Document of The World Bank
FOR OFFICIAL USE ONLY
Public Disclosure Authorized Report No: 71448-GE
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED CREDIT Public Disclosure Authorized IN THE AMOUNT OF SDR 19.8 MILLION (US$30 MILLION EQUIVALENT)
TO
GEORGIA
FOR A
Public Disclosure Authorized SECOND REGIONAL DEVELOPMENT PROJECT
October 10, 2012
Sustainable Development Department South Caucasus Country Department Europe and Central Asia Region
Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
CURRENCY EQUIVALENTS (Exchange Rate Effective October 8, 2012) Currency Unit = GEL GEL1.62 = US$1 US$1.5 = SDR 1
FISCAL YEAR January 1 – December 31
ABBREVIATIONS AND ACRONYMS
ACHP Georgia Agency for Cultural Heritage Preservation CHF Georgia Cultural Heritage Fund CPS Country Partnership Strategy DA Designated Account EIB European Investment Bank EMF Environmental Management Framework EMPs Environmental Management Plans EPI USAID-funded Georgia Economic Prosperity Initiative FDI Foreign direct investment FI Financial Intermediary FM Financial Management FMM Financial Management Manual GNTA Georgia National Tourism Administration ICOR Incremental Capital to Output Ratio IFAC International Federation of Accountants IFRs Interim un-audited financial reports ISA International Standards on Auditing LSGs Local Self-Governments MRDI Ministry of Regional Development and Infrastructure MDF Municipal Development Fund Georgia (Project Implementing Entity) OM Operations Manual PDO Project Development Objective PIE Project Implementing Entity RAPs Resettlement Action Plans RDP Regional Development Project RMIDP Regional & Municipal Infrastructure Development Project SAR Subproject Appraisal Report SECHSA Strategic Environmental, Cultural Heritage and Social Assessment SIDA Swedish International Development Agency TOR Terms of Reference
Regional Vice President: Philippe H. Le Houérou Country Director: Henry Kerali Sector Director: Laszlo Lovei Sector Manager: Sumila Gulyani Task Team Leader: Ahmed Eiweida GEORGIA
REGIONAL DEVELOPMENT PROJECT
TABLE OF CONTENTS Page
I. STRATEGIC CONTEXT 1 A. Country Context 1 B. Sectoral and Institutional Context 2 C. Higher Level Objectives 6
II. PROJECT DEVELOPMENT OBJECTIVES 7 A. PDO 7 B. Project Beneficiaries 7 C. PDO Level Results Indicators 7
III. PROJECT DESCRIPTION 8 A. Project Components 8 B. Project Financing 10 C. Lending Instrument 10 D. Project Cost and Financing 10 E. Lessons Learned and Reflected in the Project Design 10
IV. IMPLEMENTATION 12 A. Institutional and Implementation Arrangements 12 B. Results Monitoring and Evaluation 13 C. Sustainability 13
V. KEY RISKS AND MITIGATION MEASURES 14 A. Risk Ratings Summary Table 14 B. Overall Risk Rating Explanation 14
VI. APPRAISAL SUMMARY 15 A. Economic and Financial Analyses 15 B. Technical 16 C. Financial Management 18 D. Procurement 18 E. Social (including safeguards) 19 F. Environment (including safeguards) 20 G. Other Safeguards Policies Triggered 21 H. Effectiveness Condition 21
Annex 1: Results Framework and Monitoring 22
Annex 2: Detailed Project Description 24
Annex 3: Implementation Arrangements 36
Annex 4: Operational Risk Assessment Framework (ORAF) 47
Annex 5: Implementation Support Plan 51
Annex 6: Team Composition 54
Annex 7: Procurement Plan 55
Annex 8: Economic and Financial Assessment 59
Annex 9: Maps 68
DATA SHEET Georgia SECOND REGIONAL DEVELOPMENT PROJECT (P130421) PROJECT APPRAISAL DOCUMENT EUROPE AND CENTRAL ASIA ECSS6
. Basic Information Date: October 8, 2012 Sectors: General water, sanitation and flood protection (60%), urban transport (30%), local government administration (8%), vocational training (2%) Country Director: Henry Kerali Themes: Infrastructure services for Sector Manager/ private sector development Director: Sumila Gulyani/Laszlo Lovei (30%), city-wide infrastructure and service delivery (25%), cultural heritage (25%), urban economic development (10%), regional integration (10%) Project ID: P130421 EA Category: B Lending Instrument: Specific Investment Loan Team Leader(s): Ahmed A. R. Eiweida Does the project include any CDD component? No Joint IFC: No . Recipient: Ministry of Finance Responsible Agency: Georgia Municipal Development Fund Contact: Mr. Levan Chichinadze Title: Executive Director Telephone No.: +995-32-2437001 Email: [email protected] . Project Implementation Period: Start Date: 6-Feb-2013 End Date: 31-Dec-2016 Expected Effectiveness Date: 6-Feb-2013 Expected Closing Date: 30-June-2017
i . Project Financing Data (US$M) [ ] Loan [ ] Grant [ ] Other [X] Credit [ ] Guarantee Proposed term: The Credit will be provided on standard blend IDA terms at a fixed interest rate of 1.25 percent per annum, with a maturity of 25 years including a 5 year grace period. In addition, the current service charge at the rate of 0.75 percent per annum on disbursed and outstanding Financing balance will be applicable to the Credit.
For Credit: Total Project Cost (US$M): 37.50 Total IDA Financing (US$M): 30.00 . Financing Source Amount (US$ Million) Recipient 7.50 International Development Association 30.00 Total 37.50 . Expected Disbursements (in US$ Million) Fiscal Year 2013 2014 2015 2016 2017 Annual 9.00 7.00 6.00 5.00 3.00 Cumulative 9.00 16.00 22.00 27.00 30.00 . Project Development Objective(s) The Project Development Objective is to improve infrastructure services and institutional capacity to support increased contribution of tourism in the local economy of the Imereti Region. . Components Component Name Cost (US$ Millions) Infrastructure Investment 26.46 Institutional Development 3.54 . Compliance Policy Does the project depart from the CAS in content or in other significant respects? Yes No [X]
ii . Does the project require any exceptions from Bank policies? Yes No [X] Have these been approved by Bank management? Yes No [ ] Is approval for any policy exception sought from the Board? Yes No [X] Does the project meet the Regional criteria for readiness for implementation? Yes [X] No [ ] . Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 X Natural Habitats OP/BP 4.04 X Forests OP/BP 4.36 X Pest Management OP 4.09 X Physical Cultural Resources OP/BP 4.11 X Indigenous Peoples OP/BP 4.10 X Involuntary Resettlement OP/BP 4.12 X Safety of Dams OP/BP 4.37 X Projects on International Waterways OP/BP 7.50 X Projects in Disputed Areas OP/BP 7.60 X . Legal Covenants Name Recurrent Due Date Frequency Supervisory Board X Quarterly Description of Covenant
The Recipient shall maintain the supervisory board of the Project Implementing Entity. (Financing Agreement: Schedule 2, Section I.A.2).
Name Recurrent Due Date Frequency Safeguards X Quarterly Description of Covenant The Recipient shall ensure that the Project is carried out by the Project Implementing Entity (PIE) in accordance with the provisions of the EMF, EA(s), EMP(s), RPF and RAP(s). (Financing Agreement: Schedule 2, Section I.D.1).
Name Recurrent Due Date Frequency Social Safeguards X Quarterly Description of Covenant If an Investment Subproject requires land acquisition or resettlement, prior to the commencement of the
iii works under such Investment Subproject, the PIE will ensure that the owners and users of the land where works are to be implemented are fully compensated in accordance with the provisions of the RAP(s). (Financing Agreement: Schedule 2, Section I.D.2). Name Recurrent Due Date Frequency Resettlement Policy Framework X Quarterly Description of Covenant The Recipient shall ensure that the PIE prepares RAPs according to the RPF. (Financing Agreement: Schedule 2, Section I.D.4). Name Recurrent Due Date Frequency Selection Procedures for, and Terms and X Quarterly Conditions of, Investment Subproject Financing
Description of Covenant Investment Subprojects shall be selected in accordance with the selection criteria set forth in the Operations Manual and the Project Agreement. (Project Agreement: Schedule, Section I.C.1).
iv I. STRATEGIC CONTEXT
A. Country Context
1. A Post Conflict Country in Economic Recovery. With a population of 4.48 million, Georgia is a lower middle-income country. In 2008-2009, its economy was hit by the twin shocks of the August 2008 conflict, followed by the global economic and financial crisis. Economic growth, which had been over 9 percent from 2005-mid-2008, fell sharply to 2.3 percent in 2008 and contracted by 3.8 percent in 2009. Authorities were faced with the dual challenges of mitigating the impact of the economic downturn in the short term, and facilitating recovery and preparing Georgia for a post-crisis growth in the medium term. Economic recovery took hold in 2010–2011 due to the government’s robust counter-cyclical response. While the Eurozone crisis slowed down growth in many other emerging economies in Eastern and Central Europe, the Georgian economy grew strongly by 7 percent in 2011.1 Strong exports, foreign direct investment, tourism inflows and high levels of public investment were the main contributors to the pace of economic expansion.
2. At the aggregate level, the Government aims to address two priorities—increasing employment and narrowing the current account deficit. These are to be achieved by promoting private investments in sectors such as tourism, energy and logistics, and by continuing public investment in infrastructure, regional development, agriculture and education. These efforts are seen as key catalysts for accelerating job creation.
3. Deepening the Environment for Private Sector Growth in the Regions. Authorities continue to support the private sector to lead such economic growth and job creation efforts. Georgia’s reforms in the past years have positioned the country as one of the most competitive business environments globally—ranked 16th out of 183 countries in the IFC 2012 “Doing Business” Report. Georgia scores well in terms of business start-ups, tax processes, investor protection, access to credit, enforcement of contracts, registering property and issuing construction permits. To continue the gradual process of regaining private sector confidence after the twin shocks, the Government developed a regional development framework to focus its efforts on attracting private investors in secondary cities across various sectors, including tourism. However, there are still some physical and institutional capacity constraints to attracting private investments in regions with high economic development potential.
4. Within the above-mentioned regional development framework, Georgia intends to fully tap its potential to promote sustainable tourism in various regions that could be attractive, such as Kakheti and Imereti. 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 asked the Bank to support regional development by applying a programmatic approach. The first project under the program, the Regional Development Project (RDP- P126033), US$60 million IBRD loan, was approved by the Board on March 20, 2012, focusing on the Kakheti region, and is now under implementation. This Project is the second (RDP II) in a series of regional development operations being implemented under the CPS, focusing on the Imereti region.
1 World Bank Country Brief for Georgia, 2012
1 B. Sectoral and Institutional Context
5. Georgia Regional Development Strategy. The objectives of the Government’s State Strategy on Regional Development for 2010-2017, approved in June 2010, are to create a favorable environment for regional socio-economic development and to improve living standards. These are to be achieved through balanced socio-economic development policies, increased competitiveness, and greater socio-economic equality among the regions. Regional development strategies already adopted in the country, including the World Bank support to the Kakheti Region, intend to stimulate job creation by reducing imbalances among and within regions, improving public services, and attracting increased private sector investments, especially in tourism. In line with this strategic direction, the Government invested about US$300 million between 2005-2011 for economic and physical revitalization of the cities of Tbilisi, Signagi, Mtskheta, Batumi and Kutaisi. Projects focused on a complete revamp of municipal infrastructure and restoration of old buildings (most of which featured heritage values). According to the Georgia National Investment Agency, the number of visitors to Georgia increased from 560,000 in 2005 to 2.7 million in 2011, with 6.3 million expected by 2014 (see Figure 1.1). Nonetheless, the Government recognized that restoring the buildings and municipal infrastructure alone was not sufficient to trigger and sustain local economic transformation. Thus, an integrated and demand-driven approach to regional development was seen as critical to spurring growth in secondary and historic cities.
Figure 1.1: Current and Projected Tourism Growth in Georgia
6,344,933
4,843,461
3,697,298 2,822,365 2,031,697 1,290,110 1,500,051 1,051,749 559,753 763,241
2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E Source: Georgia National Investment Authority (2012)
6. Imereti Regional Context. Imereti’s per capita income (about US$1,917 in 2010) is the 4th highest among Georgia’s nine regions, as reported in Georgian regional statistics. However, this amount is only 40 percent of the per capita income in Tbilisi, and 73 percent of the country average. The poverty rate of the Imereti region is14 percent, lower than the Georgian average of 16 percent. The unemployment rate is 11 percent, compared to the national average of 16 percent and that of Tbilisi’s, at 30 percent. Services, including tourism and retail, are the main driver of economic activities, contributing 73 percent of its total value added. While the bulk of services involves activities associated with tourism, given the region’s numerous natural attractions, this sector is highly underdeveloped. Agriculture constitutes 12 percent of the GDP, against 8 percent for Georgia as a whole.
7. Imereti’s Growing Importance. The overall contribution of Imereti to the country’s GDP is small, an average of about 12 percent from 2006-2010, although it is still the second after Tbilisi.
2 Over the past five years, growth in Imereti has been dynamic, only exceeded by Adjara region, highlighting Imereti’s prospects. The Government has been investing in Imereti for the past two years. Kutaisi, the region’s capital and the 2nd largest city in Georgia after Tbilisi, has benefitted from substantial investment in urban renewal. It is becoming Georgia’s most significant administrative/government center after Tbilisi. In the fall of 2012, the Parliament will be relocated from Tbilisi to Kutaisi, providing a major impetus for the city to reap the benefits from the significant presence of public administration. Some central government agencies, government regional buildings and other facilities are also being constructed in the downtown area. The Government has also rehabilitated Kutaisi International Airport, which will open at the end of the 2012, bringing regular-fare and budget flights from within and outside Georgia. In addition, the Government has invested in restoring Sataplia and Prometheus caves, and the Borjomi-Kharagauli National Park, and is currently partnering with JIKA to expand the rehabilitation of the East-West highway to Imereti. All spa resorts in Tskaltubo have been privatized, with investors restoring the architecturally-significant buildings and the Government is upgrading/expanding municipal infrastructure. The Government is also developing the Black Sea resorts of Batumi, Kobuleti and Anaklia and the ski resort of Upper Svaneti.
8. Tourism Potential. The Imereti spatial economic analysis2 and Imereti Regional Development Strategy3 have identified tourism, industry and trade as the main drivers of economic growth in the region. In addition, The Imereti Tourism Development & Marketing Strategy was prepared by the Government with the help of an international consulting firm to define a long-term tourism development vision for Imereti and underpin this Project’s design. Imereti is home to several cultural heritage sites. The most significant are the Bagrati Cathedral and the Gelati Monastery, which are listed as UNESCO Word Heritage Sites. The ancient town of Vani and its museum features a unique archaeological area associated with the myth of the Golden Fleece. The Katskhi Column Monastery, Katskhi Church, Motsameta Monastery and Ubisa Church also have unique monuments with impressive architecture and natural landscapes. There are three significant natural areas: the Gordi gorge, one of the deepest and most attractive in Europe; twelve unique caves including two of the most significant in Europe (Prometheus and Sataplia); and attractive health/spa destinations in Tskaltubo and Sairme, based on spring-fed thermal water with unique therapeutic qualities. The protected area of Borjomi-Kharagauli National Park, one of the largest national reserves in Europe with rich landscape, is adjacent to Imereti.
Degraded Infrastructure in Tskaltubo. Government’s investment in Imereti was mainly in Kutaisi, to develop the Parliament and public administration. Until then, relatively modest attention was paid to Tskaltubo and its neighboring historical sites (Gelati Monastery, Vani Museum and surrounding archaeological sites, Ubisa Church, Katskhi Church, Katskhi Column Monastery, and Motsameta Monastery). Infrastructure and historical buildings in Tskaltubo—a city with 22,000 inhabitants—have been deteriorating despite the city’s historic prominence as a destination based on hot springs and natural spas. Years of neglect after independence turned a once vibrant health/tourism destination into one characterized by dilapidated buildings, unreliable infrastructure, poor water supply and sanitation systems, an inefficient street lighting system, degraded urban roads and an under-utilized 72 hectare unique central flora park (with several radon-carbonate mineral springs whose natural temperature of 33-35°C allows the water to be used without preliminary
2 The Imereti spatial-economic analysis was prepared in the framework of project preparation to underpin its design (see Annex 8). 3 The Imereti Regional Development Strategy is being prepared with technical and financial support from the EU.
3 heating, Tsivi recreational lake, and 150 different conifers and deciduous trees). Several old and architecturally-significant hotel buildings (18 hotels/sanatoriums with 4,851 beds) are now vacant or under-utilized; and it lacks tourism facilities, such as public parking, public toilets, cafes, restaurants and information centers.
9. The tourism development strategy further identifies certain challenges that may hinder tourism development and require investment attention, including:
Poor physical conditions and under-utilization of Vani Museum and its surrounding archaeological site; Limited hotel capacity (only 34 accommodation structures, mostly guest-houses and family- houses) and concentration of hotels in the capital city of Kutaisi; Limited number of food & beverage facilities (48 restaurants, 31 cafes and 15 bars); Limited sports & adventure offers; Lack of activities to promote the region as an attractive tourism destination; Lack of information, communications and cooperation among investors to attract private investment; and Inadequate skills for a services-based economy and limited proficiency in foreign languages.
As a result: Only 5 percent of visitors to Imereti (32,500 visitors) spend at least one night in Imereti, often in the capital city Kutaisi; and The vast majority of day visitors spend as little as US$25/day.
10. The Government recognizes the need to improve amenities and urban services in order to also support business tourism related to the relocation of some public administrations to Kutaisi. The goal is to attract private investment, promote public-private partnerships, revitalize local business activity, define a full-fledged regional tourism circuit, and foster two leisure travel clusters (health/nature and cultural heritage). The tourism development strategy proposes to develop Imereti, with Kutaisi, Tskaltubo and Vani, at its core, as a high-quality, year-round health/nature and cultural heritage destination. Seeking to attract both domestic and international tourists in Imereti, the strategy proposes an integrated approach, using the concept of sustainable/geo-tourism,4 comprehensive urban renewal in Tskaltubo, rehabilitation and extension of Vani Museum and construction of tourism amenities at the neighboring historical sites. This complements the tourism development vision of other regions, such as in Kakheti (wine tourism, culture heritage and adventure), or in Adjara (sea sports, nature and recreation).
Projected Tourism Growth in Imereti. With the implementation of an integrated approach to tourism development in Imereti, and the operation of Kutaisi international airport, the tourism
4 Geo-tourism is defined as “Tourism that sustains or enhances the geographical character of a place — its environment, heritage, aesthetics, culture, and the well-being of its residents.” According to the National Geographic Center for Sustainable Destinations, geo-tourism sustains, but can also enhance—by means of restorations and constructive forms of tourism that fit the nature of the destination. Tourist revenue can help, for example (a) restore historic districts, and support local craftspeople; (b) preserve and develop local cuisines, based on distinctively local ingredients supplied by local farmers; (c) retain traditional cultural celebrations and performing arts that would otherwise disappear and (d) beautify ugly places and enrich poor places. It does these best when focused on the distinctiveness of a place, avoiding the destructive pitfalls of undifferentiated global mass tourism.
4 strategy projects that the annual number of visitors will increase from 740,000 (585,000 Georgian visitors and 155,000 foreign visitors) in 2010 to 1.20 million by 2016 and to 2 million by 2020. The number of beds in hotels, guest-houses and family-houses is projected to grow from 2,661 in 2010 (in 34 hotels and 34 guest and family houses) to about 3,193 in 2016—to serve an expected increase in tourists with at least a one-night stay from 32,500 in 2010 to 110,000 by 2016 and to 300,000 in 2020. About 23 percent of visitors are international (the UK, Netherlands, France, Italy and Israel), while 11 percent are regional (Ukraine, Armenia, Turkey and Azerbaijan). Most tourists report enjoying the region’s rich nature and cultural heritage and leave with very high level of satisfaction (8.5/10). Figure 1.2 shows the share of visitors by purpose of visit. With urban renewal activities and improvements to the spa infrastructure in Tskaltubo, GNAT projects an increase in spa tourists from 7,000 in 2011 to 15,000 in 2012 and to 32,000 by 2020. Beyond those coming to the spas, around 200,000 visited Sataplia and Prometheus caves in 2011 and the number is expected to double by 2020.
Figure 1.2: Purpose of Visit to Imereti
60%
50%
40%
30%
20%
10%
0% Recreation Business Visiting Other And Leisure And Friends And Professional Relatives
Georgian Foreigner
Source: Georgia National Tourism Administration (2012)
11. World Bank Support. Launching an ambitious tourism development strategy will require a multi-pronged intervention with the support of the World Bank in the following areas:
Rehabilitating municipal infrastructure (water, sanitation, street lighting and access roads) and urban renewal/re in Tskaltubo to improve public services and the park for both residents and visitors, and attract private sector investment; Improving access roads and constructing new tourism amenities in the selected major cultural heritage sites; Rehabilitating and expanding Vani Museum;
5 Improving planning and organization around the targeted segments of the tourism industry, e.g., managing/organizing destinations in a financially and environmentally-sustainable manner; Developing tourism clusters, mapping geo-tourism sites, developing circuits and improving visitor services, marketing and promotion; and Strengthening tourism and cultural heritage institutions and building capacity at the local level for improving the operation and maintenance of assets.
12. The design of the Project— a proposed blend of institutional development, infrastructure, and targeted interventions—is supported by comprehensive diagnostic and international experience. The Project will aim to promote the local economy in the region by carrying out an integrated approach to developing tourism, focusing on infrastructure, urban renewal, cultural heritage restoration, developing skills and making the environment attractive to private sector investments. The Project is expected to support better integration of the Imereti Region with the country-wide tourism circuits, to tap the hitherto untapped yet potentially significant tourism and hospitality industry potential. Imereti will be reinvigorated as one of the key features of growth and attraction in the broader Georgian context. The Project is important in the general context of Georgia’s regional development and spatial planning vision.
C. Higher Level Objectives
13. Relationship to CPS. The Project supports both features of the Country Partnership Strategy (CPS) for Georgia for FY10-FY13 (Report Number: 48918-GE), presented to the Board in September 2009. It focuses on the CPS goals of economic and business growth, job creation and social services. The Project is also included in the CPS Progress Report, presented to the Board in April 2011. It intends to help create permanent jobs, as well as temporary ones during construction. The CPS and the Project recognize the importance of building local infrastructure to promote social welfare and stimulate growth. The country has invested in municipal infrastructure (water supply, wastewater management, local roads and housing) through the Municipal Development Fund (MDF). The regional development objectives with the support of the World Bank are referenced in the Government’s Ten Point Priority Plan of Modernization and Employment for 2011-2015, adopted in October 2011. The Plan intends to reduce the imbalance between urban and rural development, create employment centers, improve public services and transport connections among regions, and improve the tourism infrastructure. One of the Plan’s priorities, and hence the Government’s concerted efforts, is to increase number of visitors to Georgia from 2.8 million in 2011 to 6.3 million by 2014.
14. Rationale for Bank involvement. Georgia intends to fully tap its potential to promote sustainable tourism in attractive regions such as Kakheti and Imereti. Bank involvement under the proposed programmatic approach to regional development will ensure continued support to (a) growth in the tourism sector, (b) growth of under-developed areas, and (c) the leveraging of public and private investment.
15. The Project will build on a series of World Bank interventions in the region. The East-West Highway and the Secondary and Local Road Projects significantly reduced travel time from Tbilisi. The Regional & Municipal Infrastructure Development Project and its Additional Financing,
6 improved water services and urban roads in several cities and villages in Imereti. Also, the ongoing South Caucasus Skills Development Study (ESW), which aims to offer evidence of the labor demand and supply challenges related to education and skills development, has informed the Project design and will complement its institutional development activities.
16. The Bank is seen as a source of global knowledge and catalyst to leverage additional finances from donor agencies, the private sector, and the state budget. Through effective coordination between the Bank and active donor agencies in Georgia, a large number of supplemental, linked donor activities have been provided or planned (see Annex 3, para. 45).
II. PROJECT DEVELOPMENT OBJECTIVES
A. PDO
17. The Project Development Objective is to improve infrastructure services and institutional capacity to support increased contribution of tourism in the local economy of the Imereti Region.
B. Project Beneficiaries
18. Project activities are expected to benefit Imereti’s residents and tourists. They are expected to improve the access to, quality and reliability of public infrastructure; increase the volume of private sector investment in the region; and increase small and micro enterprises in renovated cultural heritage sites and cities. The Government will benefit from improved institutional capacity of selected agencies and improved capacity to operate and maintain assets.
C. PDO Level Results Indicators
19. The key results expected from the Project are:
Infrastructure Services: Increased number of hours per day of piped water services in Tskaltubo. Improved energy efficiency of street lights.
Tourism Economy: Increased number of hotel beds in circuit route areas. Increased revenues from tickets sold at Vani museum.
Institutional Capacity: Increased volume of private sector investment in Tskaltubo mobilized by the Tskaltubo destination management and development office.
7 III. PROJECT DESCRIPTION
A. Project Components
20. The Project consists of two components: (1) infrastructure investments in urban regeneration of Tskaltubo and tourism circuit development, and (2) institutional development.
Component 1: Infrastructure Investment (IDA: US$26.46 million; Recipient: US$6.62 million)
Financing Investment Subprojects for the following activities:
Component 1.1. Urban Regeneration of Tskaltubo: An integrated approach is proposed for urban renewal of Tskaltubo city. This includes a) rehabilitation of municipal infrastructure and utilities in the central area; b) upgrading of public spaces, parks, and construction of tourism amenities, and c) restoration of public buildings with vernacular architecture. The proposed activities will help improve livability and hospitality in a culturally-informed manner, enhance attractiveness for visitors, revitalize the urban nucleus, and attract increased volume of private sector investments around the medical and spa tourism cluster.
Component 1.2. Tourism Circuits Development: An integrated approach to site upgrading and improved management of the six most attractive cultural heritage sites in Imereti: including Gelati Monastery; Vani Museum and surrounding archaeological site; the Ubisa Church; the Katskhi Church, the Katskhi Column Monastery, and the Motsameta Monastery. This includes a) improving urban landscaping and public parking; b) construction of information kiosks and public toilets; c) restoration and refurbishing of the exterior and interior of the Vani Museum; d) improving access roads; and e) preservation of selected cultural heritage sites.
The estimated cost of this component, including physical and price contingencies, is about US$33.08 million, of which IDA will provide US$26.46 million and the Recipient will provide US$6.62 million in counterpart funding.
Component 2: Institutional Development (IDA: US$3.54 million; Recipient: US$0.88 million)
Enhancing the institutional capacity of the Georgia National Tourism Administration (GNTA), the Agency for Cultural Heritage Preservation of Georgia (ACHP), the National Museum, the Project Implementing Entity, and other local and regional entities to carry out the following activities:
Component 2.1. Establishment of Tskaltubo destination management and development office: This will create the institutional framework to ensure proper operation and maintenance of all assets that will be constructed/rehabilitated in Tskaltubo, and conduct marketing and promotion activities for the Imereti region. It will provide (a) institutional and legal advice to define the best arrangements for the proposed Tskaltubo destination management and development office; (b) construction of an office building in Tskaltubo; and (c) training, equipment and software so the new office can pursue its mandate effectively.
Component 2.2. Sustainable Tourism development and promotion: This will promote Imereti as a new sustainable tourism destination and create a mechanism for community participation,
8 stakeholder consultations, and involvement of local government in the region’s tourism development. It will support the creation of an online marketing and promotion site that will increase awareness of the region’s tourism assets in local and international markets. It will also design a geo- tourism map that can be sold at visitor centers. In addition, it will support various activities designed to encourage cooperation among tourism stakeholders as a precursor to future destination management activities.
Component 2.3. Preparation of visitor management plans for the sustainability of the Project’s cultural heritage sites: This will prepare visitor management plans for the Project’s cultural heritage sites (Gelati Monastery, Vani Museum and surrounding archaeological sites, Ubisa Church, Katskhi Church, Katskhi Column Monastery, and Motsameta Monastery). The activity will provide on-the job training to the ACHP so as to define the methodology to assess the carrying capacity of cultural heritage sites and adjusting it to needs of the Project area. It will also design guidelines for each cultural heritage site and provide practical recommendations as a tool-kit for operating visitor programs around the sites.
Component 2.4. Skilled workforce development and capacity building: This will provide demand-driven capacity building training activities to three groups in order to establish a targeted, integrated workforce development program in tourism-related businesses in the Imereti region. The three are hotel staff, tour operator/guides, and officials in the GNTA, ACHP, National Museum and MDF. This will promote tourism-related business and activities. All efforts will help local communities, with equal focus on women, contribute to economic development and, more importantly, the residents will benefit from it.
Component 2.5. Performance monitoring and evaluation: This will improve the understanding of GNTA staff, as well as the Tskaltubo destination management/development office staff, with respect to tourism and ways to monitor the activities’ effectiveness over the next four years. It will also monitor the Project’s results indicators annually. By measuring tourist arrivals/number of visitors, spending, opinions, occupancy rates, increases in tourism-related investments, and gender aspects, the Government will make more effective adjustments and resource allocations for infrastructure, marketing, human development and policy reforms.
Component 2.6. Construction supervision support: This will provide MDF with construction supervision from an international consulting firm. It will ensure quality implementation, sustainable management of cultural heritage sites, and monitoring of the EMF, EMPs, RPF and RAPs.
The estimated cost of this component, including physical and price contingencies, is about US$4.42 million, of which IDA will provide US$3.54 million, and the Recipient will provide US$0.88 million in counterpart funding. The above activities will be supplemented by several other donor programs (see Annex 3, para. 45). The Government also implements several other institutional development activities, especially related to creating a skilled workforce.
9 B. Project Financing
C. Lending Instrument
21. The lending instrument is a Specific Investment Loan. The Credit will be provided on standard blend IDA terms at a fixed interest rate of 1.25 percent per annum, with a maturity of 25 years including a 5 year grace period. In addition, the current service charge at the rate of 0.75 percent per annum on disbursed and outstanding Financing balance will be applicable to the Credit.
D. Project Cost and Financing
Project cost IDA Financing Project Components (US$ million) (US$ million) % Financing 1. Infrastructure Investment 31.43 25.14 80% 2.Institutional Development 4.12 3.36 80%
Total Baseline Costs 35.55 28.50 80%
Physical contingencies 0.975 0.75 80% Price contingencies 0.975 0.75 80%
Total Project Costs 37.50 30.00 80% Total Financing Required 37.50 30.00 80%
22. Retroactive Financing. The Project is part of the Government's continued emphasis on public investments to support the economic recovery and implement fiscally-responsible stimulus measures following the external economic shocks from the August 2008 conflict and the global financial crisis. The Government has allocated substantial resources from its own budget to prepare all subprojects in advance of Board approval. The Government asked that the threshold of retroactive financing be increased to 30 percent to allow the MDF to start implementation, meet payment obligations, avoid possible delays to the activities, and accelerate disbursements under the Credit. As per the OP/BP 6.00 procedures, a waiver was obtained on August 18, 2012 to increase the standard limit of retroactive financing up to 30 percent of the Credit financing amount. Withdrawals up to SDR5.94 million (equivalent) under the Credit may be arranged for payments made prior to the signing date of the legal agreements, but on or after August 1, 2012, for eligible expenditures under the Project (see Annex 3).
23. The retroactive financing amount from the Credit will cover first interim payment certificates for civil works and consultant services in the first year of the procurement plan. Under the retroactive financing, the MDF has already begun the procurement process for nine contracts, and five have been awarded. The Bank team reviewed the technical, safeguards and procurement processes for these contracts and confirmed that they were consistent with Bank guidelines and operational policies.
E. Lessons Learned and Reflected in the Project Design
24. Lessons learned and innovations that were considered in the Project design include:
10
Benefits. The benefits of investing in urban renewal and cultural heritage for livability, job creation, and local economic development have been increasingly studied and debated over the last few decades with the economic theory underpinning investments becoming substantially more robust. Restoring built assets and renewing under-utilized land in central locations is very much linked with the World Bank Group’s inclusive green growth agenda. A city’s preserved core can also differentiate it from competing locations—nationally and internationally—thus helping the city attract investments and talent. Cities that successfully attract investment and business to meet the citizens’ aspirations while alleviating poverty and promoting social inclusion, are those that harness all their resources, including cultural and live heritage. This anchors people to their roots, builds self-esteem, and restores dignity. Identity matters to all vibrant cities and all people.
World Bank accumulated knowledge. The World Bank has robust experience with historic city and cultural heritage, with close links to natural heritage and sustainable tourism. Since the Bank began financing such projects in the 1950s, it has invested/committed about US$9.5 billion in 600 projects, in addition to technical assistance across the regions. Of these, 150 projects are now being implemented, in both low and middle-income countries. Lessons from similar projects show that funds can be most effective if used to maximize the competitiveness, profitability, economic impact and value added (also referred to as productivity or efficiency) at each link in the chain that delivers a product or service.
Integrated approach. When resources are limited and investors’/citizens’ expectations are high, the project must avoid stretching resources too thinly, which would compromise technical feasibility, economic and financial viability, visibility, and results. Thus, it is vital to understand all aspects of the multi-faceted effort. If implemented properly, the Project will help create jobs and increase economic activity, create cross-sector links, and attract tourism-related income.
Investing in city historic cores and cultural heritage for local economic development. Projects that were successfully implemented in LAC, EAP, MNA, and ECA show that the renewal of historic city cores and cultural heritage sites can be part of a spatial transformation that makes these areas more attractive for residents, visitors, and businesses. Moreover, since the historic areas are usually dense, upgrading them can support green growth by reducing the need for motorized transport and conserving energy in existing buildings. Despite the relatively high-level investments required to renew the building stock (most of which features heritage values), these areas have the potential to stimulate a cities’ economy, revitalizing the built environment and its vitality and attractiveness, which helps create permanent jobs. For example, the Lebanon Cultural Heritage and Urban Development Project created the conditions for local economic development in five cities, which have produced positive growth in employment and business development. In Baalbeck, for example, there has been a 105 percent increase in employment in cultural/tourism industries and 90 percent increase in businesses around the historic core.
Urban renewal/regeneration. This process requires a complex, well-integrated mix of uses, all within walking distance. Successful renewal implies that existing buildings are properly preserved and adapted to accommodate new functions. Further, investing in restoring
11 buildings and the public space connecting them can encourage owners to improve their homes and open small businesses on the lower floors (higher floors can accommodate housing at various income levels). A critical mass of these pedestrian-scale activities requires an initial investment in public and private assets before the renewal becomes self-sustaining. However, at that point, an upward spiral begins: More developers invest in real estate, more businesses open, and more investments are made. As a result, more people locate in the area which causes rents, land and property values to increase, and the renewal process becomes self-sustaining. As Georgia’s experience showed after redeveloping old Tbilisi, Signagi, Mtskheta, and Kutaisi, governments can indirectly recoup the cost of investments from increased tax revenues from properties, personal income, corporate income, VAT and property sales’ transaction fees.
Stakeholders’ consultations. The success of the Project will require strong consultations with all stakeholders that started during Project identification and preparation. Lessons learned from the RDP and the Cities Alliance-funded Tbilisi Strategic Development Plan for Sustainable Development (2011-2030) revealed the benefits of involving stakeholders in all decision-making.
IV. IMPLEMENTATION
A. Institutional and Implementation Arrangements
25. The Project will build on the successful arrangements developed under the Regional & Municipal Infrastructure Development Project (RMIDP) and Regional & Municipal Infrastructure Development Project Additional Financing (RMIDP-AF). The Project will use the same implementing agency–MDF—and will repeat the same arrangements for implementation, procurement, safeguards, financial management and disbursements as occurred under the RDP. The MDF has become a non-bank financial intermediary (FI) that plays a substantial role in funding and developing regional and municipal infrastructure.
26. Due to the Project’s multi-sectoral nature, a multi-agency Working Group was established and acts as a counterpart to the Bank team during identification and preparation. It will continue to function during implementation. The Working Group includes all the agencies involved—the MDF, Georgia National Tourism Administration (GNTA),5 Agency for Cultural Heritage Preservation of Georgia (ACHP),6 Culture Heritage Fund (CHF), National Museum, United Water Company (UWC), Imereti Regional Administration and Local Self Governments (LSGs), Ministry of Finance, and Ministry of Regional Development and Infrastructure. The Working Group performed well during Project preparation.
27. All agencies in the Working Group and LSGs in Imereti have been actively involved with the MDF in Project preparation activities, and will be involved in various aspects of bid evaluation and supervision. Responsibility for each activity is as follows:
Component 1 Urban regeneration in Tskaltubo: CHF, UWC and the MDF.
5 Website of GNTA: http://www.gnta.ge 6 Website of ACHP: http://heritagesites.ge
12 Tourism services and infrastructure in six cultural heritage sites: ACHP, UWC and the MDF. Vani museum rehabilitation: National Museum and MDF. Screening all proposed subprojects: The MDF, with support from the working group and consulting service. All proposed investments have been endorsed by the MDF’s Supervisory Board.
Component 2 Tourism related institutional development activities: GNTA, ACHP, and the MDF. Tskaltubo destination management and development office: Governor of Imereti, Mayor of Tskaltubo, MDF Supervisory Board, Ministry of Justice, Ministry of Economy and MDF. Performance monitoring & evaluation: GNTA and MDF. Procurement, safeguards, financial management, disbursement, supervision of all Project activities: the MDF.
28. As a standard practice under the RMIDP, RMIDP-AF and RDP, the MDF prepared Subproject Appraisal Reports (SARs) for all those to be implemented during the first year of Project implementation, which discussed their feasibility and safeguards issues, and analyzed the availability of funds for O&M of the restored assets to ensure sustainability. All SARs were appraised and approved by the Bank (with the exception of the tourism facility subproject in Motsameta Monastery, which will be implemented during the later years of Project).
29. The MDF’s governance structure: The Project has strong client ownership. An MDF Supervisory Board composed of the Prime Minister, head of the President’s Administration, key ministers, parliamentarians and NGOs has been working closely with the Bank to identify and prepare the Project. The Board’s functions include: (a) overall supervision of Project implementation; (b) inter-agency coordination to achieve the Project objectives; and (c) review and approval of the annual work programs, budgets and reports for the MDF operations. The Supervisory Board met several times during Project preparation and endorsed its design, cost, implementation arrangements and procurement plan. Meetings have been held regularly with the Prime Minister and the Minister of Finance, who also leads donor coordination.
B. Results Monitoring and Evaluation
30. The MDF will be responsible for monitoring and evaluating the Project outcomes against agreed indicators as presented in the Results Framework. The MDF will contract with an international consulting firm to help collect/analyze data, and also with one to help supervise construction. The cost of these services, as well as raising the institutional capacity to sustain Project interventions, is built into the Project design under Component 2. Baseline data has been gathered from the findings of the Imereti Tourism Development & Marketing Strategy, while progress in meeting, or exceeding, targets will be carefully monitored under the Project. The MDF will produce quarterly progress reports to assess implementation and suggest any need for adjustments.
C. Sustainability
31. The Project emphasizes stakeholder ownership, and O&M of rehabilitated/constructed assets in the following ways:
13 Throughout Project preparation, all agencies involved at the national, regional and local levels have been engaged in its design. They will continue to be part of implementation and supervision. This will ensure that local knowledge is incorporated and that there is full acceptance. Several consultation workshops have been held with communities, NGOs, elected and executive local councils, religious establishments in charge of churches and monasteries along the tourism circuits, and all national agencies involved. An advanced draft of Strategic Environmental, Cultural Heritage and Social Assessment (SECHSA) has been prepared to assess, inter alia, (a) the natural and physical environment in the Project area, (b) potential direct impacts of the main interventions on the environment, cultural heritage, and social strata, (c) potential indirect, long-term and direct development impacts of tourism in the region, and (d) a risks mitigation plan. All investment proposals will be screened against criteria in the Operations Manual (OM). As a standard practice under the RMIDP, RMIDP-AF and RDP, the MDF will sign subproject investment agreements with LSGs and the National Museum, which clearly assign the responsibilities for operating and maintaining assets to LSGs. Given the large scale of Bank and Government finance to Tskaltubo, TA will be provided to establish a sustainable destination development and management office in that city. The new office will manage all assets, including long-term leases to the private sector, ensure proper O&M, and balance environmental and financial sustainability.
V. KEY RISKS AND MITIGATION MEASURES
A. Risk Ratings Summary Table
RISKS RATINGS Stakeholder Risk Moderate Implementing Agency Risk Capacity Moderate Governance Moderate Project Risk Design Moderate Social and Environmental Moderate Program and Donor Low Delivery Monitoring and Sustainability Moderate Overall Preparation Risk Moderate Overall Implementation Risk Moderate
B. Overall Risk Rating Explanation
32. Both the overall preparation and implementation risks were rated as moderate. The impact of the described risks, if they materialize, on the achievement of the PDO is moderate. However, if the risk mitigation measures are implemented, and based on the Bank’s and MDF’s past experience in implementing municipal development projects, the likelihood of these risks materializing is low. This suggests rating the overall Project risk as moderate.
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VI. APPRAISAL SUMMARY
A. Economic and Financial Analyses
33. For the Project’s economic and financial analyses, a cost-benefit assessment was carried out.7 Benefit streams were calculated based on the following available data and assumptions.
Benefit Streams
34. Increase in tourists, overnight stays and spending. Improving key infrastructure and strengthening destination management is expected to translate into (a) an average increase in domestic and international tourism arrivals to Imereti by 5 percent a year during the life of the Project and thereafter (the tourism strategy projects a 10 percent increase but the economic analysis assumes only half of such growth will be attributed to the project investments); (b) an increase in average overnight stays from 3.8 days in 2010 to 4.5 in 2016 and to 5.5 by 2020, based on the nature of the tourism attractions; and (c) an increase in spending on food, lodging, and new activities (e.g., guided tours), and local products/handcrafts by 5% a year during the life of the Project and 2% thereafter.
35. Increase in number and profitability of economic enterprises. The development of tourist attractions and geo-tourism maps, management and marketing/promotion of Imereti as a new quality destination, along with the improved infrastructure, are expected to attract private investors who will create new enterprises or expand existing ones. The leverage factor for private investments attracted by the public expenditures is assumed to be 3 to 1 based on data from other Georgian cities where similar urban renewal projects were implemented, i.e., old Tbilisi, old Mtskheta and Signagi. Subject to Government investment in improved municipal infrastructure and urban renewal under the Project, some private sector entities expressed interest in investing in Tskaltubo in 2013 (see Annex 8 for the amount of their planned investments). It is expected that additional private sector investments will be leveraged during subsequent years of the Project.
36. The number of beds in hotels, guest-houses and family-houses is expected to grow from 2,661 in 2010 to about 3,193 in 2016—to serve an expected increase in tourists who stay at least one night from 32,500 in 2010 to 110,000 by 2016 and 300,000 by 2020. Also, based on data from other Georgian cities where similar urban renewal projects occurred, new enterprises and increased profitability are assumed to raise the amount of corporate taxes collected by 15 percent, the VAT by 18 percent, and personal income tax by 20 percent.
37. Property and rental value appreciation. Tourism development and improved infrastructure will create more opportunities for businesses to invest and will increase demand for real estate, which should cause real estate and rental values to appreciate. Based on data from other Georgian cities where similar urban renewal occurred, i.e., old Tbilisi, old Mtskheta and Signagi, the following assumptions are made for Imereti: (a) property values are assumed to appreciate by 60 percent and
7 The Project economic and financial analyses are complemented by a spatial economic analysis and ICOR (investment to capital output ratio) analysis looking at the relationship between public and private investment trends, in general. Full analysis is available in Annex 8.
15 rental values by 20 percent; (b) property tax revenues are expected to increase by 20 percent; and (c) income tax revenues from increased rental fees is projected to rise by 20 percent.
38. Temporary job creation. It is expected that while the Project is being implemented, temporary jobs will be created. Based on analyses of MDF infrastructure projects over the past five years, as well as global experiences in similar projects, the following assumptions were made: A large part of conservation/restoration works (30 percent of expenditures) are assumed to cover the cost of labor. Thus, it is assumed the government will obtain income tax (20 percent) from wages.
39. The cost-benefit analysis was prepared for the entire Project, rather than for each component. The Net Present Value (NPV), Financial Internal Rate of Return (FIRR) and Economic Internal Rate of Return (EIRR) were calculated for the next 20 years from 2012-2031, including four years of Project implementation. For the economic analysis, financial costs were corrected and conversion factors were applied. The analysis assumed a 12 percent discount rate.
40. Secondary data was collected from various government entities, including the GNTA, Ministry of Finance, Revenue Service, Public Register, GeoStat, as well as from real estate brokers and studies from similar projects, e.g., USAID-funded Georgia Economic Prosperity Initiative. Primary data was collected from small-scale surveys, using structured questionnaires that were administered to various stakeholders (restaurants, cafes, hotels, guest-houses, and domestic and foreign visitors). It also obtained information from in-depth interviews.
41. Overall, the Project is projected to yield net economic benefits from the following benefit streams: An increase in tourist overnight stays and spending, the number and profitability of enterprises, increased property values and temporary jobs.
42. Results. The economic and financial analyses show that the Project’s NPV at a 12 percent discount rate amounts to US$10.45 million, with a Financial Internal Rate of Return (FIRR) of 19.10 percent, and an Economic Internal Rate of Return (EIRR) of 31.05 percent.
43. Sensitivity analysis. The NPV, FIRR and EIRR are most sensitive to the secondary sales (direct and indirect sales) multiplier factor: A 10 percent increase or decrease in this multiplier will raise or lower the NPV by US$0.86 million and the FIRR by about 0.47 percent. The largest impact will be on the EIRR: A 10 percent increase or decrease in the secondary sales multiplier will raise or lower the EIRR by 3.77 percent and 3.43 percent respectively. At the minimum possible level of the secondary sales multiplier (i.e., 1.0), and if other assumptions remain unchanged, the NPV will still be positive, reaching US$6.15 million. A 10 percent increase or decrease in tourism arrivals and spending growth forecast after 2016 will raise or lower the NPV by US$0.55 million. If the average overnight stays remains unchanged (at 3.8 days), and other assumptions are unchanged, the NPV will still be positive, at US$4.75 million, the FIRR will be 15.7 percent and the EIRR will be 14.45 percent. The analysis confirms that even when subjected to these stress tests, the financial and economic impacts of the Project remain robust.
B. Technical
44. Building on the successful experience of the RMIDP and RMIDP-AF, the Project consists of the same two components, but activities shift from providing municipal infrastructure across several
16 regions, to focusing these activities, along with urban renewal, on just the Imereti region. This will help improve the local economy and create jobs through tourism development. All the investment subprojects respond to the Imereti Tourism Development & Marketing Strategy (2012-2020). The investment subprojects were carefully selected and appraised to boost the region’s economic development and promote private sector investments.
45. The Project will help increase tourism in the region through introducing a new integrated approach. Rather than focusing only on infrastructure, urban renewal or cultural heritage conservation/restoration, the Project will use an integrated geo-tourism development approach that aims at the following:
Improving and sustaining the geographical character of Imereti region—its heritage, aesthetics, culture, and the well-being of its residents; Identifying the most promising tourism possibilities (health/wellness, cultural heritage and eco- tourism/adventure), and producing a circuits map showing the most attractive sites, which can provide tourists with rich experiences; Carrying out integrated urban regeneration of the old quarters of Tskaltubo city, including rehabilitating the central park, water supply and drainage systems, road network and public space, street lighting, and old public buildings with important architecture, and constructing new tourist-related amenities, such as cafes, recreational activity centers and public parking and toilets; Integrating redevelopment and management of six cultural heritage sites with significant monuments, such as monasteries, churches or museums (involving construction of a tourism facility at each site, public parking and toilets, souvenir shops and information kiosks); Managing and promoting tourist destinations and Internet sites, developing a skilled workforce, preparing visitor management plans, and monitoring/evaluating performance; and Establishing a Tskaltubo destination management and development office.
Overall, the technical measures will establish and/or upgrade all essential facilities and services upon which the increased tourism can materialize and benefit the entire population of the Imereti region. A key consideration of the Project is to improve infrastructure without negatively affecting the environment. Thus, stringent protection and mitigation measures are in place to avoid potential drawbacks. For example, following the SECHSA recommendations, a plan will be prepared for each cultural heritage site to manage the flow of visitors to its carrying capacity and the monks’ needs. In Tskaltubo, a complementary parallel financing mechanism by SIDA is being developed to re- establish a community wastewater treatment plant on the site of the former abandoned sewage treatment plant.
46. Readiness. The Project is ready for implementation. Activities and investments at all proposed urban renewal and cultural heritage sites were designed by the government and its consultants and appraised by the Bank. The MDF has been working closely with all agencies concerned. The Bank team has appraised the following documents and visited all Project sites, inter alia:
Designs and bidding documents for initial urban regeneration investments in Tskaltubo: prepared by the MDF and the CHF;
17 Designs of the upgrading and conservation activities in Vani and five cultural heritage sites: prepared by the MDF, National Museum and ACHP; Subproject Appraisal Reports (SARs) and Bid Documents: prepared by the MDF; Tourism-related technical assistance TORs: prepared by the GNTA; Performance monitoring & evaluation activities: prepared by the MDF; Construction supervision arrangements including bidding documents for construction supervision consultants: prepared by the MDF; Procurement Plan: prepared by the MDF; Operations Manual: prepared by the MDF; Financial management framework: prepared by the MDF; Resettlement Policy Framework (RPF): prepared by the MDF, reviewed and disclosed on September 21, 2012; and Environmental Management Framework (EMF): prepared by the MDF, reviewed and disclosed on September 21, 2012.
C. Financial Management
47. The MDF’s Financial Management (FM) arrangements have been reviewed periodically as part of the Bank’s implementation support and supervision to the ongoing projects, as well as during appraisal, and were found acceptable. An assessment of the FM arrangements for the Project was conducted in June 2012, confirming they are satisfactory and acceptable for implementation.
48. The FM arrangements will mirror those of the ongoing Bank-financed MDF projects, which are acceptable to the Bank. This assessment is based on the: (a) significant experience of the MDF’s FM staff with Bank-financed projects over the past few years; (b) MDF’s adequate accounting system and software; (c) FM arrangements being similar to the RMIDP (including its Additional Financing and Trust Fund grants); and (d) unmodified (clean) opinion expressed by the auditor about the ongoing projects and the entity’s financial statements.
49. While no major shortcomings were identified in the MDF, some weaknesses were noted in the timeliness and quality of the interim unaudited financial reports (IFRs) of the ongoing projects submitted to the Bank. Thus, the MDF has adopted proper control procedures to ensure that IFRs are submitted on time, and that quality control procedures are consistent. These aspects are being monitored closely by the Bank. The MDF also developed a separate manual to reflect the FM arrangements under the Project.
50. Since January 2006, the Treasury’s foreign currency account at the National Bank of Georgia (NBG) has been used for all new Bank-financed projects’ Designated Accounts (DAs). Overall, these arrangements are satisfactory and will remain in place during the Project’s implementation.
D. Procurement
51. The MDF currently conducts the procurement of the ongoing RMIDP, including its Additional Financing and RDP, and will assume this function under the proposed Project. Procurement progress of the ongoing projects is satisfactory. The Bank procurement team updated its assessment of the MDF and identified certain risks. However, the MDF has a qualified manager
18 and procurement staff and thus the required capacity to implement the Project. The procurement risk is rated “Moderate”; and mitigation measures will be applied (see Annex 4).
52. Procurement under the Project will be conducted according to the “Guidelines for Procurement of Goods, Works, and Non-Consulting Services under IBRD Loans and IDA Credits & Grants by World Bank Recipients” (January 2011), the “Guidelines for Selection and Employment of Consultants under IBRD Loans and IDA Credits & Grants by World Bank Recipients” (January 2011), and the provisions stipulated in the Financing Agreement. The procurement procedures, along with the thresholds for Bank review, are described in Annex 3 and in the Procurement Plan (PP). The PP will be updated with the Project team’s agreement annually or as required, to reflect the implementation needs.
53. Procurement will be carried out by the MDF’s procurement division. Its staff has experience with World Bank guidelines, and attended several training courses in Georgia and abroad. Its decision-making process is formalized. The evaluation group’s decisions, as well as those of the tender commission, are approved by the Supervisory Board and reflected in published minutes of the meetings.
54. The MDF has prepared an initial Procurement Plan for the Project, which was reviewed by the Bank and approved during negotiations.
55. The Project provides for a 30% retroactive financing limit. Under these arrangements, the MDF has already begun the procurement process for nine contracts, proposing that those, as well as subsequent contracts be subject to retroactive financing up to SDR5.94 million (equivalent) million. The Bank procurement team reviewed the processes for these contracts and confirmed they were consistent with Bank guidelines.
E. Social (including safeguards)
56. The Project is expected to generate positive social impacts by creating employment, building productive capital, and improving infrastructure and transport connections. The negative social impacts are expected to be limited, including some temporary inconvenience to local residents during construction, and longer-term impacts related to increased visitors.
57. Temporary impacts include dust, noise, limited access to the areas, and increased safety risks, which will be addressed through the EMPs/ERs to be prepared for each subproject, as well as the Environmental Management Guidelines for Contractors, both which are included in the Operations Manual. These temporary impacts will likely be limited, since there are only few residential structures in the immediate vicinity of most subproject sites.
58. Direct long-term impacts include traffic safety due to increased number of visitors, since the proposed subproject sites of Ubisa and Katskhi are located along roads leading to schools. The increased traffic and use of parking facilities might increase the students’ risks of traffic accidents, which would need to be addressed with adequate safety measures. In Ubisa, approximately 200 students are enrolled in a school located 300-400m from the subproject site. In Katskhi, approximately 300 students are enrolled in the school near the subproject site.
19 59. Other long-term social impacts might be related to: (a) urban gentrification of Tskaltubo, resulting from the increased price of goods/services as well as property values; and (b) a large influx of investors and migrants attracted by the new economic opportunities. The SECHSA would analyze such issue and suggest mitigation measures.
60. Resettlement and land acquisition. The Project triggers the World Bank Safeguards Policy on Involuntary Resettlement OP 4.12. A Resettlement Policy Framework was prepared and disclosed to the public according to the policy. Resettlement impacts would mainly relate to temporary relocation and/or loss of income or productive assets during construction. However, there would also be some cases of permanent resettlement. In Gelati, some 30 local vendors selling souvenirs around the Monastery will likely be affected, since their stalls would be permanently removed for the construction of the visitors’ facility. A store located next to the Church will also likely require resettlement. A Resettlement Action Plan was prepared in advance of the Project appraisal to address the subproject impact on these affected people. Prior to the start of works at the Gelati site, the MDF will ensure that the owners and users of the land near there will be fully compensated according to the RAP provisions. The Project could also include the souvenir vendors at the visitors’ center to be constructed.
61. Public consultation. As part of the subproject’s appraisal and approval process, the MDF ensured that public consultations are being conducted for each subproject. Under the sustainable tourism activities, efforts will be made to increase community participation and involve local governments. With regard to the Vani sub-project, the MDF confirmed that all nine households in the archaeological protection area were clearly informed of the Project, and were given the opportunity to raise concerns.
62. Gender. The Project is likely to affect gender issues, such as the increased employment opportunities in tourism/hospitality sectors for men and women. The scale and type of opportunities will differ between men and women, which will be considered in designing the skills development activities under Component 2. The results of such activities will be monitored, using gender- disaggregated data. Improving the urban infrastructure, such as water supply and sewerage connections in Tskaltubo, will also have some positive direct effects on women, given their greater role in domestic work. The Project will collect gender-disaggregated data to better understand and assess the role of men and women in the tourism economy and its potential impact on both. In terms of participation, the Project will ensure that women are adequately represented in public consultations. In assessing the demand for tourism sites and designing the marketing activities under Component 2, the Project will consider different demands/expectations of male and female tourists.
F. Environment (including safeguards)
63. The Project includes investment components to develop infrastructure and thus triggers the OP/BP 4.01 Environmental Assessment. None of the activities are expected to have significant, long term, or irreversible impacts on the natural environment; thus, the Project is classified as environmental Category B. An Environmental Management Framework (EMF), prepared earlier for the RDP, was updated and adapted for the Project. The EMF guides the preparation of subproject- specific Environmental Reviews (ERs) and/or Environmental Management Plans (EMPs). The client
20 is finalizing a Strategic Environmental, Cultural Heritage, and Social Assessment (SECHSA), building on and assessing the Tourism Development & Marketing Strategy for the region. The SECHSA identifies risks and opportunities associated with the overall development program proposed for Imereti. It (a) collects and analyzes baseline information about the region, (b) analyzes the expected long-term, cumulative, and direct/indirect impacts of the Imereti Regional Tourism Development & Marketing Strategy as well as of the Project activities, and (c) assesses the institutional capacity of the government agencies to manage environmental, cultural, and social implications of the development in Imereti, including identifying gaps and making recommendations about capacity building.
64. The MDF is the Project’s implementing agency. It has a long history of implementing World Bank-supported projects with a good track record of complying with safeguards, but its in-house capacity for ensuring that measures to mitigate negative impacts of civil works are applied and monitored is limited, due to the lack of human resource specialists and it depends on external consultants. Considering the safeguards’ challenges (due to the location of the sites and their proximity to physical cultural properties and aesthetically valuable landscapes), MDF hired an international construction supervision firm to support technical supervision of works and monitor compliance to safeguards policies. The MDF will be further encouraged to consider safeguards training for its staff.
G. Other Safeguards Policies Triggered
65. Because the Project aims to increase the flow of tourists to the natural and cultural heritage sites, this will require improving their access and developing tourist infrastructure around them. Civil works in the immediate area of the monuments, etc. might affect their aesthetic value, risk accidental damage, or gradual deterioration. Also, they will imply earth works which carry a high likelihood of chance finds. OP/BP 4.11 is triggered to ensure that no element of cultural heritage is affected negatively, either during construction or eventual operations. Site-specific ERs and/or EMPs will cover the preservation of cultural heritage and carry relevant mitigation measures, as well as arrangements for monitoring implementation. The cost of monitoring, as well as raising the institutional capacity to ensure sustainable development, is built into Component 2. The MDF and the ACHP will closely supervise adherence to OP/BP 4.11 in the course of implementation. Once civil works are completed, the ACHP will manage the sites in compliance with the laws and regulations stipulated by the state, beyond the life of the Project.
H. Effectiveness Condition
66. The Condition of Effectiveness consists of the following: the Subsidiary Agreement has been executed by the Ministry of Finance and the Ministry for Regional Development and Infrastructure on behalf of the Recipient and the Project Implementing Entity, i.e., MDF.
21 Annex 1: Results Framework and Monitoring Georgia: Second Regional Development Project Project Development Objectives The Project Development Objective is to improve infrastructure services and institutional capacity to support increased contribution of tourism in the local economy of the Imereti Region.
. Project Development Objective Indicators Responsibility Cumulative Target Values Data Source/ for Data Unit of End Methodology Collection Indicator Name Core Baseline YR1 YR2 YR3 YR4 Frequency Measure Target Increased number of hours per day of piped Number 8 8 8 12 14 18 Annual Progress Reports MDF water services in Tskaltubo Increased energy efficiency of street lighting Percentage 0% 0% 0% 20% 25% 30% Annual Progress Reports MDF in Tskaltubo GNTA Statistics Increased number of hotel beds in circuit Number 2,661 2,661 2,794 2,933 3,790 3,193 Annual and Progress MDF route areas Reports 10,519 10,519 42,660 59,724 71,100 88,989 National Museum Increased revenues from tickets sold at Vani Number Annual Statistics and MDF museum (GEL) Progress Reports Increase volume of private sector investment GeoStat Statistics in Tskaltubo mobilized by the Tskaltubo Number 0.00 0 3 8 16 20 Annual and Progress MDF Destination Management and Development (US$ mln) Reports Office. Intermediate Results Indicators Responsibility Cumulative Target Values Data Source/ for Unit of End Methodology Data Indicator Name Core Baseline YR1 YR2 YR3 YR4 Frequency Measure Target Collection Piped household water connections that are benefiting from rehabilitation works Number 0.00 0 2,000 3,000 4,000 5,000 Bi-annual Progress Reports MDF undertaken by the Project
22 Project Development Objectives The Project Development Objective is to improve infrastructure services and institutional capacity to support increased contribution of tourism in the local economy of the Imereti Region. Number of street lighting posts and bulbs Number 0.00 400 800 1,200 1,448 1,448 Bi-annual Progress report MDF replaced
Non-Rural Roads Rehabilitated (km) Number 0.00 2.0 3.0 4.0 5.1 5.1 Bi-annual Progress report MDF
Number of people in urban areas provided with access to all-season roads within a 500 Number 0.00 0 4,000 5,000 6,000 6,000 Bi-annual Progress reports MDF meter range under the Project Number of buildings restored and constructed Number 0.00 0 0 7 8 9 Bi-annual Progress reports MDF in Tskaltubo and Vani.
Number of Parks upgraded in Tskaltubo Number 0.00 0 1 2 2 2 Bi-annual Progress reports MDF
National Museum Number of tickets sold at Vani museum Number 5,215 5,215 7,500 10,500 12,500 15,645 Bi-annual Statistics and MDF Progress Reports Number of tourism facilities constructed at Number 0.00 0 3 4 5 6 Bi-annual Progress reports MDF cultural heritage sites along the tourist circuit Increased annual number of visitors at Project Number 740,000 740,000 777,000 816,000 860,000 903,000 Annual Annual surveys MDF sites Production and distribution of new maps Number 0.00 2,000 5,000 8,000 10,000 10,000 Bi-annual Progress report MDF based on sustainable tourism database Establishment and operation of Tskaltubo destination management and development Percentage 0.00 50 70 80 100 100 Bi-annual Progress report MDF office Project beneficiaries in Tskaltubo, Vani and Number 0.00 0 10,000 15,000 18,000 20,000 Annual Annual surveys MDF cultural heritage sites
Of which female (beneficiaries) Number 0.00 0 5,000 7,500 9,000 10,000 Annual Annual surveys MDF
23 Annex 2: Detailed Project Description Georgia: Second Regional Development Project
1. Georgia refocused its efforts in the past six years by launching several regional development initiatives to attract private investors and proposes to tap the potential for sustainable tourism in promising regions, such as Imereti, which remains underutilized. The Project builds upon the first operation focusing on the Kakheti Region, relevant international experiences and a diagnostic of institutional quality, infrastructural adequacy and the potential for targeted interventions to foster growth in tourism and cultural heritage. The Project aims to implement an integrated approach to tourism development, focusing on infrastructure, urban regeneration, cultural heritage restoration, skills development, and enabling the environment to attract private sector investments. The activities envisaged under the Project are expected to bring direct benefits to the residents and tourists of Imereti. The implementation of the Project is expected to improve the access to, quality and reliability of public infrastructure; increase the volume of private sector investment in the region; and increase small and micro enterprises in renovated cultural heritage sites and cities. The Government will benefit from improved institutional capacity of selected agencies and improved capacity to operate and maintain assets.
2. The proposed investments will focus on six sites, including Tskaltubo (a major spa city), Gelati, Vani, Ubisa, Katskhi, and Motsameta, helping establish an economically and financially viable tourism industry, one that is labor-intensive and will help increase local revenues. Investments also aim to promote local economic development by means of attracting the private sector, which can create permanent jobs while offering tourists the opportunity of spending time in a region characterized by an extremely healthy environment. Tourism will be based on health/wellness, authenticity, nature, culture and high-quality, locally-produced organic food.
3. Imereti occupies 6,552 km² (9.4 percent of Georgia’s area), has a population of 703,485 (16 percent of Georgia’s population) and a density of 107 people/km². Imereti has 12 administrative districts: Kutaisi (the region’s capital), Tkibuli, Tskaltubo, Chiatura, Baghdati, Vani, Zestaponi, Terjola, Samtredia, Sachkhere, Kharagauli and Khoni. There are 542 settlements in the region, of which there are 10 cities, 3 towns and 529 villages.
4. Imereti has significant tourism potential. The region is located along the East-West Highway, connecting Tbilisi with Adjara on the Black Sea. This makes it an important trade corridor that starts from the Black Sea and goes all the way to Central Asia. It is also easily accessed (two and a half hours from Tbilisi) and an attractive rest stop destination for domestic and international visitors going from Tbilisi to Adjara, especially for summer vacations. The region used to be an important tourist destination during the Soviet era (about 600,000 tourists a year), and as such, reconstructing its attractiveness should not be difficult.
5. Imereti is home to several cultural heritage sites of which the most significant are Bagrati cathedral and Gelati monastery, which are listed by the World Heritage Committee of UNESCO as sites that are threatened. There is also the ancient town of Vani and its indoor and outdoor museum featuring a unique archaeological area associated with the myth of the Golden Fleece. The Katskhi Column Monastery and Motsameta Monastery feature unique architecture in a stunning landscape, as well as the Katskhi and Ubisa churches. The region also has three protected areas—Gordi Gorge,
24 which is one of the deepest and most attractive in Europe, 12 unique caves (including the Prometheus and Sataplia caves), and nine health wellness/spa destinations in Tskaltubo and Sairme, with hot and cold springs. Adjacent to the region is the Borjomi-Kharagauli National Park, which is the largest national reserve in Europe.
6. Imereti’s capital, Kutaisi, is Georgia’s second largest city and is fast becoming Georgia’s most significant administrative/government center after Tbilisi. In the fall of 2012, Georgia’s Parliament will be relocated from Tbilisi to Kutaisi, providing the city with the impetus to promote development that will benefit from the significant presence of public administration. Some central and regional government agencies and other facilities are also being constructed in downtown Kutaisi; and, an International Airport will open by the end of the 2012, bringing in regular-fare and budget flights from within and outside Georgia. In addition, the Government has already invested heavily in restoring Kutaisi, the Prometheus and Sataplia caves, and the Borjomi-Kharagauli National Park. The Government also started to privatize all spa resorts in Tskaltubo, with the understanding that while investors would restore the architecturally-significant buildings with their own financial resources, the Government would upgrade and expand municipal infrastructure within the context of a city-wide urban renewal program. The Government is also developing various important resorts in close proximity to Imereti, including the Black Sea resorts of Batumi, Kobuleti and Anaklia, as well as the ski resort destination of Upper Svaneti.
7. Based on global experience and Imereti Regional Tourism Development & Marketing Strategy, achieving this goal to benefit local communities will depend on an integrated approach, with four groups of activities:
Implementing integrated urban renewal in the city of Tskaltubo, including public utilities and assets, a large green park, and many associated features built with private investments; Improving access and addressing basic conservation needs dealing with visitor needs in four major sites along the main tourist routes in areas with high natural values (including public parking and toilets, souvenir shops and information kiosks); Providing incentives to the private sector to invest in tourism and agro-processing of high quality products in Imereti (including financial support for public infrastructure, streamlined business start up procedures, etc); and Promoting health resort marketing campaigns, geo-tourism, a destination management organization, and developing skills and M&E.
8. These activities will leverage private investment, promote public-private partnerships, revitalize local businesses, develop a full-fledged regional tourism circuit, and foster leisure travel that focuses on health. The tourism strategy identifies the following three attractions:
Health/wellness. The Project will help re-establish Tskaltubo, which was once famous for this industry. Curative qualities of the Imereti mineral springs have been known for centuries. Health/wellness tourism is one of the fastest-growing segments in the industry, contributing to local economies in several countries, especially in ECA, given increasing demand. It is a destination-based industry, since it can only be developed where springs are located. And, spa tourists usually are willing to pay more for quality service. Thus, the potential to increase local revenues and create jobs is very high.
25 Cultural heritage. The Project will help define and organize tourist routes to major cultural sites, such as the two world heritage monasteries of Gelati and Bagrati; Vani museum; Ubisa and Katskhi churches; and Motsameta and Katskhi Column monasteries. Tourists can also experience the local culture, such as traditional dance, music, art and cuisine. These attractions would complement Tskaltubo, promoting longer tourist stays, thus increasing their average expenditures. The market for these attractions involves older age groups, who have higher levels of disposable income, education, and time for leisure travel. The focus will be to make the sites attractive, invest in their accessibility and basic conservation, market them, provide special events and improve facilities.
Nature/adventure. The Project will organize tourism related to stunning landscapes, pristine, natural and protected areas, all enriched by a healthy environment. Protected areas, such as Sataplia and Prometheus caves, Barjomi-Kharaguli Park or the Ajameti Reserve can offer leisure activities such as walking, bird-watching, nature photography, park picnics, camping or visiting caves. Tkibuli Lake is also a perfect place for fishing. The market for these attractions involves the 25-45 year age group, which usually has less disposable income. To attract them, the focus should be on developing routes, marketing and training, for both less difficult (walking, birding, trekking, skiing, kayaking) and more strenuous activities (mountaineering, canyoning, para-gliding, heli-skiing). These activities will be done along with measures to ensure the protection of biodiversity and ecological values.
9. Incentives for the private sector. If the Government goal is to develop tourist activities and routes, this requires improving infrastructure to attract private sector investments, improving planning and organization (e.g., destination management and tourism offices), strengthening institutions and building capacity, mapping and arranging tourism routes, and improving visitor and interpretation services, signage and marketing.
10. The Project consists of two components: (1) infrastructure investments in urban regeneration of Tskaltubo and tourism circuit development, and (2) institutional development.
Component 1: Infrastructure Investment (IDA: US$26.46 million; Recipient: US$6.62 million)
Financing Investment Subprojects for the following activities:
Component 1.1. Urban Regeneration of Tskaltubo: An integrated approach is proposed for urban renewal of Tskaltubo city. This includes (a) rehabilitating municipal infrastructure and utilities in the central area, (b) upgrading public spaces and parks, and constructing tourism amenities, and (c) restoring public buildings with unique local architecture. The proposed activities will help improve livability and hospitality in a culturally-informed manner, enhance attractiveness for visitors, revitalize the urban center, and increase private sector investments around the health/spa features.
Component 1.2. Heritage Sites and Tourism Circuits: An integrated approach is proposed to upgrade and improve the management of the most attractive six cultural heritage sites along the main tourism route in Imereti: Gelati Monastery; Vani Museum and surrounding archaeological sites; Ubisa Church; Katskhi Church; Katskhi Column Monastery; and Motsameta Monastery. This includes: (a) improving urban landscapes and public parking; (b) constructing information kiosks,
26 cafes and public toilets; (c) restoring the exterior and interior of the Vani Museum; (d) improving access roads; and (e) preserving other cultural heritage sites.
The estimated cost of this component, including physical and price contingencies, is about US$33.08 million, of which IDA will provide US$26.46 million and the Recipient will provide US$6.62 million in counterpart funds.
11. The following sections provide details about each site and describe Project activities.
12. Urban Regeneration of Tskaltubo. The first references to Tskaltubo were around the 12th century, describing it as a small town east of the Black Sea, surrounded by the Adjara-Akhaltsikhe Mountains. Georgian historians claim that the healing properties of the Tskaltubo springs were even known before the written records, by people living around Georgia, roughly between the 8th and 9th centuries. As it was known for having Imereti’s oldest thermal springs, many high-level Soviet officials moved into Tskaltubo during its occupation of Georgia after 1921, creating majestic living spaces, and using the bathhouses. The city still is a well-known destination for tourists seeking therapeutic alternatives to traditional medical treatments.
13. In Tskaltubo, the Project will aim to:
Rehabilitate the water supply and sewerage system in central Tskaltubo and the Tsivi Lake area, benefitting about 6,000 people. Water activities include rehabilitating the 700m supply network, constructing a small (32 m3/hr) water pumping station, and installing 14 water meters. These will mainly benefit the central area and Tsivi Lake visitors. Wastewater activities include rehabilitating the 13 km collection network; Rehabilitate 5.1km of the circular road around the central park and storm-water drainage system; Rehabilitate street lights in Tskaltubo city including the central park and Lake Tsivi area (replacing 1,448 lampposts, blubs and cables). New energy-efficient lamps will be used, reducing electricity consumption by 30%; Restore four buildings (the city hall, elected council building, old railway station and cinema), and 12 small pedestrian bridges in the central park); Upgrade the central park and Lake Tsivi (irrigation and storm-water channel systems, access roads, pedestrian and bicycle lanes, landscaping, recreational areas) and install new seats; and Construct small tourism-related amenities and facilities in the central park and around Lake Tsivil, e.g., a Tskaltubo destination management and development office, parking, playgrounds, fountains, pergolas, pools, cafes, restaurants and public toilets.
These activities are expected to improve the quality of life and hospitality in a culturally-informed manner, enhance attractiveness for visitors, revitalize the urban centers, and increase private sector investments to restore under-utilized old hotels, spring-fed baths, and construct/operate new tourism facilities. The estimated O&M cost of all rehabilitated and constructed assets under the Project in Tskaltubo was calculated in the SAR (see Table 2.1 below). The water and wastewater system will be owned and operated by the United Water Company (UWC). The UWC has included the projected O&M costs in its budget plans. The roads, storm water drains and street lights will be owned and operated by the Tskaltubo municipality. The O&M cost will be included in the city’s budget plans.
27 All other assets will be owned by the Tskaltubo destination management and development office (TDMDO); they are expected to be leased to private operators on a competitive basis.
Table 2.1: Estimated O&M annual costs in Tskaltubo, and institutional responsibility O&M Cost Asset Owner/Operator (GEL/Year) Water supply and sewerage in central UWC/UWC 20,000 Tskaltubo and Tsivi Lake The circle road, storm-water drains Municipality/Municipality 60,000 and street lights Tsivi Lake and water channels TDMDO/lease to private sector 20,000 Central park (trees and shrubs, irrigation and pathways) and tourism- TDMDO/lease to private sector 540,000 related amenities and facilities Total 640,000
14. Tourism Circuits Development: An integrated approach will be launched to upgrade and improve management in the most attractive six cultural heritage sites along the main tourism circuit/route in Imereti, including Gelati Monastery; Vani Museum and surrounding archaeological site; Ubisa Church; Katskhi Church, Katskhi Column Monastery, and Motsameta Monastery. This includes a) improving urban landscaping and public parking; b) construction of info kiosks, cafes and public toilets; c) restoration of Vani museum; and d) improving access roads and water supply.
15. The proposed route will present a rich experience of health-oriented destinations, culture, nature, high-quality organic food, ecotourism, and adventure tourism, thus increasing tourists’ average stays and spending. The improved access roads will foster the safety of all users at dangerous spots, but will not widen the roads or significantly increase traffic. They will also facilitate trading and commuting for local residents, with significant benefits for the local economy.
16. Gelati. Construction of the Gelati Monastery was begun in 1106 during the rule of King David IV (1089 – 1125) and completed before the rule of Queen Tamar (1213) during the rule of Kind David’s son, Demetré. King David IV founded the Church of the Virgin in 1106 before the Church of St. George and the Church of St. Nicholas were built (both in the 13th century). The monastery stood during a period of solid military and economic success in medieval Georgia. However, it was destroyed in 1510. Restoration began in the early 16th century, and it wasn’t until the 18th century that Gelati was completely restored. The monastery lost its power in the 19th century. In 1994, UNESCO added Gelati to the list of World Heritage Sites, and later to the list of those that were threatened. Also, the World Monument Fund added Gelati to its list of 100 most endangered sites in 2008.
17. In Gelati, the Project will help establish a tourism facility outside the core of the World Heritage Site, in its buffer zone, as defined by the World Heritage Convention and Georgian laws, with minimal visual impact on the landscape. The Project will also support limited conservation works to roofs, facades, walls and pathways to ensure visitor safety and a pleasant experience. A better site will be an incentive for people to stay longer, thus increasing the share of tourists who have meals in the area.
28 18. Vani. Evidence of bronze plates and hand-crafted gold jewelry suggest that Vani was one of the most important trade centers in the 6th and 4th centuries B.C. between the Colchis Kingdom and the Greek states. Vani is at the top of an area in the old trading routes in the Rioni Lowlands that connected India with the Caspian Sea and ended at the Black Sea. A temple there was the focal point in the 3rd century for the ancient Colchis religion until the city’s ultimate destruction during the 1st century B.C. Current archeological interest in Vani stems from its role in Greek mythology as the location of the “Golden Fleece,” for which the Argonauts searched.
19. In Vani, the Project will help rehabilitate and expand a museum with state-of-the-art technologies. The subproject will do the following: Rehabilitate the walls, floors, windows and roof; Improve water supply and sanitation services; Rehabilitate the heating, air conditioning and dehumidification systems; Add a new auditorium, exhibition areas, laboratories and storage areas equipped with modern technologies (climate control, fire extinguishers, security and lighting systems); Increase the public space and add a shop and café; Add special elevators and toilets for the disabled; Equip the museum with showcases and furniture; Provide institutional capacity-building activities for the museum management, under the workforce development sub-component.
20. The Project will also finance limited upgrading and language services (for translators) in the nearby archaeological area to interest visitors in the history, promote longer stays, and increase average spending in the town. Beneficiaries will be visitors (domestic and international tourists), Vani residents and businesses involved in and serving the tourism industry. According to museum statistics, visitors (students, adult groups, individuals and other visitors) numbered 2,798 in 2010 and 5,215 in 2012. The number is expected to reach 15,645 by 2016, partly due to the museum’s rehabilitation and expansion.
21. The National Museum has State funding for subsequent operation and maintenance (O&M). Currently, ticket prices are GEL1.5 for adults, GEL1 for students and GEL0.5 for children and pensioners. After the rehabilitation, the prices will increase to GEL5 for adults, GEL1 for students and GEL0.5 for school children and pensioners. The annual revenues from the museum, including revenues from sales at the gift shop, are expected to be about GEL90,000 by 2016 (see Table 2.1 below). The annual O&M costs, including salaries, are expected to be about GEL150,000. Until the museum reaches full cost recovery, the balance of O&M costs will be provided by the State.
Table 2.2: Baseline and projected revenues from Vani Museum Total Revenues from ticket sales Other number revenues Total Year Pensioners of Adults Students (including Revenues /pupils visitors shops) 2012 5,215 5,085 1,043 391 4,000 10,519 2013 7,500 24,375 1,500 563 16,222 42,660 2014 10,500 34,125 2,100 788 22,711 59,724 2015 12,500 40,625 2,500 938 27,037 71,100 2016 15,645 50,846 3,129 1,173 33,840 88,989
29 22. Ubisa. St. George of Khandzta founded the first building of the Ubisa Church in the 9th century. Additions were made in the 12th century, which included several defensive walls and a tower (annexed in 1141), which tourists can visit. The monastery contains murals from the 14th century, which reflect artistic influences from 13th century Byzantine Palaiologan period. The monks who live at the monastery are known for producing honey, organically.
23. The Project will help create a tourism facility outside the core of the site (in its buffer zone), as defined by Georgian laws, with minimized visual impact on the landscape. It will also support basic conservation works of pathways, wooden structures and walls, to ensure visitor safety and a pleasant experience.
24. Katskhi. The Baguashi family established the Katskhi Church from 988–1014, which initially served as its burial ground, holding the remains of Liparit IV (after his exile from the Byzantine Empire), until the end of the Baguashi dynasty in the 11th century. The site reemerged in the 16th century when Prince Abulaskhar Amirejibi and Bargat III of Imereti renovated Katskhi Church for Christian use, officially christening it as “The Katskhi Church of Nativity of the Savior.” The Monastery was closed in 1924, but was reopened in 1990 under the Georgian Orthodox Church. The Monastery is based on a hexagonal frame and the structure is elaborately decorated with Christian symbolism. Near the monastery, the Katskhi Pillar is a large limestone monolith and consists of a church dedicated to Maximus the Confessor, several living quarters, and a wine cellar. The structures date to the 9th -10th centuries and have recently been used for religious activities, as monk Maxim of Chiatura reoccupied the buildings in 1995.
25. In Katskhi, support will help establish a tourism facility outside the core of site, in its buffer zone, with minimized visual impact on the landscape. In addition, the Project will finance basic conservation works to ensure safety at both the church, along the main road, and at the small monastery on the rock-pillar, including the structures at its base. It will become a mixed cultural and natural site, with pathways, views, and various attractive spots that will offer tourists a chance for day-long trips, where local food and crafts can be sold.
26. Motsameta. The Motsameta is a small, beautiful monastery with round turrets crowned with peaked tent-shaped domes. The monastery stands above the Rioni River and is surrounded by coastal vegetation. In a small monastery hall, there is a large rectangular ark with the hallows of the pious princes canonized by Georgian Church. Motsameta attracts crowds of tourists with an ancient superstition: If one crawls three times under the ark and makes a wish while touching the hallows, the princes David and Konstantin will grant it. King Bagrat III reconstructed the church in the 10th century and it was rebuilt in the 19th century.
27. The Project will help establish a tourism facility outside the core site of Motsameta, in its buffer zone, with minimal visual impact on the landscape.
28. The estimated cost, including physical and price contingencies, is about US$34.26 million, of which IDA will provide US$27.41 million and the Recipient will provide US$6.85 million in counterpart funds. The Swedish International Development Agency (SIDA) is considering providing US$5 million-$6 million of parallel financing to support a wastewater management system in Tskaltubo, subject to finalizing the Administration Agreement between SIDA and the Bank.
30 29. Investment subprojects will be selected according to the criteria in the Operations Manual. When presenting an Investment Subproject Financing to the Bank for approval, MDF shall furnish to the Bank an SAR, in form satisfactory to the Association, which includes: (i) the description of the proposed Investment Subproject and the respective expenditures proposed to be financed out of the proceeds of the Credit; (ii) the related EA, site-specific EMP and/or RAP, as the case may be, in form and substance satisfactory to the Bank; (iii) technical, financial and economic analysis of the proposed Investment Subproject; and (iv) the proposed terms and conditions of the Investment Subproject Financing to be used for the Investment Subprojects;
30. For Component 1, prior to the issuance of the bidding documents for the works contract for each Investment Subproject, the MDF shall prepare and submit to the Bank for its approval: (i) the draft bidding documents; and (ii) the draft contract for said works to ensure that the provisions of the site-specific EMP are adequately included in said contract. If an Investment Subproject requires land acquisition or resettlement, prior to the commencement of the works under such an Investment Subproject, MDF shall ensure that the owners and users of the land where said works are to be implemented are fully compensated in accordance with the provisions of the RAP(s).
Component 2: Institutional Development (IDA: US$3.54 million; Recipient: US$0.88 million)
Enhancing the institutional capacity and performance of the Georgia National Tourism Administration (GNTA), the Agency for Cultural Heritage Preservation of Georgia (ACHP), the National Museum, the Project Implementing Entity (MDF), and other local and regional entities to carry out the following activities:
Establishment of Tskaltubo destination management and development office. Tourism development and promotion. Preparation of visitors’ management plans. Development of skilled workforce and capacity building. Monitoring and evaluating performance. Providing construction supervision support.
These activities will aim to develop the following: (a) a sustainable site management plan, including monitoring of the carrying capacity of each cultural site; (b) sustainable destination management organization and promotion that balances environmental conditions and financial returns; and (c) institutional capacity to monitor tourism performance indicators, including exit surveys and future satisfaction (beyond the Project).
The estimated cost of this component, including physical and price contingencies, is about US$4.42 million, of which IDA will provide US$3.54 million, and the Recipient will provide US$0.88 million counterpart funds.
The specific activities include the following:
Component 2.1. Establish the Tskaltubo destination management and development office
31 This will help create the institutional framework to ensure proper O&M of all assets constructed/rehabilitated in Tskaltubo, and to conduct marketing and promotion activities for the Imereti region. It will:
Provide institutional and legal advice to define the best organization for the proposed establishment of Tskaltubo destination management and development office; Construct an office building in Tskaltubo; Provide training, equipment and software so the new office can pursue its mandate effectively.
Component 2.2. Sustainable tourism development and promotion
This activity will promote Imereti as a new sustainable tourism destination and help create a mechanism for community participation, stakeholders’ consultation and involvement of local government in developing tourism in the region. It will create an online marketing and promotion site that will increase awareness of the assets among local and international target markets. It will also design a sustainable tourism map that can be sold at tourism visitor centers. In addition, a set of promotional activities will be supported to encourage cooperation among stakeholders as a precursor to future destination management activities. Activities will:
Conduct consultation workshops with local communities around tourism and heritage sites; Launch an information outreach campaign to engage local communities in tourism development; Provide information about sites, attractions, routes and visitor services, including lodgings, events, trails, routes and other information through the region’s website; Produce a geo-tourism map and booklet; Serve as a platform for this pilot Project, but also as a general platform upon which tourism could eventually expand beyond the region; Tell the story of the region (its health and spa features, cultural heritage, natural setting, live heritage, food and beverage, etc.) to attract visitors; Serve as an all-inclusive point of entry for information about tourism in the region; Incorporate media content from the region, including photography and videos that feature the heritage assets of Imereti; Link this site into other social media channels; Design and launch a tourism network linking GNTA to regional and local level management and promotional activities; Develop an online and social media marketing campaign; and Conduct targeted marketing and outreach.
Component 2.3. Preparation of visitor management plans for the sustainability of the Project’s cultural heritage sites
This activity supports the preparation of visitor management plans for Gelati Monastery, Vani Museum, surrounding archaeological sites, Ubisa Church, Katskhi Church, Katskhi Column Monastery, and Motsameta Monastery. It will provide on-the job training to the ACHP for the following:
32 Defining and applying methods to assess the sites’ carrying capacity, based on local conditions; also, designing guidelines for each site and a tool-kit for operating the visitor programs; Defining and illustrating visitor trails, infrastructure, locations of service units, access and exists, and the nature of each site; also, describing visitor flows and projections, needed infrastructure capacity, required staff and qualifications, O&M guidelines, translation aids and, techniques, monitoring, research and conservation measures; and Mapping sites.
Component 2.4. Skilled workforce development and capacity building
This activity will provide demand-driven capacity-building activities to three groups of beneficiaries, producing an integrated workforce development program around the skills needed in tourism-related businesses in the Imereti region. The groups are hotel staff, tour operators and guides, and officials at the GNTA, ACHP, National Museum and MDF. This will help promote and strengthen tourism- related businesses/activities. Efforts will focus on having local communities (equally involving men and women), contribute to local economic development and benefit from it.
Such activities will (a) produce a better understanding of the workforce gaps, including skills, numbers, and capacities, to educate by gender; (b) increase capacity in Imereti and Tbilisi facilities to provide world-class academic training in hospitality and tour management, marketing, customer service, cultural heritage interpretation, at various skill and managerial-levels; (c) increase knowledge about the region among restaurateurs and their employees, tour guides, and other key staff; and (d) encourage local communities to start new small and medium-size enterprises.
At the same time, activities in the South Caucasus Skills Development Study (ESW) will complement those planned under this sub-component. This will involve three analyses: (a) a workforce development policy survey to evaluate the strategic framework, oversight arrangements, and delivery of services; (b) a survey of 400 firms in certain sectors, including tourism; and (c) a survey of 4,000 households, including an assessment of skills of one member in each household.
Component 2.5. Performance monitoring and evaluation
This activity will improve the understanding of tourism issues in Imereti at GNTA and the Tskaltubo destination management and development office and introduce ways to monitor the effectiveness of efforts over the next four years. The activity will also monitor the Project’s results indicators, annually. By measuring tourist arrivals/numbers, spending, opinions, occupancy rates, increases in tourism-related investments, and gender aspects, the Government will be better able to make adjustments when needed, and allocate resources for infrastructure, marketing, human resources, and policy reforms. At present, authorities have difficulty assessing the tourism activities in the region, as staff lacks the expertise to conduct surveys, the software available cannot accurately measure the accommodation statistics, and data is not reliable.
This will involve (a) designing and conducting seasonal surveys to determine the number and origin of visitors, spending activities, and satisfaction levels, and (b) gathering baseline data from both formal and informal tourism enterprises about the length of tourist stays, as well as employment rates (by gender), tax revenues, estimates of gross revenues, expenditures, rates of profitability, and
33 other variables through surveys, interviews and questionnaires. The Government would learn the amount that tourism enterprises spend on local goods and services and thus be able to measure the indirect/direct impacts of the sector on the regional and national economy. Also, the survey will identify the challenges that businesses face when attempting to expand and become more profitable, particularly as they affect male and female entrepreneurs.
Prepare a baseline database to determine the number of visitor arrivals, occupancy rates, average daily spending, and satisfaction levels; Compile a complete list of all tourism-related enterprises, volume of tourism-related investments and points of sale that are officially registered and operating; Provide an accurate estimate of the number and size of informal businesses/individuals in the tourism sector; Gather information such as employment rates, tax revenues and estimates of gross revenues and expenditures to provide an overview of the direct/indirect economic impact of the tourism sector; Identify and assess barriers preventing informal entrepreneurs from joining the formal sector; and Collect and monitor relevant gender data to better understand the roles of males and females in tourism, the potential impact of the Project by gender, and the constraints these entrepreneurs face in the region.
Component 2.6. Construction supervision support
This will provide MDF with construction supervision support from an international consulting firm. It will ensure quality implementation, sustainable management of the sites, and monitoring the implementation of the EMF, EMPs, RPF and RAPs.
31. Readiness. The MDF prepared an Investment SAR/Feasibility Study for each subproject, which discussed the investment’s viability, implementation plan, expected results and EMP, and analyzed the availability of funds to operate/maintain the restored assets sustainably. The Bank team appraised and approved all SARs (except for the Motsameta tourism facility subproject, which will be implemented once the Project begins). Also, the Bank team approved all activities/documents listed below.
The designs of the urban renewal activities in Tskaltubo, prepared by the MDF and CHF; The designs to restore the Vani museum and upgrade the surrounding archeological sites, prepared by the MDF, National Museum and ACHP; The designs of tourism facilities at five heritage sites, prepared by the MDF and ACHP; The SARs and bid documents, prepared by the MDF; The tourism-related technical assistance TORs, prepared by the GNTA; Performance M&E activities, prepared by the MDF; Construction supervision, prepared by the MDF; Initial procurement plan, prepared by the MDF; OM, prepared by the MDF; Financial management framework, prepared by the MDF; RPF, prepared by the MDF, reviewed and disclosed in the InfoShop on September 21, 2012;
34 and EMF, prepared by the MDF, reviewed and disclosed in the InfoShop on September 21, 2012.
35 Annex 3: Implementation Arrangements Georgia: Second Regional Development Project
Project administration mechanisms
1. The Municipal Development Fund (MDF) will be responsible for Project implementation. The MDF has become a solid non-bank financial intermediary (FI) that plays a substantial role in funding/implementing regional and municipal infrastructure development. The MDF has been successfully implementing a series of IDA and IBRD-financed regional and municipal development projects since 1998. Its good performance is well appreciated and reflected by the Government’s and donors’ interest to use the MDF as the primary organization for channeling grants and credits to Georgian regions and local governments.
2. MDF’s governance structure. For the purpose of ensuring the Project’s proper coordination and execution, the Government shall maintain the MDF’s Supervisory Board consisting of all ministers involved. Its functions include (a) overall supervision of Project implementation; (b) inter- agency coordination to achieve the Project objectives; and (c) review/approval of the annual work program budgets and reports for operating the MDF.
3. A Working Group was established to prepare the Project. Each agency in this group and the Imereti local governments have been actively involved with the MDF in preparing their respective investment subprojects and will be involved in bid evaluations and supervision. The institutional and implementation arrangement are show in chart below.
Implementation and Institutional Arrangements
Financial Management,
36 Disbursements and Procurement
Financial Management
4. The financial management (FM) function will be handled by the MDF, which will be responsible for the flow of funds, accounting, planning and budgeting, internal controls, financial reporting, and auditing. MDF’s FM arrangements are reviewed periodically as part of the ongoing projects’ implementation support missions and found to be moderately satisfactory or satisfactory. A June 2012 FM assessment for the Project confirmed it is satisfactory and acceptable for Project implementation. The MDF will enforce proper control procedures to ensure that IFRs are submitted to the Bank on time, and their quality control procedures are consistently maintained; the Bank will monitor the IFRs’ quality and timeliness. The only action agreed during the assessment relates to the development of the FM manual (FMM), in order to cover these arrangements under the Project. The MDF updated the FMM, which is now part of the OM. The overall FM risk for the Project was assessed as Moderate, with inherent and control risks before and after mitigation measures also rated Moderate.
5. The MDF has acceptable planning and budgeting capacity. The financial manager and the head of procurement and department managers are responsible for preparing budgets, which are approved by MDF’s Supervisory Board. The procurement and monthly plans of works’ execution are developed based on data from the contractors given to the procurement and financial management. The draft budget, in the form of budget requisitions (as established by the MoF), is prepared in Excel spreadsheets, while the budget endorsed by MDF’s Supervisory Board and approved by the MOF is entered into the budget module of ORIS Manager Software.
6. The MDF employs knowledgeable FM staff, with many years of experience in implementing Bank-financed projects. The staff includes a financial manager, a chief accountant, three staff accountants and one loan officer. The financial manager, who has substantial experience with Bank projects, was also the financial manager with the Education Project Coordination Unit for several years before moving to the MDF. She is responsible for oversight of statutory and other reporting under the projects, as well as for financial management, with overall responsibilities for budgeting, accounting and financial reporting. The chief accountant (also with many years of experience in Bank operations) is responsible for MDF general accounting and tax-related issues, while the staff accountants are responsible for the RMIDP, its Additional Financing, TF grants and other donor- financed projects (ADB, EIB, KFW, EBRD, EU and USAID). Accountants are also responsible for their respective project’s Treasury operations. The loan officer was responsible for monitoring the loans issued under the two closed municipal projects, as well as under the ongoing RMIDP, RMIDP- AF, and other donor-financed projects, and follow up for the transfer of municipal shares and information updates from municipalities. The accountants participated in the June 2012 Joint Regional Fiduciary Workshop in Tbilisi as well as in the International Financial Reporting Standards (IFRS) training in Turin, Italy in October 2011. The FM staff arrangements in MDF are considered adequate to implement the proposed Project. The financial manager will have primary responsibility for the semi-annual IFRs and will prepare the annual financial statements for audit.
7. The MDF’s accounting books and records are maintained on an accrual basis. Project financial statements, including semi-annual IFRs, are presented in US dollars (except for the EC TF Grant, which is in Euros). It was agreed that the accrual basis would be adopted for reporting purposes under the proposed Project, while the MDF’s IFRS will be applied for accounting and 37 financial reporting. The chart of accounts being used is adequate and could be adapted for the purposes of the Project.
8. Overall, the MDF’s internal control system is satisfactory. However, some inconsistency was noted with respect to the timeliness and quality of the interim unaudited financial reports (IFRs) on the on-going projects submitted to the Bank. The MDF took steps to address these issues, which will ensure that IFRs are submitted to the Bank on time and quality-control procedures are maintained. The Bank will routinely monitor their quality and timeliness. The MDF has developed a separate FMM covering the FM arrangements under the Project which are to be strictly followed. There is no internal audit function within the MDF organizational structure.
9. Project management IFRs will be used to monitor/supervise the Project and their formats will be included in the MDF FMM. The IFR formats were confirmed during assessment and relate to: (a) Project sources and use of funds, (b) use of funds by Project activity, (c) designated account statements, (d) balance sheets, and (e) SOE withdrawal schedules. The MDF will produce a full set of IFRs semi-annually through the life of the Project. These financial reports will be submitted to Bank within 45 days of the end of each calendar semester. The first semester IFRs will be submitted after the end of the first full semester following the initial disbursement.
10. The audit of the Project and MDF financial statements will be conducted (a) by independent private auditors through TOR acceptable to the Bank, and (b) according to the International Standards on Auditing (ISA) issued by the International Auditing and Assurance Standards Board of the International Federation of Accountants (IFAC).
11. MDF’s auditing arrangements and findings are satisfactory to the Bank. Thus it was agreed that similar audit arrangements will be adopted for the RDP. Particularly, the sample audit TOR agreed with the Bank is attached to the FMM, and the annual audited project and entity financial statements will be provided to the Bank within six months of the end of each fiscal year, and for the Project also at the close of the Project. If the period from the date of credit effectiveness to the end of the Recipient’s fiscal year is no more than six months, the first audit report may cover financial statements for the period from effectiveness to the end of the second fiscal year. The Recipient has agreed to submit the audit reports for the Project within one month of their receipt from the auditors, by posting the reports on the MDF website8 or by publishing them in a national newspaper. Following the Bank's formal receipt of these reports, it will make them publicly available according to World Bank Policy on Access to Information. The contract for the audit awarded during the first year of Project implementation may be extended from year-to-year with the same auditor, subject to satisfactory performance. The cost of the audit will be financed from the credit proceeds.
Disbursements
12. To facilitate timely disbursements for eligible expenditures, the MDF will establish a Designated Account (DA) in US dollars and maintain it until Project completion. The DA will be opened as a Treasury’s foreign currency account at the NBG, on terms and conditions acceptable to the Bank. The DA will be drawn upon to meet payments to contractors, suppliers and consultants under the Project. The Designated Account Statement will be audited in conjunction with the annual
8 Website of MDF: www.mdf.ge 38 audit of the Project. Detailed instructions on withdrawal of IDA credit proceeds are provided in the Disbursement Letter.
13. Project funds will flow from (a) the Bank, either through the DA, to be maintained in the Treasury, which will be replenished on the basis of SOEs or full documentation, or on the basis of direct payment withdrawal applications and/or special commitments, received from the MDF; and (b) the Government, via the Treasury, through normal budget allocation procedures initiated by the implementing agency, according to standard Georgian Treasury and Budget execution regulations. The funds will be used to finance eligible expenditures under the Project. Withdrawal applications documenting funds drawn from the DA will be sent to the Bank at least every three months.
14. Funds will be disbursed similar to the ongoing RMIDP and RDP projects, implemented by the MDF; procurement and payments will be done by MDF. Transaction-based disbursements will continue to be used. The Statement of Expenditure thresholds are as follows: Payments against contracts valued at less than US$4,000,000 equivalent for works, US$300,000 equivalent for goods, US$200,000 equivalent for consulting firms, and US$50,000 equivalent for individual consultants.
15. The disbursement categories and percentage of IDA financing are provided in table below.
Category Amount of the Credit Percentage of Allocated (expressed Expenditures to be in SDR) Financed (including taxes) (1) Goods, works, non- 19,600,000 80% consulting services, consultants’ services and training (2) Operating costs 200,000 80% TOTAL AMOUNT 19,800,000
16. Retroactive financing. The Government asked that the threshold of retroactive financing be increased to 30 percent to allow the MDF to start implementation, meet payment obligations, avoid possible delays to activities and ensure accelerated disbursements under the Credit. As per the OP 6.00 procedures, a waiver was obtained on August 18, 2012 to increase the standard limit of retroactive financing up to 30 percent of the credit financing amount. Withdrawals up to SDR5.94 million (US$9 million equivalent) under the Credit may be for payments made prior to the signing date of the legal agreements, on or after August 1, 2012, for eligible expenditures under Category (1) of the Project.
Procurement
17. MDF currently conducts the procurement for the RMIDP, RMIDP-AF, RDP and will continue to do so under the Project, which will be according to the “Guidelines for Procurement of Goods, Works, and Non-consulting Services under IBRD Loans and IDA Credits & Grants by World Bank Recipients” (January 2011), and “Guidelines for Selection and Employment of Consultants under IBRD Loans and IDA Credits & Grants by World Bank Recipients” (January 2011) and provisions in the Legal Agreement.
39
18. The Bank’s anti-corruption norms (“Guidelines on Preventing and Combating Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants”) of October 15, 2006 and revised in January 2011, will be applied.
19. Country and sector level risks. The latest country-level risk assessment for public procurement was conducted during the preparation of the Country Procurement Assessment Report (CPAR) in 2009. It was based on the OECD-DAC/World Bank four pillars for public procurement. The conclusion was that all four pillars needed to be improved in order for the system to meet international standards and best practices. A three-year action plan was prepared and Georgia is making progress towards meeting it. One important completed step was the implementation of an electronic procurement system for all government contracts. The Bank assessed this system and decided it can be used on a pilot basis for the Bank-funded projects for procurement of simple goods following shopping procedures, below US$100,000, with minor modifications to the current system, as agreed with the Competition and State Procurement Agency (CSPA). The Bank will continue to work with the CSPA and other counterparts to possibly expand the use of the system for other procurement methods.
20. Procurement risk assessment and mitigation measures. MDF carries out several other projects along with those financed by the Bank (from the state budget as well as other IFIs). Therefore, the risk that MDF may not have sufficient staff and time to coordinate procurement under the Project was identified. Also, the contract management function exists, but needs to be strengthened to avoid implementation delays. Thus, it has been agreed with MDF that the head of the Procurement Division, who is currently assigned to RDP, will be assigned almost full time to the Project. This means procurement will be managed much more effectively. Since a substantial amount of procurement has already been contracted under the RMIDP and RDP, the workload is not expected to be very heavy from now on, under the ongoing projects. Still, another procurement specialist, whose qualifications were reviewed by the Bank and assessed to be acceptable, will provide support as needed.
21. Based on observations made under the ongoing RDP, there is another risk—of little competition among bidders. The Bank team discussed several mitigation measures with MDF, such as repeated advertising, allowing the use of a bid security declaration form along with bid security and publishing procurement notices on the Competition and Sate Procurement Agency’s website. MDF has started implementing these measures to increase bidder participation.
22. Also, there is a risk that the same bidders might obtain substantial amounts of contracts during the same time period. The Bank discussed mitigation measures with MDF and agreed to incorporate a special provision in the bidding documents where an annual cumulative amount of contracts that can be awarded to a bidder is calculated. Award decisions will be made, considering this provision.
23. The Project procurement risk is rated “Moderate”; and application of mitigation measures lower it.
24. Organization. Procurement will be carried out by the Procurement Division of the MDF, which is the implementing agency for the Project. The Division has eight staff (head of division, two chief procurement specialists, one senior procurement specialists, and four procurement specialists). 40 In addition to the regular procurement functions, the division head is responsible for overall monitoring and management of the unit. The procurement staff has experience carrying out procurement under World Bank guidelines, and attended training courses in Georgia and abroad. Two of the procurement specialists attended the Regional Fiduciary Workshop in Tbilisi, in June 2012.
25. Decision-making process is formalized. Each decision of the evaluation group, as well as of the tender commission, is described in minutes of meetings. The decree which describes each department’s responsibilities is approved by the Board of Directors.
26. Records. Generally, MDF’s records are acceptable. All records are kept in the MDF Procurement Unit. Files include copies of advertisements, minutes of bid openings, bid evaluation reports and other documents related to procurement. Valuable documents (bid/performance securities, originals of bids/technical/financial proposals etc.) are kept in a safe. After a contract is completed, the contract as well as all supporting procurement documents is transferred to the Procurement Archive. No special system is in place, but required documents can be easily obtained manually. One procurement specialist is specifically assigned to handle the archive function. Records in the Archive as well as the Procurement Unit are protected from loss or damage.
27. A post review of procurement actions shall be conducted once a year. At least one out of five procurement packages not subject to Bank prior review will be examined ex-post.
28. Retroactive financing. Project activities, at a cost of SDR5.94 million, have been identified for retroactive financing. From August 1, 2012, the MDF began the procurement process for seven contracts. The Bank procurement team reviewed the process for contracts proposed for retroactive financing and confirmed they can be procured in line with Bank guidelines.
29. The procurement procedures, along with the thresholds for Bank review, are described below as well as in the Procurement Plan (PP). The PP will be updated as agreed with the Project team annually or as required to reflect the actual project implementation needs.
30. Procurement of goods and non-consulting services. Goods and non-consulting services estimated to cost US$300,000 equivalent and more will be procured through ICB. Those estimated to cost less than US$300,000 may be procured through NCB, and less than US$100,000, through shopping.
31. Procurement of works. Works contracts estimated to cost more than US$4 million equivalent will be procured through ICB. Those estimated at US$4 million or less may be procured though NCB, and less than US$200,000, through shopping.
32. Selection of consultants. Consulting services will be procured according to the Bank’s Consultant Guidelines mentioned above and will include those needed to supervise civil works, skills development and capacity building, geo-tourism promotion and destination management etc. The Bank’s Standard RFP (revised in October 2011) will be used to select all consulting firms. Consultant selection methods will include Quality and Cost-Based Selections (QCBS), Fixed-Budget Selection (FBS), Consultant Qualifications (CQS), Least-Cost Selection (LCS), Single-Source Selection (SSS) and Individual Consultants (IC). The latter will be selected according to Section V
41 of the Consultant Guidelines. This method will require comparing at least three qualified available candidates to assume the assignments.
33. Short lists composed entirely of national consultants. Short lists of consultants for services estimated to cost less than US$100,000 equivalent per contract may be composed entirely of national consultants, according to the provisions of paragraph 2.7 of the Consultant Guidelines.
34. Operating costs. These expenditures, approved by the Bank on the basis of budgets (acceptable to the Bank), will be carried out by the MDF for Project implementation, management and monitoring, including the costs of support staff salaries (excluding salaries of the Recipient’s civil service staff), communications, editing, printing and publication, translations, vehicle operation and maintenance, bank charges, local travel costs and field trip expenses, office rentals, utilities, and office supplies.
Prior Review Thresholds
Category Prior Review Thresholds in US$ Works All DC; All ICB; First 1 SH; First 2 NCB; NCB ≥US$2 Million Goods and non consulting All DC; All ICB; First 1 SH; First 2 NCB services Consulting firms All QCBS; All ≥US$100,000; First 1 CQS; All SSS Individual consultants All ≥US$50,000; All SSS
Particular Methods of Procurement of Goods and Works Except as otherwise provided in table below, goods and works shall be procured under contracts awarded on the basis of International Competitive Bidding (ICB).
Other methods. The following table specifies the methods of procurement, other than ICB, which may be used for goods and works. The Procurement Plan shall specify the circumstances under which such methods may be used.
Procurement Method (a) National Competitive Bidding, subject to the additional provisions set forth in below:
(i) “Open competitive procedures” (i.e., “public tender”) shall be the default rule. A single envelope procedure shall be used for the submission of goods, works, or non-consulting services.
(ii) Invitations to bid shall be advertised in at least one widely circulated national daily newspaper allowing a minimum of thirty (30) days for the preparation and submission of bids. Advertisements published in foreign language newspapers shall be in compliance with such a 30-day-minimum in number of days for bids preparation and submission.
(iii) Bidding shall not be restricted to pre-registered firms. If registration is required, it shall not be denied to eligible bidders for reasons unrelated to their capacity and resources to successfully perform the contract (e.g., mandatory membership in professional organizations, classification, etc). Post- qualification shall be conducted to verify that the bidder has the capability and resources to successfully perform the contract.
42
(iv) Government-owned enterprises in Georgia shall be eligible to participate in bidding only if they can establish that they are legally and financially autonomous, operate under commercial law and are not a dependent agency of the Government. Government-owned enterprises will be subject to the same bid and performance security requirements as other bidders.
(v) Procuring entities shall use the appropriate Bank’s sample bidding documents, including pre- qualification documents, for the procurement of goods, works, or non-consulting services, and such documents shall contain draft contract and conditions of contract including clauses on fraud and corruption, audit and publication of award, all acceptable to the Bank.
(vi) Bids shall be opened in public, immediately after the deadline for submission of bids. Bidder’s representatives shall be permitted to attend the bid opening.
(vii) Extension of bid validity shall be allowed once only for not more than thirty (30) days. No further extensions should be requested without the prior approval of the Bank.
(viii) Evaluation of bids shall be based on quantifiable criteria expressed in monetary terms as defined in the bidding documents, no merit point system and no domestic preference shall be used in the evaluation of bids. Contracts shall be awarded to qualified bidders having submitted the lowest evaluated substantially responsive bid and no negotiations shall be carried out prior to contract award.
(ix) Civil works contracts of long duration (e.g., more than eighteen (18) months) shall contain an appropriate price adjustment clause.
(x) No bid shall be rejected purely on the basis that the bid price is higher than the estimated budget for that procurement. All bids shall not be rejected and new bids solicited without the Bank’s prior concurrence.
(b) Shopping (c) Direct Contracting
Environmental and Social (including safeguards)
35. The Project involves financing of physical works with possible impact on the natural environment and social conditions within the target region of the country. Therefore, it triggers the OP/BP 4.01 on Environmental Assessment. The scope and nature of the potential environmental impact of the Project is expected to be moderate and the Project is classified as environmental Category B. No large-scale and/or irreversible adverse environmental impacts are likely. Given that the Project will finance generally similar activities in various locations in the Imereti region, an Environmental Management Framework (EMF) was developed in the course of its preparation. EMF provides guidance for screening and risk assessment of individual investments under the Project and provides methods for further environmental work depending on the screening outcomes. Site- specific Environmental Reviews (ERs) including Environmental Management Plans (EMPs) both for higher and lower risk activities are developed in agreement with the EMF, publicly , and discussed with relevant stakeholders.
43 36. A Strategic Environmental, Cultural Heritage, and Social Assessment (SECHSA) is being finalized by the client, assessing the Tourism Development & Marketing Strategy for the region. The SECHSA will identify risks and opportunities associated with the overall development program proposed for Imereti. The SECHSA will (a) pool baseline information on the target region;(b) analyze the expected long-term, cumulative, and direct/indirect impacts of the Imereti Regional Tourism Development & Marketing Strategy as well as all interventions proposed under the Project; and (c) assess the institutional capacity of government agencies to manage environmental, cultural, and social implications of Imereti regional development, including gap analyses and recommendations for capacity building.
37. The Project aims to attract more tourists to the natural and cultural heritage sites of Imereti. This will involve improving access to these sites and developing tourist infrastructure around them. Implementation of civil works in the immediate proximity to the monuments and other sites risks affecting their aesthetic value, accidental damage, or gradual deterioration. Also, development of tourist infrastructure and improving access to the cultural sites will imply earth works, which make chance finds likely. OP/BP 4.11 is triggered to ensure that no element of cultural heritage is affected negatively, either during construction or operation of the infrastructure. Site-specific ERs and/or EMPs will cover the aspect of cultural heritage preservation and carry relevant mitigation measures, as well as arrangements for monitoring implementation. The cost of such monitoring activities, as well as raising the institutional capacity to ensure sustainable development, is built into the Project’s design under Component 2. The MDF and the ACHP will closely supervise the adherence to OP/BP 4.11 in the course of the Project. Once civil works are completed, the ACHP will assume the management of the sites, complying with the laws/regulations stipulated by the state, beyond the life of the Project.
38. The Project triggers OP 4.12 Involuntary Resettlement, and the RPF was prepared and presented to the public according to the policy. Resettlement impacts will mainly relate to temporary relocation and/or loss of income or productive assets during construction. However, there will be some cases of permanent resettlement. In Gelati, some 44 local vendors selling souvenirs near the Monastery will likely be affected, since their stalls will be permanently removed for the construction of the visitor facilities. A store located next to the Monastery will also likely require resettlement. A Resettlement Action Plan was prepared for the Project appraisal to address the subproject impact on these affected people. Before works begin in Gelati, the MDF will ensure that the owners/users of the land involved are fully compensated according to RAP provisions. The Project can also make arrangements to include the souvenir vendors in the visitor center to be constructed by the subproject.
39. The MDF prepared RAPs that comply with OP 4.12 for applicable subprojects, which define necessary mitigation and compensation measures through consultations with affected people. The LGs will be responsible for implementing the RAPs, while the environmental and social specialists, as well as consultants of the MDF, will help with their implementation before works begin in each location. Municipalities submitting proposals for subprojects will be required to provide information related to affiliation and ownership status of the selected sites, based on available legal documents, as part of the subproject summary.
40. The MDF is the Project’s implementing agency. It has a long history of implementing World Bank-supported projects with a good track record of safeguard compliance, but in-house capacity of the MDF for ensuring application and monitoring of the measures for mitigating negative impacts of 44 civil works is limited due to the lack of specialized human resources and depends much on external consultants. Considering the supervision challenges the Project may face due to the location of some sites that are near cultural properties and aesthetically valuable landscapes, MDF has hired an international consulting firm to provide construction supervision support, including monitoring of compliance to safeguards policies. The MDF will be further encouraged to train its staff about safeguards.
41. The Bank reviewed and approved five site-specific ERs/EMPs, and a related RAP for the identified first-year investments (the tourism facility subproject in Motsameta Monastery will be reviewed and implemented later during the Project). Before the works begin, MDF shall ensure that the owners/users of the land where the works occur are fully compensated according to the provisions of the RAP.
42. In general, the population in Imereti will be the main beneficiaries of the Project. Executive and elected local councils, NGOs, tourism businesses, potential future invertors, National Tourism Agency, Agency for Cultural Heritage Preservation, Cultural Heritage Foundation, Ministry of Culture and Monument Protection, Ministry of Regional Development and Infrastructure, Ministry of Economy and Sustainable Development, and Ministry of Finance are also stakeholders. At a higher level, the Supervisory Board of MDF has been directly involved in the design of the Project and will continue to monitor its implementation. From the initial stage of Project preparation, the management and technical staff of the above agencies, as well as those of regional and municipal governments, have been directly involved in discussing all aspects of the Project. Also, as part of the SECHSA process, many stakeholders, including local communities, LGs, civil society organizations and representatives of tour guides, tourism operators and hospitality businesses have been consulted about the potential direct, indirect, short and long-term cumulative impacts of the Regional Tourism Development & Marketing Strategy and of the Project’s interventions.
Monitoring & Evaluation
43. The MDF will be responsible for monitoring/evaluating the Project outcomes against agreed indicators listed in the Results Framework. The MDF capacity in data collection and analysis will be strengthened by an international M&E consulting firm whose services will be obtained through Component 2. The consultants will also monitor tourism development indicators in Imereti, in general, e.g., tourist arrivals/number of visitors, spending, opinions, occupancy rates, increases in tourism-related investments, gender aspects, etc.
44. The M&E consulting firm, together with the MDF, will compile the baseline data, which is already available in the SARs and economic analysis report, and collect more primary data from the government agencies and through field visits/surveys. The PDO indicators in the Results Framework, as well as general tourism development indicators, will be monitored on an annual basis. The intermediate indicators will be monitored bi-annually.
Role of Partners
45. To date, the EU has provided TA to prepare the Imereti Regional Development Strategy, which includes a medium-to-long term investment plan that anticipates both public and private capital needs. The EU provides a capacity-building program for the Georgia National Tourism
45 Administration (GNTA) on managing destinations. The German Technical Cooperation (GiZ) provides TA to prepare the Kakheti and Samtskhe-Javakheti Regional Development Strategies, including capacity building at the municipal and regional levels. The GiZ also provides training to GNTA staff on tourism statistical analysis and performance indicators, along with language and capacity-building training to tour guides. USAID is supporting tourism training and development through its Georgia Economic Prosperity Initiatives. The Norwegian Directorate for Cultural Heritage provides TA to the Agency for Cultural Heritage Preservation on Georgia (ACHP) in preparing pilot sustainable site management plans for cultural heritage sites. The European Investment Bank (EIB) finances a water rehabilitation project in Tskaltubo outside of the central park. The Swedish International Development Agency (SIDA) has provisionally agreed, subject to signing a Trust Fund Administration Agreement between SIDA and the Bank, to provide parallel funds to launch a National Wastewater Management Strategy, prepared under the Bank-financed RMIDP, and to pilot implementation of a modern and cost-effective wastewater treatment plant in Tskaltubo.
46 Annex 4: Operational Risk Assessment Framework (ORAF)
Georgia: Second Regional Development Project (P130421)
Project Stakeholder Risks Stakeholder Risk Rating Moderate Description: Risk Management: The Project intends to reach large groups of beneficiaries 1. Consultation workshops will be held regularly held with all stakeholders with varied interests including farmers and the business Resp: Status: Stage: Recurrent Due Date: Frequency: community, which may create competition for scarce resources. Bank In Progress Both ✔ Quarterly
There is a low probability risk from resistance certain of stakeholders who may not benefit directly from the Project. Implementing Agency (IA) Risks (including Fiduciary Risks) Capacity Rating Moderate Description: Risk Management: 1. As the Project introduces a new agency (Tskaltubo 1. The Project will support institutional capacity building by sharing with the counterparts the knowledge destination management and development office), which and experience from other countries where these innovative practices were successfully implemented. is likely to bring new challenges for the institutions 2. MDF put in place improved contract management procedures and dedicated staff. involved. 3. MDF hired independent consultants to provide supervision support and write progress reports. 3- Biannual progress reports will be submitted to the Bank following specific template as per the OM. 2. Despite MDF's solid implementation capacity, there is 4. MDF will assign the same dedicated procurement specialists who are currently assigned to RDP to work a risk of delays or weak supervision of works due to on RDP II as well. Taking into account the fact that a substantial amount of contracts have already been increased work load (MDF now implements several other signed under RDP, the workload is not projected to be very high under RDP, thus free time to focus on RDP projects financed by ADB, USAID and EU). II.
Resp: Status: Stage: Recurrent Due Date: Frequency: 3. There may be overloading of existing procurement Client In Progress Both ✔ Quarterly staff. Governance Rating Moderate Description: Risk Management:
47 1. There is a moderate risk of outside interference but this 1. Establishment of a Supervisory Board, which proved to be functioning well. is attenuated by the fact that MDF has proved to have a 2. Carry out several consultation workshops to share information and reach out broad stakeholders. strong standing that can effectively shield the Project 3. Additional measures have been applied under the Project to increase competition among contractors, i.e. from outside interference. advertising Special Procurement Notes (SPNs) for 3 consecutive days, allowing the use of bid security declaration form, allowing banks letters to confirm providing credit facilities to contractors to meet the cash 2. There is a moderate risk of low participation among flow requirements during implementation. bidders due to the current active construction period in Resp: Status: Stage: Recurrent Due Date: Frequency: Georgia. Client In Progress Both ✔ Quarterly Risk Management: 1. The Project will establish and maintain a formal internal control framework described in the OM. The Bank staff will closely monitor performance during implementation. An FM capacity building activities will be implemented. 2. The Recipient shall ensure that the Project is carried out in accordance with the provisions of the Anti-
Corruption Guidelines, stipulated in the Financing Agreement.
Resp: Status: Stage: Recurrent Due Date: Frequency: Client Not Yet Due Implementa- ✔ tion Project Risks Design Rating Moderate Description: Risk Management: Multiple activities with local and central level agencies 1. During preparation, a thorough system of screening and evaluating Project activities has been established may hinder timely and quality implementation of the and applied to ensure that proposed subproject investments are located along the defined tourism circuit and Project. will help to achieve the tourism development vision. 2. Only critical minimum activities that can directly contribute to achievement of Project results with the highest impact were selected. Resp: Status: Stage: Recurrent Due Date: Frequency: Bank Completed Preparation 21-Sep-2012 Social and Environmental Rating Moderate Description: Risk Management:
1.1 An Environmental Management Framework (EMF) was prepared and disclosed prior to the Project 1. There may be complex environmental and social appraisal. The EMF will be used as a mandatory guide for environmental screening, classification, review, safeguards issues due to multi-sectoral nature of the and approval of individual investment proposals. Project. 1.2. A Resettlement Policy Framework (RPF) was prepared and disclosed prior to the Project appraisal. It
48 sets out general principles of handling possible types of resettlement, in the event they occur. 2. There may not be full and detailed upfront vision of all 1.3. A draft Strategic Environmental, Cultural Heritage, and Social Assessment (SECHSA) was carried out, safeguards risks associated with the Project assessing the tourism development vision and action plan defined in the Imereti Tourism Development and implementation as the works may evolve on rolling basis. Marketing Strategy. The final SECHSA will be completed prior to effectiveness.
Resp: Status: Stage: Recurrent Due Date: Frequency: 3. Supervision of contractors' environmental performance Client Completed Preparation 21-Sep-2012 by the Recipient has been a relative weakness in Georgia portfolio in general in the past. Oversight of works in the Risk Management: vicinity of the national cultural and natural assets under 2. The Bank reviewed and approved site-specific EMPs/ERs and RAPs, as required for all identified this Project will carry additional challenges for MDF. investments. Prior to the commencement of the works, MDF shall ensure that the owners and users of the land where said works are to be implemented are fully compensated in accordance with the provisions of the 4. Potential indirect impacts from expected induced RAP(s). development. Resp: Status: Stage: Recurrent Due Date: Frequency: Client In Progress Both ✔ Risk Management: 3. MDF has put in place and will maintain throughout Project implementation, arrangements for safeguards supervision and reporting satisfactory to the Bank. This would include special provision for the technical supervision of works in proximity to the sensitive receptors. An international consulting firm has been hired to assist MDF in construction supervision, including all aspects of environmental and social safeguards compliance. Resp: Status: Stage: Recurrent Due Date: Frequency: Client In Progress Both ✔ Risk Management: 4. The SECHSA helps assess long term, cumulative, and indirect/induced risks; the ways of avoiding and mitigating them; and to steer future development in environmentally/socially beneficial directions. Resp: Status: Stage: Recurrent Due Date: Frequency: Client Not Yet Due Both ✔
Program and Donor Rating Low Description: Risk Management: Donors active in regional development may adopt 1. There are ongoing good coordination mechanisms among donors in Georgia. inconsistent approaches in different regions, or may 2. The Bank has already started to take the lead in organizing semi-annual donor coordination meetings, to implement overlapping activities. Given past experience ensure synergy among regional development interventions in Kakheti and Imereti. The first meeting was of donor coordination in the sector, and the good role held at the World Bank Tbilisi office in July 2011, and was attended by the Minister of Finance. The second
49 MDF and its Supervisory Board play, the likelihood and meeting was held at Ministry of Finance in November 2011 chaired by the Minister of Finance. impact of any disagreements or overlap among donors are 3. Donor coordination meeting will continue through the implementation of the Project. low. Resp: Status: Stage: Recurrent Due Date: Frequency: Client In Progress Both ✔ Quarterly Delivery Monitoring and Sustainability Rating Moderate Description: Risk Management: 1. Due to the geographic spread of Project activities, there 1. The Bank Team agreed with the Government and MDF hired an international construction supervision is a moderate risk that some outputs delivered under the firm that would provide quarterly construction supervision reports to MDF. Project will be of low quality. 2. MDF will submit quarterly progress reports to the Bank. 3. The TTL is located in Tbilisi CO and will carry out monthly site visits to implementation sites with locally 2. Due to a large number of agencies and stakeholders hired engineering consultants. involved, there is a moderate risk that the voice of some 4. A multi-agency working group has been established and worked efficiently during Project preparation. groups will not be heard. 5. Stakeholders consultation workshops will be held bi-annually to present Project implementation progress and future plans. 3. There is a possibility that the visitor facilities to be 6. Subprojects have been selected based on economic and cost-benefits analysis constructed by subprojects do not generate sufficient 7. Subproject Appraisal Reports (SARs) for all proposed subprojects discussed investments’ technical and revenue to cover their operational and maintenance costs, economic feasibility, and analyzed responsibility and the availability of funds for operations and making their operation and maintenance unsustainable. maintenance of the restored assets to ensure sustainability. 8- The Bank agreed with the Government to establish under the Project the Tskaltubo destination management and development office to assume the responsibility of asset management, promotion and tourism development M&E. Resp: Status: Stage: Recurrent Due Date: Frequency: Client Not Yet Due Both ✔ Quarterly Implementation Risk Rating: Moderate Comments: Before implementation of mitigation measures, the Overall Project Risk is Moderate.
50 Annex 5: Implementation Support Plan Georgia: Second Regional Development Project
Strategy and Approach for Implementation Support
Implementation Support Plan
1. The implementation support strategy was developed in a way that considered the risks and mitigation measures identified in the ORAF, and provided flexible targets.
2. Procurement. Support will include: (a) timely advice from the country office-based procurement officer on various issues and on the Bank’s Procurement Guidelines; (b) monitoring progress against the procurement plan. The procurement specialist is based in Tbilisi and works with MDF on a daily basis.
3. Financial management (FM). The Bank will conduct a risk-based FM implementation support and supervision mission within a year of Project effectiveness, and then at appropriate intervals. In addition, it will review the regular IFRs and annual project and entity audit reports. As required, a Bank-accredited FM specialist will help implement the support and supervision process. The specialist is based in Yerevan and can provide support to MDF whenever it is needed.
4. Environmental and social safeguards. The Bank’s environmental and social specialists will provide regular support to strengthen the MDF capacity to tackle safeguards-related issues. Also, its specialists will closely monitor implementation of the agreed EMP and will provide guidance to the client to address issues that may arise. The specialists are based in Tbilisi and can provide daily support.
5. Operations support. The Bank Task Team Leader, who is also the Sustainable Development Country Sector Coordinator for the South Caucasus, is based in the Georgia country office. He has been communicating regularly with the client during Project identification and preparation. Supported by an operations specialist, also based in the country office, and local and international short-term consultants, he will continue providing support during implementation, including monthly visits to all Project sites, especially in the first year. Also, he will keep the Bank team appraised and provide implementation support and guidance to the MDF, when needed.
Implementation Support Plan
6. The Project team will provide timely implementation support through daily supervision since, besides the Task Team Leader, several other team members are based in the region and local offices. The team will provide the following:
Technical inputs: Engineers, tourism and cultural heritage consultants will make regular site visits and review documents to ensure they comply with plans, quality, safeguards and timetables.
51 Fiduciary requirements and inputs: The procurement specialist, based in the Georgia country office, and the FM specialist, based in Armenia, will support implementation. The FM specialist will conduct risk-based FM missions within a year after Project effectiveness, and then at appropriate intervals, while the procurement supervision will be conducted according to Bank guidelines.
Safeguards: The environmental specialist, based in Georgia, and social development specialists, based in the Washington DC headquarters, will supervise the EMP and RPF. They will all conduct semi-annual field visits to monitor implementation of safeguards.
Time Focus Skills Needed Resource Estimate (Support Weeks/SWs) First 12 Technical review of the SARs TTL, cultural heritage specialist, 18 SWs months water and road engineers, safeguards specialists and economist Procurement review of the Procurement specialist 12 SWs bidding documents Project implementation support Cultural heritage specialist, water 24 SWs and road engineers FM and disbursements Senior FM specialist 4 SWs Environmental and social Senior environmental specialist 12 SWs supervision Tourism institutional Tourism development consultants 8 SW development support Skills development support Human development specialist 4 SW Operations support with project Operations specialist 4 SWs supervision and coordination Task management Task Team Leader 12 SWs 12-48 Project implementation support Cultural heritage specialist, water 48 SWs months and road engineers Procurement support Procurement specialist 24 SWs FM and disbursements Senior FM specialist 12 SWs Environmental and social Senior environmental specialist 48 SWs supervision Tourism institutional Tourism development consultants 12 SW development support Skills development support Human development specialist 12 SW Operations support with project Operations specialist 12 SWs supervision and coordination Task management Task Team Leader 32 SWs
52 Skills Mix Required
Skills Needed Number of Staff Number of Trips Comments Weeks 2012-2016 Task team leader (SD 40 Field trips as required In country office CSC) Operations officer 40 Field trips as required In country office Environmental specialist 30 Field trips as required In country office Social specialist 30 Eight At HQ Procurement specialist 40 Field trips as required In country office FM specialist 20 Field trips as required In Armenia country office Water engineer 30 Eight In Europe Road engineer 30 Eight At HQ Tourism/Cultural Heritage 30 Eight At HQ specialists Human development 12 Field trips as required In country office specialist (HD CSC) Economics (PREM CSC) 12 Field trips as required In country office Short-term consultants for 32 Field trips as required In country office supervision Program Assistants 60 Field trips as required In country office
53 Annex 6: Team Composition Georgia: Second Regional Development Project
.
. Team Composition Bank Staff Name Title Specialization Unit UPI Ahmed A. R. Eiweida Country Sector Coordinator Team Lead ECSSD 208777 Pedro L. Rodriguez Lead Economist Economic Analysis ECSP1 76439 Meskerem Mulatu Country Sector Coordinator Human Development/Skills Dev ECSH2 18476 Darejan Kapanadze Sr. Environmental Specialist Environment ECSS3 173396 Sandro Nozadze Procurement Specialist Procurement ECSOQ 400054 Kosuke Anan Social Development Specialist Social Development & Safeguards ECSS4 300595 Guido Licciardi Urban Specialist/Chair CH and Cultural Heritage & Sustainable EFUUR 346286 Sustainable Tourism TG Tourism Zaruhi Tokhmakhian Operations Officer Urban Development ECSS6 114141 Mariam Dolidze Economist Spatial Economic Analysis ECSP1 Ghada Youness Sr. Counsel Legal LEGEM 189118 Joseph Paul Formoso Sr. Finance Officer Disbursement CTRLA 18923 Sophie Devnosadze Operations Analyst Operation Support ECCU3 229476 Joseph Melitauri Sr. Operations Officer Transport ECSS2 231456 Arman Vatyan Sr. Financial Management Specialist Financial Management ECSO3 262032 Kseniia Malenko Finance Analyst Finance Analyst CTRLA 296905 Deepal Fernando Sr. Procurement Specialist Procurement ECSO2 170242 Yarissa Lyngdoh Sommer Operation Analyst Regional & Urban Development ECSS6 216232 Ronnie Hammad Sr. Operation Officer Quality ECSS6 82606 Nicolas Perrin Sr. Social Development Specialist Social Development and Visitors’ ECSS4 187579 Management Plans Maria Davalos Economist Gender ECSP3 364663 Enver Kamal Trust Fund Coordinator Trust Fund ECSO1 20394 Grigol Modebadze Junior Professional Associate (JPA) Economic Analysis (ICOR) ECCGE 378034 Guy Tchakounte Tchabo Information Assistant Program Assistant ECSSD 160690 Militsa Khoshtaria Program Assistant Program Assistant ECCGE 278958 Rusudan Mandzhgaladze Program Assistant Program Assistant ECCGE 412314 Non Bank Staff Name Title Office Phone City Richard Podolske Transport/Road consultant Washington DC Christopher Schmandt Water & Sanitation Consultant Zurich David Dekanosidze Implementation Support Tbilisi Iuza Ugulava Implementation Support Tbilisi Natia Gigiashvili Operation Support Washington DC
54
Annex 7: Procurement Plan Georgia: Second Regional Development Project
Works & Goods
Review Name of by No Note Selection SubmissionNo Bid Evaluation Contract Contarct Component / Procurement Ref. # Name of Assignment/ContractBank Objection + # Method Objectionto the BankInvitation Opening & Recomm. Award Siganture Start Completion Activities Prior / PSC s Interval s Interval s Interval s Interval s Interval s Interval s Interval s Interval Type- Ite m #
Post y y y y y y y y Category
10/2/2012 2 3 4 5 9 10 11 12 13 14Da 15Da Da 16Da 17Da Da 18Da 19Da 20 D ays Execution
1 - Infrastructure Investment
Restoration of Existing Buildings and Small Size Pedestrian W-1 NCB Prior 20-Jul-12 11 31-Jul-12 1 1-Aug-12 30 31-Aug-12 7 7-Sep-12 11 18-Sep-12 0 18-Sep-12 28 16-Oct-12 15 31-Oct-12 540 24-Apr-14 1 IDA/RDPII/CW/NCB/01-2012Bridges in central part of Tskaltubo Town 12-Jul-12 28-Jul-12 30-Jul-12 29-Aug-12 4-Sep-12 14-Sep-12 14-Sep-12
2 Construction of Destination Management Office and Tourism- related Small Size Structures on Central Part, Park and Lake W-1 NCB Prior 27-Jul-12 11 7-Aug-12 1 8-Aug-12 30 7-Sep-12 7 14-Sep-12 11 25-Sep-12 0 25-Sep-12 28 23-Oct-12 15 7-Nov-12 540 1-May-14 IDA/RDPII/CW/NCB/02-2012 "Tsivi" Teritories in Tskaltubo Town 19-Jul-12 9-Aug-12 10-Aug-12 10-Sep-12 19-Sep-12 26-Sep-12 Rehabilitation of Water Supply and Sewerage System in 3 IDA/RDPII/CW/NCB/03-2012 W-1 NCB Prior 29-Jun-12 11 10-Jul-12 1 11-Jul-12 30 10-Aug-12 7 17-Aug-12 11 28-Aug-12 0 28-Aug-12 28 25-Sep-12 15 10-Oct-12 240 7-Jun-13 central part of Tskaltubo Town
29-Jun-12 10-Jun-12 11-Jul-12 10-Aug-12 17-Aug-12 29-Aug-12 29-Aug-12 4-Sep-12 5-Sep-12
Rehabilitation of Road Pavement and Stormwater Drain 4.1 IDA/RDPII/CW/ICB/01-2012-L1 W-1 ICB Prior 13-Jul-12 11 24-Jul-12 2 26-Jul-12 42 6-Sep-12 7 13-Sep-12 11 24-Sep-12 0 24-Sep-12 28 22-Oct-12 15 6-Nov-12 360 1-Nov-13 System of Circle Road in Tskaltubo Town 10-Jul-12 18-Jul-12 18-Jul-12 30-Aug-12 6-Sep-12 14-Sep-12 14-Sep-12 Rehabilitation of Roads, Foot Paths and Stormwater Drain 4.2 IDA/RDPII/CW/ICB/01-2012-L2 W-1 ICB Prior 13-Jul-12 11 24-Jul-12 2 26-Jul-12 42 6-Sep-12 7 13-Sep-12 11 24-Sep-12 0 24-Sep-12 28 22-Oct-12 15 6-Nov-12 360 1-Nov-13 System of Central Park and Lake "Tsivi" in Tskaltubo Town 10-Jul-12 18-Jul-12 18-Jul-12 30-Aug-12 6-Sep-12 14-Sep-12 14-Sep-12 - 5 IDA/RDPII/CW/NCB/04-2012 projects for urban regeneration 1.1 - Investment sub
Arrangement of Irrigation System and Landscaping of Central W-1 NCB Prior 10-Aug-12 11 21-Aug-12 1 22-Aug-12 30 21-Sep-12 7 28-Sep-12 11 9-Oct-12 0 9-Oct-12 28 6-Nov-12 15 21-Nov-12 330 17-Oct-13 Park and Lake "Tsivi" Territory in Tskaltubo Town 7-Aug-12 10-Sep-12 11-Sep-12 11-Oct-12 Rehabilitation of Lake "Tsivi" and Water Channels In 6 IDA/RDPII/CW/NCB/05-2012 W-1 NCB Prior 3-Aug-12 11 14-Aug-12 1 15-Aug-12 30 14-Sep-12 7 21-Sep-12 11 2-Oct-12 0 2-Oct-12 28 30-Oct-12 15 14-Nov-12 330 10-Oct-13 Tskaltubo Town 23-Jul-12 16-Aug-12 17-Aug-12 17-Sep-12 Rehabilitation of Outdoor Lightings of Circle Road, Central 7 IDA/RDPII/CW/NCB/06-2012 W-1 NCB Prior 17-Aug-12 11 28-Aug-12 1 29-Aug-12 30 28-Sep-12 7 5-Oct-12 11 16-Oct-12 0 16-Oct-12 28 13-Nov-12 15 28-Nov-12 330 24-Oct-13 Park and Lake "Tsivi" Territory in Tskaltubo Town 23-Jul-12 5-Sep-12 6-Sep-12 8-Oct-12
55
Works & Goods (cont’d)
Actual
y Review Name of by No or Note Selection SubmissionNo Bid Evaluation Contract Contarct Component / Procurement Ref. # Name of Assignment/Contractg Bank Objection + # Method to theObjection Bank Invitation Opening & Recomm. Award Siganture Start Completion Activities Prior / PSC Type- Ite m # Post Cate Days Interval Days Interval Days Interval Days Interval Days Interval Days Interval Days Interval Days Interval Plan vs./ Plan vs./ 1 10/2/2012 2 3 4 5 9 10 11 12 13 14 15 16 17 18 19Days Execution 20
1 - Infrastructure Investment
8 P IDA/RDPII/CW/ICB/02-2012 Rehabilitation and expansion of Vani Archaeological Museum W-1 ICB Prior 6-Jul-12 11 17-Jul-12 2 19-Jul-12 42 30-Aug-12 7 6-Sep-12 11 17-Sep-12 0 17-Sep-12 28 15-Oct-12 15 30-Oct-12 540 23-Apr-14
A 29-Jun-12 10-Jul-12 11-Jul-12 22-Aug-12 4-Sep-12 14-Sep-12 14-Sep-12 Integrated Revitalization of Cultural Heritage Site in Gelati 9 P IDA/RDPII/CW/NCB/07-2012 W-1 NCB Prior 3-Oct-12 11 14-Oct-12 1 15-Oct-12 30 14-Nov-12 7 21-Nov-12 11 2-Dec-12 0 2-Dec-12 28 30-Dec-12 15 14-Jan-13 360 9-Jan-14 Monastery A Integrated Revitalization of Cultural Heritage Site in Katskhi 10 P IDA/RDPII/CW/NCB/08-2012 W-1 NCB Prior 27-Sep-12 11 8-Oct-12 1 9-Oct-12 30 8-Nov-12 7 15-Nov-12 11 26-Nov-12 0 26-Nov-12 28 24-Dec-12 15 8-Jan-13 360 3-Jan-14 Monastery and Katskhi Column A Integrated Revitalization of Cultural Heritage Site in Ubisa 11 P IDA/RDPII/CW/NCB/09-2012 W-1 NCB Prior 10-Oct-12 11 21-Oct-12 1 22-Oct-12 30 21-Nov-12 7 28-Nov-12 11 9-Dec-12 0 9-Dec-12 28 6-Jan-13 15 21-Jan-13 330 17-Dec-13 Monastery A Integrated Revitalization of Cultural Heritage Site in 12 P IDA/RDPII/CW/NCB/10-2012 Motsameta Monastery - projects for tourism Circuits W-1 1 NCB Post 1-Feb-13 11 12-Feb-13 1 13-Feb-13 30 15-Mar-13 7 22-Mar-13 11 2-Apr-13 0 2-Apr-13 28 30-Apr-13 15 15-May-13 240 10-Jan-14 development A Preservation measures for Gelati Monastery Cultural Heritage 13.1 P IDA/RDPII/CW/NCB/11-2012-L1 W-1 NCB Post 1-Apr-13 11 12-Apr-13 1 13-Apr-13 30 13-May-13 7 20-May-13 11 31-May-13 0 31-May-13 28 28-Jun-13 15 13-Jul-13 360 8-Jul-14 Site A Preservation measures for Katski and Ubisa Monasteries 13.2 P IDA/RDPII/CW/NCB/11-2012-L2 W-1 NCB Post 1-Apr-13 11 12-Apr-13 1 13-Apr-13 30 13-May-13 7 20-May-13 11 31-May-13 0 31-May-13 28 28-Jun-13 15 13-Jul-13 360 8-Jul-14 Cultural Heritage Sites 1.2 - Investment sub A Preservation measures for Vani Museum Cultural Heritage 14 P IDA/RDPII/CW/NCB/12-2012 W-1 NCB Post 1-Apr-13 11 12-Apr-13 1 13-Apr-13 30 13-May-13 7 20-May-13 11 31-May-13 0 31-May-13 28 28-Jun-13 15 13-Jul-13 360 8-Jul-14 Site A
2 - Institutional Development
15 P IDA/RDP/G/ICB/01-2012 Supply of showcases for Vani Archaeological Museum G-2 ICB Prior 10-Oct-13 11 21-Oct-13 2 23-Oct-13 42 4-Dec-13 7 11-Dec-13 11 22-Dec-13 0 22-Dec-13 28 19-Jan-14 15 3-Feb-14 90 4-May-14 A 16 PTendering of procurement IDA/RDP/G/SH/01-2012 package is subject to Supply of furniture for Vani Archaeological Museum G-2 SH Prior 10-Oct-13 11 21-Oct-13 1 22-Oct-13 15 6-Nov-13 7 13-Nov-13 11 24-Nov-13 0 24-Nov-13 3 27-Nov-13 3 30-Nov-13 90 28-Feb-14 Aavailability of funds and possible savings under other Supply of computers and equipment for Destination 17 P IDA/RDP/G/SH/02-2012 G-2 SH Post 1-Dec-13 11 12-Dec-13 1 13-Dec-13 15 28-Dec-13 7 4-Jan-14 11 15-Jan-14 0 15-Jan-14 3 18-Jan-14 3 21-Jan-14 90 21-Apr-14 Management Office A
Notes: 1 Total Component 1 - PLANNED Red Text Row
s= Actuals Total Component 1 - ACTUALS Yellow and Green Columns: activities Cell turns red with black letters, if Planned Date has passed. Total Component 2 - PLANNED Cell turns whit eif cell for Actual Date is filled and it is less than or equal to Planned Date Total Component 2 - ACTUALS Cell turns red with white letters, if cell for Actual Date is grater than Planned Date
56
Consultancy Service
Reception Actual of Short No Revie ExpressioListing/RFP Proposal No Final Objection Name of Not Selection w by No Invitation Technical Contract Completio Procurement Ref. # Name of Assignment/ContractAd nof of EOI submssion Submissio Objection Evaluatio to Sign Component e # Method Bank Objection for RFP Evaluation Signature Start n Interestto the Bank n + PSC n Contract s Interval s Interval s Interval s Interval s Interval s Interval s Interval s Interval s Interval s Interval s Interval
Ite m # Prior / Post y y y y y y y y y y y 1 10/2/2012 2 3 4 5 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Da Da Da Da Da Da Da Da Da Da Da Type-Category
2- Institutional D ays Execution Development 1 P IDA/RDPII/CS/LCS/01-2012 Audit of 2012-16 fiscal years CS-1 LCS Prior 1-Nov-12 vs./ Plan 14 15-Nov-12 21 6-Dec-12 14 20-Dec-12 1 21-Dec-12 30 20-Jan-13 21 10-Feb-13 11 21-Feb-13 21 14-Mar-13 9 23-Mar-13 7 30-Mar-13 2 1-Apr-13 1220 3-Aug-16 A Consulting services for supervision of civil works to be implemented in Imereti 2 P IDA/RDPII/CS/QCBS/01-2011 CS-2 QCBS Prior 11-Jun-12 14 25-Jun-12 30 25-Jul-12 11 5-Aug-12 3 8-Aug-12 42 19-Sep-12 30 19-Oct-12 11 30-Oct-12 14 13-Nov-12 11 24-Nov-12 7 1-Dec-12 14 15-Dec-12 720 5-Dec-14 region under Regional Development Project II A 7-Jun-12 29-Jun-12 24-Jul-12 22-Aug-12 22-Aug-12 19-Sep-12 Geo-tourism development and 3 P IDA/RDPII/CS/QCBS/02-2011 CS-2 1 QCBS Prior 1-Dec-12 14 15-Dec-12 30 14-Jan-13 11 25-Jan-13 1 26-Jan-13 42 9-Mar-13 30 8-Apr-13 11 19-Apr-13 21 10-May-13 9 19-May-13 7 26-May-13 14 9-Jun-13 540 1-Dec-14 promotion A Skills Development and Capacity 4 P IDA/RDPII/CS/CQS/01-2011
CS-2 1 CQS Prior 1-Dec-12 14 15-Dec-12 21 5-Jan-13 11 16-Jan-13 1 17-Jan-13 30 16-Feb-13 21 9-Mar-13 11 20-Mar-13 21 10-Apr-13 9 19-Apr-13 7 26-Apr-13 14 10-May-13 540 1-Nov-14 Building A 5 P IDA/RDPII/CS/CQS/02-2011 Performance Evaluation and Monitoring CS-2 1 CQS Prior 1-Dec-12 14 15-Dec-12 21 5-Jan-13 11 16-Jan-13 1 17-Jan-13 30 16-Feb-13 21 9-Mar-13 11 20-Mar-13 21 10-Apr-13 9 19-Apr-13 7 26-Apr-13 14 10-May-13 1320 20-Dec-16 A Consulting services to prepare Visitor's 6 P IDA/RDPII/CS/IC/01-2012 Management Plan for selected Cultural CS-2 IC Prior 27-Aug-12 2 29-Aug-12 7 5-Sep-12 9 14-Sep-12 0 14-Sep-12 0 14-Sep-12 0 14-Sep-12 0 14-Sep-12 0 14-Sep-12 0 14-Sep-12 0 14-Sep-12 0 14-Sep-12 84 7-Dec-12 Heritage (CH) Sites A 27-Aug-12 29-Aug-12 5-Sep-12 7 P IDA/RDPII/CS/CQS/03-2011 Training and TA for the TDMDO's staff CS-2 1 CQS Prior 1-Dec-12 14 15-Dec-12 21
5-Jan-13 11 16-Jan-13 1 17-Jan-13 30 16-Feb-13 21 9-Mar-13 11 20-Mar-13 21 10-Apr-13 9 19-Apr-13 7 26-Apr-13 14 10-May-13 180 6-Nov-13 A Legal advisory aervice for establishing 8 P IDA/RDPII/CS/IC/02-2012 CS-2 1 CQS Prior 1-Dec-12 2 3-Dec-12 7 10-Dec-12 9 19-Dec-12 0 19-Dec-12 0 19-Dec-12 0 19-Dec-12 0 19-Dec-12 0 19-Dec-12 0 19-Dec-12 0 19-Dec-12 0 19-Dec-12 120 18-Apr-13 Tskaltubo Destination Mgt&Dev Office A
Notes: Total Component 1 - PLANNED Red Text Rows: = Actuals 1 Exact dates will be defined later Total Component 1 - ACTUALS Yellow and Green Columns: Cell turns red with black letters, if Planned Date has passed. Total Component 2 - PLANNED Cell turns white if cell for Actual Date is filled and it is less than or equal to Planned Date Total Component 2 - ACTUALS Cell turns red with white letters, if cell for Actual Date is grater than Planned Date
57
Summary and Thresholds
Actual Estimated Estimated IDA Type of Cost Name of Assignment/Contract Cost/Actual Cost/Actual Financing
Note # Note (GEL) (USD) (USD) Plan vs./ vs./ Plan 12 34567 OTHER COSTS Procurement Method Procurement Prior Review P Operational Costs 621,563 375,000 300,000 Thresholds1 - Goods for Procurement of Goods, Works and Non-Consulting services: A ICB: >US$ 300 K All contracts NCB: ≤ US$300 K First 2 contracts Total for Other Cost - ESTIMATE 621,563 375,000 300,000 SH: Price Convertion Rate, Date and Source: USD/GEL: 1.6575 22-Sep-12 http://nbg.ge/?lng=eng Notes: 1 Later contracts will be subject to availability of funds if any, either through possible savings or increased government contribution 58 Annex 8: Economic and Financial Assessment Georgia: Second Regional Development Project I. Spatial and Economic Geography Assessment 1. Imereti’s per capita income9 (about US$1,917 in 2010) is the 4th highest among Georgia’s nine regions, as reported in Georgian regional statistics. However, this amount is only 40 percent of the per capita income in Tbilisi, and 73 percent of the country average (Figure 8.1). The overall contribution of Imereti to the country GDP is small, an average of about 12 percent from 2006-2010, although it is still the second after Tbilisi. Over the past five years, growth in Imereti has been dynamic, only exceeded by Adjara’s, highlighting Imereti’s prospects (see Figure 8.1). Figure 8.1: GDP per capita in USD, 2006-2010 and GDP growth, 2007-2010 11% AJ 9% 2010 ‐ IM‐RK 7% 2007 5% SZ TB SK‐MM growth, 3% KA GDP 1% SJ ‐1% GU KK Average ‐3% ‐ 1,000 2,000 3,000 4,000 5,000 Average of GDP per capita in USD, 2006‐2010 Source: GeoStat, World Bank staff calculations TB: Tbilisi; AJ: Adjara; KK: Kvemo Kartli; SZ: Samegrelo Zemo Svaneti; GU: Guria; SJ: Samtskhe Javakheti; KA: Kakheti; SK-MM: Shida Kartli and Mtsketa Mtianeti; IM-RK: Imereti, Racha- Lechkhumi and Kvemo Svaneti 2. Imereti’s unemployment rate is 9.3 percent. While high, it is still below the national average (of 15 percent). Imereti’s economy is still dominated by rural activities and thus the population is mainly employed in agriculture (63 percent), generally in self-employed jobs which are often non-remunerated. The incidence of poverty is also slightly lower than the country average—at 13.9 percent of the population in Imereti, versus 16 percent for Georgia as a whole. The region has a relatively large number of socially vulnerable people (pensioners, recipients of state medical insurance programs for the poor and targeted social assistance). Unemployment seems to be one of the major determinants of poverty, in Georgia as a whole, and Imereti in particular. 3. Imereti’s economy has been substantially transformed over the past decade. Mining and heavy industry used to dominate and there are still traces of these industries (manganese, construction materials and steel production are still important industries). Agriculture remains dominant, accounting for 12 9 Imereti regional data combine those of the much smaller Racha-Lechkhumi and Kvemo Svaneti regions. Racha-Lechkhumi’s and Kvemo Svaneti’s aggregated population is about 6 percent of Imereti’s. 59 percent of its GDP (versus 8 percent for Georgia as a whole). Imereti is still the country’s largest producer of meat, milk and corn, but the service sector is now the main driver of economic activities, contributing 73 percent of total value added (see Figure 8.2). The bulk of services are related to tourism – given the numerous natural attractions. Figure 8.2: Imereti’s contribution to GDP growth Source: GeoStat, World Bank staff calculations 4. Interventions geared towards attracting private investments and generating productive jobs are crucial to help the region realize its potential and contribute to national growth. Productivity in Imereti is among the lowest in the country, with the average worker generating roughly US$25,000 a year, from 2006-2010, i.e., 35 percent and 48 percent of that in Tbilisi and Georgia as a whole, respectively (GEOSTAT firm level data). This is despite relatively high educational achievements (second only to Tbilisi), and good infrastructure (roads) relative to the country average. II. Incremental Capital-to-Output Ratio Assessment (ICOR) 5. The Project aims to increase public and private investment levels in Imereti, aligning them with those in the country (but not with those in the country’s most vibrant area—the City of Tbilisi). Through its impact on investments, the Project is also expected to boost economic activity and income levels during implementation and beyond. This will hinge on the pace and effectiveness of implementation: Pace will determine the timing for the ‘stimulus’ to be felt in the region; effectiveness will determine the degree to which public investments supported by the Project will “leverage” private investments, and the extent to which they will expand economic activity. 6. Context. In the past, total investments in Imereti have been estimated at around 20 percent-22 percent of the region’s GDP10—a ratio traditionally much lower than that of the country’s leading 10 Data on investments (by household and corporations) came from GEOSTAT staff estimates, while the break-up of public investments by region was estimated by the World Bank-based weights derived from regional GDP and population. 60 economic region (the city of Tbilisi), and slightly below that for the country as a whole. Total investment in Imereti was not very different from that in Adjara, in 2006. But, after Adjara received significant investments from the central government from 2007-2010, the difference reached almost 10 percent (see Figure 8.3). Figure 8.3: Investment ratios in Georgia and selected regions, % of GDP 35 30 25 20 15 10 5 0 Georgia Imereti Tbilisi Adjara Georgia Imereti Tbilisi Adjara 2006 2010 Private sector Households, self‐employed Government Source: GeoStat and World Bank staff estimations. 7. Household and public investment (broadly defined) dominates total investment in Imereti rather than corporate investment (as in Tbilisi), since (according to the System of National Accounts), household investments also include those made by the self-employed and microenterprises. The unique composition of these investments reflects the rural economic nature of the region, i.e., dominated by activities such as agriculture, mining (extracting manganese), trade and commerce, including hotels and restaurants. 8. Project impact. The Project will inject US$37.5 million in investments over four years; these are above the resources the Government has already spent to relocate the Parliament and improve the capital city of Kutaisi and surrounding natural sites. Road network improvements (both national and local) are also ongoing. 9. More important, the Project has been designed to foster private sector investments. First, it will encourage them by providing public goods (e.g., access roads, water and sanitation, street lights, rehabilitated parks, tourism amenities and restored public buildings) needed by private investors. Second, improvements in tourism circuits and cultural heritage sites in both rural and urban areas are designed to stimulate household investment as broadly defined in National Accounts. In particular, improving access roads and pedestrian walkways, and providing parking spaces, and other public infrastructure aim to motivate new micro/small businesses (e.g., shops, restaurants, transport and other tourism related services), as well as significant renovations to existing houses and the construction of new ones. 10. This impact can be captured by the amount of corporate and household investments that public investments mobilize. During past periods (2006-2007), Imereti leveraged up to US$3 in private investments for each US$1 invested by the public administration. More recently (2010-2011), however, 61 this ratio has been closer to one-to-one. It is expected that the Project will produce a one-to-three ratio, which would raise the leverage ratio of the public administration investments in the region (i.e., those supported by the Project as well as other public investments) to one-to-2.2. These expected trends, with and without the Project, are illustrated in Figure 8.4 (panels 1 to 3). 11. The impact of these investments on economic activity will be significant. While a typical Keynesian accelerator model (using modern econometric tools, such as an impulse-response function) could not be estimated at this time, two parameters were applied to gauge this potential impact: An incremental capital-to-output ratio (ICOR) of around 3 (each unit of investment results in a 33 percent permanent increase in output); A short-term multiplier effect under which one unit of investment results in one unit of additional output. 12. These two approaches are complementary in that the short-term (immediate) impact is likely to be closer to the results offered by the short-term multiplier, while the Project’s medium-term impact should be closer to those of the ICOR. Using these parameters, growth in Imereti during 2012-2015 is estimated at from 0.4-0.8 percentage points higher than otherwise expected, with the range depending on whether the ICOR or multiplier assumption is used.11 Such growth will result in a per capita GDP in US$ that would be between 1 percent-3 percent higher in 2015 than otherwise would have been realized. Figure 8.4: Summary of the Expected Impact of the Project on Investments, Income and Growth Source: GeoStat and World Bank staff projection 11 For simplicity, growth in Imereti without the Project has been assumed to be the same as in Georgia as a whole. 62 63 Background Information and Calculations Key Parameters and Assumptions (Imereti) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Population, thousands person Imereti 748 744 742 745 750 750 751 751 751 751 Georgia 4396 4387 4382 4410 4453 4455 4457 4458 4459 4459 GDP growth Imereti (without project) 20.1 10.2 1.4 1.1 7.0 7.0 7.0 7.0 7.0 Georgia 12.3 2.3 -3.8 6.3 7.0 6.0 5.0 5.0 5.0 GDP deflator index (2006=1) 1.0 1.1 1.2 1.2 1.3 1.4 1.5 1.6 1.7 1.7 Nominal exchange rate 1.8 1.7 1.5 1.7 1.8 1.7 1.7 1.8 1.9 2.0 Project related parameters Disbursements,US$ million 0 0 0 0 0 10 14 14 10 Leverage ratio, units 3 2 1 1 1 2 2 2 3 ICOR (uses GDP at t+1) Imereti (without project) 1.5 9.9 11.8 2.2 2.2 2.2 2.2 2.2 - Georgia 9.7 -5.4 2.3 2.8 2.5 2.6 2.5 2.6 - 64 Estimated Investments by Region Investment by Region (% of GDP) 2006 2007 2008 2009 2010 Total Invesment Kakheti 19.3 17.1 15.9 16.4 19.6 The city of Tbilisi 35.1 30.7 26.6 16.2 22.7 Shida Kartli and Mtskheta-Mtianeti 16.8 14.0 14.6 13.4 15.0 Kvemo Kartli 12.6 11.4 13.1 11.6 14.2 Samtskhe-Javakheti 10.2 12.4 12.7 13.0 17.9 Adjara 19.8 18.5 16.0 12.9 18.0 Guria 9.6 8.1 10.5 11.2 12.1 Samegrelo-Zemo Svaneti 20.3 18.1 17.5 13.8 17.6 Imereti, Racha-Lechkhumi and Kvemo Svaneti 20.6 15.3 14.4 12.8 15.6 Total Georgia 25.6 22.5 20.5 14.6 19.3 Public Investments Kakheti 4.7 4.3 5.5 7.8 8.5 The city of Tbilisi 2.8 2.4 3.3 4.5 4.9 Shida Kartli and Mtskheta-Mtianeti 4.7 4.1 5.6 7.6 8.0 Kvemo Kartli 3.9 3.5 5.1 6.7 7.4 Samtskhe-Javakheti 4.3 4.0 5.4 7.4 8.0 Adjara 4.4 3.7 4.7 6.2 6.8 Guria 4.13.75.67.57.9 Samegrelo-Zemo Svaneti 4.4 4.0 5.4 6.8 7.7 Imereti, Racha-Lechkhumi and Kvemo Svaneti 4.7 4.0 5.1 6.7 7.5 Total Georgia 3.7 3.2 4.3 5.8 6.4 Corporate and Household Investments Kakheti 14.6 12.8 10.4 8.6 11.1 The city of Tbilisi 32.3 28.3 23.3 11.7 17.7 Shida Kartli and Mtskheta-Mtianeti 12.1 9.9 9.0 5.8 7.0 Kvemo Kartli 8.7 7.9 8.0 4.9 6.8 Samtskhe-Javakheti 5.9 8.4 7.3 5.6 9.9 Adjara 15.4 14.8 11.3 6.7 11.2 Guria 5.64.54.93.74.1 Samegrelo-Zemo Svaneti 15.9 14.1 12.1 6.9 9.9 Imereti, Racha-Lechkhumi and Kvemo Svaneti 15.9 11.3 9.2 6.2 8.0 Total Georgia 21.9 19.3 16.1 8.8 13.0 Note: The ratios to GDP are derived from data on constant 2006 prices and, thus, might differ slightly from the numbers usually presented and derived from data at current prices. III. Cost-Benefit Assessment of Specific Investments: 13. For the Project’s economic and financial analysis, a cost-benefit assessment was carried out. Benefit streams were calculated based on the following available data and assumptions. 65 Benefit Streams 14. Increase in tourists, overnight stays and spending. Improving infrastructure and strengthening destination management is expected to translate into (a) an average increase of 5 percent a year in domestic and international tourism arrivals to Imereti during the Project and afterwards (the tourism strategy projects a 10 percent increase but the economic analysis assumes only half such growth will be attributed to Project investments); (b) an increase in average overnight stays from 3.8 days in 2010 to 4.5 in 2016 and to 5.5 by 2020, based on the nature of the tourism attractions; and (c) an increase in spending on food, lodging, and new activities (e.g., guided tours), and local products/handcrafts by 5% a year during the Project and 2% afterwards. 15. Increase in number and profitability of economic enterprises. The development of tourist attractions and geo-tourism maps, management and marketing/promotion of Imereti as a new quality destination, along with the improved infrastructure, are expected to attract private investors who will create new enterprises or expand existing ones. The leverage factor for private investments attracted by the public expenditures is assumed to be 3 to 1 based on data from other Georgian cities where similar urban renewal projects were implemented, i.e., old Tbilisi, old Mtskheta and Signagi. Subject to Government investment in improved municipal infrastructure and urban renewal under the Project, some private sector entities expressed interest in investing in Tskaltubo in 2013 (see Table 8.1 below). It is expected that additional private sector investments will be leveraged during subsequent years of the Project. Table 8.1: Indicative private sector investment in Imereti in 2013 Planned amount of Investor/Investment investment (GEL) Holiday Inn (former "Miner" sanatorium) 20,000,000 Tskaltubo Plaza (hotel & shopping center) 6,000,000 Spa baths # 5, 6 and 9 5,000,000 New restaurant "Stalactida" 2,000,000 3 new boutique hotels (25 rooms each) in the town center 1,500,000 New gotel (former pharmacy building) 500,000 Spa bath # 2 500,000 35,500,000 Total (US$21.9 million) 16. The number of beds in hotels, guest-houses and family-houses is expected to grow from 2,661 in 2010 to about 3,193 in 2016—to serve an expected increase in tourists who stay at least one night from 32,500 in 2010 to 110,000 by 2016 and 300,000 by 2020. Also, based on data from other Georgian cities where similar urban renewal projects occurred, new enterprises and increased profitability are assumed to raise the amount of corporate taxes collected by 15 percent, the VAT by 18 percent, and personal income tax by 20 percent. 66 17. Property and rental value appreciation. Tourism development and improved infrastructure will create more opportunities for businesses to invest and will increase demand for real estate, which should cause real estate and rental values to appreciate. Based on data from other Georgian cities where similar urban renewal occurred, i.e., old Tbilisi, old Mtskheta and Signagi, the following assumptions are made for Imereti: (a) property values are assumed to appreciate by 60 percent and rental values by 20 percent; (b) property tax revenues are expected to increase by 20 percent; and (c) income tax revenues from increased rental fees are projected to rise by 20 percent. 18. Temporary job creation. It is expected that while the Project is being implemented, temporary jobs will be created. Based on analyses of MDF infrastructure projects over the past five years, as well as global experiences in similar projects, the following assumptions were made: A large part of conservation/restoration works (30 percent of expenditures) are assumed to cover the cost of labor. Thus, it is assumed the government will obtain income tax (20 percent) from wages. 19. The cost-benefit analysis was prepared for the entire Project, rather than for each component. The Net Present Value (NPV), Financial Internal Rate of Return (FIRR) and Economic Internal Rate of Return (EIRR) were calculated for the next 20 years from 2012-2031, including four years of Project implementation. For the economic analysis, financial costs were corrected and conversion factors were applied. The analysis assumed a 12 percent discount rate. 20. Secondary data was collected from various government entities, including the GNTA, Ministry of Finance, Revenue Service, Public Register, GeoStat, as well as from real estate brokers and studies from similar projects, e.g., USAID-funded Georgia Economic Prosperity Initiative. Primary data was collected from small-scale surveys, using structured questionnaires that were administered to various stakeholders (restaurants, cafes, hotels, guest-houses, and domestic and foreign visitors). It also obtained information from in-depth interviews. 21. Overall, the Project is expected to yield net economic benefits from the following benefit streams: An increase in tourist overnight stays and spending, the number and profitability of enterprises, increased property values and temporary jobs. 22. Results. The economic and financial analyses show that the Project’s NPV at a 12 percent discount rate amounts to US$10.45 million, with a Financial Internal Rate of Return (FIRR) of 19.10 percent, and an Economic Internal Rate of Return (EIRR) of 31.05 percent. 23. Sensitivity analysis. The NPV, FIRR and EIRR are most sensitive to the secondary sales (direct and indirect sales) multiplier factor: A 10 percent increase or decrease in this multiplier will raise or lower the NPV by US$0.86 million and the FIRR by about 0.47 percent. The largest impact will be on the EIRR: A 10 percent increase or decrease in the secondary sales multiplier will raise or lower the EIRR by 3.77 percent and 3.43 percent respectively. At the minimum possible level of the secondary sales multiplier (i.e., 1.0), and if other assumptions remain unchanged, the NPV will still be positive, reaching US$6.15 million. A 10 percent increase or decrease in tourism arrivals and spending growth forecast after 2016 will raise or lower the NPV by US$0.55 million. If the average overnight stays remain unchanged (at 3.8 days), and other assumptions are unchanged, the NPV will still be positive, at US$4.75 million, the FIRR will be 15.7 percent and the EIRR will be 14.45 percent. The analysis confirms that even when subjected to these stress tests, the financial and economic impacts of the Project remain robust. 67 Annex 9: Maps Georgia: Second Regional Development Project 68 69