Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No: 66027-GE
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED LOAN
IN THE AMOUNT OF US$60 MILLION
TO
GEORGIA
FOR A
REGIONAL DEVELOPMENT PROJECT
February 22, 2012
Sustainable Development Department
South Caucasus Country Department
Europe and Central Asia Region
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.
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CURRENCY EQUIVALENTS
(Exchange Rate Effective February 22, 2012)
Currency Unit = GEL
GEL1.66 = US$1
FISCAL YEAR
January 1 – December 31
ABBREVIATIONS AND ACRONYMS
ACHP
CHF
CPS
CPS-PR
DA
EMF
EMPs
EPI
FDI
FI
FM
FMM
GNTA
ICOR
IFAC
IFRs
ISA
ISP
LSGs
MRDI
MDF
OM
PAA
PDO
PSIA
RAPs
RMIDP
SAR
SECHSA
SIDA
TOR
Georgia Agency for Culture Heritage Preservation
Georgia Culture Heritage Fund
Country Partnership Strategy
Country Partnership Strategy Progress Report
Designated Account
Environmental Management Framework
Environmental Management Plans
USAID-funded Georgia Economic Prosperity Initiative
Foreign direct investment
Financial Intermediary
Financial Management
Financial Management Manual
Georgia National Tourism Administration
Incremental Capital to Output Ratio
International Federation of Accountants
Interim un-audited financial reports
International Standards on Auditing
Implementation Support Plan
Local Self-Governments
Ministry of Regional Development and Infrastructure
Municipal Development Fund Georgia (Project Implementing Entity)
Operations Manual
Georgia Protected Areas Agency
Project Development Objective
Poverty and Social Impact Analysis
Resettlement Action Plans
Regional & Municipal Infrastructure Development Project
Subproject Appraisal Report
Strategic Environmental Cultural Heritage and Social Assessment
Swedish International Development Agency
Terms of Reference
Regional Vice President: Philippe H. Le Houérou
Country Director: Asad Alam
Sector Director:
Acting Sector Manager:
Laszlo Lovei
Benoit Blarel
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 1
C. Higher Level Objectives 4
II. PROJECT DEVELOPMENT OBJECTIVES 5
A. PDO 5
B. Project Beneficiaries 5
C. PDO Level Results Indicators 5
III. PROJECT DESCRIPTION 6
A. Project Components 6
B. Project Financing 7
C. Lending Instrument 7
D. Project Cost and Financing 8
E. Lessons Learned and Reflected in the Project Design 8
IV. IMPLEMENTATION 9
A. Institutional and Implementation Arrangements 9
B. Results Monitoring and Evaluation 10
C. Sustainability 10
V. KEY RISKS AND MITIGATION MEASURES 11
A. Risk Ratings Summary Table 11
B. Overall Risk Rating Explanation 11
VI. APPRAISAL SUMMARY 12
A. Economic and Financial Analyses 12
B. Technical 13
C. Financial Management 14
D. Procurement 15
E. Social (including safeguards) 16
F. Environment (including safeguards) 17
G. Other Safeguards Policies Triggered 18
H. Effectiveness Condition 18
Annex 1: Results Framework and Monitoring 19
Annex 2: Detailed Project Description 21
Annex 3: Implementation Arrangements 27
Annex 4: Operational Risk Assessment Framework (ORAF) 40
Annex 5: Implementation Support Plan 43
Annex 6: Team Composition 46
Annex 7: Procurement Plan 47
Annex 8: Economic and Financial Assessment 51
Annex 9: Maps 58
i
DATA SHEET
Georgia
REGIONAL DEVELOPMENT PROJECT (P126033)
PROJECT APPRAISAL DOCUMENT
EUROPE AND CENTRAL ASIA
ECSS6
.
Basic Information
Date: February 22, 2012 Sectors: General water, sanitation and flood
protection (60%), urban transport
(30%), local government
administration (8%), vocational
training (2%)
Country Director: Asad Alam Themes: City-wide infrastructure and
service delivery (25%), culture
heritage (25%), infrastructure
services for private sector
development (30%), urban
economic development (10%),
regional integration (10%)
Acting Sector
Manager/Director:
Benoit Blarel/Laszlo Lovei
Project ID: P126033 EA
Category:
F - Financial Intermediary
Assessment
Lending Instrument: Specific Investment Loan
Team Leader(s): Ahmed A. R. Eiweida
Does the project include any CDD component? No
Joint IFC: No
.
Borrower: 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: 30-May-2012 End Date: 30-Jun-2016
Expected Effectiveness Date: 30-May-2012
Expected Closing Date: 31-Dec-2016
ii
.
Project Financing Data (US$M)
[X] Loan [ ] Grant [ ] Other
[ ] Credit [ ] Guarantee
Proposed term: A flexible loan with a variable spread and a final maturity of 25 years, including a grace
period of 10 years.
For Loan:
Total Project Cost (US$M): 75.00
Total Bank Financing (US$M): 60.00
.
Financing Source Amount (US$ Million)
Borrower 15.00
International Bank for Reconstruction and Development 60.00
Total 75.00
.
Expected Disbursements (in US$ Million)
Fiscal Year 2012 2013 2014 2015 2016
Annual 15.00 20.00 15.00 07.00 03.00
Cumulative 15.00 35.00 50.00 57.00 60.00
.
Project Development Objective(s)
The Project Development Objective is to improve infrastructure services and institutional capacity to
support the development of tourism-based economy and cultural heritage circuits in the Kakheti region.
.
Components
Component Name Cost (US$ Millions)
Infrastructure Investment 56.90
Institutional Development 3.10
.
Compliance
Policy
Does the project depart from the CAS in content or in other significant respects? Yes [ ] No [X]
.
iii
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] [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 Borrower shall maintain the supervisory board of the Project Implementing Entity, chaired by the
Prime Minister of Georgia. (Loan Agreement: Schedule 2, Section I.A.2).
Name Recurrent Due Date Frequency
Safeguards X Quarterly
Description of Covenant
The Borrower shall ensure that the Project is carried out by the Project Implementing Entity in
accordance with the provisions of the EMF, EA(s), EMP(s), RPF and RAP(s). (Loan Agreement:
Schedule 2, Section I.D.1).
Name Recurrent Due Date Frequency
Social Safeguards X Quarterly
Description of Covenant
Prior to the commencement of works, Project Implementing Entity to ensure that the owners and users
of the land where works are to be implemented are fully compensated in accordance with the
iv
provisions of the RAP(s). (Loan Agreement: Schedule 2, Section I.D.2).
Name Recurrent Due Date Frequency
Resettlement Policy Framework X Quarterly
Description of Covenant
The Borrower shall ensure that the Project Implementing Entity prepares RAPs according to the RPF.
(Loan Agreement: Schedule 2, Section I.D.4).
Name Recurrent Due Date Frequency
Selection Procedures for, and Terms and
Conditions of, Investment Subproject
Financing
X Quarterly
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).
.
1
I. STRATEGIC CONTEXT
A. Country Context
1. Following four years of rapid growth, backed by far-reaching reforms and strong foreign
direct investment (FDI) inflows, Georgia experienced a sharp economic downturn resulting from the
twin shocks of the August 2008 conflict and the global financial crisis. As a result, authorities
launched a counter-cyclical fiscal stimulus and also realigned public expenditures to social and
infrastructure investments. As economic recovery takes hold, driven by higher exports and private
investment, authorities are reducing the stimulus and implementing fiscal adjustments to safeguard
sustainability. Although the recovery resulted in about 6.8 percent growth rate in 2011, there is
uncertainty about the pace of future growth due to global economic uncertainties. In response, the
authorities are addressing macro-economic vulnerabilities through well-designed fiscal, monetary
and debt management policies. The authorities have also maintained their economic reform program
backed by a strong public investment program. Georgia is also currently negotiating a Deep and
Comprehensive Free Trade Agreement with the EU, which is expected to enhance market access for
Georgia‘s goods and modernize industries.
2. Georgia has one of the world‘s most competitive business environments—ranked 16th out of
183 countries according to the ―Doing Business‖ Report, IFC 2012. In particular, it scores well in
terms of business start-ups, tax processes, investor protection, access to credit, enforcement of
contracts, registering property and issuing construction permits.
3. The Government refocused efforts in the past six years by launching several regional
development initiatives to attract private investors in various sectors. Georgia, however, has not yet
fully tapped its potential to promote sustainable tourism in promising regions, such as Kakheti. 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.
4. The design of the Project– the blend of institutions, infrastructure, and targeted interventions
– is informed by both a comprehensive diagnostic and relevant international experience. The Project
will aim to support the local economy in the region by carrying out 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. Follow-up
projects under the program may focus on other economic sectors in Kakheti and/or replicate this
approach in another region.
B. Sectoral and Institutional Context
5. Georgia Regional Development Strategy.1 In June 2010, the Government approved by
Resolution no. 172, the State Strategy on Regional Development for 2010-2017, prepared by the
Ministry of Regional Development and Infrastructure (MRDI). Its main objectives are to create a
favorable environment for regional socio-economic development and to improve living standards.
These objectives will be achieved through a balanced socio-economic development policy, increased
competitiveness, and greater socio-economic equality among the regions. The national and local
1 Georgia Regional Development Strategy: http://www.mrdi.gov.ge/?page=lawv&id=4&lang=2
2
governments intend now to invest in Kakheti so it can become a growth center through better
promoting the tourism and agriculture potential of the region and reducing internal socio-economic
disparities..
6. In 2010, the UNDP helped Kakheti‘s Administration and Regional Development Agency
prepared a Regional Development Strategy for Kakheti (2010-2014), which concluded that the
tourism and agriculture/agro-processing sectors offer significant potential and proposed a priority
action plan. 2 Building on this program, the Bank task team analyzed the value and supply chain for
tourism and agriculture. It also conducted a detailed economic analysis, drawing on the 2009 World
Development Report, Reshaping Economic Geography, to assess the institutional quality,
infrastructural adequacy/connections, and proposed targeted interventions to foster tourism. These
analyses are the basis for this Project design.3
7. Kakheti, with approximately 11,300 km², has eight municipalities/local self-governments
(LSGs) and about 404,000 inhabitants, about 9 percent of the total population, making it Georgia‘s
fourth largest region. Due to its mountainous terrain, it is sparsely populated, with 35 persons/km²
compared to 75 persons/km² for the entire country. Most live in the two valleys of Alazani and
Signagi. The region is sparsely urbanized, with only about 21 percent of the population in cities.
8. Kakheti has long been the heart of Georgia‘s ancient culture, history and economy.4 Records
from those living during the Stone Age have been documented and Kakheti was a key juncture on
the Great Silk Road. It is home to a unique cultural heritage which includes the Nekresi Church
Remnants (4th century AD), the David Gareja Caved Monastery (6th century AD), the Old Shuamta
Basilica (5-6th century AD), the Ninotsminda Citadel (7th century AD), the Alaverdi Cathedral
(11th century AD), the Bodbe Monastery (9-11th century AD), and the Gremi Archangel Monastery
Complex (16th century AD), among others. The ancient city of Telavi is its cultural and economic
capital, whose early records are cited by the Greek scholar Ptolemy (2nd century AD). Signagi and
Kvareli are renowned for their unique architecture, and Kakheti is the center of vineyards that cover
the scenic Alazani and Signagi valleys. Telavi, Signagi, Kvareli, and Akhmeta also have local food
processing plants.
9. Kakheti is also home to three protected areas: Tusheti in the north, Lagodekhi in the center,
and Vashlovani in the south. Tusheti has preserved its unique cultural heritage, traditions and
ceremonies over the years. It is renowned for its lush landscape and the historical villages of Dartlo
and Omalo, which are distinguished by their traditional architecture, where residents have
maintained their culture and pattern of life.
10. With respect to GDP per capita, Kakheti is considered a lagging region and below the
country average. In 2010, Kakheti‘s Gross Value Added per capita represented only about 60 percent
of Georgia national average Kakheti has not undergone any significant transformation of its
economy. Economic density (volume of investments per km²) in Kakheti is about GEL74,000/km²
compared to GEL409,000/km² in Adjara, and GEL52 million/ km² in Tbilisi. Agriculture, although
2 Kakheti Regional Development Strategy: http://www.kakheti.gov.ge/eng/index.php?cat=33&par=33
3 The Project economic and financial analysis is complemented by spatial economic analysis (using the WDR 2009
framework of economic geography analysis) and ICOR (investment to capital output ratio) analysis looking at the
relationship between public and private investment trends in Georgia generally. Full analysis is available in Annex 8. 4 Website of the Kakheti region: http://www.kakheti.gov.ge/eng/
3
declining in terms of its contribution to GDP and employment, still represents a large part of the
economy and is still less productive. Services, especially tourism, generate about 60 percent of
Kakheti‘s value added, while public administration still plays a dominant role. The service sector,
particularly hotels and restaurants, has become important.
11. The poverty rate in Kakheti is 25 percent, which is slightly above the Georgia average of 24
percent. Other poverty indicators such as poverty depth, severity, and incidence are also higher than
the Georgia averages. The figures are higher for urban households in almost all dimensions of well
being. The unemployment rate in Kakheti is 11 percent, which is below Georgia average of 16
percent and Tbilisi‘s rate of 30 percent. Such a relatively low unemployment rate results from the
rural character of the region, with intensive inclusion of the population in agricultural self-
employment and non-paid employments.
12. The Project‘s economic analysis has provided a framework within which policies with regard
to future development can be presented. It includes an analysis of the growth/employment impact of
the proposed investments with sectoral breakdowns.5
13. The findings from the tourism value-chain analysis reveal huge development potential, but
identify challenges, which include:
The vast majority of overnight visitors to Georgia spend little, coming for business or to visit
friends and relatives;
The need for urban renovations and improving the quality of municipal infrastructure in key
cultural centers (Telavi, Kvareli, and Dartlo);
The low quality of municipal infrastructure (water, sanitation, access roads and solid waste
disposal);
Limited hotel capacity;
Seasonality (lower number of visitors and lower hotels occupancy rate in winter months),
A lack of activities to promote visiting the region as an attractive tourism destination;
A lack of investor information, communications and cooperation among investors to achieve a
competitive edge; and
Inadequate service skills and limited proficiency in foreign languages.
14. The tourism strategy proposes to develop Kakheti as a high-quality destination year-round. It
seeks to attract both domestic and international tourists, building on its cultural heritage and bio-
diversity, as well as visitors who would spend more during their stays. The strategy describes an
integrated approach, using the concept of geo-tourism and comprehensive urban renewal in key
centers (Telavi, Kvareli and Dartlo). The goal is to attract private investments, promote public-
private partnerships, revitalize local business activity, define a full-fledged regional tourism circuit,
and foster two leisure travel clusters along the following concepts:
Cultural heritage/culinary tourism: This includes visits to monuments, monasteries, museums
and for visitors to experience the region‘s music, art, dance, cuisine, spas. The market is to
attract those from 45-65, who have higher levels of disposable income, education, and time for
5 The full economic analysis is available in Annex 8.
4
leisure travel than those who currently visit Kakheti. Activities will include promotion,
marketing, and event planning with improved facilities and services.
Eco-tourism/adventure: This includes the pristine, protected landscape and is designed to
attract those from 25-45, although they have less disposable income. Activities would include
developing the physical areas, marketing, and training for both soft (hiking, birding, trekking,
skiing, kayaking) and hard (mountaineering, paragliding, heli-skiing) experiences.
15. Launching these activities will require multi-faceted interventions. These include
infrastructure improvements to attract private sector investments; urban regeneration/renewal and
conservation activities in key cultural centers (Telavi, Kvareli, and Dartlo); upgrading cultural
heritage sites; improving travel connections; improving planning and organization, e.g.,
managing/organizing destinations; strengthening institutions and building capacity; developing
tourism clusters; mapping geo-tourism sites and developing circuits; improving visitor services,
improving signs and language services; and marketing activities. The proposed Project intends to
address several of the above-mentioned challenges and contribute to the proposed multi-faceted
interventions.
C. Higher Level Objectives
16. 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 been improving its municipal infrastructure (water supply, wastewater management,
local roads and housing) by analyzing issues, setting priorities and financing projects through the
Municipal Development Fund (MDF). The Project objectives are referenced in the Government‘s
most recent Ten Points Priority Plan of Modernization and Employment for 2011-2015, adopted in
October 2011. Under the Plan, the Government 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. Its goal is to increase number of tourists
from 2 million in 2011 to 5 million by 2015.
17. The rationale for Bank involvement lies in the Project‘s contributing to (a) the huge tourism
potential, (b) the growth of under-developed areas, (c) leveraging public and private investment, and
(d) building on a series of World Bank interventions in the Region aimed at improving transport
connections (the East-West Highway and the Secondary and Local Road Projects, which have
significantly reduced travel time from Tbilisi) and improving municipal infrastructure (the Regional
& Municipal Infrastructure Development Project and its Additional Financing, which improved
water services and urban roads in several Kakheti cities and villages).
18. The Kakheti region benefits not only from great natural beauty, historic and culturally
significant sites, but is also the origin of ancient wine making called ―Qvevry‖; a 7,000 year old
tradition that continues today. Also, in the past three years, the central and regional governments
have invested in urban renewal by developing infrastructure in Signagi city. The Project will build
5
on these investments and lessons learned, yet focus more on tourism and cultural heritage, which
have the highest economic rates of return.
19. There is strong client ownership of the Project. A Supervisory Board of the MDF composed
of the Prime Minister, Head of President‘s Administration, key Ministers, the Governor of Kakheti,
parliamentarians and NGOs has been working closely with the Bank to identify and prepare the
Project. Meetings have been held regularly with the Prime Minister and the Minister of Finance, who
also leads donor coordination. A multi-agency Working Group has also been established and been
acting as a counterpart to the Bank team during identification and preparation. It will continue to
work during implementation.
20. The Government views the regional development program as a catalyst for its interventions
in the region, as it is expected to have a high impact and allow the country to leverage added
finances from the donor agencies, private sector, and state budget. To date, the German GiZ has
agreed to provide technical assistance to update the Regional Development Strategy, so as to create a
medium-to-long term participatory strategic investment plan that anticipates both public and private
capital needs. The EU has started a capacity-building program for the Georgia National Tourism
Administration (GNTA) on managing destinations, USAID and the Swiss Development Corporation
(SDC) are supporting the agricultural and rural development sectors. The Swedish International
Development Agency (SIDA) has provisionally agreed to provide parallel funds to the Project with
US$7-8 million, subject to signing the Administration Agreement between SIDA and the Bank.
II. PROJECT DEVELOPMENT OBJECTIVES
A. PDO
21. The Project Development Objective is to improve infrastructure services and institutional
capacity to support the development of tourism-based economy and cultural heritage circuits in the
Kakheti region.
B. Project Beneficiaries
22. The activities envisaged under the Project are expected to bring direct benefits to the
residents of, and tourists to, Kakheti. The implementation of the Project is expected to improve the
access, quality and reliability of public infrastructure; increase the volume of private sector
investment in the region; and increase points of sales in renovated culture heritage sites and cities.
The Government will benefit from improved institutional capacity of selected agencies and LSGs.
Overall, the population is expected to see improved welfare and incomes.
C. PDO Level Results Indicators
23. The key results expected from the Project are:
Infrastructure Services:
Increased weighted average number of hours per day of piped water services in Project areas
(from 8 hours/day to 24 hours/day).
6
Reduced weighted average vehicle operating costs due to improved urban roads (from 100
percent to 75 percent).
Tourism Economy:
Increased volume of private sector investment from US$0 to US$50 million in targeted areas.
Increased number of hotel beds in circuit route areas by 20 percent (from 1,610 to 1,932 beds).
Institutional Capacity
Increased points of sales in renovated culture heritage sites and cities by 30 percent (from 248
to 323).
III. PROJECT DESCRIPTION
A. Project Components
24. The Project has two components.
Component 1: Infrastructure Investment (IBRD: US$56.9 million; Borrower: US$14.2 million)
Component 1.1: Provision of financial resources to local-self governments (LSGs) to carry out
Investment Subprojects for the following activities:
Urban regeneration: An integrated approach is proposed for renewal of Telavi, Kvareli and the
heritage village of Dartlo. This includes a) the rehabilitation of municipal infrastructure and
utilities in the central historical areas, b) conservation and upgrading of public spaces and
cultural buildings, and c) conservation of building facades with vernacular architecture. The
proposed conservation and upgrading activities will help improve livability and hospitality in a
culturally-informed manner, enhance attractiveness for visitors, revitalize the urban and rural
nuclei, and attract increased volume of private sector investments.
Tourism circuit development: Integrated approach to culture heritage site upgrading and
improved management in the most attractive 11 cultural heritage sites located along the main
tourism circuit/route in Kakheti. These include a) improved urban landscaping and public
parking; b) construction of info kiosks, cafes and public toilets; and c) improving access roads.
The main tourism and culture heritage circuit has been identified in the Kakheti Tourism
Development Strategy connecting the following culture heritage sites, which are targeted for
upgrading: Ujarma, Old and New Shuamta, Ikalto, Alaverdi, Bodbe, Gurjaani, Akhtala,
Mirzaani, Ninotsminda, Khirsa and David Gareja.
The estimated cost of this sub-component, including physical and price contingencies, is about
US$58.6 million, of which the World Bank will provide US$46.9 million, the Borrower will provide
US$11.7 million counterpart funding.
Component 1.2: Provision of financial resources to LSGs to carry out Investment Subprojects for
public infrastructure to attract private sector investments in tourism and agro-processing.
7
To encourage private sector investments in the region, this component is to support, on a pilot basis, a
selected number of private sector entities which show interest and capacity to invest in Kakheti in
the tourism or agro-processing, but seek complementary public infrastructure necessary to make
their investments viable (e.g., public facilities within vicinity of the investments, road/sidewalk,
water/sanitation, etc). They would be subject to screening by a selection committee and there will be
appropriate conditions tied to that. Selection of private sector investments will be based on transparent and competitive processes. A
package of incentives will be provided to domestic and international investors to invest in Kakheti.
This would include streamlined business start up procedures and provisions of the public
infrastructure mentioned above.
The estimated cost of this sub-component, including physical and price contingencies, is about
US$12.5 million, of which the World Bank will provide US$10 million, the Borrower will provide
US$2.5 million counterpart funding.
Component 2: Institutional Development (IBRD: US$3.1 million; Borrower: US$0.8 million)
Enhancing the institutional capacity and performance of the Georgia National Tourism
Administration (GNTA), the Agency for Culture Heritage Preservation of Georgia (ACHP), the
Project Implementing Entity (MDF), and other local and regional entities to carry out the following
activities:
Destination management and promotion, including local outreach campaign;
Geo-tourism routes and tourism portal;
Skilled workforce development and capacity building;
Construction supervision and sustainable site management of cultural heritage; and
Performance monitoring & evaluation activities.
The design and implementation of these activities would be informed by a World Bank TA on
Georgia Kakheti Cultural Heritage Tourism, which would assess the quality of existing site
management plans and governance mechanisms, identify capacity gaps, and propose
recommendations to improve these plans and capacities. The Poverty and Social Impact Assessment
(PSIA) for the Kakheti Regional Development Program would also inform the activities on skilled
workforce development, capacity building, and performance monitoring by identifying vulnerable
and sensitive population to tourism development in the region, assessing opportunities to increase
their benefits from tourism development, providing policy recommendations for pro-poor tourism
development, and proposing a set of parameters to monitor the impact of tourism sector development
on local population.
B. Project Financing
C. Lending Instrument
25. The lending instrument is a Specific Investment Loan. The Borrower selected an IBRD
flexible loan denominated in US dollars, commitment-linked with a variable spread and a 25 year
maturity, including a grace period of 10 years and level repayments of principal.
8
D. Project Cost and Financing
Project Components Project cost
(US$ million) IBRD Financing
(US$ million) % Financing
1. Infrastructure Investment
2.Institutional Development
Total Baseline Costs
Physical contingencies
Price contingencies
67.35
03.90
71.25
1.875
1.875
53.90
03.10
57.00
01.50
01.50
80%
80%
80%
80%
80%
Total Project Costs
Total Financing Required
75.00
75.00
60.00
60.00
80%
80%
26. Retroactive Financing: Withdrawals up to US$12 million under the loan may be made for
payments made prior to the signing date of the legal agreements but on or after December 27, 2011,
for Eligible Expenditures under Categories 1 and 2 (Annex 3, para 17).
E. Lessons Learned and Reflected in the Project Design
27. Key lessons learned and innovations that have been considered in the design of the Project
are:
Integrated approach. When resources are limited and investors‘/citizens‘ expectations are high, the
Project must avoid having project resources stretched too thin, which would compromise the
Project‘s feasibility, visibility and results. Thus, it is vital to understand all aspects of the multi-
faceted effort. If done properly, it should help create jobs and increase economic activity, create
cross-sector links and attract tourism-related income. Lessons from similar projects in China,
Lebanon, Tunisia and Jordan show that the Project funds can be most effectively 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.
Historic sections of cities and cultural heritage villages can promote economic development. Projects that were successfully implemented in Morocco, Jordan and Lebanon show that the renewal
of historical parts of cities/heritage villages can be part of a spatial transformation that make these
areas more attractive for residents, visitors and businesses. Moreover, since the historical 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 the cities‘ economy, revitalizing the built environment, and its vitality and
attractiveness, which helps create permanent jobs. The Lebanon Cultural Heritage and Urban
Development Project, in particular, has created the conditions for local economic development in
five cities, which so far have seen mostly positive growth in employment and business development.
In Baalbeck, for instance, there has been a 105 percent increase in employment in cultural/tourism
industries and 90 percent increase in businesses around the historic core.
9
Renewal of central cities. Urban regeneration/renewal is a process requiring a complex, well-
integrated mix of uses, all within walking distance. Successful renewal implies that existing
buildings are properly conserved and adapted to accommodate new functions. Investing in restoring
facades encourages 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 become self-sustaining. However, at that point, an upward spiral begins: more developers
invest in real estate, more businesses open and further 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 in redeveloping old Tbilisi, Signagi and
Mtskheta shows, governments can indirectly recoup the cost of investments from increased taxes
from properties, personal income, profits and VAT, and property sales‘ transaction fees.
Stakeholders’ consultations. The success of the Project as well as the urban renewal of Telavi,
Kvareli and Dartlo will require maintaining the strong consultations with all stakeholders that started
during Project identification and preparation. Lessons learned from the Cities Alliance-funded
Tbilisi Strategic Development Plan for Sustainable Development (2011-2030) revealed the benefits
on involving stakeholders in all decision-making processes.
IV. IMPLEMENTATION
A. Institutional and Implementation Arrangements
28. Building on the successful experience of the Regional & Municipal Infrastructure
Development Project (RMIDP), the proposed Project will repeat the arrangements for
implementation, procurement, safeguards, financial management and disbursements. The MDF will
be responsible for all aspects of Project implementation including financial management. The MDF
has become a non-bank financial intermediary (FI) that plays a very substantial role in funding and
developing regional and municipal infrastructure. Due to the Project‘s multi-sectoral nature, a
Working Group was established which includes all the agencies involved- namely, the MDF,
Georgia National Tourism Administration (GNTA),6 Agency for Culture Heritage Preservation of
Georgia (ACHP),7 Culture Heritage Fund (CHF), Protected Areas Agency (PAA),
8 United Water
Company (UWC), Kakheti Regional Administration and LSGs, Ministry of Finance, the Ministry of
Regional Development and Infrastructure. The Working Group performed well during Project
preparation.
29. All agencies in the Working Group and LSGs in Kakheti 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 Telavi and Kvareli: CHF, UWC and the MDF.
Renewal in Dartlo heritage village and upgrading and management in 11 cultural heritage sites:
ACHP, UWC and the MDF.
6 Website of GNTA: http://www.gnta.ge/?lan=en
7 Website of ACHP: http://heritagesites.ge/?lang=eng
8 Website of PAA: http://dpa.gov.ge/?site-path=news&page=3&site-lang=en
10
Screening proposed private sector investments: The MDF, with support from the working
group and consulting service. All proposed investments will be endorsed by the MDF‘s
Supervisory Board.
Component 2
Tourism related institutional development activities: GNTA, ACHP, and the MDF.
Performance monitoring & evaluation: the MDF.
Procurement, safeguards, financial management, disbursement, supervision of all Project
activities: the MDF.
As a standard practice established under the RMIDP, the MDF prepared Subproject Appraisal
Reports (SARs) for all proposed subprojects to be implemented during the first year of project
implementation, which discussed their feasibility, safeguards issues, and analyzed the availability of
funds for operations and maintenance of the restored assets to ensure sustainability. All SARs were
appraised and approved by the Bank.
30. The MDF‘s governance structure: To ensure the Project‘s proper coordination and execution,
the Government shall maintain the MDF‘s Supervisory Board, which is chaired by the Prime
Minister of Georgia, and includes the Head of President‘s Administration, the Minister of Finance,
the Minister of Economy and Sustainable Development, the Minister of Regional Development and
Infrastructure, the Minister of Agriculture, the Governor of Kakheti, parliamentarians and NGOs.
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.
B. Results Monitoring and Evaluation
31. The MDF will be responsible for monitoring & evaluating the Project outcomes against
agreed indicators as presented in the Results Framework. The MDF will engage an international
consulting firm to help collect/analyze data, and also recruit 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 Kakheti Tourism Development Strategy, while progress in meeting, or exceeding, targets will
be carefully monitored under the Project. The MDF will produce quarterly progress reports to assess
Project implementation and suggest any needs for adjustments.
C. Sustainability
32. A unique feature of the Project is that it emphasizes stakeholders ownership and
sustainability in the following ways:
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 buy-in.
11
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 advance 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 types of the Project interventions on the
environment, cultural heritage, and social strata of Kakheti, c) potential indirect, long term and
induced development impacts of tourism development in the region, and d) risks mitigation
plan.
All investment proposals will be screened against criteria in the Operations Manual (OM).
As a standard practice established under the RMIDP, the MDF will sign subproject investment
agreements with benefitting LSGs, which clearly assign the responsibilities for operating and
maintaining assets to LSGs.
V. KEY RISKS AND MITIGATION MEASURES
A. Risk Ratings Summary Table
RISKS RATINGS
Stakeholder Risk Moderate
Implementing Agency Risk
Capacity Low
Governance Moderate
Project Risk
Design Moderate
Social and Environmental Moderate
Program and Donor Moderate
Delivery Monitoring and Sustainability Moderate
Overall Preparation Risk Moderate
Overall Implementation Risk Moderate
B. Overall Risk Rating Explanation
33. The proposed overall Preparation Risk was rated as Moderate and Overall Implementation
Risk as Moderate. The impact of the described risks, if they materialize, on the achievement of the
PDO is Moderate. However, provided that the risk mitigation measures will be implemented, and
based on the Bank and the MDF‘s past experience in implementing municipal development projects,
the likelihood of those risks materializing is low. This suggests to rate the Overall Project Risk as
Moderate.
12
VI. APPRAISAL SUMMARY
A. Economic and Financial Analyses
34. For the Project‘s economic and financial analysis, a cost-benefit assessment was carried out.9
Cost and benefit streams were calculated based on the following available data and assumptions.
Benefit Streams:
Increase in tourists, overnight stays and spending. The Project-supported improvements to critical
infrastructure needs and destination management strengthening is expected to translate into (a) an
increase in domestic and international tourism arrivals to Kakheti by 20-25 percent; (b) based on
the configuration of the tourism circuits, overnight stays are projected to increase from 1.3 days to
2.05 days on average; and (c) spending on food, lodging, and new activities (e.g., guided tours), and
local products/handcrafts is projected to increase by 20 percent.
Increase in number and profitability of economic enterprises. The development of tourist attractions
and geo-tourism maps, destination management and marketing/promotion of Kakheti as a new
high-end 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 occurred, i.e., old Tbilisi, old Mtskheta and
Signagi. The number of hotel rooms is expected to grow from 561 to 900 and the number of beds in
hotels, guest-houses and family-houses is expected to grow from 1,610 to about 1,932—to serve the
expected increased number of tourists from 200,000 to 250,000/year. 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.
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 Kakheti: (a) Property values are assumed to appreciate by 70 percent and
rental values by 100 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.
Temporary job creation. It is expected that while the Project is being implemented, temporary jobs
will be created. Based on analysis of MDF infrastructure projects over the past five years, as well as
global experiences in similar projects, the following assumptions were made. A large proportion of
conservation/restoration works (30 percent of the expenditures) are assumed to cover the cost of
labor. Thus, it is assumed that the government will obtain income tax (20 percent) from labor
expenditures.
9 The Project economic and financial analysis is complemented by spatial economic analysis (using the WDR 2009
framework of economic geography analysis) and ICOR (investment to capital output ratio) analysis looking at the
relationship between public and private investment trends in Georgia generally. Full analysis is available in Annex 8.
13
35. 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 up to 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.
36. 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.
37. 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.
38. Results: The economic and financial analysis shows that the Project‘s NPV at a 12 percent
discount rate amounts to US$19.79 million, with an FIRR of 19.85 percent, and an EIRR of 26.14
percent.
39. 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$3.14 million and the FIRR by about 1 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 5.17 percent and 4.19 percent accordingly. 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$2.18 million. The private investment leverage factor is the one with the
least influence: A 10 percent increase or decrease will raise or lower the NPV by US$453,596. If the
average overnight stay remains unchanged (at 1.32 days), and other assumptions are unchanged, the
NPV will still be positive, at US$8.32 million, the FIRR will be 16.00 percent and the EIRR will be
21.33 percent. The analysis confirms that even when subjected to these stress tests, the financial and
economic impacts of the Project remain robust.
B. Technical
40. Building on the successful experience of the RMIDP, the Project consists of the same two
components, but activities shift from providing municipal infrastructure across several regions and
LSGs, to focusing these activities, along with urban renewal, in on one region, Kakheti, to help
improve local economy and create jobs through tourism development. All the investment
components respond to the Kakheti Tourism Development Strategy (2012-2015) and were carefully
selected to boost the region‘s economic development and promote private sector investments.
41. The Project will help increase tourism in the region by carrying out a new integrated
approach. Rather than focusing only on infrastructure, urban renewal or cultural heritage
conservation/restoration, the Project involves an integrated geo-tourism development approach,
based on the following:
14
Identifying the most promising tourism possibilities (cultural heritage/culinary tourism 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 Telavi and Kvareli cities, and
the historic village of Dartlo (rehabilitating all utilities, public space and parks, and restoring
old buildings with important architecture).
Integrated redevelopment and management of 11 cultural heritage sites with significant
monuments, such as monasteries, churches or museums (involving urban services, public
parking and toilets, souvenir shops and info kiosks).
Providing incentives (with infrastructure and the business environment) to attract the private
sector to locate in the region and support a wide variety of tourism-related enterprises.
Managing and promoting tourist destinations, internet portal development, developing a skilled
workforce, building capacity and monitoring/evaluating performance.
42. Readiness. Activities at all proposed urban renewal and culture heritage sites were designed
by the government and reviewed by the Bank. The MDF has been working closely with all agencies
concerned. The Bank team has appraised the following activities:
The designs of the urban regeneration activities in Telavi and Kvareli, prepared by the MDF
and the CHF;
The designs of the upgrading and conservation activities in Dartlo and all 11 culture 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 monitoring & evaluation activities, prepared by the MDF;
Construction supervision, prepared by the MDF;
Initial 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
January 31, 2012; and
Environmental Management Framework (EMF) and an advance SECHSA, prepared by the
MDF, reviewed and disclosed on February 8, 2012.
C. Financial Management
43. The MDF‘s Financial Management (FM) arrangements have been reviewed periodically as
part of the Bank implementation support and supervision to the ongoing projects implemented by the
MDF, as well as during appraisal, and found to be acceptable to the Bank. An assessment of the FM
arrangements for the Project was conducted in December 2011, which confirmed that they are
satisfactory and acceptable for Project implementation.
44. The FM arrangements will mirror those of the ongoing Bank-financed projects implemented
by the MDF, which are acceptable to the Bank. The strengths that provide a basis for relying on this
FM system include: (a) significant experience of the MDF‘s FM staff in implementing Bank-
15
financed projects over the past several years; (b) the MDF‘s adequate accounting system and
software; (c) FM arrangements similar to the RMIDP (including its Additional Financing and Trust
Fund grants); and (d) an unmodified (clean) audit opinion expressed by the auditor regarding the on-
going projects and on the entity‘s financial statements.
45. While no major weaknesses were identified in the MDF, some weaknesses were observed in
the timeliness and quality of the interim un-audited financial reports (IFRs) of the on-going projects
submitted to the Bank. The MDF has taken action to enforce proper control procedures and ensure
that IFRs are submitted on time, and that quality control procedures are consistent. The quality and
timeliness of IFRs are being monitored closely by the Bank. The MDF has also updated the FM
manual to reflect the FM arrangements under the Project.
46. 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 Project implementation.
D. Procurement
47. The MDF is conducting the procurement of the ongoing RMIDP, including its Additional
Financing, and will implement procurement under the proposed Project. Procurement progress of the
ongoing projects is satisfactory. The Bank procurement team updated the assessment of the MDF
and identified certain risks. However, the MDF has a qualified manager and procurement staff and
thus has the required capacity to implement the Project. The procurement risk is rated ―Moderate‖
after mitigation measures are applied as described in Annex 4.
48. Procurement under the Project will be carried out according to the ―Guidelines for
Procurement of Goods, Works, and Non-Consulting Services under IBRD Loans and IDA Credits &
Grants by World Bank Borrowers‖ (January 2011), the ―Guidelines for Selection and Employment
of Consultants under IBRD Loans and IDA Credits & Grants by World Bank Borrowers‖ (January
2011), and the provisions stipulated in Loan Agreement. The applicable 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 actual Project implementation needs.
49. Procurement will be carried out by the procurement division of the MDF. Its staff has
experience in carrying out procurement under World Bank guidelines, and attended several training
courses in Georgia and abroad. Its decision-making process is formalized. Decisions of the
evaluation group, as well as the tender commission, get approved by the Supervisory Board and
reflected in published minutes of the meetings.
50. The MDF has prepared an initial Procurement Plan for the Project, which was reviewed by
the Bank and approved during negotiations.
51. Under retroactive financing arrangements, the MDF began the procurement process for four
contracts on December 27, 2011, proposing that those contracts be subject to retroactive financing
up to US$12 million. The Bank procurement team reviewed the processes for these contracts and
confirmed that they were consistent with Bank guidelines.
16
E. Social (including safeguards)
52. 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 population
during construction, and longer-term impacts related to increased influx of visitors.
53. Temporary impacts include dust, noise, limited access to the areas, and increased safety risks,
which will be addressed through the EMPs to be prepared for each subproject, as well as the
Environmental Management Guidelines for Contractors, both of which are included in the
Operations Manual.
54. Resettlement and land acquisition. Resettlement impacts that may occur should be limited to
temporary relocation and/or loss of income or productive assets during construction. Some
households may choose to live in temporary dwellings during the renewal period (in safe and
undisturbed conditions). In such cases, they will be compensated for their added outlays in line with
the entitlement matrix of the RPF. The MDF confirmed that none of the proposed investments to-
date would involve activities that may demolish residential or commercial structures, resulting in
permanent relocation. There are no visible instances of informal structures, occupants, or street
vendors observed in the buildings at the anticipated Project sites at the time of Project appraisal.
There were simple structures that serve as vending stands in areas adjacent to some cultural heritage
sites, e.g., in Ikalto, but these can be temporarily moved to another location during construction and
either returned after construction or maintained at the new location. There is a cemetery in the
vicinity of Ikalto, but the civil works to be carried out are not expected to affect it.
55. All anticipated construction works are within the territories owned by the benefiting LSGs or
the Ministry of Culture and Monument Protection. However, due to the demand-driven nature of the
Project, it cannot be ruled out that some LSGs may propose subprojects that may require land
acquisition, but significantly improve citizens‘ livelihoods. To address any possible temporary
impacts, and as a precautionary measure to address other possible resettlement issues, the MDF
prepared a RPF in line with OP 4.12. Prior to the preparation of a SAR for each investment
subproject, MDF shall submit to the Bank for its approval: (i) the proposed design and site for said
subproject; (ii) the proposed environmental assessment category assigned thereto; (iii) the proposed
environmental instrument to be prepared; and (iv) the assessment of whether a RAP would need to
be prepared for the said subproject. Prior to the subproject‘s approval, the MDF shall submit to the
Bank for its approval an Investment SAR which includes, among other things, the related EA, site-
specific EMP and/or RAP, as the case may be, in form and substance satisfactory to the Bank. Prior
to the issuance of the bidding documents for the works contract for each subproject, 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. 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 RAP(s).
56. The Project‘s possible long-term social impacts would be related to: (a) urban gentrification
in Telavi and Kvareli, resulting from increased prices of goods/services as well as property values;
17
and (b) a large influx of investors and migrants attracted by the new economic opportunities. These
impacts could affect the local population by (a) encouraging them to sell their properties and leave
the area, (b) producing a clash of lifestyles between the locals and new-comers, and (c)
compromising the authenticity of their live culture and traditions. Such changes may, subsequently,
affect cultural tourism resources, including traditional artisan activities and other types of intangible
cultural heritage. The influx of migrants and increased visitors may also increase vehicle traffic and
the demand for utilities and public services.
57. The design of the subprojects and the measures to address potential long-term impacts is
being addressed in studies and analysis, such as the SECHSA, conducted as part of Project
preparation. Complementary studies such as (a) Poverty and Social Impact Analysis (PSIA) for
Kakheti Regional Development Program, and (b) TA on Georgia Kakheti Cultural Heritage
Tourism, will also inform further poverty reduction measures, as well as intuitional measures to
strengthen the management practice of cultural heritage sites in a sustainable manner.
F. Environment (including safeguards)
58. The Project involves financing of physical works with possible environmental and social
impacts, and triggers the OP/BP 4.01 on Environmental Assessment. Due to the nature of the
Project, all investments to be financed under it cannot be determined upfront. Subproject
applications will be coming on the rolling basis after the approval of the Project. Subprojects will be
financed through the MDF, which is a non-banking financing institution. Therefore, the Project is
classified as environmental Category FI. The Project will finance infrastructure rehabilitation and
development activities that, according to the OP/BP 4.01, are classified as environmental Category B
or, less likely, C. Given that Category A subprojects are excluded, no large-scale adverse
environmental impacts are expected. Because the Project interventions are multi-sectoral, diverse,
and may directly or indirectly affect the natural environment, cultural heritage, and social strata of
the entire region of Kakheti, the Project preparation included the preparation of a SECHSA. The
SECHSA report laid basis for the development of the EMF, which provides detailed guidance for
subprojects‘ environmental classification, risk assessment, and preparation of subproject-specific
EAs and/or EMPs. The EAs/EMPs (as required) will be reviewed and approved by the Bank prior to
approval of individual investment subprojects and prior to issuance of bidding documents. The
OP/BP 4.04 on Natural Habitats is also triggered to ensure that works in the immediate area of the
natural heritage sites do not disrupt the natural balance of ecosystems.
59. The MDF has a long history of implementing Bank-financed projects with a good track
record of complying with safeguards. However, implementing the proposed Project is expected to be
more challenging due to its multi-sectoral nature and varied subproject activities planned in
historical settlements and cultural heritage sites. The MDF‘s capacity for meeting these challenges
has been enhanced through the formal involvement of the Government agencies responsible for
conservation of cultural heritage and natural environment in the designing, preparation and other
decision making processes. Such arrangements will continue during the Project implementation, and
be further supported by the hiring of an international consulting service for construction supervision,
including oversight of the environmental performance of works‘ providers.
18
G. Other Safeguards Policies Triggered
60. The OP/BP 4.11 on Physical Cultural Resources is triggered to ensure that no element of
cultural heritage is affected negatively during construction or operations of the infrastructure
provided under the Project. The Project will invest in the upgrading and development of
infrastructure in the historical settlements as well as in areas adjacent to the cultural and natural
heritage sites. Such interventions may carry additional risk of damaging monuments in the event that
designs and construction approaches used are unfit for conservation of the historical and aesthetic
value. Tourism visitation increases will need to carefully monitored and managed in a sustainable
manner. The cost of such monitoring activities, as well as raising the institutional capacity to ensure
sustainable development, is built into the Project design under Component 2.
61. The cumulative impacts of developing infrastructure in and around historical settlements and
in proximity to protected areas also add to the potential risks. An increased number of visitors may
expose cultural heritage sites to increased risk of destruction. The implementation of subprojects will
be closely supervised by the MDF and the ACHP. Once the civil works are completed, the ACHP
will take over and oversee the management of the cultural heritage sites in compliance with the laws
and regulations stipulated by the state beyond the life of the Project. The SECHSA provides an
assessment of the sufficiency of the above systems in place to meet induced development impacts. It
also provides recommendations for a) the development of detailed environmental and social
assessment and impact mitigation documents for the specific investments, and b) institutional
arrangements for the implementation and environmental and social sustainability perspective to
regional development strategies/planning/ decision making processes. Component 2 of the Project
would support the capacity building of the MDF and the ACHP for carrying out these activities.
H. Effectiveness Condition
62. 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 Borrower and the Project Implementing Entity, i.e., MDF.
19
Annex 1: Results Framework and Monitoring
Georgia Regional Development Project
Project Development Objectives
The Project Development Objective is to improve infrastructure services and institutional capacity to support the development of tourism-based economy and cultural heritage
circuits in the Kakheti region. .
Project Development Objective Indicators
Cumulative Target Values Data Source/
Responsibility
for Data
Indicator Name Core Unit of
Measure Baseline YR1 YR2 YR3 YR4 End Target Frequency
Methodology Collection
Increase weighted average number of hours
per day of piped water services in project
areas
Number 8 8 8 18 24 24 Annual Progress Reports MDF
Reduce weighted average vehicle operating
cost due to improved urban roads Percent 100 100 100 90 80 75 Annual Progress Reports MDF
Increase volume of private sector investments
Number
(US$ mln) 0.00 0 10 30 50 50 Annual Progress Reports MDF
Increase number of hotel beds in circuit route
areas Number 1610 1610 1700 1800 1900 1932 Annual Progress Reports MDF
Increase points of sales (tickets, souvenirs
shops, restaurants, hotels, guesthouse and
family houses ) in renovated culture heritage
sites and cities
Number 248 248 250 280 300 323 Annual Surveys MDF
Intermediate Results Indicators
Cumulative Target Values Data Source/
Responsibility
for
Indicator Name Core Unit of
Measure Baseline YR1 YR2 YR3 YR4 End Target Frequency
Methodology Data
Collection
Number of buildings restored in Telavi,
Kvareli and Dartlo Number 0.00 0 100 130 150 150 Bi-annual Progress reports MDF
Number of private investment proposals
approved Number 0.00 0 3 6 9 10 Annual Progress reports MDF
20
Project Development Objectives
The Project Development Objective is to improve infrastructure services and institutional capacity to support the development of tourism-based economy and cultural heritage
circuits in the Kakheti region.
Number of redeveloped culture heritage sites
along the tourist circuit Number 0.00 3 5 8 11 11 Bi-annual Progress reports MDF
Piped household water connections that are
benefiting from rehabilitation works
undertaken by the project
Number 0.00 100 300 400 500 500 Bi-annual Progress Reports MDF
Number of people in urban areas provided
with access to all-season roads within a 500
meter range under the project
Number 0.00 0 15,000 25,000 35,000 50,000 Bi-annual Surveys and
progress reports MDF
Production/Distribution of new maps based
on geotourism database Number 0.00 2,000 5,000 8,000 10,000 10,000 Annual Progress report MDF
Number of establishment and operating
destination management offices Number 0.00 0 2 3 3 3 Annual Progress report MDF
Project beneficiaries
Number 0.00 0 10,000 15,000 25,000 30,800 Annual Progress report MDF
Of which female (beneficiaries) Number 0.00 0 5,000 7,500 13,000 16,140 Annual Progress report MDF
21
Annex 2: Detailed Project Description
Georgia Regional Development Project
1. The proposed Project involves establishing Kakheti as a high quality, year-round geo-tourism
destination that will attract domestic and international visitors, building on its cultural heritage and
bio-diversity, and focusing on quality (tourist spending) rather than only on quantity (number of
visitors).
2. Based on global experience, achieving this goal will depend on an integrated approach that
has been proposed under the Project, and which is based on four groups of activities:
Integrated urban renewal in the cities of Telavi and Kvareli and one heritage village (Dartlo)
which will include rehabilitating all public utilities and space (including parks) and restoring
the facades of 150 publicly and privately owned buildings with historic architecture, located
along the main tourist routes;
Redeveloping 11 cultural heritage sites located along the main tourism routes (including public
parking and toilets, souvenir shops and information kiosks);
Providing incentives to the private sector to invest in tourism or agro-processing in Kakheti
(including free public infrastructure, streamlined business start up procedures, etc).
Promoting geo-tourism, managing the tourist destinations, and developing skills and M&E.
3. These activities should attract private investment, promote public-private partnerships,
revitalize local business activity, develop a full-fledged regional tourism circuit, and foster two
leisure travel clusters. These latter include:
Cultural heritage/wine tasting: Define and organize tourist routes to visit wineries, important
monuments, and monasteries, and experience the local culture (music, art, dance, and culinary
food and beverage). The market for these attractions involves the 45-65 year age group, who
has higher levels of disposable income, education, and time for leisure travel than the current
tourists to Kakheti. Packaging, marketing, special events and improved facilities and services
should be the primary focus.
Ecotourism/adventure: Organize tourism related to stunning landscapes, pristine, natural and
protected areas. The market for these attractions involves the 25-45 year age group, who has
less disposable income, which more closely fits the profile of current visitors. The focus should
be on developing the products and routes, marketing, and training, for both less difficult
(hiking, birding, trekking, skiing, kayaking) and more strenuous activities (mountaineering,
para-gliding, heli-skiing). These activities are to be done in parallel with measures to ensure
the protection of biodiversity and ecological values of these areas.
22
4. Developing the tourist activities and routes will require 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 the geo-
tourism routes; and improving visitor and interpretation services, signage and marketing.
5. The Project has two components:
Component 1: Infrastructure Investment (IBRD: US$56.9 million; Borrower: US$14.2 million)
Component 1.1: Financing local governments (LSGs) to carry out the investment sub-projects for
the following activities:
Urban regeneration/renewal. An integrated approach is proposed for renovating Telavi, Kvareli and
the heritage village of Dartlo. This includes (a) rehabilitating municipal infrastructure and utilities in
the central historical districts; (b) preserving and upgrading public space and cultural buildings; and
(c) preserving historic building facades. The proposed activities will help improve the quality of life
and hospitality in a culturally-informed manner, enhance attractiveness for visitors, revitalize the
urban and rural centers, and increase private sector investments.
Creation of tourism routes/circuits. An integrated approach is proposed to upgrade cultural heritage
sites and improve the management of the 11 most attractive ones that are located along the main
tourist route in Kakheti. This will include (a) improving urban landscaping and public parking; (b)
constructing information kiosks, cafes and public toilets; and (c) improving access roads. The main
route, identified in the Kakheti Tourism Development Strategy, connects the following sites (which
are to be upgraded): Ujarma, Old and New Shuamta, Ikalto, Alaverdi, Bodbe, Gurjaani, Akhtala,
Mirzaani, Ninotsminda, Khirsa and David Gareja.
The proposed route will present a rich experience of cultural heritage/culinary and
ecotourism/adventure tourism, thus projecting an increase in average over-night stays and tourism
spending. The improvement of access roads is intended to upgrade and enhance the safety of road
users at dangerous spots, and will not include widening or promoting significant increase in traffic.
The estimated cost of this sub-component is US$58.6 million, including physical and price
contingencies, of which the Bank will provide US$46.9 million and the Borrower will provide
US$11.7 million in counterpart funds. The Swedish International Development Agency (SIDA) is
considering providing US$7-8 million of parallel financing to this sub-component, subject to
finalizing the Administration Agreement between SIDA and the Bank.
Component 1.2: Financing LSGs to provide the public infrastructure needed to attract private sector
investments in tourism and agro-processing.
To encourage private sector investments, this component will support, on a pilot basis, a selected
number of domestic and international private sector entities, which show interest and have the
capacity to invest/expand their businesses in Kakheti in tourism or ago-processing. To do so, the
component will provide the public infrastructure needed to make their investments viable (e.g.,
public facilities such as roads/sidewalks, water/sanitation, etc). The entities would be screened by a
selection committee and environmental, economic and governance conditions will need to be met.
23
Selection of private sector investments will be based on transparent and competitive processes. A
package of incentives will be provided to domestic and international investors to invest in Kakheti.
This would include streamlined business start up procedures and provisions of the public
infrastructure mentioned above.
The estimated cost of this sub-component is US$12.5 million, including physical and price
contingencies, of which the Bank will provide US$10 million and the Borrower will provide US$2.5
million in counterpart funds.
Investment Subprojects shall be selected in accordance with the selection criteria set forth in the
Operations Manual. When presenting an Investment Subproject Financing to the Bank for approval,
the MDF shall furnish to the Bank an Investment SAR, in form satisfactory to the Bank, which
includes: (i) the description of the proposed Investment Subproject and the respective expenditures
proposed to be financed out of the proceeds of the Loan; (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.
For purposes of Component 1.1 and 1.2 of the Project, the MDF shall: (a) prior to the issuance of the
bidding documents for the works contract for each Investment Subproject, 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; and (b)
prior to the commencement of the works, ensure that the owners and users of the land or buildings
where said works are to be implemented are fully compensated in accordance with the provisions of
the RAP(s).
Component 2: Institutional Development (IBRD: US$3.1 million; Borrower: US$0.8 million)
Strengthening the institutional capacity and performance of the Georgia National Tourism
Administration (GNTA), the Agency for Culture Heritage Preservation of Georgia (ACHP), the
Project Implementing Entity, and other local and regional entities to carry out the following
activities:
2.1 Destination management and promotion, including local community outreach (IBRD:
US$480.000; Borrower: US$120,000):
The aim of this activity is to help the Kakheti region to:
Establish three tourist management offices in Kakheti (one attached to each of the Visitors
Centers in Telavi, Signagi and Kvareli) and equip them with computers and other office
equipment.
Finalize a Kakheti tourist (destination management) strategy to attract visitors;
Design and launch a tourism network linking GNTA to regional and local level management
and promotional activities;
Launch an information outreach campaign to engage local communities in tourism
development;
Develop and implement an online and social media marketing campaign; and
24
Conduct targeted marketing and outreach.
Expected Results
A sustainable organization for the Kakheti region that will support the tourism industry in
terms of marketing the various attractions, developing the activities and providing quality
control;
Identified marketing requirements and a facility that will market the tourist attractions;
An awareness and marketing program that uses various forms of outreach, including online
social media;
Increased local government capacity, achieved through training and TA;
A tourist information program that will provide relevant data about the various attractions; and
Local communities engaged in developing the tourism sector.
2.2 Geo-tourism routes and website (IBRD: US$160.000; Borrower: US$40,000):
The aim of this activity is to design an inter-active website with maps of the cultural heritage routes:
Tell the story of the region (its cultural heritage, natural setting, live heritage, food and wines,
etc.) to attract visitors;
Provide information on sites, attractions, routes and visitor services, including lodgings, events,
trails, routes and other information through the region‘s database-fed website;
Serve as a platform for this first pilot project, but also as a general platform upon which the
geographic area could eventually expand beyond the region;
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 capture the
tangible and intangible heritage assets of Kakheti; and
Link this site into other social media channels.
Expected Results:
A functioning, financially-sustainable online marketing site that raises awareness of the
region‘s tourism assets to potential domestic and international markets;
A set of activities that can encourage cooperation among tourism stakeholders that will
ultimately attract tourists to the region; and
A catalogue/booklet (written and visual) about the region‘s tourism assets.
2.3 Develop a skilled workforce and build capacity (IBRD: US$160.000; Borrower: US$40,000):
The aim is to establish a targeted, integrated workforce development program to meet current and
future training needs at all levels, in tourism and tourism-related businesses and organizations in the
Kakheti region. This will help promote and strengthen tourism-related businesses and activities. All
efforts will be made to make local communities not only contribute to local economic development,
but also, and more importantly, benefit from it.
25
Expected Results
Better understand the workforce gaps in the region, including skills, numbers, and capacity to
educate;
Increase capacity within Kakheti and Tbilisi training facilities to provide world-class academic
training in hospitality management, marketing, customer service, cultural heritage
interpretation, and arranging tours, at various skill and managerial-levels;
Increase the knowledge about Georgian wines among restaurateurs, restaurant employees, tour
guides, and other frontline tourism employees; and
Encourage local communities to start new small and medium enterprises and points of sale.
2.4 Evaluating and monitoring performance (IBRD: US$240.000; Borrower: US$60,000):
The aim is to achieve a better understanding of the current state of tourism in Kakheti and introduce
mechanisms to monitor the effectiveness of activities undertaken over the next four years. By
measuring tourist arrivals/number of visitors, spending, opinion, occupancy rate and increase in
tourism-related investments, the Government would be more effective in doing adjustments and in
allocating resources for infrastructure, marketing, human resource development and policy reforms
more effectively. This would require (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, and other
variables, as well as employment rates, tax revenues, estimates of gross revenues, expenditures, rates
of profitability, and other relevant variables through surveys, interviews and questionnaires. The
Government would learn what tourism-related enterprises spend on local goods and services in order
to measure the indirect/induced impacts of the tourism sector on the regional and national economy.
In addition, the survey will seek to identify the challenges that businesses face in their attempts to
expand and become more profitable.
Results Expected
To accurately draw a baseline database and determine the number of arrivals, occupancy rates,
average daily visitor spending, and satisfaction levels of visitors;
To compile a complete list of all tourism-related enterprises, volume of tourism related
investments and points of sale that are officially registered and operating;
To provide an accurate estimate of the number and size of informal businesses/individuals in
the tourism sector;
To gather economic information such as employment rates, tax revenues and estimates of gross
revenues and expenditures, so as to provide an overview of the direct and indirect economic
impact of the tourism sector; and
To identify and assess barriers preventing informal entrepreneurs from joining the formal
sector.
2.5 Supervising construction and sustainable management of cultural heritage sites (IBRD:
US$1.66 million; Borrower: US$0.42 million):
The aim is to strengthen the institutional capacity and performance of the MDF, LSGs, GNTA, and
ACHP. Activities include feasibility studies, detailed designs for construction supervision by an
26
international consulting firm to ensure quality implementation, sustainable management of cultural
heritage sites, and monitoring the implementation of the EMPs, RPF and RAPs.
2.6 Technical support to private sector evaluation and selection committee (IBRD: US$80,000;
Borrower: US$20,000).
2.7 Feasibility studies, designs, financial audit and goods (IBRD: US$320,000; Borrower:
US$100,000).
6. Readiness. The MDF has prepared an Investment SAR/feasibility study for each
subcomponent, which discussed the investment‘s viability, implementation plan, expected results,
EMP and analyzed the availability of funds to operate and maintain the restored assets to ensure
sustainability. All SARs have been appraised and approved by the Bank team. Additionally, all
activities/documented listed below have been appraised and approved by the Bank team:
The designs of the urban regeneration activities in Telavi and Kvareli, prepared by the MDF
and the CHF;
The designs of the upgrading and conservation activities in Dartlo and all 11 culture 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 monitoring & evaluation 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 on January 31, 2012; and
EMF and an advance SECHSA, prepared by the MDF, reviewed and disclosed on February 8,
2012.
7. Two World Bank funded TA activities, namely the TA on Georgia Kakheti Cultural Heritage
Tourism and the Poverty and Social Impact Assessment (PSIA) for the Kakheti Regional
Development Program will inform the contents of the capacity building, site and destination
management, as well as the promotion activities listed above. The first report would assess the
quality of existing site management plans and governance mechanisms, identify capacity gaps, and
propose recommendations to improve these plans and capacities. The PSIA would identify
vulnerable and sensitive population to tourism development in the region, assess opportunities to
increase their benefits from tourism development, provide policy recommendations for pro-poor
tourism development, and propose a set of parameters to monitor the impact of tourism sector
development on local population. These indicators may be monitored not as part of, but
complementary to the Results Framework of the Project.
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Annex 3: Implementation Arrangements
GEORGIA: REGIONAL DEVELOPMENT PROJECT
Project administration mechanisms
1. The Municipal Development Fund (MDF) will be responsible for project implementation.
The MDF has grown to become a solid non-bank financial intermediary (FI) that plays a very
substantial role in funding and implementing regional and municipal infrastructure development.
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 growing interest both of the Government and donors in using the MDF as the primary
organization for channeling grants and credits to the Georgian regions and LSGs.
2. MDF‘s governance structure. For the purpose of ensuring proper coordination and execution
of the Project, the Government shall maintain the Supervisory Board of the MDF, chaired by the
Prime Minister of Georgia, and comprising all ministers involved and the Governor of Kakheti. The
Board‘s functions include, inter alia: (a) overall supervision of Project implementation; (b) inter-
agency coordination to achieve the Project objectives; and (c) review and approval of the annual
work program budgets and reports for operating the MDF.
3. A Working Group has been established to prepare the Project. Each of the agencies in the
Working Groups and the LSGs in Kakheti have been actively involved with MDF in preparing their
respective investment subproject and will be involved in various aspects of bid evaluation and
supervision. The institutional and implementation arrangement are show in chart below.
Implementation and Institutional Arrangements
28
4. The detailed responsibility for each activity is shown in the table below.
Activities and Responsible Agencies
TA Activities Responsible Agencies Urban renewal in Telavi and Kvareli CHF, UWC and MDF Revitalization in Dartlo heritage village and upgrading in 11
cultural heritage sites ACHP, UWC and MDF
Screening of proposed private sector investments MDF and Working Group Evaluation of private sector proposed investments Working Group, MDF, with TA
provided by a hired expert.
Evaluation/selection reports to be
endorsed by the Supervisory Board Signing contracts with selected private sector entities with
clear obligations on each party LSGs, MDF and private sector entities
Destination management and promotion, including local
outreach campaigns GNTA and MDF
Geo-tourism routes and tourism website GNTA, ACHP and MDF Skilled workforce development and capacity building GNTA, ACHP and MDF Capacity building to LSGs LSGs and MDF Construction supervision and sustainable management of
cultural heritage sites MDF and ACHP
Performance monitoring & evaluation activities GNTA MDF Procurement, safeguards, financial management,
disbursement, supervision of all Project activities MDF
Preparation of SARs/feasibility studies MDF Subproject investment agreements (assigning the
responsibility for operation/maintenance of assets to LSGs) MDF and LSGs
Financial Management, Disbursements and Procurement
Financial Management
5. 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 have been reviewed periodically as part of the
ongoing projects‘ implementation support missions and found to be either moderately satisfactory or
satisfactory. An assessment of the FM arrangements for the Project was conducted in December
2011 and confirmed that they are satisfactory and acceptable for the Project implementation. The
MDF will enforce proper control procedures to ensure that IFRs are submitted to the Bank on time,
and quality control procedures of the IFRs are consistently maintained. The quality and timeliness of
IFRs will be constantly monitored by the Bank. The only action agreed during the assessment relates
to the update of the ongoing projects‘ FM manual (FMM), in order to cover these arrangements
under the Project. The MDF updated the FMM and it 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 as Moderate.
6. The MDF has acceptable planning and budgeting capacity. The financial manager, the head
of procurement and department managers are responsible for budget preparation, which is approved
29
by MDF‘s Supervisory Board. The procurement plan and monthly plans of works‘ execution are
developed based on the data provided by the contractors 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
7. 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, four accountants
and two loan officers (one loan officer was hired recently). 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 overall responsibilities for budgeting,
accounting and financial reporting. The chief accountant (also with many years of experience in
Bank-financed operations) is responsible for MDF general accounting and tax-related issues, while
the accountants are responsible for the RMIDP, its Additional Financing, TF grants and other donor-
financed projects (ADB, EBRD, EU and USAID). Accountants are also responsible for their
respective project‘s Treasury operations. Loan officers are responsible for monitoring the loans
issued under the two closed municipal projects, as well as under the on-going RMIDP (including its
Additional Financing) and other donor-financed projects, and follow up for the transfer of the
municipal shares and updates of the information due from municipalities. The accountants
participated in the May 2011 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 new project. The financial
manager will have primary responsibility for the semi-annual IFRs and will prepare the annual
financial statements for audit.
8. 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 Euro). It was agreed that the IFRS would be adopted for reporting purposes under
the new project, since the entity currently applies IFRS for accounting and financial reporting. The
chart of accounts being used is adequate and could be adapted for the purposes of the new project.
9. Overall, the MDF‘s internal control system is satisfactory. The auditor noted some
shortcomings in reconciling information between the accounting and economic departments, which
was due to staff rotation and some issues with the software for managing and tracking loans. In
addition, some inconsistency was noted with respect to the timeliness and quality of the interim un-
audited financial reports (IFRs) on the on-going projects submitted to the Bank. The MDF is taking
steps to address these issues as follows: (a) it plans to buy new tracking software and make the
system operational; (b) it will enforce control procedures that will ensure that IFRs are submitted to
the Bank on time, and quality-control procedures over IFRs are maintained. The Bank will routinely
monitor the quality and timeliness of the IFRs.
10. The MDF‘s Financial Management Manual (FMM) was updated in November 2011 and
adequately reflects FM arrangements under the projects implemented by the MDF. The ongoing
projects‘ FMM was also updated in February 2012 to cover the FM arrangements under the Project,
which are to be strictly followed. There is no internal audit function within the MDF‘s organizational
structure.
30
11. Project management IFRs will be used to monitor and supervise the Project and their formats
will be included in the MDF FMM. The IFR formats were confirmed during assessment and include:
(a) Project Sources and Uses of Funds, (b) Use of Funds by Project Activity, (c) Designated Account
Statements, (d) Balance Sheet, and (e) SOE Withdrawal Schedule. The MDF will produce a full set
of IFRs every semester throughout 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.
12. The audit of the Project and the entity financial statements will be conducted (a) by
independent private auditors acceptable to the Bank, on 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).
13. MDF‘s current 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 will be 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 effectiveness of the
loan to the end of the borrower‘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
Borrower has agreed to disclose the audit reports for the project within one month of their receipt
from the auditors, by posting the reports on the MDF website10
or by publishing in a national
newspaper. Following the Bank's formal receipt of these reports from the Borrower, the Bank 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 proceeds of the loan.
Disbursements
14. 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, and 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
audit of the project. Detailed instructions on withdrawal of IBRD Loan proceeds are provided in the
Disbursement Letter.
15. Funds will be disbursed similar to the ongoing RMIDP project, 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.
16. 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
10
Website of MDF: www.mdf.ge
31
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. The
residual risk associated with funds flow is Moderate.
17. The disbursement categories and percentage of Bank financing are provided in table below.
Under retroactive financing, payments made prior to the date of signing the loan agreement, except
that withdrawals up to an aggregate amount not to exceed US$12 million equivalent, may be made
for payments made prior to the date of signing the loan agreement but on or after December 27,
2011, for Eligible Expenditures under Categories (1, 2 and 3).
Category Amount of the Loan
Allocated (expressed in US$)
Percentage of Expenditures to be
financed (inclusive of Taxes)
(1) Works and Goods 55,681,000 80% (2) Consultants‘ services and
Training 2,945,000 80%
(3) Operating Costs 1,224,000 80% (4) Front-end Fee 150,000 Amount payable pursuant to
Section 2.03 of this Agreement in
accordance with Section 2.07 (b)
of the General Conditions (5) Interest Rate Cap or Interest
Rate Collar premium 0 Amount due pursuant to Section
2.07(c) of this Agreement TOTAL AMOUNT 60,000,000
Procurement
18. MDF currently conducts the procurement for the RMIDP and RMIDP-AF and will continue
to do so under the Project. Procurement under the proposed Project will be carried out according to
the ―Guidelines for procurement of Goods, Works, and Non-consulting services under IBRD Loans
and IDA Credits & Grants by World Bank Borrowers‖ (January 2011), and ―Guidelines for
Selection and Employment of Consultants under IBRD Loans and IDA Credits & Grants by World
Bank Borrowers‖ (January 2011) and the provisions in the Legal Agreement.
19. 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.
20. Country and sector level risks: The latest country level risk assessment for public
procurement was carried out during the preparation of the Country Procurement Assessment Report
(CPAR) in 2009. It was conducted on the basis of the OECD-DAC/World Bank four pillars for
public procurement. The conclusion was that all four Pillars needed improvements in order for the
system to meet the international standards and best practices. A three year action plan was prepared
and Georgia is making slow progress towards fulfilling the proposed actions. One important
32
completed step was the introduction and implementation of an electronic procurement system for all
government contracts. The Bank is yet to assess the system before allowing it to be used for Bank-
financed projects
21. Procurement risk assessment and mitigation measures. MDF conducts 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
delays in the implementation phase. Thus, it has been agreed with MDF that the Deputy Head of the
Procurement Division will be assigned full time to the Project. This means that procurement will be
managed much more effectively, as the workload for the procurement specialist can be identified in
advance, and will not depend on the volume of financing from other donors. The Project
procurement risk is rated ―Moderate‖ after mitigation measures are applied.
22. Organization. Procurement will be carried out by the Procurement Division of the MDF,
which is the implementing agency for the Project. The Division consists of 12 staff (a division head,
deputy division head, two chief procurement specialists, two senior procurement specialists, and six
procurement specialists). 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 in carrying out procurement under World Bank guidelines, and attended training courses
in Georgia and abroad.
23. 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.
24. 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.
25. 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.
26. Retroactive financing. Project activities, at a cost of US$12 million, have been identified for
retroactive financing. MDF started the procurement in December 27, 2011 for four contracts. The
Bank procurement team reviewed the process for contracts proposed for retroactive financing and
confirmed that they can be procured in line with the Bank‘s guidelines.
27. 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.
33
28. 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. Goods, and non-
consulting services estimated to cost less than US$300,000 may be procured through NCB, and less
than US$100,000, through shopping.
29. Procurement of works: Works contracts estimated to cost more than US$4 million equivalent
will be procured through ICB. Those estimated to cost US$4 million or less may be procured though
NCB, and less than US$200,000 through shopping.
30. 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,
produce tourism routes, prepare feasibility studies and engineering designs, 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 of the Consultant
Guidelines. This method will require comparing at least three qualified and available candidates to
assume the assignments.
31. Short lists composed entirely of national consultants. Short lists of consultants for services
estimated to cost less than US$100,000 equivalent per contract may be composed entirely of national
consultants, according to the provisions of paragraph 2.7 of the Consultant Guidelines.
32. Operating costs. These expenditures, approved by the Bank on the basis of budgets
(acceptable to the Bank), will be carried out by the MDF for Project implementation, management
and monitoring, including the costs of support staff salaries (excluding salaries of the Borrower‘s
civil service staff), communication, editing, printing and publication, translation, vehicle operation
and maintenance, bank charges, local travel costs and field trip expenses, office rentals, utilities, and
office supplies.
Prior Review Thresholds
Category Prior Review Thresholds in US$
Works All DC; All ICB; First 1 SH; First 2 NCB; NCB ≥US$2
Million
Goods and non Consulting
Services
All DC; All ICB; First 1 SH; First 2 NCB
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.
34
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.
(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
35
Environmental and Social (including safeguards)
33. The Project includes investment components to help develop infrastructure and thus triggers
the OP/BP 4.01 Environmental Assessment. Due to the demand-driven nature of the Project, all
investments to be financed under it cannot be determined in advance, and subproject applications
will be made after the Project is approved. Sub-projects will be financed through the MDF, which is
a non-banking financing institution. Thus, the Project is classified as Environmental Category FI.
Most of investments to be financed are expected to qualify for Environmental Category B, a few
might be C. No Category A subprojects will be financed.
34. The intended Project interventions are viewed as the first operation under a broader regional
development program. Proposed investment subprojects are multi-sectoral, and not all of them were
known in detail ex-ante prior to appraisal. The EMF, disclosed in February 8, 2012, will thus guide
the preparation of subproject-specific EAs and/or EMPs. The SECHSA identifies risks and
opportunities associated with the overall development program in view of the existing conditions
and trends and will support the planning and decision-making processes underlying the selection and
prioritization of sub-projects to be financed. The SECHSA is to be applied at both the program and
project levels to support investments in sustainable tourism and other business developments and to
exclude or discourage investors interested in exploitative projects for short-term gain. The EMF
translates the main principles outlined in the SECHSA into technical guidance for day-to-day
application in the course of project implementation. It will be used to develop investment-specific
EAs and EMPs once the nature and detailed actions plans for such investments are provided in the
course of the Project implementation. These documents (as required) will be subject to Bank
approval prior to the approval of individual investments and prior to the issuance of the bidding
documents for the works contract for any investment subproject.
35. The Project will finance infrastructure rehabilitation and development activities which are,
according to the OP/BP 4.01, classified as environmental Category B or C. Since Category A
subprojects are excluded, no significant adverse environmental impacts are expected. Some of the
civil works are typical and carry environmental implications which are common for small-to-
medium scale infrastructure projects. An example of this is the rehabilitation of the water supply and
sanitation network in the central district of the provincial town of Telavi. Typical risks of such an
intervention are associated with the management of construction waste, the inconvenience for water
users and local residents in and around the project site, servicing the construction machinery, and
possible unearthing of archaeological artifacts. The Project implementing entity has vast experience
in preparing and applying environmental mitigation measures to such types of civil works. The
EAs/EMPs (as required) will be reviewed and approved by the Bank prior to approval of individual
investment subprojects and prior to issuance of bidding documents.
36. All anticipated construction works are within the territories owned by LSGs or the Ministry
of Culture and Monument Protection, and no land acquisition is anticipated. Due to the demand-
driven nature of the Project, it cannot, however, be fully ruled out that some LSGs may propose
subprojects that are likely to improve citizens‘ livelihoods but require land acquisition. To address
possible impacts such as temporary relocation and loss of income or productive assets during
construction work, and as a precautionary measure to address other possible resettlement issues, the
MDF has prepared and disclosed a Resettlement Policy Framework aligned with the OP 4.12. The
36
MDF will have an environmental and social specialist and a consultant to prepare RAPs that comply
with OP 4.12 for subprojects requiring ones, which will define necessary mitigation and
compensation measures through consultations with affected people. The LSGs will be responsible
for implementing the RAPs, while the environmental and social specialists, as well as consultants of
the MDF, will help with their development and implementation. The 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 sub-project summary,
which will be verified by the MDF in the process of preparing SARs.
37. In addition to the described subprojects, the Project will invest in the upgrading and
development of infrastructure in historical settlements as well as in the immediate areas around the
cultural and natural heritage sites. Such interventions may carry additional risks of damaging
monuments if the design and construction methods used do not preserve the historical and aesthetic
value of these sites, or if increased tourist visits to the sites are not managed in a sustainable manner.
Cumulative impacts of developing various elements of infrastructure in and around historical
settlements, near protected areas, and in or around natural sites also add to the potential risks.
38. The SECHSA report provides an overview of the medium and long-term risks which may
arise from development in the Project area and from cumulative impacts of its implementation. Such
risks are moderate in the medium-term perspective, because (a) economic activity and tourism in
most parts of Kakheti are currently lower than the levels during the Soviet era; (b) Project
interventions in Kakheti are based on the small and medium business model and will evolve around
a number of tourist routes as opposed to a model with concentrated resorts, involving large chain
hotels and satellite businesses, and (c) the project aims to support responsible tourism and target the
clientele interested in history, culture, fine arts, national cuisine, and adventurous natural settings,
and tend to create less social pressure and bring more benefits to the host areas as compared to other
types of tourism.
39. Nature tourism volumes are not going to increase significantly due to the Project
interventions, as the few activities which are planned or likely to be considered for Project financing
are aimed predominantly at increasing safety and sustainability of the present inflow of visitors. In a
longer term perspective, the general trend of the regional development of Kakheti and growth of its
popularity through other types of tourist visitation may lead to increased activity in and round its
protected areas, including tours to protected areas as well as infrastructural investments around them.
By that time the Protected Areas Agency (PAA) would need to upgrade its institutional capacity for
planning and management in order to ensure that increased visitor levels do not lead to ecological
degradation. Optimization of protected areas‘ zoning, which is an expected outcome of the ongoing
technical assistance from the US Department of Interior‘s Park Service, will be one building block
for improved management of protected areas. This assistance program also builds linkages between
the protected area administrations and local governing bodies, which is instrumental for their joint
decision-making on the investments and economic development around protected areas. The PAA
acknowledges the critical importance of improving the current practice of drafting and updating
management plans for individual protected areas. In August 2011 the Ministry of Environment of
Georgia approved guidelines for the development of management plans for protected areas, which is
expected to increase the PAA‘s ownership of the management planning process.
40. The SECHSA recommended improving methodology of management planning for the
natural protected areas and cultural heritage sites, so that it incorporates elements of assessing
37
carrying capacity of individual tourist destinations. With that in place, the presently dominating
effort of promoting destinations can later be coordinated within professionally estimated frames of
their sustainable use. The MDF and the Bank Task Team will work with partner donors (especially
GiZ which is currently providing TA to help update the Kakheti regional development strategy), and
stakeholders to fine-tune the SECHSA and integrate its findings into regional and sectoral planning
updates.
41. In addition to SECHSA, two World Bank funded TA activities, namely: (a) the TA on
Georgia Kakheti Cultural Heritage Tourism and (b) the Poverty and Social Impact Assessment
(PSIA) for the Kakheti Regional Development Program will be carried out to inform the formulation
of measures to make the tourism development in the region more sustainable and pro-poor. The first
report would assess the quality of existing site management plans and governance mechanisms,
identify capacity gaps, and propose recommendations to improve these plans and capacities. The
PSIA would identify vulnerable and sensitive population to tourism development in the region,
assess opportunities to increase their benefits from tourism development, provide policy
recommendations for pro-poor tourism development, and propose a set of parameters to monitor the
impact of tourism sector development on local population. The findings and recommendations of
these TA activities will inform the design and implementation of the institutional development and
capacity building activities to be carried out under Component 2 of the Project.
42. The OP/BP 4.04 on Natural Habitats and the OP/BP 4.11 on Physical Cultural Resources are
triggered to ensure that restoration/preservation of historical buildings and works close to the
cultural and natural heritage sites does not affect the structural stability of the buildings, depreciate
historical and aesthetic value of heritage sites, or disrupt the natural balance of eco-systems. Detailed
guidelines are provided for proper handling of possible findings, which may be encountered in the
course of earth work. If archaeological items are found, works contractors must immediately
suspend all physical activity and notify MDF. The MDF must then pass the information to the
Ministry of Culture and Monuments Protection. The Department for Cultural Heritage Strategy,
Coordination and Permissions of this Ministry assumes the lead in organizing archaeological
surveys, excavations, preservation of the finds, and formally approves the resumption of civil works
in the manner deemed possible.
43. The MDF has long history of implementing Bank-supported projects with a good record of
complying with safeguards. However, the Project is more challenging, due to its multi-sectoral
nature and planned interventions in the historical settlements, and nearby cultural heritage, natural
sites and protected areas. The MDF‘s institutional capacity for meeting these challenges will be
strengthened through the direct involvement of Government entities (e.g., ACHP responsible for
preserving cultural heritage through its involvement in decision making, designing and supervising
the implementation of related investments), and by using external consultants for technical
supervision of works (including environmental monitoring of works). In addition, the Bank will
review and approve all site-specific EAs, EMPs and RAPs as required, prior to approval of the
subprojects and issuance of bidding documents. 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 RAP(s).
44. The Project‘s main beneficiaries are the population of Kakheti, LSGs, tourism and cultural
heritage agencies, as well as the business community—all of which contribute to local economic
development. The MDF is the designated implementing entity and a stakeholder as well. Also, the
38
Government is directly involved in designing the Project and establishing the institutional
arrangements for its implementation. The Project is viewed as an integral part of the national
strategy for regional development. From the very first phase of Project preparation, the top
management and technical staff of the national line agencies as well as those of the regional and
municipal governments have been directly involved in designing/reviewing all aspects of the Project.
Involvement of local communities, NGOs and private sector entities located in Kakheti started in
March 2011 when consultations were regularly held to identify the project and prepare the regional
development program and the tourism development strategy. They were also involved in the course
of preparing the SECHSA, which included consultations on Project design and its implications on
the natural environment, cultural heritage, and social conditions. The draft SECHSA report and the
EMF were disclosed and presented to the general public for comments on February 8, 2012. The
site-specific EAs, EMPs, and RAPs (as required) will be subject to mandatory in-country disclosure
and consultation with the affected communities in the areas of individual subproject sites. The Bank
will review and approve all site-specific EAs, EMPs and RAPs as required, prior to approval of the
subprojects and issuance of bidding documents. 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 RAP(s).
45. Public consultations. Key stakeholders include residents of the Project areas, LSGs, elected
local councils, NGOs, tourism businesses, GNTA, ACHP, CHF, PAA, MRDI, Ministry of Economy
and Sustainable Development and Ministry of Finance. As part of the SECHSA conducted during
project preparation, a wide range of stakeholders including municipal authorities, local communities,
civil society organizations, and the representatives of tourism operators and hospitality businesses
were consulted about potential direct and indirect impacts of the Project, the details of which can be
found in SECHSA. Public consultation was also a key part of the process for developing the Kakheti
Regional Development Strategy as well as the Kakheti Tourism Development Strategy, on which
this project was based. Among the rounds of public consultations organized in preparation for the
Project, a week-long workshop for developing the tourism routes/circuits was particularly notable as
representatives from the GNTA, ACHP, CHF, PAA, the Archbishop of Kakheti, association of tour
operators, tourism associations, wine association, LSGs, and representatives of the business
community in Kakheti, gathered to identify key sites, design the tourism circuit and consider
economic as well as social and environmental impacts. Following the design of the circuit, GNTA
created a website in the social media to encourage public debate about the proposed circuits and
Project activities.11
It also printed out 2,000 blue print maps for distribution through its 3 visitors
centers in Kakheti as well as in Tbilisi and at the tourism desk at the airport.
46. The Ministry of Finance also held two meetings with the international donor community in
Georgia, where the Minister presented the regional development program and encouraged donor
coordination and the leveraging of additional parallel funding. Further local consultations will be
conducted as part of the planned two TA activities. In preparing the Subproject Appraisal Report,
using the Environmental Management Checklist included in the Operations Manual, the MDF will
also review whether necessary public consultations have taken place for each subproject. The MDF
has also agreed with local municipalities to inform residents of every structure to be affected by
urban renewal through individual visits and to obtain written consent before work begins. If an RAP
is required, the MDF will ensure that its preparation will meet the Bank‘s consultation and disclosure
requirements.
11
GNTA website of Kakheti in social media: http://www.facebook.com/#!/kakhetitourism
39
Monitoring & Evaluation
47. The MDF will be responsible for monitoring and evaluating the outcomes of the Project
against agreed indicators as set out in the Results Framework. The MDF capacity in data collection
and analysis will be strengthened by an international consulting firm whose services will be obtained
through Component 2.
48. The M&E consulting firm, together with the MDF, will compile the baseline data already
available in the SARs and economic analysis report, and collect additional data from the government
agencies, as well as through field visits and surveys. The Project‘s Intermediate Indicators, as
defined in the Results Framework, will also be monitored on an annual basis.
Role of Partners
49. The Swedish SIDA has provisionally agreed to provide parallel funds to the Project with
US$7-8 million, subject to signing a Trust Fund Administration Agreement between SIDA and the
Bank. The GiZ is updating the regional development strategy of Kakheti, including preparation of a
medium-to-long term participatory capital investment plan. The EU is implementing a TA program
to support GNTA with destination management activities at the national level. The USAID is
supporting wine tourism training and development through its Georgia Economic Prosperity
Initiatives. The Swiss SDC supports livestock development in Kakheti.
40
Annex 4: Operational Risk Assessment Framework (ORAF)
GEORGIA: Regional Development Project
Project Stakeholder Risks
1.1 Stakeholder Risk Rating Moderate
Description: Risk Management:
The project intends to reach large groups of beneficiaries with
varied interests including farmers and the business
community, which may create competition for scarce
resources.
There is a low risk related to potential resistance from certain
stakeholders who may not benefit directly from the project.
1. A Strategic Environmental, Cultural Heritage and Social Assessment (SECHSA) has been prepared during preparation and
disclosed prior to appraisal.
2. The SECHSA involved broad based consultations with all government agencies involved, NGOs as well as with affected
communities.
3. Consultation workshops will be held regularly under the project‘s framework.
Resp: Bank Stage: Implementation Due Date: Status: In Progress
Implementing Agency (IA) Risks (including Fiduciary Risks)
Capacity Rating Low
Description: Risk Management:
Despite MDF's solid implementation capacity, there is a risk
of delays or weak supervision of works due to increased work
load (MDF now implements several other projects financed
by ADB, USAID and EU).
1. MDF will put in place improved contract management procedures and dedicated staff.
2. MDF will assign separate procurement specialist for proposed project.
3. MDF will hire independent consultants to provide supervision support and write quarterly progress reports.
4. Quarter progress reports will be submitted to the Bank following specific template as per the OM.
Resp: Client Stage: Implementation Due Date: Status: In Progress
Governance Rating Moderate
Description: Risk Management:
There is a moderate risk of outside interference but this is
attenuated by the fact that MDF has proved to have a strong
standing that can effectively shield the project from outside
interference.
The political climate may be at least slightly affected by the
forthcoming parliamentary elections in 2012 and Presidential
election in 2013.
Establishment of a Supervisory Board chaired by the Prime Minister, which proved to be functioning well.
Resp: Client Stage: Preparation Due Date: Status: Completed
Risk Management:
1. The project will establish 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 Borrower shall ensure that the project is carried out in accordance with the provisions of the Anti-Corruption
Guidelines, stipulated in the loan agreement.
41
Resp: Client Stage: Implementation Due Date: Status: In Progress
Project Risks
Design Rating Moderate
Description: Risk Management:
Multiple activities with local and central level agencies may
hinder timely and quality implementation of the project.
1. During preparation, a thorough system of screening and evaluating project activities was established.
2. Only critical minimum activities that can directly contribute to achievement of project results with the highest impact were
selected.
Resp: Bank Stage: Preparation Due Date: Status: Completed
Social and Environmental Rating Moderate
Description:
1. Likely environmental and social issues arising from the
project may become multiple and complex due to multi-
sectoral nature of the project intervention.
2. There may not be full and detailed upfront vision of all
safeguards risks associated with the project implementation as
the works may evolve on rolling basis.
3. Supervision of contractors‘ environmental performance by
the Borrower has been a relative weakness in Georgia
portfolio in general in the past. Oversight of works in the
vicinity of the national cultural and natural assets under this
project will carry additional challenges for MDF.
4. Potential indirect impacts from expected induced
development.
Risk Management:
1. The SECHSA as well as Environmental Management Framework (EMF) were developed for the Project and disclosed prior
to the project appraisal.
The EMF will be used as a mandatory guide for environmental screening, classification, review, and approval of individual
investment proposals.
The Resettlement Policy Framework (RPF) was prepared and disclosed prior to the project appraisal. It sets out general
principles of handling possible types of resettlement, in the event they occur.
Resp: Client Stage: Implementation Due Date: Status: In Progress
Risk Management:
2. The Bank will review and approve all site-specific EAs, EMPs and RAPs, as required, prior to the preparation and approval
of the subprojects and issuance of bidding documents. 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 RAP(s).
Resp: Client Stage: Implementation Due Date: Status: In Progress
Risk Management:
3. MDF will be required to put in place and 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 is being hired to assist MDF in construction
supervision, including all aspects of environmental and social safeguards compliance.
Resp: Client Stage: Implementation Due Date: Status: In Progress
Risk Management:
The SECHSA helps provide a better understanding of direct and indirect/induced risks and how to avoid and mitigate them
42
and to help steer future development in environmentally/socially beneficial directions was developed and disclosed prior to the
project appraisal. It sets out general principles of handling possible types of resettlement, in the event they occur.
Resp: Client Stage: Preparation Due Date: Status: Completed
Program and Donor Rating Moderate
Description: Risk Management:
Donors active in regional development may adopt
inconsistent approaches in different regions, or may
implement overlapping activities. Given past experience of
donor coordination in the sector, and the good role MDF and
its Supervisory Board play, the likelihood and impact of any
disagreements or overlap among donors are low.
1. There are ongoing good coordination mechanisms among donors in Georgia.
2. The Bank has already started to take the lead in organizing semi-annual donor coordination meetings, to ensure synergy
among interventions. The first meeting was held at the World Bank Tbilisi office in July 2011, and was attended by the
Minister of Finance. The second meeting was held at Ministry of Finance in November 2011 chaired by the Minister of
Finance.
3. Donor coordination meeting will continue through the implementation of the project.
Resp: Client Stage: Implementation Due Date: Status: In Progress
Delivery Monitoring and Sustainability Rating Moderate
Description: Risk Management:
Due to spread location of project activities, there is a
moderate risk that some outputs delivered under the project
will be of low quality.
Due to multi-agency and stakeholders‘ participation, there is a
moderate risk that the voice of some groups will not be heard.
1. The Bank Team agreed with the Government to hire an international construction supervision firm that would provide
quarterly supervision reports to MDF.
2. MDF will submit quarterly progress reports to the Bank.
3. The task team leader is located in Tbilisi CO and will carry out monthly site visits to implementation sites with locally hired
Consultants to provide implementation support.
4. Establishment of multi-agency working group will be stipulated in the OM.
5. Stakeholders consultation workshops will be held bi-annually to present Project implementation progress and future plans.
Resp: Client Stage: Implementation Due Date: Status: In Progress
Overall Risk
Preparation Risk Rating: Moderate Implementation Risk Rating: Moderate
43
Annex 5: Implementation Support Plan
GEORGIA: Regional Development Project
Strategy and Approach for Implementation Support
Implementation Support Plan
1. The implementation support strategy was developed considering the risks and mitigation
measures identified in the ORAF and targets provision of flexible and efficient implementation
support to the client.
2. Procurement: The procurement related implementation support will include: (a) timely
advice from the country office based procurement officer on various procurement related issues and
guidance on the Bank‘s Procurement Guidelines; (b) monitoring of procurement progress against the
procurement plan. The Procurement Specialist is based in Tbilisi and works with MDF on daily
basis.
3. Financial Management: The Bank will conduct risk-based financial management
implementation support and supervision mission within a year of the project effectiveness, and then
at appropriate intervals. In addition, the regular IFRs and annual project and entity audit reports will
be reviewed by the Bank. As required, a Bank-accredited Financial Management Specialist will
assist in the implementation support and supervision process. The Financial Management Specialist
is based in Yerevan and can provide support to MDF any time as needed.
4. Environmental and social safeguards: The Bank‘s environmental and social specialists will
provide regular support in strengthening the capacity of the MDF in tackling safeguards related
issues. Additionally, the Bank‘s safeguards specialists will closely monitor implementation of the
agreed EMP and will provide guidance to the client to address the issues that may arise. The
Environment Safeguard specialist is based in Tbilisi and can provide daily support to the client.
5. Operation 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 on regular communication with the client during the identification and preparation of the
Project. Supported by an operations specialist, who is also based in the Georgia Country Office, and
local and international short-term consultants, he will continue to provide regular implementation
support during implementation, including monthly visits to all Project sites especially during the first
year of Project implementation. He will keep the Bank team appraised and provide implementation
support and guidance to the MDF on various aspects of interventions as needed.
Implementation Support Plan
6. The Project team will provide timely and effective implementation support through daily
supervision since the Task Team Leader and several team members are based in the region and local
offices. The task team will provide the following detailed inputs to support project implementation:
44
Technical inputs: Engineers, Tourism and Culture Heritage Consultants will carry out regular
site visits and review of documentation to ensure compliance to plans, quality, safeguards and
timetable.
Fiduciary requirements and inputs: The Procurement Specialist, based in the Georgia
country office, and the Financial Management Specialist, based in the Armenia country office,
will provide timely implementation support. The financial management specialist will conduct
risk-based FM missions within a year after the project effectiveness, and then at appropriate
intervals, while the procurement supervision will be carried out as per Bank‘s procurement
rules and guidelines.
Safeguards: The Environmental Specialist, based in the Georgia country office, and Social
Development Specialists, Based in HQ, will closely supervise implementation of the EMP and
RPF of the Project. The environmental and social specialists will conduct field visits on semi-
annual basis to monitor implementation of safeguards policies.
Time Focus Skills Needed Resource
Estimate (Support
Weeks/SWs) First
twelve
months
Technical review of the SARs TTL, culture heritage specialist,
water and road engineers, safeguards
specialists and economist
18 SWs
Procurement review of the
bidding documents Procurement specialist 12 SWs
Project implementation support Culture heritage specialist, water and
road engineers 24 SWs
Financial management and
disbursements Sr. Financial management specialist 4 SWs
Environmental and social
supervision Sr. Environmental specialist 12 SWs
Tourism institutional
development implementation
support
Tourism development consultants 8 SW
Skills development
implementation support Human development specialist 4 SW
Operation support with project
supervision and coordination Operations specialist 4 SWs
Task management Task Team Leader 12 SWs
12-48
months Project implementation support Culture heritage specialist, water and
road engineers 48 SWs
Procurement support Procurement specialist 24 SWs
Financial management and
disbursements Sr. Financial management specialist 12 SWs
Environmental and social
supervision Sr. Environmental specialist 48 SWs
Tourism institutional
development implementation
Tourism development consultants 12 SW
45
support
Skills development
implementation support Human development specialist 12 SW
Operation support with project
supervision and coordination Operation specialist 12 SWs
Task management Task Team Leader 32 SWs
Skills Mix Required
Skills Needed Number of Staff
Weeks 2012-2016 Number of Trips Comments
Task team leader (SD
CSC) 40 Field trips as required Country office based
Operations officer 40 Field trips as required Country office based Environmental specialist 30 Field trips as required Country office based Social specialist 30 Eight HQ based Procurement specialist 40 Field trips as required Country office based Financial management
specialist 20 Field trips as required Armenia country
office based Water engineer 30 Eight Based in Europe Road engineer 30 Eight HQ based Tourism development
specialists 30 Eight HQ based
Culture heritage specialists 30 Eight HQ based Human development
specialist (HD CSC) 12 Field trips as required Country office based
Economics (PREM CSC) 12 Field trips as required Country office based Short-term consultants for
supervision 32 Field trips as required Country office based
Program Assistants 60 Field trips as required Country office based
46
Annex 6: Team Composition
GEORGIA: 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
Kosuke Anan Social Development Specialist Social Development and PSIA ECSS4 300595
Emilia Skrok Sr. Economist WDR Analysis ECSP2 272765
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
Sandro Nozadze Procurement Specialist Procurement ECSOQ 400054
Kseniia Malenko Finance Analyst Finance Analyst CTRLA 296905
Deepal Fernando Sr. Procurement Specialist Procurement ECSO2 170242
Guido Licciardi Urban Specialist/Chair CH and
Sustainable Tourism TG
Culture Heritage & Sustainable
Tourism
EFUUR 346286
Nicolas Perrin Sr. Social Development Specialist Culture Heritage ECSS4 187579
Militsa Khoshtaria Program Assistant Program Assistant ECCGE 278958
Guy Tchakounte Tchabo Information Assistant Program Assistant ECSSD 160690
Non Bank Staff
Name Title Office Phone City
Donald Hawkins Tourism Value Chain Consultant Washington DC
Chris Seek Tourism Dev Consultant Washington DC
David Brown Tourism Circuits Dev Consultant Washington DC
Jim Phillips Tourism Private Sector Consultant Washington DC
Richard Podolske Transport/Road consultant Washington DC
Christopher Schmandt Water & Sanitation Consultant Zurich
Joseph Goldberg Agriculture/Food Processing
Consultant
Washington DC
Natia Gigiashvili Operation Support Washington DC
47
Annex 7: Procurement Plan
Works & Goods
Ite
m #
Pla
n v
s./ A
ctu
al
Name of Component /
ActivitiesName of Assignment/Contract
Ty
pe
-Ca
teg
ory
Note
#
Selection
Method
Review
by
Bank
Prior /
Post
Submission
to the Bank
Da
ys
In
terv
al
No
Objection
Da
ys
In
terv
al
Invitation
Da
ys
In
terv
al
Bid
Opening
Da
ys
In
terv
al
Evaluation
& Recomm.
Da
ys
In
terv
al
No
Objection +
PSC
Da
ys
In
terv
al
Contract
Award
Da
ys
In
terv
al
Contarct
Siganture
Da
ys
In
terv
al
Start
Da
ys
Ex
ec
uti
on
Completion
1 2/18/2012 23:32 3 4 5 9 10 11 12 13 14 15 16 17 18 19 20
1 - Infrastructure Investment
1.1 P1.1 - Investment sub-projects for
urban regeneration
Lot 1 - Restoration of buildings on Cholokashvili street
and Erekle II avenue in Telavi TownW-1 ICB Prior 28-Dec-11 9 6-Jan-12 3 9-Jan-12 42 20-Feb-12 7 27-Feb-12 9 7-Mar-12 1 8-Mar-12 28 5-Apr-12 15 20-Apr-12 360 15-Apr-13
A 28-Dec-11 6-Jan-12 9-Jan-12 20-Feb-12
1.2 P
Lot 2 - Restoration of buildings around Batonis Tsikhe
(Castle) area, Tavisupleba square and Nadikvari street
in Telavi Town
W-1 ICB Prior 28-Dec-11 9 6-Jan-12 3 9-Jan-12 42 20-Feb-12 7 27-Feb-12 9 7-Mar-12 1 8-Mar-12 28 5-Apr-12 15 20-Apr-12 360 15-Apr-13
A 28-Dec-11 6-Jan-12 9-Jan-12 20-Feb-12
2 PRehabilitation of Underground Utilities in Telavi Streets
(Central Part of Telavi Town)W-1 NCB Prior 28-Dec-11 9 6-Jan-12 3 9-Jan-12 30 8-Feb-12 14 22-Feb-12 9 2-Mar-12 0 2-Mar-12 28 30-Mar-12 15 14-Apr-12 180 11-Oct-12
A 29-Dec-11 5-Jan-12 9-Jan-12 8-Feb-12
3 PRehabilitation of Roads in Telavi streets (Central Part of
Telavi Town)W-1 NCB Prior 28-Dec-11 9 6-Jan-12 3 9-Jan-12 30 8-Feb-12 14 22-Feb-12 9 2-Mar-12 0 2-Mar-12 28 30-Mar-12 15 14-Apr-12 180 11-Oct-12
A 29-Dec-11 5-Jan-12 9-Jan-12 8-Feb-12
4 PRehabilitation of Outdoor Lightings in Telavi streets
(Central Part of Telavi Town)W-1 NCB Prior 30-Dec-11 9 8-Jan-12 1 9-Jan-12 30 8-Feb-12 7 15-Feb-12 9 24-Feb-12 0 24-Feb-12 28 23-Mar-12 15 7-Apr-12 180 4-Oct-12
A 30-Dec-11 5-Jan-12 9-Jan-12 8-Feb-12 15-Feb-12
5 PUrban Regeneration Works in Telavi Streets (Central
Part of Telavi Town)W-1 NCB Prior 1-Feb-12 21 22-Feb-12 1 23-Feb-12 30 24-Mar-12 7 31-Mar-12 11 11-Apr-12 1 12-Apr-12 28 10-May-12 15 25-May-12 300 21-Mar-13
A 1-Feb-12
6 P Rehabilitation of Nadikvari Park in Telavi Town W-1 NCB Prior 3-Feb-12 19 22-Feb-12 1 23-Feb-12 30 24-Mar-12 7 31-Mar-12 11 11-Apr-12 0 11-Apr-12 28 9-May-12 15 24-May-12 300 20-Mar-13
A 3-Feb-12
7 P Rehabilitation of Batonis Tsikhe (Museum) in Telavi
Town
W-1 ICB Prior 3-Feb-12 19 22-Feb-12 2 24-Feb-12 42 6-Apr-12 7 13-Apr-12 11 24-Apr-12 1 25-Apr-12 28 23-May-12 15 7-Jun-12 360 2-Jun-13
A 3-Feb-12
8 PRestoration of Buildings in Kvareli Streets (Central Part
of Kvareli Town)W-1 NCB Prior 10-Feb-12 11 21-Feb-12 1 22-Feb-12 30 23-Mar-12 7 30-Mar-12 11 10-Apr-12 0 10-Apr-12 28 8-May-12 15 23-May-12 210 19-Dec-12
A 10-Feb-12
9 PUrban Regeneration Works in Kvareli Streets (Central
Part of Kvareli Town)W-1 NCB Prior 10-Feb-12 11 21-Feb-12 1 22-Feb-12 30 23-Mar-12 7 30-Mar-12 11 10-Apr-12 0 10-Apr-12 28 8-May-12 15 23-May-12 180 19-Nov-12
A 10-Feb-12
10 P Rehabilitation of Underground Utilities in Kvareli Town W-1 NCB Prior 20-Feb-12 11 2-Mar-12 1 3-Mar-12 30 2-Apr-12 7 9-Apr-12 11 20-Apr-12 0 20-Apr-12 28 18-May-12 15 2-Jun-12 180 29-Nov-12
A
11 P Rehabilitation of Central Roads in Kvareli Town W-1 ICB Prior 16-Feb-12 11 27-Feb-12 3 1-Mar-12 42 12-Apr-12 7 19-Apr-12 11 30-Apr-12 1 1-May-12 28 29-May-12 15 13-Jun-12 180 10-Dec-12
A 16-Feb-12
12 PRehabilitation of Outdoor Lighting in Kvareli Central
Roads W-1 NCB Prior 16-Feb-12 11 27-Feb-12 1 28-Feb-12 30 29-Mar-12 7 5-Apr-12 11 16-Apr-12 0 16-Apr-12 28 14-May-12 15 29-May-12 180 25-Nov-12
A 16-Feb-12
13 PRestoration of buildings and arangement of tourist zone
in village Dartlo W-1 NCB Prior 24-Feb-12 11 6-Mar-12 1 7-Mar-12 30 6-Apr-12 7 13-Apr-12 11 24-Apr-12 0 24-Apr-12 28 22-May-12 15 6-Jun-12 360 1-Jun-13
A
14 P Construction of underground utilities in village Dartlo W-1 NCB Prior 24-Feb-12 11 6-Mar-12 1 7-Mar-12 30 6-Apr-12 7 13-Apr-12 11 24-Apr-12 0 24-Apr-12 28 22-May-12 15 6-Jun-12 180 3-Dec-12
A
15 P Intergrated revitalization of Akhtala mud site attraction W-1 NCB Prior 15-Mar-12 11 26-Mar-12 1 27-Mar-12 30 26-Apr-12 7 3-May-12 11 14-May-12 1 15-May-12 28 12-Jun-12 15 27-Jun-12 360 22-Jun-13
A
16 P Rehabilitation of Tusheti road W-1 1 NCB Prior 1-Nov-12 11 12-Nov-12 1 13-Nov-12 30 13-Dec-12 7 20-Dec-12 11 31-Dec-12 1 1-Jan-13 28 29-Jan-13 15 13-Feb-13 240 11-Oct-13
A
17 P Rehabilitation of David Gareja Road W-1 1 NCB Prior 1-Nov-12 11 12-Nov-12 1 13-Nov-12 30 13-Dec-12 7 20-Dec-12 11 31-Dec-12 1 1-Jan-13 28 29-Jan-13 15 13-Feb-13 240 11-Oct-13
A
18 P Rehabilitation of Vashlovani Road W-1 1 NCB Prior 1-Nov-12 11 12-Nov-12 1 13-Nov-12 30 13-Dec-12 7 20-Dec-12 11 31-Dec-12 1 1-Jan-13 28 29-Jan-13 15 13-Feb-13 240 11-Oct-13
48
Works & Goods (continued)
Ite
m #
Pla
n v
s./ A
ctu
al
Name of Component / Activities Name of Assignment/Contract
Ty
pe
-Ca
teg
ory
Note
#
Selection
Method
Review
by
Bank
Prior /
Post
Submission
to the Bank
Da
ys
In
terv
al
No
Objection
Da
ys
In
terv
al
Invitation
Da
ys
In
terv
al
Bid
Opening
Da
ys
In
terv
al
Evaluation
& Recomm.
Da
ys
In
terv
al
No
Objection +
PSC
Da
ys
In
terv
al
Contract
Award
Da
ys
In
terv
al
Contarct
Siganture
Da
ys
In
terv
al
Start
Da
ys
Ex
ec
uti
on
Completion
1 2/19/2012 0:17 3 4 5 9 10 11 12 13 14 15 16 17 18 19 20
1 - Infrastructure Investment
A
19.1 P1.2 - Investment sub-projects for
tourism Circuits development
Lot 1 - Integrated revitalization of cultural heritage sites
in Dzveli Shuamta, Akhali Shuamta and IkaltoW-1 ICB Prior 6-Feb-12 18 24-Feb-12 3 27-Feb-12 42 9-Apr-12 7 16-Apr-12 11 27-Apr-12 1 28-Apr-12 28 26-May-12 15 10-Jun-12 360 5-Jun-13
A 6-Feb-12
19.2 PLot 2 - Integrated revitalization of CH sites in
Nninotsminda, Ujarma and David-GarejaW-1 ICB Prior 6-Feb-12 18 24-Feb-12 3 27-Feb-12 42 9-Apr-12 7 16-Apr-12 11 27-Apr-12 1 28-Apr-12 28 26-May-12 15 10-Jun-12 360 5-Jun-13
A 6-Feb-12
19.3 PLot 3 - Integrated Revitalization of CH Sites in Gurjaani
and KhirsaW-1 ICB Prior 6-Feb-12 18 24-Feb-12 3 27-Feb-12 42 9-Apr-12 7 16-Apr-12 11 27-Apr-12 1 28-Apr-12 28 26-May-12 15 10-Jun-12 360 5-Jun-13
A 6-Feb-12
20 PIntegrated Revitalization of Cultural Heritage Sites in
Alaverdi and Bodbe W-1 NCB Prior 15-Mar-12 11 26-Mar-12 1 27-Mar-12 30 26-Apr-12 7 3-May-12 11 14-May-12 0 14-May-12 28 11-Jun-12 15 26-Jun-12 240 21-Feb-13
A
21 P 1.3 - Private sector investments Procurement package1 W-1 2 NCB Prior 3-Sep-12 9 12-Sep-12 1 13-Sep-12 32 15-Oct-12 7 22-Oct-12 9 31-Oct-12 1 1-Nov-12 28 29-Nov-12 15 14-Dec-12 360 9-Dec-13
A
22 P Procurement package 2 W-1 2 NCB Prior 3-Sep-12 9 12-Sep-12 1 13-Sep-12 32 15-Oct-12 7 22-Oct-12 9 31-Oct-12 1 1-Nov-12 28 29-Nov-12 15 14-Dec-12 360 9-Dec-13
A
23 P Procurement package 3 W-1 2 NCB Prior 3-Sep-12 9 12-Sep-12 1 13-Sep-12 32 15-Oct-12 7 22-Oct-12 9 31-Oct-12 1 1-Nov-12 28 29-Nov-12 15 14-Dec-12 360 9-Dec-13
A
24 P Procurement package 4 W-1 2 NCB Prior 8-Jan-13 9 17-Jan-13 1 18-Jan-13 31 18-Feb-13 7 25-Feb-13 9 6-Mar-13 1 7-Mar-13 28 4-Apr-13 15 19-Apr-13 360 14-Apr-14
A
25 P Procurement package 5 W-1 2 NCB Prior 8-Jan-13 9 17-Jan-13 1 18-Jan-13 31 18-Feb-13 7 25-Feb-13 9 6-Mar-13 1 7-Mar-13 28 4-Apr-13 15 19-Apr-13 360 14-Apr-14
A
26 P Procurement package 6 W-1 2 NCB Prior 8-Jan-13 9 17-Jan-13 1 18-Jan-13 31 18-Feb-13 7 25-Feb-13 9 6-Mar-13 1 7-Mar-13 28 4-Apr-13 15 19-Apr-13 360 14-Apr-14
A
27 P Procurement package 7 W-1 2 NCB Prior 8-Jan-13 9 17-Jan-13 1 18-Jan-13 31 18-Feb-13 7 25-Feb-13 9 6-Mar-13 1 7-Mar-13 28 4-Apr-13 15 19-Apr-13 360 14-Apr-14
A
28 P Procurement package 8 W-1 2 NCB Prior 3-Jun-13 9 12-Jun-13 1 13-Jun-13 32 15-Jul-13 7 22-Jul-13 9 31-Jul-13 1 1-Aug-13 28 29-Aug-13 15 13-Sep-13 360 8-Sep-14
A
29 P Procurement package 9 W-1 2 NCB Prior 3-Jun-13 9 12-Jun-13 1 13-Jun-13 32 15-Jul-13 7 22-Jul-13 9 31-Jul-13 1 1-Aug-13 28 29-Aug-13 15 13-Sep-13 360 8-Sep-14
A
30 P Procurement package 10 W-1 2 NCB Prior 3-Jun-13 9 12-Jun-13 1 13-Jun-13 32 15-Jul-13 7 22-Jul-13 9 31-Jul-13 1 1-Aug-13 28 29-Aug-13 15 13-Sep-13 360 8-Sep-14
A
2 - Institutional Development
31 PSupply of computers, equipment and office furniture to
the destination management officeG-2 NCB Prior 1-May-12 11 12-May-12 1 13-May-12 30 12-Jun-12 7 19-Jun-12 11 30-Jun-12 1 1-Jul-12 28 29-Jul-12 15 13-Aug-12 90 11-Nov-12
A
Notes: 1 Total Component 1 - PLANED Red Text Rows: = Actuals
Total Component 1 - ACTUALS Yellow Columns: Cell turns red if Planned Date has passed.
2 Cell turns white again if cell for Actual Date is filled in.
Total Component 2 - PLANED
Total Component 2 - ACTUALS
Tendering of procurement package
is subject to availability of funds and
possible savings under other
activities Actual cost for 10 proposed private
sector investment activities might
be less than USD 10 Mln of IBRD
financing, thus availing allocation to
other activities under Comp 1
49
Consultants Service
Ite
m #
Pla
n v
s./ A
ctu
al
Name of Component Name of Assignment/Contract
Ty
pe
-Ca
teg
ory
Not
e #
Selection
Method
Revie
w by
Bank
Prior /
Post
Ad of EOI
Da
ys
In
terv
al
Reception
of
Expressio
n of
Interest Da
ys
In
terv
al
Short
Listing/RFP
submssion
to the Bank
Da
ys
In
terv
al
No
Objection
Da
ys
In
terv
al
Invitation
for RFP
Da
ys
In
terv
al
Proposal
Submissio
n
Da
ys
In
terv
al
Technical
Evaluation
Da
ys
In
terv
al
No
Objection
+ PSC
Da
ys
In
terv
al
Final
Evaluation
Da
ys
In
terv
al
No
Objection
to Sign
Contract
Da
ys
In
terv
al
Contract
Signature
Da
ys
In
terv
al
Start
Da
ys
Ex
ec
uti
on
Completio
n
1 2/19/2012 0:20 3 4 5 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
1 - Infrastructure Investment
1 P Audit of 2012 and 2013 fiscal years CS-1 1 SSS Prior 1-Mar-13 0 1-Mar-13 0 1-Mar-13 0 1-Mar-13 0 1-Mar-13 7 8-Mar-13 0 8-Mar-13 0 8-Mar-13 7 15-Mar-13 11 26-Mar-13 3 29-Mar-13 3 1-Apr-13 ## 15-Jun-14
A
2 P Audit of 2014, 15, and 16 fiscal years CS-1 LCS Prior 1-Dec-14 14 15-Dec-14 14 29-Dec-14 14 12-Jan-15 1 13-Jan-15 30 12-Feb-15 21 5-Mar-15 11 16-Mar-15 21 6-Apr-15 9 15-Apr-15 7 22-Apr-15 2 24-Apr-15 ## 15-Oct-16
A
2- Institutional Development
3 P
Consulting services for supervision of
civil works to be implemented in
Kakheti region under Regional
Development Project
CS-2 QCBS Prior 1-Dec-11 14 15-Dec-11 14 29-Dec-11 11 9-Jan-12 1 10-Jan-12 30 9-Feb-12 21 1-Mar-12 11 12-Mar-12 14 26-Mar-12 11 6-Apr-12 7 13-Apr-12 14 27-Apr-12 ## 17-Apr-14
A 1-Dec-11 15-Dec-11 6-Jan-12
4 P
Preparation of Detailed Designs of
Vashlovani, David Gareja and Dartlo
roads
CS-2 2 CQS Prior 1-Mar-12 14 15-Mar-12 14 29-Mar-12 11 9-Apr-12 1 10-Apr-12 30 10-May-12 21 31-May-12 11 11-Jun-12 21 2-Jul-12 9 11-Jul-12 7 18-Jul-12 14 30-Mar-00 ## 21-Sep-01
A
5 PDestination Management and
PromotionCS-2 2 QCBS Prior 1-Mar-12 14 15-Mar-12 14 29-Mar-12 11 9-Apr-12 1 10-Apr-12 30 10-May-12 21 31-May-12 11 11-Jun-12 21 2-Jul-12 9 11-Jul-12 7 18-Jul-12 14 1-Aug-12 ## 23-Jan-14
A
6 P Geotourism Routes and Circuits Portal CS-2 2 CQS Prior 1-Mar-12 14 15-Mar-12 14 29-Mar-12 11 9-Apr-12 1 10-Apr-12 30 10-May-12 21 31-May-12 11 11-Jun-12 21 2-Jul-12 9 11-Jul-12 7 18-Jul-12 14 1-Aug-12 ## 23-Jan-14
A
7 PSkills Development and Capacity
BuildingCS-2 2 CQS Prior 1-Mar-12 14 15-Mar-12 14 29-Mar-12 11 9-Apr-12 1 10-Apr-12 30 10-May-12 21 31-May-12 11 11-Jun-12 21 2-Jul-12 9 11-Jul-12 7 18-Jul-12 14 1-Aug-12 ## 23-Jan-14
A
8 P Performance Evaluation and Monitorin CS-2 2 CQS Prior 1-Mar-12 14 15-Mar-12 14 29-Mar-12 11 9-Apr-12 1 10-Apr-12 30 10-May-12 21 31-May-12 11 11-Jun-12 21 2-Jul-12 9 11-Jul-12 7 18-Jul-12 14 1-Aug-12 ## 13-Mar-16
A
9 PTechnical support to private sector
selection committeeCS-2 2 CQS Prior 1-Mar-12 14 15-Mar-12 14 29-Mar-12 11 9-Apr-12 1 10-Apr-12 30 10-May-12 21 31-May-12 11 11-Jun-12 21 2-Jul-12 9 11-Jul-12 7 18-Jul-12 14 1-Aug-12 ## 26-Aug-13
A
Total Component 1 - PLANED Red Text Rows: = Actuals
Total Component 1 - ACTUALS Yellow Columns: Cell turns red if Planned Date has passed.
Cell turns white again if cell for Actual Date is filled in.
Total Component 2 - PLANED
Total Component 2 - ACTUALS Notes: 1 Justified on the basis of continuation of current assignment and relatively small cost estimate
2The exact dates will be defined later
50
Summary & Thresholds
Pla
n v
s./ A
ctu
al
Type of Cost Name of Assignment/Contract
No
te # Estimated
Cost/Actual
(GEL)
Estimated
Cost/Actual
(USD)
IBRD
Financing
(USD)
1 2 3 4 5 6 7
OTHER COSTS Procurement Method Procurement Prior Review
P Operational Costs 1 2,542,248 1,530,000 1,224,000 1 - Goods
A ICB: >US$ 300 K All contracts
NCB: ≤ US$300 K First 2 contracts
Total for Other Cost - ESTIMATE 2,542,248 1,530,000 1,224,000 SH: <US$100 K First contract
Total for Other Cost - ACTUALS 0 0 0 DC: None All contracts
2- Works
Total for Component 1 - ESTIMATE (USD) Works and goods 131,124,374 78,914,524 63,131,620 ICB >US$4 Mil All contracts
Consultant service 83,080 50,000 40,000 NCB ≤ US$4 Mil First 2 Contracts and all ≥US$2 Mil
Total 131,207,454 78,964,524 63,171,620 SH <US$200 K First contract
Total for Component 1 - ACTUALS (USD) Works and goods 0 0 0 DC None All contracts
Consultant service 0 0 0
Total 0 0 0 Thresholds for Selection and Employment of Consultants:
Total for Component 2 - ESTIMATE (USD) Works and goods 332,320 200,000 160,000 Procurement Method Procurement Prior Review
Consultant service 6,118,011 3,682,000 2,945,600 3 - Consulting Services Firms
Total 6,450,331 3,882,000 3,105,600 QCBS All contracts above US$100,000
Total for Component 2 - ACTUALS (USD) Works and goods 0 0 0 QBS All contracts above US$100,000
Consultant service 0 0 0 FBS All contracts above US$100,000
Total 0 0 0 LCS All contracts above US$100,000
GRAND TOTAL - PLAN 140,200,033 84,376,524 67,501,220 CQS ≤US$300,000 First contract
GRAND TOTAL - ACTUALS 0 0 0 SSS All contracts
PRICE AND WORKS CONTINGENCY - 5% OF TOTAL COST 7,010,002 4,218,826 3,375,061 4 - Consulting Services Individuals
TOTAL PROJECT COST INCLUDING PRICE AND WORKS CONTINGENCY 147,210,035 88,595,351 70,876,281 IC All contracts above US$50 K
SSS ALL
Price Convertion Rate, Date and Source:
USD/GEL: 1.6616
Thursday, February 16, 2012 http://nbg.ge/?lng=eng
Notes:
1 Costs is Lump Sum - Details will be defined during project implementation
Thresholds for Procurement of Goods, Works and Non-Consulting services:
51
Annex 8: Economic and Financial Assessment
GEORGIA: Regional Development Project
Spatial and Economic Geography Assessment:
1. Kakheti is considered a lagging region and below the country average. In 2010, Kakheti‘s
Gross Value Added per capita represented only about 60 percent of Georgia national average.
Economic density of Kakheti is about GEL74,000 per square kilometer, compared to GEL409,000
per square kilometer in Ajara and GEL52 million per square kilometer in Tbilisi. In addition, the
Kakheti region grew at only 2.5 percent per annum in the period 2006-2010, which is significantly
below the average for Georgia (4.3 percent). Only half of the Georgian regions were growing faster
than the national average (Adjara, Imeri, Racha-Lechkhumi, Kvemo Svaneti and Tbilisi).
Figure 1: GDP per capita 2010 and GDP growth,
2006-2010
2. The poverty rate in Kakheti is 25 percent, which is slightly above the Georgia average of 24
percent. Other poverty indicators such as poverty depth, severity, and incidence are also higher than
the Georgia averages. The figures are higher for urban households in almost all dimensions of well
being. The unemployment rate in Kakheti is 11 percent, which is below Georgia average of 16
percent and Tbilisi‘s rate of 30 percent. Such a relatively low unemployment rate results from the
rural character of the region, with intensive inclusion of the population in agricultural self-
employment and non-paid employments.
3. Several factors explain the relatively weak economic performance of the region. These
include the productive structure, the prevalence of SMEs, factor concentration (both physical,
including FDI and human capital) as well as underdeveloped rural infrastructure. Kakheti‘s
productivity is lower than many other regions in Georgia. Despite relatively low wages that helped
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
0 2000 4000 6000 8000
TBILISI
ADJARA
IMERETI, RACHA-LECHKHUMI AND KVEMO
GD
P G
ro
wth
20
06
-10
GDP per capita level 2010
KAKHETI
52
to contain unit labor costs, Kakheti‘s competitiveness is still quite low because several of its
endowments have not yet been fully utilized.
4. The existing inefficient structure of the economy hinders growth of the region. The
comparison between Kakheti and the country as a whole reveals that the most significant differences
in industry structure at an aggregate level comes from the primary sector and trade. Agriculture is
significantly more important in Kakheti while wholesale and retail trade sectors play a more
important role in Georgia. Although the share of agriculture in gross value added has been
systematically decreasing, it still accounts for 20 percent, as compared to 8.4 percent in Georgia on
average. The high share of the agriculture sector combined with its negative growth (-2.7 percent
over 2006-10) was one of the main reasons for the weak performance of the region in recent years.
5. The trade sector in Kakheti was much more dynamic than in Georgia as a whole, which
resulted in its significant positive contribution to growth of the region, despite its lower share in
value added. The contribution from other types of services (excluding health, education and
transport) to output growth looks almost the same for Kakheti and Georgia (Figure 2). Kakheti is
distinguished by its dynamic growth of tourism related activities.
Figure 2: Contribution to GDP growth, Kakheti and Georgia
Incremental Capital to Output Ratio Assessment (ICOR):
6. The proposed project aims to increase investment levels in the Kakheti region, both public
and private, aligning them with those observed in the country (but not with the investment levels
observed in the country‘s most vibrant region; the City of Tbilisi). Via its impact on investments, the
project is also expected to boost economic activity and income levels during the project
implementation period and beyond. This result hinges crucially on the pace and the effectiveness of
project implementation. The pace would determine the timing for the ‗stimulus‘ to be felt in the
region. The effectiveness would determine the degree at which the public investments supported by
the project will ―leverage‖ private investments, and the extent to which these investments will
expand economic activity.
1.50%
0.50%
0.10%
-10%
-5%
0%
5%
10%
15%
20%
25%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
Gro
wth
of
real
GV
A 0
7-1
0 p
.a.
Average share in nom. GDP 07-10
Kakheti
GeorgiaTrade and repair
Agriculture
Industry
Construction
Public administration
Other type of services
Processing products by
households
53
7. Context: Total investments in the Kakheti region have been estimated to be around 20 to 25
percent of the region‘s GDP in the past.12
Kakheti‘s investment ratio has traditionally been slightly
below that for the country as a whole. The total investment ratio in Kakheti has not been that
different to that of Adjara, which has received substantial public investment for its development
(Figure 3). Household investment (broadly defined) dominates total investment in Kakheti, rather
than investment by corporations (like in Tbilisi) or by the public administration (as in Adjara). Since
according to the System of National Accounts, household investments by convention includes also
those made by the self-employed and microenterprises, the special composition of investment in
Kakheti reflects well the rural economic nature of the region, i.e., dominated by activities such as
small-scale animal raising, agriculture (specially grape growing, and trade and commerce (including
restaurants). The data suggest that a household‘s (narrowly defined) investment in Kakheti has been
negligible, i.e., there has been little if any renovation of the existing stock of housing (in parts other
than Signagi) and very little construction of new housing.
Figure 3: Investment ratios in Georgia and selected regions, percentage of GDP
Source: Geostat and World Bank staff estimations.
8. Project Impact: The Project will inject US$75 million dollars in investment over a period of
3 years. More importantly, the project has been designed to induce various types of private sector
investments. Firstly, the project will encourage private investments by providing public goods (e.g.,
road access) needed by the private investors. Secondly, 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, uplifting of pedestrian walkways, provision
of parking space, and other public infrastructure; or funding façade renovation, should motivate the
establishment of new micro/small businesses (e.g., shops, restaurants, transport and other tourism
related services), as well as induce significant renovation of existing housing and the construction of
new ones.
9. The above impact can be summarily captured by an indicator of the amount of corporate and
household investments that public investments mobilize. During past booming periods (2006-7),
Kakheti leveraged up to 3 dollar in private investments for each dollar invested by the public
12
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.
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
Geo
rgia
Kakh
eti
Tbili
si
Adj
ara
Geo
rgia
Kakh
eti
Tbili
si
Adj
ara
2006 2010
Government
Households, self-employed
Corporates
54
administration. More recently (2009-10), however, this ratio has been closer to one-to-one. The
expectation is for the project to target a one-to-four ratio, which would lift up the overall leverage
ratio of the public administration investments in the region. These expected dynamics for
investments with and without the project are illustrated in Figure 4 (panels 1 to 3).
Figure 4: Summary of the Expected Impact of the Project on Investments (Income and Growth)
Source: GEOSTAT and World Bank staff projections.
10. The impact of these investments on economic activity will be significant in the region. While
a proper Keynesian accelerator model (using modern econometric tools, such as an impulse-response
function)13
could not be estimated at this time, two parameters were applied to gauge this potential
impact: (a) an incremental capital to output ratio (ICOR) of around 4 (each unit of investment results
in a 25 percent permanent increase in output); and (b) a short term multiplier effect under which one
unit of investment results in one unit of additional output in the short-term. These two approaches
are complementary in that the short-term (immediate) impact of the project is likely to be closer to
the results offered by the short-term multiplier, while the medium-term impact of the project should
be closer to that coming out of the ICOR.
11. Using these parameters, it is estimated that growth in Kakheti during the 2012-2015 period
would be between 0.7 and 2.9 percentage points higher than otherwise expected, with the range
depending on whether the ICOR or multiplier assumption is used.14
Such growth will result in a
GDP per capita in US$ that would between 3 and 11 percent higher in 2015 than it otherwise would
have been.
13
An impulse response function could be estimated by using a Vector Auto regression Model if there were sufficient
observations for investments and output, which is not the case. 14
For simplicity growth in Kakheti without the project has been assumed to be the same as in Georgia as a whole, which
is a conservative assumption.
10.0
15.0
20.0
25.0
30.0
35.0
2007 2008 2009 2010 2011 2012 2013 2014 2015
Total Investments
Kakheti Kakheti, with project Georgia
0.0
2.0
4.0
6.0
8.0
10.0
2007 2008 2009 2010 2011 2012 2013 2014 2015
Investments by the Public Administration
Kakheti Kakheti, with project Georgia
5.0
10.0
15.0
20.0
25.0
2007 2008 2009 2010 2011 2012 2013 2014 2015
Investments by Corporates and Households
Kakheti Kakheti, with project Georgia
1000
2000
3000
4000
5000
2007 2008 2009 2010 2011 2012 2013 2014 2015
Per capita GDP in US$
Kakheti Kakheti, with project (ICOR)
Kakheti, with project (Multiplier) Georgia
-20.0%
-10.0%
0.0%
10.0%
20.0%
2007 2008 2009 2010 2011 2012 2013 2014 2015
Real GDP Growth, %
Kakheti Kakheti, with project (ICOR)
Kakheti, with project (Multiplier) Georgia
55
Figure 5: Background Information and Calculations
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.
2007 2008 2009 2010 2011 2012 2013 2014 2015
Population, thousands person
Kakheti 403 402 403 405 406 408 410 412 414
Georgia 4387 4382 4410 4453 4455 4457 4458 4459 4459
GDP growth
Kakheti (with out project) 3.3 12.5 -13.2 7.0 7.5 5.0 5.0 5.0 5.0
Georgia 12.3 2.3 -3.8 6.3 6.0 5.0 5.0 5.0 5.0
GDP deflator index (2006=1) 1.1 1.2 1.2 1.3 1.4 1.5 1.6 1.7 1.7
Nominal exchange rate 1.7 1.5 1.7 1.8 1.7 1.7 1.8 1.9 2.0
Project related parameters
Disbursements, USD million 0 0 0 0 0 15 23 23 15
Leverage ratio, units 3 2 1 1 1 2 2 3 3
ICOR (uses GDP at t+1)
Kakheti (with out project) 1.4 -1.2 2.3 2.6 3.9 4.0 4.1 4.2 -
Georgia 9.7 -5.4 2.3 3.2 3.0 3.0 3.0 3.1 -
Key Parameters and Assumptions
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 4.1 3.7 5.6 7.5 7.9
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 5.6 4.5 4.9 3.7 4.1
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
Estimated Investments by Region
56
Cost-Benefit Assessment of Specific Investments:
12. For the investment 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:
Benefit Streams:
Increase in tourists, overnight stays and spending. The Project-supported improvements to critical
infrastructure needs and destination management strengthening is expected to translate into (a) an
increase in domestic and international tourism arrivals to Kakheti by 20-25 percent; (b) based on
the configuration of the tourism circuits, overnight stays are projected to increase from 1.3 days to
2.05 days on average; and (c) spending on food, lodging, and new activities (e.g., guided tours), and
local products/handcrafts is projected to increase by 20 percent.
Increase in number and profitability of economic enterprises. The development of tourist attractions
and geo-tourism maps, destination management and marketing/promotion of Kakheti as a new
high-end 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 occurred, i.e., old Tbilisi, old Mtskheta and
Signagi. The number of hotel rooms is expected to grow from 561 to 900 and the number of beds in
hotels, guest-houses and family-houses is expected to grow from 1,610 to about 1,932—to serve the
expected increased number of tourists from 200,000 to 250,000/year. 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.
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 Kakheti: (a) Property values are assumed to appreciate by 70 percent and
rental values by 100 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.
Temporary job creation. It is expected that while the Project is being implemented, temporary jobs
will be created. Based on analysis of MDF infrastructure projects over the past five years, as well as
global experiences in similar projects, the following assumptions were made. A large proportion of
conservation/restoration works (30 percent of the expenditures) are assumed to cover the cost of
labor. Thus, it is assumed that the government will obtain income tax (20 percent) from labor
expenditures.
13. 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 up to 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.
57
14. 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.
15. 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.
16. Results: The economic and financial analysis shows that the Project‘s NPV at a 12 percent
discount rate amounts to US$19.79 million, with an FIRR of 19.85 percent, and an EIRR of 26.14
percent.
17. 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$3.14 million and the FIRR by about 1 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 5.17 percent and 4.19 percent accordingly. 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$2.18 million. The private investment leverage factor is the one with
the least influence: A 10 percent increase or decrease will raise or lower the NPV by US$453,596.
If the average overnight stay remains unchanged (at 1.32 days), and other assumptions are
unchanged, the NPV will still be positive, at US$8.32 million, the FIRR will be 16.00 percent and
the EIRR will be 21.33 percent. The analysis confirms that even when subjected to these stress
tests, the financial and economic impacts of the Project remain robust.
Ca
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as
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M
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K o l k h i da
L ow
l an
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MqinvartsveriMqinvartsveri(5047 m)(5047 m)
A J A R AA J A R A
A B K H A Z I AA B K H A Z I A
TkvarceliTkvarceli
DzvariDzvari
SenakiSenaki
SamtrediaSamtredia
TkibuliTkibuliSachkhereSachkhere
KhashuriKhashuri
MestiaMestia
OniOniKazbegiKazbegi
MarneuliMarneuliTsiteli-Tsiteli-TskaroTskaro
LagodehiLagodehi
AhalkalakiAhalkalakiKazretiKazreti
NinocmindaNinocminda
AkhmetaAkhmeta
OzurgetiOzurgeti
KutaisiKutaisi
TelaviTelavi
RustaviRustavi
MtskhetaMtskheta
AmbrolauriAmbrolauri
GoriGori
ZugdidiZugdidi
AkhaltsikheAkhaltsikhe
T'BLISIT'BLISI
SouthSouthOsset iaOsset ia
Gagra
Ochamchira
Tkvarceli
Dzvari
Senaki
SamtrediaPoti
Kobuleti
TkibuliSachkhere
Khashuri
Mestia
OniKazbegi
MarneuliTsiteli-Tskaro
Lagodehi
AhalkalakiKazreti
Ninocminda
Akhmeta
Ozurgeti
Kutaisi
Rustavi
Mtskheta
Ambrolauri
Gori
Zugdidi
Akhaltsikhe
Suhumi
Batumi
Chinvali
T'BLISIA D J A R A
SouthOsset ia
A B K H A Z I A
R U S S I A N F E D E R A T I O N
T U R K E Y
A R M E N I A A Z E R B A I J A N
Rioni
Inguri
Rion
i
Kvirilk
Iori
Iori
Mtkvari
(Kura)
Iori
Mtkvari (Kura)
Tske
nisc
kali
Alazani
B lack Sea
MingechevirReservoir
LakeSevan
To Soai
To Vladikavkaz
To Zagatala
To Yevlax
To Armavir
To Erzurum
To Erzurum
To Trabzon
Ca
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as
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M
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K o l k h i da
L ow
l an
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Mqinvartsveri(5047 m)
40°E 42°E
44°E 46°E
40°E 42°E 44°E 46°E
44°N44°N
42°N 42°N
GEORGIA
This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.
0 20 40
0 10 20 30 40 50 Miles
60 Kilometers
IBRD 39118
FEBRUA
RY 2012
PROJECT CITIES
CITIES AND TOWNS
AUTONOMOUS OBLAST (AO) CENTER
AUTONOMOUS REPUBLIC (ASSR) CENTERS
NATIONAL CAPITAL
RIVERS
MAIN ROADS
RAILROADS
AUTONOMOUS OBLAST (AO) BOUNDARY
AUTONOMOUS REPUBLIC (ASSR) BOUNDARIES
KAKHETI REGION BOUNDARY
INTERNATIONAL BOUNDARIES
GEORGIA
REGIONAL DEVELOPMENT PROJECTKAKHETI REGION
Dartlo
TelaviSignahi
Kvareli
Dartlo
KA
KH
E
TI
KA
KH
E
TI
Tusheti Protected Landscape
BatsaraNature Reserve
BatsaraNature Reserve
IltoManaged Reserve
IltoManaged Reserve
LagodekhiNature Reserve
Vashlovani NatureReserve
Vashlovani NatureReserve
Vashlovani National Park
Vashlovani National Park
TushetiNational
Park
TBILISI
LagodekhiMtskheta
Akhmeta
Marneuli Gardabani
Vakhtangisi
Gurjaani
Dedoplistskaro
Red Bridge
Rustavi
Zagesi
Ponitchala
P’shaveli
Sagaredzo
KA
KH
E
TI
LagodekhiMtskheta
Akhmeta
Marneuli Gardabani
Red Bridge
Vakhtangisi
Gurjaani
Dedoplistskaro
Agaiani
Rustavi
Zagesi
Ponitchala
P’shaveli
Sagaredzo
TBILISI
A R M E N I AA Z E R B A I J A N
A Z E R B A I J A N
R U S S I A NF E D E R A T I O N
KA
KH
E
TI
Mtkvari
Iori
Iori
Alazanl
Alaz
anl
Iori
(Kura)
To Alaverdi
To Gazah
To Zagatala
46°00’ E
46°00’ E
45° 00’ E
45° 00’ E
45° 30’ E
45° 30’ E
43° N
42°00’ N
42°30’ N
41°30’ N
42°00’ N
42°30’ N
41°30’ N
Telavi
Signahi
Kvareli
Dartlo
T U R K E Y
U K R A I N E
R U S S I A NF E D E R A T I O N
KAZAKHSTAN
AZERBAIJAN
IRAQ
G E O R G I A
Area of main map
ARMENIA
SYRIAN ARAB REP. ISLAMIC REP. OF IRAN
TURKMENISTAN
TBILISITBILISI
B l a c k S e aC a s p i a n
S e a
IBRD 39037
JANUARY 2012
PROJECT CITIES
CITIES AND TOWNS
NATIONAL CAPITAL
URBAN AREA
SECONDARY ROADS
MAIN ROADS
RAILROADS
KAKHETI REGION BOUNDARY
INTERNATIONAL BOUNDARIES
This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World Bank Group,any judgment on the legal status of any territory, or any endorsementor acceptance of such boundaries.
0 15
KILOMETERS
30 45
GEORGIA
REGIONAL DEVELOPMENT PROJECTKAKHETI REGION
RIVERS
GLACIERS
PROTECTED AREAS
ELEVATIONS IN METERS:
3000
2000
1000
500
200
0
Dartlo