Environmental Finance Debt-for-Environment Swap in Georgia: Pre-Feasibility Study and Institutional Options PART ONE ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT The OECD is a unique forum where the governments of 30 democracies work together to address the economic, social and environmental challenges of globalisation. The OECD is also at the forefront of efforts to understand and to help governments respond to new developments and concerns, such as corporate governance, the information economy and the challenges of an ageing population. The Organisation provides a setting where governments can compare policy experiences, seek answers to common problems, identify good practice and work to co-ordinate domestic and international policies. The OECD member countries are: Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The Commission of the European Communities takes part in the work of the OECD. OECD Publishing disseminates widely the results of the Organisation's statistics gathering and research on economic, social and environmental issues, as well as the conventions, guidelines and standards agreed by its members. EAP TASK FORCE The Task Force for the Implementation of the Environmental Action Programme for Central and Eastern Europe (EAP Task Force) was established in 1993 at the “Environment for Europe” Ministerial Conference in Lucerne, Switzerland. Its Secretariat was established at the OECD as part of the Centre for Co-operation with Non-Members. Since its creation, the EAP Task Force has proven to be a flexible and practical tool for providing support to political and institutional reforms in the countries of the region. After the Aarhus Ministerial Conference in 1999, its efforts were refocused on the countries of Eastern Europe, Caucasus and Central Asia (EECCA). More detailed information about Task Force activities can be found on its website at: www.oecd.org/env/eap This report is also available in Russian under the title: Обмен долгов на охрану окружающей среды Грузии: предварительное технико-экономическое обоснование и предложения по институциональным механизмам © OECD 2006 No reproduction, copy, transmission or translation of this publication may be made without written permission. Applications should be sent to OECD Publishing: [email protected] or by fax (+33-1) 45 24 13 91. Permission to photocopy a portion of this work should be addressed to the Centre Français d’exploitation du droit de copie, 20 rue des Grands-Augustins, 75006 Paris, France ([email protected]). 2 Foreword This publication was prepared in the framework of the Task Force for the Implementation of the Environmental Action Programme for Central and Eastern Europe (EAP Task Force). The publication consists of two separate reports, dealing with different aspects of the debt-for-environment swap in Georgia. The first report – Debt-for-Environment Swap in Georgia: Pre-Feasibility Study and Institutional Options (the Pre-Feasibility Study) – aims to assist the Government of Georgia in analysing opportunities for, and challenges to, swapping (part of) its external debt for domestic financing of priority environmental projects. The report suggests that such a swap is potentially feasible and could be beneficial to both Georgia and the creditor countries. The second report – Potential Project Pipelines for the Expenditure Programme Financed by the Debt-for-Environment Swap in Georgia (the Pipelines Report) – focuses on the financial and economic analysis of the five most promising project pipelines (biodiversity protection, biogas production, small and mini hydropower generation, wastewater management and municipal waste management) that were identified during the Pre-Feasibility Study. These project pipelines could make up a potential expenditure programme to be co-financed with resources generated through debt-for- environment swaps in Georgia. Some of the data and information in the Pre-Feasibility Study were provided by the Consortium of BCEOM, HALCROW GROUP Ltd. and COWI – the companies that implemented the project “Support to the Implementation of Environmental Policies and National Environmental Action Programmes in the Commonwealth of Independent States (CIS)”, financed by the European Union Technical Assistance to the Commonwealth of Independent States (EU TACIS). Data on the debt structure and the repayment profile reflecting the 2004 agreement of Georgia with Paris Club creditors were collected and processed by Nana Gibradze. Although the two reports are closely related and complementary, they can stand alone and be read separately. The Pre-Feasibility Study was mostly prepared by Grzegorz Peszko from the OECD Environment Directorate (former Manager of the Environmental Finance Programme at the OECD/EAP Task Force Secretariat and current World Bank staff member), in co-operation with Malkhaz Adeishvili, Head of the Environmental Policy Department of the Ministry of Environmental Protection and Natural Resources of Georgia. The Pipelines Report was prepared by a team of (mostly Georgian) consultants under the guidance and supervision of the EAP Task Force Secretariat at the OECD. Gabriel Labbate, Paata Janelidze, Grigol Lazriev and Nino Partskhaladze were responsible for developing the analysis of the individual project pipelines. Nelly Petkova worked on the reports at their second stage and prepared them for publication. Special thanks go to Xavier Leflaive (Manager of the Environmental Finance Programme at the EAP Task Force) for his support during the last phases of this work and to Brendan Gillespie (Head of the Non- member Countries Division at the OECD Environment Directorate) for his valuable comments and overall guidance from the outset of this project. Carla Bertuzzi helped with collecting statistical data in preparing the publication. All these contributions are gratefully acknowledged. The Pre-Feasibility Study was made possible thanks to the financial support of the EU TACIS. The Dutch Government, through its Ministry of Housing, Spatial Planning and the Environment, provided financial support for the preparation of the Pipelines Report. The views expressed in these reports are those of the authors and do not necessarily reflect the views of the OECD, the EU or their member countries. 3 TABLE OF CONTENTS EXECUTIVE SUMMARY .......................................................................................................................... 9 1. BACKGROUND ..................................................................................................................................... 13 2. DEBT-FOR-ENVIRONMENT SWAPS AND ALTERNATIVE DEBT TREATMENT OPERATIONS............................................................................................................................................ 17 2.1. Debt Swaps and Debt Rescheduling .................................................................................................. 18 2.2. Debt Swaps and Debt Relief .............................................................................................................. 19 3. SWAPPING DEBT FOR MULTIPLE PURPOSES: ENVIRONMENT AND DEVELOPMENT. 21 3.1. Debt-for-Aid Swaps ........................................................................................................................... 21 3.2. Debt-for-Equity Swaps....................................................................................................................... 23 3.3. Debt-for-Environment Swaps............................................................................................................. 24 4. EXTERNAL PUBLIC DEBT PROFILE OF GEORGIA................................................................... 27 4.1. Public Debt Owed to Multilateral Creditors....................................................................................... 28 4.2. Public Debt Owed to Bilateral Creditors............................................................................................ 28 4.3. Setting Priorities for Negotiations of Bilateral Swaps ....................................................................... 29 4.4. Profiles of Selected Creditor Countries.............................................................................................. 30 5. REVENUES FORECAST...................................................................................................................... 32 5.1. Scheduling Revenue Flows ................................................................................................................ 32 5.2. Forecasting Revenue Generated by Debt-for-Environment Swaps in Georgia.................................. 33 6. EXPENDITURE PROGRAMME......................................................................................................... 37 6.1. Priorities for the Expenditure Programme.......................................................................................... 37 6.2. Eligible Project Types ........................................................................................................................ 38 6.3. Administrative Expenditure ..............................................................................................................