Social Safeguards Report GEO: Port of Poti Social Compliance Audit Report September 2010 This report is made publicly available in accordance with ADB’s Public Communications Policy (2005). It does not necessarily reflect the views of ADB. 1 GEO: Poti Sea Port Social Compliance Audit Report I. Introduction 1. The port of Poti (the Port) is Georgia's main port and is strategically located near the confluence of the Rioni River and the Black Sea. It provides access to the Mediterranean Sea via the Bosporus. Poti has been a major port city since the 19th century. In 2008, the Port was sold to Ras Al Khaimah Investment Authority (RAKIA) through privatization. ADB is considering providing financial assistance to the Poti Sea Port Corporation (PSPC) as an equity investor with an investment of up to $50 million. The ADB investment will be used for modernizing current port facilities and operations of Port of Poti. 2. With respect to ADB's Safeguards Policy Statement (SPS), the transaction falls under general corporate finance (GCF) and projects involving existing facilities, hence, Safeguards Requirements (SR) 4 on Different Financing Modalities applies. SR4 requires a corporate audit of the company's current environmental and social management system (ESMS) and an environment and social compliance audit including on-site assessment, to identify past or present concerns related to impacts on the environment, involuntary resettlement, and Indigenous Peoples. A Mission1 was fielded between 12-14 August 2009 to visit the port, conduct a corporate audit of the PSPC's ESMS or its equivalent, and a social compliance audit to determine if there are any issues related to involuntary resettlement or Indigenous Peoples. This report documents the findings of the mission on the social safeguards dimensions of the compliance audit and other social aspects of the Port's establishment and operation. This also includes recent updates from PSPC on the progress made with respect to the recommendations of the Mission. II. Mission Findings A. PSPC's Environment and Social Management System 3. PSPC’s Health, Safety, Security and Environmental Management System is being implemented by the Health, Safety, Security and Environment (HSSE) Group comprised of five departments namely, health care, ecology, safety, security, watchmen, and firefighting department. There is no dedicated social staff responsible for managing social safeguards dimensions, however, these issues are handled by the HSSE Group as part of the environmental and social impact assessment. 4. For any ongoing or planned port rehabilitation, modernization or expansion, PSPC will follow the requirements of the Environmental Impact Permit Law of Georgia. This law requires the conduct of an environmental impact assessment to study and examine a development activity’s direct and indirect impact on people and the environment. Major considerations in the conduct of an EIA include human health and safety, flora and fauna, soil, air, water, climate, landscape, ecosystems and historical monuments, on cultural values (cultural heritage) and social-economic factors, as well as impacts of land acquisition and resettlement. PSPC periodically engages a scientific consulting firm, e.g. Gamma, to assist them in the conduct of environmental and social studies and assessments. 1 The Mission comprised Armando Balloffet, Senior Environment Specialist [External Consultant], S.L. Tu, Senior Environment Specialist, PSOC; J.E. Munsayac, Senior Social Safeguards Officer, PSOC. 2 5. In the event that the development or expansion of the port requires new acquisition of land or resettlement of people, this is undertaken in accordance with the following Georgian laws and regulations: Constitution of Georgia (1995); Civil Code of Georgia (1997), Law of Georgia on Protection of Cultural Heritage (2007); Law of Georgia on Notary System (1996); Law of Georgia on Privatization of State-owned Agricultural Land (2005); Law of Georgia on Ownership of Agricultural Land (1996); Law of Georgia on Entitlement of Ownership Rights to Lands Possessed (Employed) by Physical and Legal Persons of Private Law (2007); Law of Georgia on Registration Rights to Real Estate (2005); Law of Georgia on Rules for Expropriation of Ownership for Necessary Public Need (1999); Civil Procedural Code of Georgia (1997); Presidential Decree No. 525 on Rules for Entitlement of Ownership Rights to Lands Possessed (Employed) by Physical and Legal Persons of Private Law and Approval of Ownership Certificate Format (2007). These laws provide that compensation for lost assets, including land, structures and standing crops, should be based on the current market price without depreciation. All the above laws/regulations state that the principle of cost compensation at fair market price is reasonable and legally acceptable. The laws also identify the types of damages eligible for compensation and indicate that compensation is to be given. These laws envisage notification of affected people to ensure their in the process and prevent violation of their rights. 6. The Mission discussed ADB’s safeguards requirements and PSPC agreed to prepare an Environmental and Social Management System acceptable to ADB. Over the past year, PSPC with assistance from Gamma Consulting has developed an ESMS which the Mission deems acceptable and consistent with ADB’s relevant objectives, policy principles and requirements. B. Social Safeguards Performance – Past and Current 7. The town of Poti is located in the western part of Georgia and the eastern coast of the Black Sea. It has a total land area of 59 square kilometers and a population of approximately 50,000 people in 2002. 8. Involuntary Resettlement. The total area of occupied by Poti Sea Port Corporation comprises 45.37ha: restricted area – 30.13ha; hydro-technical part of the berths – 11.76ha; area under PSPC administrative building and the yard – 0.21ha; other areas including yacht- club, garage and wash-house – 3.2ha.. Plans to build a major port in the city of Poti in Georgia began soon after Georgia was released from Turkish conquerors in 1828. In 1858, Alexander II issued a Nominal Decree addressed ordering the Senate to constitute Poti City as a merchant city for trade and industry. To fulfill this vision for Poti City, construction of a pair of breakwaters at the mouth of the Rioni River was started. In 1872, the Poti-Chiatura railway lines for the export of manganese ore was established. The reconstruction of the port continued during 1873-1888 with the construction of northern breakwater (the root part of this is now being used for the construction of present south breakwater). At the same time when the northern breakwater was constructed, Poti Port was relocated from the mouth of the Rioni River into the new delimited water area with entrance into the port from the western part. In 1905, the entrance from the western part was closed and a new entrance was constructed in the northwest portion. Starting from this period, Poti Port has obtained the features of the present port. Old illustrations and photos of the Port from the PSP Museum are available in Attachment 3. Reconstruction works such as the construction of a container terminal and a network of cargo railway lines were also carried out inside the port premises in the 20th century under the Soviet Union management. According to Poti Sea Port officials, all land utilized for construction of the Port were uninhabited, state-owned non-agricultural lands. PSPC confirms that no issues of relocation, land acquisition and compensation arose as these lands were primarily swamp land 3 and were not being used for economic or residential purposes. Berth 14 is currently being rehabilitated using EBRD financing. Rehabilitation works under EBRD financing are also not expected to trigger EBRD’s Performance Requirement 7 on Land Acquisition. 9. The Mission also visited the adjacent site (approx 300 ha) designated for the development of a Free Industrial Zone (FIZ). As shown in the satellite image and the Poti FIZ Master Plan (Attachment 2), approximately 100ha of land inside the FIZ is allocated to PSPC for future port expansion which is not included in the currently proposed financing. Majority of the land area (60 m from the coastline) of the site for future expansion has scant vegetation and is comprised mainly of sand dunes. It is fenced and uninhabited and except for occasional grazing of a few cattle and horses which is common in Georgian countryside, there is no evidence that it is in active agricultural or other economic use. Photos taken during the mission are available in Attachment 4. 10. Indigenous Peoples. Prior to 1893, Poti City has an estimated population of about 1,000 people. When the port’s development and the opening of the railway started, new jobs were created and migrants from all over Gergia moved to the port city of Poti. In a few years time, the population increased to around 30,000 inhabitants. In 2010, the city's population is approximately 47,000 people consisting mostly of 90% Georgians and 10% nationals from different nations, such as Russians, Ukrainians, Polish people, etc. For more than a hundred years, foreign ships have come to Poti Sea Port from different countries, and the locals are always able to communicate with foreigners and display their traditional Georgian hospitality and cordiality. Rehabilitation and modernization of the port is expected to increase port operations and therefore resulting in direct economic benefits in terms of increase in availability of jobs as well as indirect benefits from increase in business activities in the area and increased government revenues which can be used to improve roads and other public facilities in Poti City. These are expected to benefit all residents in Poti City regardless of ethnicity. Moreover, there are no communities of people in Poti City who may be considered as Indigenous Peoples as defined in ADB’s SPS, hence, the Project is categorized as Category C with respect to the SPS Safeguards Requirements 3 on Indigenous Peoples.