Proposed Extension of Facility Availability Period Georgia: Urban Services Improvement Investment Program
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Project Number: 43405-013 MFF Number: 0055 September 2020 Proposed Extension of Facility Availability Period Georgia: Urban Services Improvement Investment Program Distribution of this document is restricted until it has been approved by the Board of Directors. Following such approval, ADB will disclose the document to the public in accordance with ADB's Access to Information Policy. 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