ENVIRONMENTAL FINANCE Debt-for-Environment Swap in Georgia: Potential Project Pipelines for the Expenditure Programme PART TWO 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 Lucern, 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: Обмен долгов на охрану окружающей среды Грузии: потенциальные направления программы для финансирования © 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 FOREWARD This report 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), whose Secretariat is located in the OECD’s Environment Directorate. It complements the first part, Pre-feasibility Study and Institutional Options, which analyses opportunities for and challenges to swapping part of Georgia’s external debt for domestic financing of priority environmental projects. This report was prepared by a team of consultants under the guidance and supervision of the EAP Task Force Secretariat, Grzegorz Peszko supported by Nelly Petkova. Gabriel Labbate was responsible for the overall management and implementation of the project. He also prepared the chapter on biodiversity. Paata Janelidze did the work on small and mini-hydropower plants and the production of biogas from animal waste. Grigol Lazriev and Gabriel Labbate prepared the report on waste management in coastal cities of Georgia. Nino Partskhaladze and Gabriel Labbate did the work on improving the collection and treatment of sewage affecting international waters. The Dutch Government, through its Ministry of Housing, Spatial Planning and the Environment, has provided financial support for this project. Special thanks go to Xavier Leflaive (Manager of the Environmental Finance Programme at the EAP Task Force) for his support and guidance during the last phases of work on this project and to Brendan Gillespie (Head of the Non-member Countries Division at the OECD’s Environment Directorate) for reviewing the report. All these contributions are gratefully acknowledged. The views expressed in this report are those of the authors and do not necessarily reflect those of the OECD or its member countries. 3 TABLE OF CONTENTS EXECUTIVE SUMMARY .......................................................................................................................... 7 BIODIVERSITY PROTECTION............................................................................................................. 11 SYNTHESIS................................................................................................................................................. 16 1. INTRODUCTION .................................................................................................................................... 20 2. AN OVERVIEW OF THE SYSTEM OF PROTECTED AREAS IN GEORGIA .................................. 21 3. IDENTIFYING PRIORITY CONSERVATION ZONES IN GEORGIA................................................ 23 4. THREATS TO BIODIVERSITY: MAIN PROBLEMS TO BE TACKLED .......................................... 31 5. OBJECTIVES AND STRATEGY FOR THE USE OF DFES RESOURCES......................................... 44 6. CHARACTERISTICS OF PIPELINE FINANCING............................................................................... 52 7. REFERENCES ......................................................................................................................................... 57 SMALL AND MINI HYDROPOWER GENERATION......................................................................... 59 SYNTHESIS................................................................................................................................................. 64 1. TECHNICAL EXPLOITABLE POTENTIAL OF THE MINI HYDROPOWER SECTOR................... 67 2. ELECTRICITY DEMAND AND SUPPLY............................................................................................. 71 3. DESCRIPTION OF THE ELECTRICITY SECTOR OF GEORGIA...................................................... 73 4. REGULATORY FRAMEWORK ............................................................................................................ 77 5. ELECTRICITY TARIFFS........................................................................................................................ 78 6. DESCRIPTION OF DONOR, STATE AND PRIVATE ACTIVITIES IN THE MINI HYDROPOWER GENERATION SECTOR ............................................................................................... 80 7. STAKEHOLDER ANALYSIS................................................................................................................. 81 8. CAPITAL AND OPERATION AND MAINTENANCE COSTS OF MODEL PROJECTS.................. 82 9. EVALUATION OF THE ECONOMIC POTENTIAL OF REHABILITATING EXISTING, AND CONSTRUCTING NEW, MINI HYDROPOWER PLANTS............................................................ 88 10. FINANCIAL VIABILITY OF REHABILITATION AND CONSTRUCTION OF NEW MINI HYDRO POWER PLANTS............................................................................................................... 91 11. SENSITIVITY ANALYSIS ................................................................................................................... 97 12. CAPITAL NEEDS FOR THE ENTIRE PIPELINE............................................................................... 99 13. RISKS AND RISK MITIGATION MEASURES ................................................................................ 100 14. ESTIMATION OF GREENHOUSE GASES (GHG) ABATEMENT POTENTIAL.......................... 101 15. SUSTAINABILITY ASSESSMENT ................................................................................................... 102 16. REFERENCES ..................................................................................................................................... 105 BIOGAS PRODUCTION......................................................................................................................... 107 SYNTHESIS............................................................................................................................................... 112 1. TECHNICAL EXPLOITABLE POTENTIAL OF THE BIOGAS SECTOR........................................ 114 2. BIOGAS TECHNOLOGIES .................................................................................................................. 117 3. CAPITAL AND OPERATION AND MAINTENANCE COSTS OF MODEL PROJECTS................ 123 4. ECONOMIC ANALYSIS OF BIOGAS PRODUCTION...................................................................... 124 5. FINANCIAL VIABILITY OF BIOGAS PRODUCTION ..................................................................... 128 6. SENSITIVITY ANALYSIS ................................................................................................................... 132 7. MARKET POTENTIAL OF BIOGAS REACTORS............................................................................. 134 8. CAPITAL NEEDS FOR THE ENTIRE PROJECT PIPELINE............................................................. 136 9. RISKS AND RISK MITIGATION