing campaigns for female household heads by 2020 Unchanged Unchanged (i) Unchanged (ii) Women hold 30% of key UWSCG management (iii) UWSCG staff (30% women) trained on financial management and accounting (iv) Unchanged (v) Unchanged 10 Appendix 1

Data Sources Performance Targets and/or and/or Reporting Assumptions Design Summary Indicators Mechanisms and Risks Sector regulatory capacity (i) GNERC staff approve tariffs and of the GNERC and monitor WSS service delivery. MOEPA developed (ii) MOEPA staff monitor treatment facility performance and effluent discharge standards (iii) MOEPA staff monitor drinking water quality standards Component 3: Project Implementation Support Current Program Public awareness (i) Each Investment Program service Semiannual Assumption program effectively center has a customer care unit progress reports Nongovernment implemented, materials on staffed by women (at least 30%), prepared by the organizations hygiene and sanitation which disseminates IEC on water, UWSCG actively involved in disseminated, and women hygiene, and sanitation practices educating developed as hygiene and (ii) Public awareness program PPMS reports beneficiaries on sanitation advocates. (targeting women as household prepared by the project benefits. managers) rolled out in all UWSCG Investment Program towns UWSCG annual work plans Overall Program Unchanged (i) Each program service center has a customer care unit (staffed by at least 30% women) that disseminates information, education, and communication on water, hygiene, and sanitation practices (ii) Public awareness program targeting women as household managers rolled out in all program cities

Current Program Activities and Milestones: Component 1: Infrastructure Improvement − Water intake, treatment, and transmission mains constructed (January 2014) − Equipment for system performance monitoring and improvement procured (July 2011) − Water supply, sewerage network, sanitation systems, and sewage treatment plants constructed or rehabilitated (January 2019) Component 2: Institutional Effectiveness − Management contractor appointed (2012) − Sex-disaggregated consumer database created (January 2012) − MIS and revenue enhancement plans rolled out (January 2013) Component 3: Investment Project Implementation − Sex-disaggregated baseline surveys conducted (October 2011) − Design engineers appointed (October 2010) − Supervision engineers appointed (July 2011) − GAP targets confirmed (December 2013)

Overall Program Component 1: Infrastructure Improvement − Water intake, treatment, and transmission mains constructed (December 2022) − Equipment for system performance monitoring and improvement procured (October 2021) − Water supply, sewerage network, sanitation systems, and sewage treatment plants constructed or rehabilitated (December 2023) Component 2: Institutional Effectiveness Appendix 1 11

− Management consultant appointed (completed) − Sex-disaggregated consumer database created (December 2020) − MIS and revenue enhancement plans rolled out (September 2020) Component 3: Investment Project Implementation − Sex-disaggregated baseline surveys conducted (completed) − Design engineers appointed (completed) − Supervision engineers appointed (completed) − GAP targets confirmed (March 2023) − Investment Program Management Office reorganization (completed) Inputs ADB: $500 million with the Asian Development Fund and Ordinary Capital Resources Government: $125 million Total: $625 million ADB = Asian Development Bank, GAP = gender action plan, GIS = geographic information system, GNERC = Georgia National Energy and Water Supply Regulatory Commission, km = kilometer, m3 = cubic meter, MA = Ministry of Agriculture, MEPNR = Ministry of Environmental Protection and Natural Resources, MIS = management information system, MLD = million liters per day, MOEPA = Ministry of Environmental Protection and Natural Resources, PPMS = project performance management system, UWSCG = United Water Supply Company of Georgia, WSS = water supply and sanitation. a Editorial word change made to reflect terminology used in the Regional Development Program of Georgia 2018– 2021. b Includes pour-flush latrines with a reticulated sewerage network. Source: ADB estimates. 12 Appendix 2

LIST OF LINKED DOCUMENTS http://www.adb.org/Documents/MC/?id=43405-013-3

1. Performance Overview 2. Revised Facility Administration Manual

Supplementary Documents

3. Policy and Institutional Reform Framework 2011–2019 Progress 4. Map of the Urban Services Improvement Investment Program 5. Letter from the Government of Georgia Dated 1 September 2020 Concerning its Request to Extend the Current Multitranche Financing Facility Availability Period and its Commitment to Strengthen Implementation Arrangements 6. Summary Contracts Status 7. Gantt Chart of Works Contracts