Georgia - Municipal Infrastructure Rehabilitation Project

Document of The World Bank Report No. 13543-GE STAFF APPRAISAL REPORT REPUBLIC OF GEORGIA MUNICIPAL INFRASTRUCTURE REHABILITATION PROJECT OCTOBER 17, 1994 Housing and Municipal Services Division Country Department IV Europe and Central Asia Region  CURRENCY EQUIVALENTS (as of August 1994) Currency Unit = Coupon I Coupon = US$0.0001 cents US$1 = 1,500,000 AVERAGE EXCHANGE RATES 1,500,000 Coupons = US$1 WEIGHTS AND MEASURES Metric System FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS Agency - Independent Agency for Development of Municipal Services Beneficiaries - Beneficiary Municipality of the Project BMIR - Batumi Municipal Infrastructure Rehabilitation CCTV - Closed Circuit Television CIS - Commonwealth of Independent States EBRD - European Bank For Reconstruction and Development FEC - Foreign Exchange Costs FSU - Former Soviet Union GDP - Gross Domestic Product GEF - Global Environment Facility Georgia - Republic of Georgia GIS - Geographic Information System IBRD - International Bank For Reconstruction and Development ICB - International Competitive Bidding ICZM - Integrated Coastal Zone Management IDA - International Development Association IMF - International Monetary Fund IS - International Shopping LCB - Local Competitive Bidding LIB - Limited International Bidding LS - Local Shopping MIRP - Municipal Infrastructure Rehabilitation Project MOP - Manual of Procedures NGO - Non-governmental Organization NMP - Net Material Product PMA - Project Management Agreement PIP - Project Implementation Plan PMIR - Poti Municipal Infrastructure Rehabilitation PPF Project Preparation Facility SAKENERGO - Republic Power Company SIA - Scientific Industrial Association SOE - Statement of Expenditures STIP - Short Term Investment Program TA - Technical Assistance TCC - Technical Coordination Committee TIAP - Thilisi Immediate Action Plan TMIRP - Tbilisi Municipal Infrastructure Rehabilitation Program USAID - United States Agency for International Development VAT - Value Added Tax WWF - World Wildlife Fund  STAFF APPRAISAL REPORT REPUBLIC OF GEORGIA MUNICIPAL INFRASTRUCTURE REHABILITATION PROJECT CONTENTS CREDIT AND PROJECT SUMMARY .................................................. i PART 1. INTRODUCTION. I Country Background. I Macroeconomic Background. 2 Bank's Interim Strategy. 3 Urban Sector ............................................................. 4 Municipal Services ......................................................... 4 Government Strategy for Municipal Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S IDA's Previous Role and Lessons .5....... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S Justification for IDA Involvement ........ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 PART II. PROJECT OBJECTIVES AND DESCRIPTION ...... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Infrastructure Rehabilitation Investment Component ....... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Tbilisi Immediate Action Plan ....... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Weatherization and Energy Services ...... . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Urban Transport Services ....... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Short Term Investment Program ....... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Tbilisi Municipal Infrastructure Rehabilitation Program ..... . . . . . . . . . . . . . . . . . . 9 Batumi Municipal Infrastructure Rehabilitation ...... . . . . . . . . . . . . . . . . . . . . . 10 Poti Municipal Infrastructure Rehabilitation .I.I.... . . . . . . . . . . . . . . . . . . . . . . . 11 Other Municipalities ....... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Institutional Development Component ....... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Independent Agency for Development of Municipal Services ..... . . . . . . . . . . . . . . . . . . . 12 Technical Assistance and Studies ....... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 PART III. PROJECT IMPLEMENTATION ........ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Status of Project Preparation ........ . . .. . . . . . . . . . . .. . . . . . . . . . . . . .. . . . . . . . . . . . . 14 Project Cost and Financing .1..4..... .. . . . . . . . .. . . . . . . . .. . . . . . . . .. . . . . . . . . .. . . . . 14 Project Cost Estimates ........ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Financing Plan ......... . . . .. . . . .. . . . . .. . . . . .. . . . .. . . . . . .. . . . .. . . . . . 16 Co-financing ......... . .. . . . .. . . . .. . . . .. . . . .. . . .. . . . .. . . . .. . . . .. . . . 16 Local Contribution ........ . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . .. .. . . 16 Financial Analysis ........ .. . . . . . . . .. . . . . . . . .. . . . . . . . . .. . . . . . . .. . . . . . 17 Financial Impact ........ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Cost Recovery and Pricing of Municipal Services ..... . . . . . . . . . . . . . . . . . . . . 17 Institutional Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 18 Borrower .... ................................................ 18 Independent Agency for the Development of Municipal Services ...... . . . . . . . . . . . . . . . . 18 Legal Framework ........ . . . .. . . . . . . . . . . . . .. . . . . . . . . . . . . .. . . . . 18 Management of the Agency ....... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Recruitment of Agency's General Manager ...... . . . . . . . . . . . . . . . . . . . . . . . 19 Supervision of the Agency ....... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Contractual Arrangements ........ .. . . . . . . . .. . . . . . . . . .. . . . . . . . .. . . . . . . . . 20 Procurement ............. .. .. .. .. ... .. .. .. .. ... .. .. .. ... .. .. .. .. ... .. .. . 20 Procurement Procedures ......... . . . . . .. . . . . . .. . . . . . .. . . . . . .. . . . . .. . . . . 20 Methods of Procurement ........ .. . . . . .. . . . . . .. . . . . . .. . . . . . .. . . . . . .. . . . 21 Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . .. . 21 Civil works ............. .. .. ... .. .. ... .. .. ... .. .. ... .. .. ... . 22 Advanced Procurement/Retroactive Financing ....... . . . . . . . . . . . . . . . . . . . . 23 Review of Procurement Decisions by the Bank ...... . . . . . . . . . . . . . . . . . . . . . 23  Hiring of Consultancy Services ....... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Currency of Foreign and Local Expenditures under the Credit ..... . . . . . . . . . . . . . . . . . . 23 Project Preparation Facility ........ . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . 24 Disbursement ........................................................... . 24 Disbursement Schedule. . . ......... ................... 25 Flow of Funds.
............. ........................ 26 Project Management .......... ...I.I. .. . .. .. .. .. I. .. . .. .. . .. .. . .. .. . .. .. . .. .. . 26 Accounting .......... .. . .. .. . .. .. .. . .. .. . .. .. . .. .. . .. .. .. . .. .. . .. . 26 Auditing ........... .. .. .. .. .. .. . .. .. .. .. .. .. .. .. .. .. .. .. . .. .. .. . . 27 Finanicial Reportinig ......... . .. . . .. . .. . . .. . . .. . . .. . .. . . .. . . .. . .. . . . . 27 Project Monitoring ......... . . .. . . .. . . .. . . .. . . .. . . . .. . . .. . . .. . . .. . . . . 27 Mid-Tern Review ......... . .. . .. . .. . .. . . .. . .. . .. . . .. . .. . . .. . .. . .. . . . 28 Operational Plan and Project Implementation Plan ....... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Borrower's Operational Plan ........ . . . . . . . . . . . . .. . .. . . . . . . . . . . . . . . . . . . . 28 Borrower's Project Implementation Plan ....... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Supervision Plan ......... .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . . 29 Environmental Review ........ .. . . . . .. . . . .. . . . . .. . . . . .. . . . .. . . . . .. . . . . 29 Public Environmental Awareness, NGO, and Community Participation ..... . . . . . . . . . . . . . 30 Economic Analysis ......... . . .. . . .. . . .. . . .. . . . .. . . .. . . .. . . .. . . .. . . . . 31 Social Analysis ........ .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . . 32 Poverty Alleviation ......... . . .. . . .. . . .. . . .. . . . .. . . .. . . .. . . .. . . .. . . . . 32 PART IV. BENEFITS AND RISKS .34 PART V. AGREEMENTS AND RECOMMENDATIONS .35 ANNEXES 1: Detailed Description of Project Investments 2: Integrated Coastal Zone Management Strategy 3: Housing and Municipal Sector Study - Terms of Reference 4: Detailed Project Cost Table 5: Institutional Arrangemenlts Attachment I . Legal Framework Attachment 2. Contractual Framework 6: Legal Document-Charter 7: Estimated Schedule of Disbursements 8: Procurement Implementation Ilan 9: Performance Indicators 10: Supervision Plan 11: Project Implementation Schedule 12: Environmental Review and Mitigation Plan 13: Qualitative Benefits 14: Selected Documents Available in the Project File MAPS IBRD No. 26163 and 26136 This report was prepared by Messrs/Mmes. Robert Maurer (Task Manager), Mats Andersson, Bidzina Imnadze, Martha Jarosewich, Dipika Mathur, and Betsy McGean (EC4HM), based on the findings of preparation (August 1994) and Appraisal (September 1994) missions. Other collaborators were: Messrs. Antti Talvitie (TWUTD) and Howard Carter (consultant). The Project Peer Reviewers were Messrs/Mmes. Maryvonne Plessis-Fraissard (AF31N), George Russell (ACTCO), and Thakoor Persaud (LA3EU). The Department Director, Country Division Chief, and the Sector Division Chief are Basil Kavalsky, Wafik Grais. and Thomas Blinkhorn respectively.  REPUBLIC OF GEORGIA MUNICIPAL INFRASTRUCTURE REHABILITATION PROJECT Credit and Project Summary Borrower: Republic of Georgia Beneficiary: Tbilisi, Batumi, Poti and other municipalities Amount: SDR12.5 million (US$18.0 million equivalent) Terms: Standard IDA terms (thirty-five years, including four years of grace) Cofinancing: USAID Expected contribution is about US$0.3 million Objectives: The project's three major short-term objectives include: a) arresting further (ieterioration of, and thereby stabilizing, critical municipal infrastructure services evaluated as vital to public welfare in selected Georgian cities; b) improving overall management and delivery of municipal services in a sustainable, environmentally beneficial manner; and c) reinforcing credibility of local governments through visible interventions in key services in order to help reinstate public confidence and ensure social stability. In the longer term, the timely and efficient implementation of the assistance program will help lay an important foundation for future reform and restructuring efforts aimed at improving overall management and delivery of crucial municipal services. Description: The project will have two main components: (a) an infrastructure rehabilitation investment component aimed at protecting essential existing infrastructure from further decay and renovating some additional urgently needed economic and social services. This component includes five types of operations: ( i) heating and energy- saving measures for schools and hospitals; (ii) urban transport; (iii) water supply; (iv) waste water; and ( v) solid waste collection and disposal; and (b) an institutional development component aimed at: (i) implementing the project effectively; (ii) initiating a process to develop, over time, local capabilities in such critical areas as project and financial management, procurement, investment analysis, and environmental assessment and management; (iii) developing coherent strategies and action programs, mainly at the local levels, to deliver key municipal services and control or alleviate serious pollution problems along Georgia's Black Sea coast. This would represent a first intervention in Georgia to operationalize studies and analyses being  - ii - done by the regional Black Sea Clean-up Program, financed by the Global Environment Facility (GEF). Implementation: The project would be implemented through the newly created non- governmental, non-profit Agency designed to function as a "contract manager". The Agency's legal framework (Charters, Project Management Agreement, and Manual of Procedures) is designed to provide broad operational autonomy. The Agency has been established with assistance from the Project Preparation Facility (PPF). Pilot sub- projects will be carried out to test internal and procurement procedures under a bridge loan from the Soros Foundation. The Agency's general manager has been hired. A financial and management audit every six months, as well as thorough Annual Reviews of sub-projects, will monitor compliance with agreed procedures. The project implementation period is estimated at three years. Justification: The project will help improve delivery of key economic and social infrastructure in the capital, Tbilisi, and two key coastal cities, Batumi and Poti. A financial provision is also included to help additional cities with urgent infrastructure needs; these would be identified and appraised during the life of the project. Basic infrastructure services have deteriorated critically in the cities as a result of the difficult economic transition, which has been compounded by earthquakes and civil war. The combination of these forces has preoccupied the Government, absorbed virtually all available financial resources, and created an acute and pervasive lack of maintenance and repair of basic municipal infrastructure services. Benefits and Risks: The project will have four direct benefits: (a) helping rehabilitate essential infrastructure in key municipalities. It will thus facilitate, in the near term, the government's macro-economic stabilization efforts and, in the long term, help provide the foundation for better managed, environmentally sound municipal service systems; (b) arresting further deterioration and disruption of essential services; (c) mitigating to some extent environmental and health hazards and helping maintain crucial health care services and educational programs during the winter; (d) demonstrating through effective operation of the independent implementation Agency a workable alternative to traditional procurement procedures in Georgia. There are several risks involved, primarily the risk of political instability. The Government is still in the process of consolidating its power and determining institutional responsibilities. To minimize potential problems or delays, the project focuses specifically on: a) rehabilitation priorities, (b) establishing a non-bureaucratic  - iii - implementation Agency; and (c) undertaking a pilot phase with procurement activities in order to identify potential problems early in the project cycle. The second major risk is that the Agency could misuse its independence. However, this risk will be mitigated by the selection of a well-qualified manager, whose appointment will have to be acceptable to IDA. Additionally, frequent supervision missions, close monitoring of the implementation of the Manual of Procedures, and frequent external audits will provide an opportunity to deal with possible inadequate performance. The third major risk is that local contractors and consulting firms may lack the capacity required to implement the project on time. This risk will be reduced by the fact that the project will be carefully scaled and spread over three years to take into account local absorptive capacity. However, this risk will have to be reassessed during the mid-term review.  - iv - Summary Project Cost Estimate (net of taxes and duties) (US$ Million) % Foreign % Total Local Foreign Total Exchange Base Costs A. Infrastructure Rehabilitation Component 1. Tbilisi Heating/Energy Saving 1.0 3.1 4.1 75 24 Urban Transport 0.4 3.6 4.1 90 24 Water Supply, Wastewater and Landfill 0.2 2.0 2.1 90 14 Subtotal Tbilisi 1.6 8.8 10.4 84 60 2. Batumi Water Supply and Wastewater 0.2 1.9 2.1 93 12 3. Poti Wastewater and Landfill 0.1 0.8 0.9 90 6 4. Other Cities 0.2 1.6 1.8 90 10 Subtotal Infrastructure Rehab Component 2.1 13.2 15.3 87 89 B. Institutional Development Component 1. Project Implementation 0.1 1.3 1.4 90 8 2. Studies 0.1 0.4 0.5 90 3 Subtotal Institutional Development 0.2 1.8 1.9 90 11 Component Total BASELINE COSTS 2.3 15.0 17.3 87 100 Contingencies (Physical & Price) 0.2 2.1 2.3 14 Total PROJECT COSTS 2.5 17.2 19.7 Financial Plan (US$ Million) % of Total Local Foreign Total Project Cost Government 1.4 1.4 7.1 IDA 1.1 16.9 18.0 91.4 Other Donors _ 0.3 0.3 1.5 TOTAL COSTS 2.5 17.2 19.7 100 Percentage 13 87 100  v Summary of Proposed Procurement Arrangements (US$ Million) ICB LCB OTHERS NBF TOTAL Goods 5.4 2.5 0.3 13.5 Equipment for water supply (5.0) (2.4)a Sewerage, landfill 2.4 (12.4) Urban transport, and (2.3)b Heating system 0.6 (0.5)c 2.3 .__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ . _ _ _ _ _ (2 .2 )d Works 2.6 2.3 4.9 (2.4) (2.0) (4.4) Consultancy - - 1.3 - 1.3 (1.2) _ (1.2) TOTAL 8 2.3 9.1 0.3 19.7 ol' which IDA (7.4) (2.0) (8.6) (18.0) (a) LIB ($2.4) - Item available from a limited number of suppliers. (b) IS ($2.3) - Contracts below $250,000 each. (c) LS ($0.5) - Contracts below 20,000 each. (d) DC ($2.2) - Spare parts for buses, trams, and trolleys. (e) According to Bank's Consultant Guidelines. Estimated IDA Disbursement ( by fiscal year) (US$ million) IDA Credit FY 1995 FY 1996 FY 1997 FY 1998 Annual 4.1 7.8 5.1 1.0 Cumulative 4.1 11.9 17.0 18.0 (Note: numbers may not add up due to rounding) Estimated Economic Rate of Retirn: Not Applicable   REPUBLIC OF GEORGIA MUNICIPAL INFRASTRUCTURE REHABILITATION PROJECT STAFF APPRAISAL REPORT PART I. INTRODUCTION A. Country Background 1.1 Situated in the southern part of the Caucasus region (See Map 1), Georgia is a relatively small country with a population of 5.4 million and a geographical area of 70,000 square kilometers. The capital, Tbilisi, has a population of 1.5 million. Georgia was the first of the non-Baltic states to declare Independence from the Former Soviet Union (FSU) on April 9, 1991. Formal contacts between the World Bank and the Republic of Georgia (hereinafter referred to as Georgia) began in March 1992, and the country joined the World Bank in August 1992. One year later, Georgia joined IDA. 1.2 Soon after its Independence, the country became embroiled in political and civil strife. The consequences have had a devastating effect on the nation's economy and its social stability, further compounding the difficult transition to market orientation. Conflicts in Ossetia, located in north central Georgia, resulted in numerous casualties and refugees; since 1992 peace-keeping forces have stabilized the situation. A separatist war in Abkhazia continued throughout 1992- 1993, resulting in an estimated 260,000 refugees migrating to other parts of Georgia, including Tbilisi and the coastal cities of Poti and Batumi. A cease-fire in Abkhazia is now in effect, although the Government does not control the region. During the same period, the Government also fought military supporters of former President Gamsakhurdia, generating additional casualties and destruction. 1.3 In combination with an economy under severe transitional stress, Georgia's three civil conflicts have worsened the socio-economic plight of the country. The serious deterioration of basic infrastructural and municipal services is adversely affecting the economy, and in turn, is causing widespread environmental degradation. Public health is jeopardized by unpotable water supplies, untreated sewage and unmanaged dumps and landfills. Refugees of war have migrated to the capital and other key cities such as Poti and Batumi, adding to the existing strain on housing and dysfunctional municipal services. Having endured the two past winters with minimal or no heat, the urban population is preoccupied with the onset of another difficult winter. By 1993, Georgia's economic decline had placed the majority of the Georgian population under the official poverty line. The standard of living for the majority has plummeted over the past four years, particularly for more marginalized and vulnerable groups who suffer most as the system of social protection collapses. Meanwhile, there has been a crisis in public confidence, and a related erosion in social order and discipline. Only relatively recently, since the intensity of armed conflicts abated in late 1993, has the Government been able to refocus its attention on the task of maintaining law and order, and rebuilding the economy. Essential to this broad-based effort is the need, first, to arrest further deterioration and possible collapse of basic infrastructure and municipal services, and, second, to begin to rehabilitate infrastructure and services deemed essential to public health, safety and welfare.  - 2- B. Macroeconomic Background 1.4 At the time of Independence, Georgia was a relatively well-off Republic with fairly good growth potential. The economy's sources of strength included a well-educated labor force, a strong tradition of entrepreneurship, agriculture and agro-industries, tourism on the Black Sea coast, mineral and natural resources, and production of other commodities. The country's location made it a primary transit conduit for goods shipped elsewhere in the Caucasus region. External trade, mainly with the republics of the FSU (96 percent of total exports), played a large role in the economy. Georgia relied heavily on imports of energy from other republics, notably Russia for electricity and crude oil, and Turkmenistan for natural gas. Imported energy comprised 95 percent of the total energy supply in 1992-1993. 1.5 However, the conflicts and disruption in payments and trade within the FSU have had a severe impact on the Georgian economy. At present, it ranks among the poorest countries of the FSU with GDP per capita estimated at US$563 in 1993. The decline in production began in 1989, but has been particularly sharp since 1991. In the period 1991-93, net material product (NMP) fell by a cumulative total of 75 percent, affecting all sectors. The most significant relative decline has occurred in construction, where economic activity practically halted in 1993. Agricultural production fell by 42 percent in 1993, and industrial production by 21 percent. 1.6 The budget deficit was about 28 percent of GDP in 1992 and 1993; it deteriorated further in the first quarter of 1994. Inflation accelerated from 80 percent per annum in 1991 to 8,400 percent per annum in 1993. While the underground economy is pervasive, the revenue collection was only 3 percent of GDR in 1993. The Georgian Coupon, introduced in April 1993 at a conversion rate of 1 Coupon per ruble and proclaimed as the only legal tender in August 1993, virtually collapsed by early 1994. The rate of exchange for one U.S. dollar was about 1,500,000 Coupons in August 1994. Increasingly, only Russian rubles and hard currencies (mainly the US dollar) are accepted as means of payment. There has been a clear erosion in governmental control over the economy (e.g., revenue collection accounted for only 3 percent of GDP in 1993), and there is a growing underground economy. 1.7 With the continuous deterioration of the economic situation over the past five years, the living standards of the majority of the population have declined sharply. Unemployment, almost negligible at the beginning of 1992, reached 8.4 percent of the labor force by December 1993. Real wages have declined by about 90 percent over the last two years. In addition, central heating was discontinued during the winters of 1992 and 1993 because of malfunctioning heating systems and lack of fuel. Electric power has been rationed. With more than 12 hours of daily power shutdowns, the shortage of fuel and electricity has forced cuts in public transport and imposed considerable hardships on the population. The breakdown in key municipal services is also having a serious environmental impact, particularly on public health. The incidence of intestinal and other water-related diseases is increasing; surveys indicate that digestive ailments among people on the Black Sea coast are twice the national average because of polluted water and other causes. Expenditures on health and education have declined from 11 percent of GDP to only 2% in 1993. In general, the health of the population is substandard and declining in certain areas; adults suffer high mortality rates in cerebro-vascular and heart diseases (3-4 times European average), while both infant and maternal mortality rates are on the rise.  - 3 - 1.8 Since the beginning of 1994, the Government has begun to consolidate its control over the country. There is some improvement in the law and order situation, and a new governmental team has renewed efforts to rebuild the economy through market-oriented reforns. While lagging in macroeconomic stabilization, progress has already been made in implementing structural reforms in several areas. Virtually all housing has been privatized, and agricultural land is being privatized successfully. The government has initiated small-scale enterprise privatization, most prices have been liberalized, and the import regime is relatively open. Interest subsidies and a cash management system are planned in order to limit monthly Government expenditures to revenues. However, Georgia is initiating a comprehensive program of stabilization policies and structural reforms under very difficult conditions and stringent financial constraints. Without drastic measures, as well as strong commitment to reforms on every level of Government, it will be difficult to achieve success in this process. C. Bank's Interim Strategy 1.9 The overall intention of the Georgia program has been to support efforts to reverse the economic declines of the past few years and to move to a private sector led, market-based economy. Through the end of 1993, however, given the civil conflict and resulting lack of focus and capacity in the Government to implement economic reform, lending was not practicable. Instead, the focus was on building macroeconomic and sector knowledge and providing limited technical assistance through Bank missions. Since the beginning of 1994, the Government has initiated an economic stabilization program, as noted above. 1. 10 With the Government's new focus on reform matters, the Bank has initiated a broader program of lending and sector work in municipal infrastructure, energy, health, agriculture, transport, and environment. Other work is soon to be undertaken on enterprise reform, including privatization, and on the financial sector, augmenting the work carried out under the Institutional Building Credit. Furthermore, the Bank organized and chaired an informal donors meeting in July 1994. At that time, the Government and donors exchanged views on the Government's efforts to put in place macroeconomic stabilization and structural reform. Discussion focused on current and planned assistance programs in Georgia, including energy and transport development, telecommunications, health and education, and municipal infrastructure. An energy donors meeting was also chaired by the Bank in London on August 4, 1994 and a C. G. is planned in November 1994. 1.11 The recently approved Institution Building Credit and the proposed Municipal Infrastructure Rehabilitation Project represent first steps in helping Georgia progress towards an environment in which economic stability, sustained growth and improved living standards can take place. This is at the core of the Bank's strategy for Georgia. In a program of two projects per year, the Bank will also prepare projects in agriculture, to build on the substantial potential for higher value and export-oriented production, in energy, to assist with the rehabilitation of facilities in this crucial sector, and in health, to upgrade delivery of primary, maternal and child health care. Another project may also support the upgrading of telecommunication systems.  -4- D. Urban Sector 1.12 Georgia is becoming increasingly urbanized, with 55 percent of its total population living in urban settlements. In the pre-World War II period, the majority of the population lived in rural areas. The process of urbanization has mainly been spurred by enforced industrialization and excessive concentration of economic activity in urban centers. 1.13 Tbilisi, the capital and largest city in the country (1.5 million), constitutes 27 percent of the total population and 48 percent of the urban population. Tbilisi experienced rapid growth after World War II and continues to expand, despite its lack of adequate infrastructure. The recent civil unrest has caused a major inflow of refugees to the city, estimated at 100,000. The rate of natural population growth has declined during recent years and at present is only 0.8 percent per annum. 1.14 The remaining six largest urban settlements include: Kutaisi (236,000), Rustavi (160,000), Batumi (137,000), Sukhumi (122,000), Poti (75,000) and Gori (60,000). Together with Tbilisi, their population represents approximately 75 percent of the urban population of Georgia. During the last decade, growth of these cities has been slow but steady. Due to recent military actions, the city of Sukhumi in the Abkhazia Autonomous Republic has been significantly destroyed, forcing large numbers of people to flee to other parts of Georgia. No reliable information on migration trends is yet available. 1.15 The current urban sector can be characterized by five main features: (a) continuing urbanization, coupled with economic contraction, resulting in high unemployment and under- employment; (b) growing scarcity of public resources during the last several years, resulting in a steady decline in per capita urban investment; (c) poor performance of the main government bodies responsible for urban development and housing; (d) deteriorating environment, particularly with respect to public health from polluted water, open sewerage, poorly managed household and industrial waste; and (e) inadequate institutional and fiscal structures. The bulk of the responsibility for maintaining infrastructure and services has been transferred to municipalities and local communities, but without increasing their resources or authority. E. Municipal Services 1.16 Georgia is organized into a three tier system of governance, consisting of central, rayon (an intermediate government level somewhat similar to counties in the United States and some other countries), and local governments. The country is divided into 63 rayons, which in turn, are divided into local territorial units. The city of Tbilisi has a special status as the capital city, and is divided into ten districts. In addition, there are two autonomous entities in Georgia, namely Adjaria and Abkhazia. Provision of municipal services is delegated to local administrations, or, in some cases, entrusted to quasi-independent enterprises. However, local administrations and these enterprises are still heavily controlled by the central Government, particularly on such issues as tariff policy and investment decisions. The tariff structure in municipal services is highly distorted. Higher tariffs are charged to industrial users to compensate for low residential tariffs. The latter are set and controlled by the central Govermment. As a result, complex systems of cross and hidden subsidies have developed to  sustain operations of municipal services enterprises. Investment decisions are frequently made at the central level, without clear economic criteria and without regard for local conditions and needs. 1.17 The municipal services sector is characterized by an excessive level of centralization and a virtual absence of cost recovery. The consequence is a significant dependence on the financial support of the central Government. The recent sharp contraction in economic activity and the drastic increase in the budgetary deficit have had major negative impacts on the municipal sector, including low service levels, inadequate maintenance and operations practices, and numerous and often under-employed manpower. The situation is compounded by the extreme weakness of local governments, which have poor tax collection systems and inadequate control procedures. 1.18 In collaboration with Georgian national and municipal authorities, as well as other international donors, priorities were analyzed and the cities of Tbilisi, Batumi and Poti were selected as the first three target areas in which to address critical municipal infrastructure needs. (There is financial scope for additional cities with urgent needs to be identified and addressed during the course of the project's life). Like most municipalities in the country today, all three communities suffer from a grave breakdown in basic services, including wastewater treatment, solid waste disposal, drinking water, electric power supply, heating, and transport. While Tbilisi comprises over one quarter of the nation's population, two of the major coastal cities of Batumi and Poti, with a combined population of over 200,000, including substantial numbers of refugees from Abkhazia and are strategic locations as the only reliable port access points for the entire country. (Abkhazia and its major city of Sukhumi are still largely inaccessible due to tight security). In addition, both Batumi and Poti have been identified in studies by the Black Sea Program for Environmental Protection and Management (funded by the Global Environment Facility and supported by the six coastal nations on the Black Sea) as major pollution "hotspots" in the regional Black Sea clean-up effort. By focusing on certain critical municipal infrastructure needs such as waste water treatment and landfill management in Batumi and Poti, major environmental and public health benefits will also be achieved. F. Government Strategy for Municipal Development 1.19 As part of the overall economic stabilization, the Government is beginning to initiate work on redefining its sector strategy and objectives. To save on meager resources, the central Government is planning to withdraw, at least partially, from direct support to urban services, urban infrastructure development and provision of shelter. To the extent possible, these functions are to be taken over by local governments and the private sector. Some of these functions, such as water supply, have been already largely entrusted to quasi-independent agencies. However, excessive control by local administrations is still maintained. In addition to the process of decentralization, the Government needs to clearly articulate sector policies in order to guide investment priorities and cost recovery efforts, and promote quality and efficiency of services. Notwithstanding certain recent positive developments in this field, there are still numerous unresolved problems, particularly pertaining to rapidly deteriorating municipal infrastructure, financial management, administrative organization, and human resources.  - 6- G. IDA's Previous Role and Lessons 1.20 Georgia joined the Bank and IDA within the past two years. Thus, neither IDA nor IBRD have had operational experience in the country, except for some economic and sector work as well as a recently approved Institution Building project involving a loan of US$10.1 million. The proposed Municipal Infrastructure Rehabilitation Project (MIRP) is the Bank's first response to the pressing needs of urban infrastructure and essential municipal services in Georgia. To some extent, the Bank can draw upon experience in assisting other member countries, several in the former FSU, with similar issues. H. Justification for IDA Involvement 1.21 The devastated economy has already pushed the majority of the population below poverty level, and the living conditions are reaching the catastrophic stage. The Government lacks resources even to focus on these issues and is unable to invest in improving the basic services. The project will directly impact the lives of population-at-large, which would facilitate general support to the economic reforms. 1.22 Most external donors are focusing their assistance efforts in Georgia almost exclusively on humanitarian aid. IDA is the only concessional source available to help finance programs to reduce deterioration of basic infrastructure services in municipalities. Concessional assistance is required because the economic crisis in the country is severely straining financial resources available for maintenance of basic community services. In addition to economic reform support, IDA funds are essential for public health and safety, and environmental stabilization. Assistance from IDA can thus play a significant role in helping foster an environment in which economic stabilization, and growth can take root and lay the foundation for improved future management and delivery of municipal services. 1.23 It must be emphasized, however, that there is no complete assurance of the long-term sustainability of the proposed MIRP. The macroeconomic and structural dialogue is only beginning with Georgia. However, this emergency-track operation, the timing and priorities of which are deemed critical to help restore social and economic stability, will also strengthen the dialogue and emerging partnership between Georgia and the World Bank. Given the serious deterioration in essential services, a rapid and innovative project is justified. Further breakdown in municipal and environmental systems appears unavoidable without immediate Bank intervention.  - 7 - PART II. PROJECT OBJECTIVES AND DESCRIPTION Project Objectives 2.1 The project's three major short-term objectives include: a) arresting further deterioration and thereby stabilizing critical municipal infrastructure services evaluated as vital to public welfare in selected Georgian cities; b) improving overall management and delivery of municipal services in a sustainable, environmentally beneficial manner; and c) reinforcing credibility of local governments through visible interventions in key services in order to reinstate public confidence and ensure social stability. In the longer term, the timely and efficient implementation of the immediate assistance program will help lay the foundation for future reform and restructuring efforts aimed at improving overall management and delivery of crucial municipal services. Project Description 1. Infrastructure Rehabilitation Investment Component (US$15.3 million-base cost) 2.2 During project preparation, the adequacy of the Government's program for dealing with the deteriorating municipal services situation and its link with the economic stabilization effort was reviewed. The national Government, particularly the Office of Head of State, seems fully concerned about, and committed to, the rehabilitation of basic infrastructure. However, it faces serious constraints in trying to formulate with municipalities priority public investment activities as well as longer term reform programs. Although civil strife has ceased, the Government remains preoccupied with the difficult political situation in the Abkhazia Autonomous Republic. In addition, Georgia's deteriorating economic situation has left the Government strapped for financial resources. Finally, the central administration and municipalities find it difficult to move quickly to address urgent infrastructural problems. 2.3 Since sectoral reform programs are still evolving, or in the early stage of formulation, the Bank mission, after consulting with national and local officials, agreed to concentrate on municipal services which meet the following criteria: (a) those on which the population depends for its health or survival; (b) those deemed essential for sustaining labor mobility and economic activity; c) those that can be stabilized, reactivated or rehabilitated through provision of spares and/or replacements in a relatively short period; (d) those in which the combination of social disruption and economic transition creates risks of unacceptably high social costs if not remedied immediately; and (e) those for which alternative external assistance is not likely to be available in the short-term. Tbilisi was selected because it is the capital, containing about one-third of the total population. Batumi and Poti were selected because they are key port cities, and the only currently operative points for external trade for the nation. Additional cities might be included during project implementation. These municipalities would receive assistance under an investment component (see Annex 1) divided into two phases as follows:  - 8 - a. Tbilisi Immediate Action Plan (TIAP) (US$3.17 million) 2.4 The objective of the TIAP is to address the most urgent problems in municipal infrastructure prior to the onset of the 1994/95 winter (starting December, 1994). The proposed elements for Tbilisi include: (i) weatherization and insulation for 23 key hospitals and schools buildings; (ii) installation of dedicated electricity lines for 15 hospitals; and (iii) essential spares and equipment for the city underground system and aboveground public transport system. These measures constitute the most important part of the first year work program. 1) Weatherization and Energy Services (US$2. 11 million) The investments will conserve energy and trap heat in hospital and school buildings through replacement and repair of damaged or missing windows, doors, and draught- proofing measures. Where possible, improvements in the city's electrical distribution system will be made to ensure that hospitals can obtain dedicated, continuous supplies of power. The Government and the Municipality of Tbilisi have agreed that adequate fuel for school and hospital heating systems will be provided as part of the city's emergency program from sources to be financed by bilateral donors. (i) Schools. The first emergency action is to implement primary weatherization of 200 Tbilisi schools. It is anticipated that this will reduce the period during which schools are shut down for the winter by about 6 weeks, based on average winter temperatures. Without completing this weatherization, rehabilitating heating systems would be ineffective. Primary weatherization includes replacement of missing windows with single pane glass, repair or replacement of window frames, installation of polyethylene film, caulking, and exterior door repair. This will enable children to attend school longer and more comfortably on a revised yearly schedule. (ii) Hospitals. The second emergency action is to provide primary weatherization and special power supplies to priority-listed hospitals. Two options will be pursued to achieve assured power. The first is to provide dedicated electrical distribution from high voltage electrical sources directly to the hospitals. The second is the installation of on-site, diesel-driven electrical generators. Under the TIAP, the highest priority will be to secure dedicated electrical distri- bution to the hospitals. 2) Urban Transport Services (US$1.06 million) Essential spare parts will be procured for the underground metro, and for trolley and diesel buses before the onset of the 1994/95 winter months. This activity is included in the immediate action plan because the lack of spare parts for both above and below- ground transport systems has reduced the operation of public transport in Tbilisi to a critical edge, and the public is at risk from the hazard of water leaking into electrical systems. For the Metro, the emergency action program is directed to improvements of the central control room, pumping water away from the underground electrical system,  - 9 - returning to service about 20 cars, and providing essential spare parts for ailing in- service cars. 2.5 Two elements of the emergency operation (i.e., weatherization in hospitals and schools and rehabilitating the public transport system) will be partially financed by a US$300,000 PPF advance and a US$500,000 bridge loan from the Soros Foundation. These will be refinanced upon project effectiveness. Funding from the advances will be used to meet urgent needs and accelerate development of local capacity in the areas of procurement, and mobilization of local contractors/consultants. Experience in this phase will be closely monitored and the lessons learned applied in order to improve the efficiency and effectiveness of project implementation generally. b. Short Term Investment Program (STIP) (US$12.16 million) 2.6 The STIP will also respond to urgent identified needs in Tbilisi, Batumi, Poti, as well as other potential cities. Its implementation will be carried out over about three years. The short-term investment program will expand on the TIAP in Tbilisi, and will incorporate additional municipal infrastructure for rehabilitation, including sewerage, water supply, and solid waste disposal. The STIP will include the following elements: 1) Tbilisi Municipal Infrastructure Rehabilitation Program (US$7.27 million) Four subcomponents have been prepared: (i) Heating (US$1.97 million) The proposed assistance, a "second stage" improvement, will complement the Tbilisi Immediate Action Plan. In addition to primary and secondary glazing and frame replacements, rehabilitation of existing heating systems for schools will be undertaken where possible. Installation of diesel generators and rehabilitation of heating infrastructure for hospitals is planned, along with additional repairs and insulation, particularly roof insulation. (ii) Urban Transport (US$3.03 million) For Metro, the assistance will: (a) improve ventilation, pumps, escalators, and electrical substations to enable dependable service; (b) repair the track at strategic locations to maintain safety in the operation of trains; (c) overhaul a portion of the rolling stock; (d) complete restoration of the central control system destroyed by fire; and (e) modernize the fare collection system to eliminate losses in fare box income. For Tbiltrans, the above-ground system, the short-term investment will help repair or maintain existing vehicles.  - 10 - (iii) Water Supply (US$1.32 million) The water supply and distribution system currently suffers from defective equipment and unreliable electrical supply. These problems produce supply interruptions that severely restrict the operation of the system and increase stress on the electrical distribution network. The distribution network operates at its limit, with no spare capacity whatsoever. The short-term investment proposal will enable the purchase of essential spares, materials and equipment. The program will replace essential equipment (i.e., pumps, motors, switchgear, cabling, chlorination, laboratory and short-wave communication radio), replace the distribution pipework, and repair service reservoirs. (iv) Wastewater (US$0.61 million) Acute operational difficulties in waste water treatment result primarily from: (i) the poor condition of some 40% of the sewers, resulting in blockages and flooding in the streets of Tbilisi; and (ii) the lack of spare parts and equipment to make emergency repairs. The project will finance: plant and equipment for the maintenance of sewers; renovation works to sewers, and water treatment plant. (v) Solid Waste (US$0.32 million) Due to fuel shortages and other problems with collection vehicles, much of the solid waste is deposited in unofficial dumps within the 10 city districts. Priority problems are mainly the lack of transfer trucks and use of unauthorized dumps which pose a health hazard. In the short term, the priority needs to be financed under the project include: equipment for the efficient operation of existing dumps; and equipment, including spare parts, to improve solid waste collection and transport operations. 2) Batumi Municipal Infrastructure Rehabilitation (US$2.13 million) Batumi faces considerable difficulties in maintaining adequate water supply, waste water treatment, and solid waste collection and disposal. These priorities will be addressed as follows: (i) Wastewater (US$0.93 million) Emergency repairs are virtually impossible due to the lack of spare parts. At the pumping stations, the electrical and mechanical equipment is in poor condition. Additionally, the equipment used for emptying septic tanks is in a poor operational state. In order to maintain the operational integrity of existing facilities, the following works will be undertaken: (i) provision of sewer cleaning equipment; (ii) renovation of sewers in urgent need of  - 11 - attention; (iii) provision of spares for sewer repairs; and (iv) upgrading of three sewage pumping stations. (ii) Solid Waste (US$0.48 million) The city's existing garbage collection and disposal system is inadequate, causing unhealthy conditions and significant environmental problems to the marine waters and shores of the Black Sea. The rehabilitation program includes financing for the rehabilitation of the landfill as well as making provision for improvements to operating practices. Included are: additional equipment (compactor/dozer) and waste containers; spare parts for existing equipment; and improvement in handling solid waste. (iii) Water Supply (US$0.72 million) Batumi's water supply is adversely affected by the quality of the river water which deteriorates rapidly from excessive turbidity during frequent storms. A lack of attenuation or treatment capacity forces the Water Trust to close the river intakes until water quality improves. While treated water storage capacity is available in Batumi, it cannot be used without increasing power consumption. Thus, when the river sources are closed, the population is wholly dependent on the alternative borehole supply. The reliability of the boreholes is linked to the supply of electricity from the Batumi grid, which is severely restricted. The following short-term solutions will be financed to improve the quantity and quality of the city's potable water supply: refurbishment or provision of pumps and standby generator equipment at one of the main borehole water sources to secure reliability of the supply when the river intakes are closed; equipment to permit the continuation of repair work; communication equipment, including short wave radio, to improve communication between pumping installations and treatment plants; leakage detection apparatus and improvements in chlorination plant, are also included. 3) Poti Municipal Infrastructure Rehabilitation (US$0.95 million) The two major environmental and health hazards in Poti are related to wastewater and solid waste management. The project proposes funding to address mitigation needs to begin to alleviate these difficulties. (i) Wastewater (US$0.73 million) Poti's population is only partly served by a sewerage network. The majority of the residential parts of the city (70%) are dependant on septic tanks. The sewerage network depends on a number of pumping stations which are in urgent need of mechanical and electrical refurbishment. There are insufficient operational tanker vehicles to maintain an adequate level of service. The urgent works identified to maintain the operational integrity of the existing  - 12 - facilities include: provision of sewer cleaning equipment; renovation of sewers; upgrading of four wastewater pumping stations; and provision of vehicles and associated equipment for emptying septic tanks. (ii) Solid Waste (US$0.21 million) The proposed short-term solution aims to improve the efficiency of solid waste collection and landfill management which is now seriously deficient and poses a health hazard. The short term investment includes: spare parts for existing collection equipment to improve solid waste management, and purchasing of equipment to grade and cap existing solid waste with inert materials. 4) Other Municipalities (US$1.80 million) A small fund is proposed to help finance urgently needed infrastructure rehabilitation in additional cities during the life of the project. The selection criteria for these investments will be the same as those applied to the identified portfolio (see para. 2.3). 2. Institutional Development Component (US$1.95 million) 2.7 The project's second component includes institutional development support to help: (a) implement the project effectively; (b) initiate a process to develop, over time, local capabilities in such critical areas as project and financial management, procurement, investment analysis, environmental assessment; (c) Government in its effort to formulate a realistic future strategy for the management and delivery of key municipal services; (d) develop coherent strategies and action programs, mainly at the local government level, to control and alleviate serious pollution problems along Georgia's Black Sea coast. This would represent a first intervention in Georgia to operationalize studies and analyses being done by the regional Black Sea Cleanup Program, financed by the Global Environment Facility (GEF). The following activities would be supported: a. Independent Agency for Development of Municipal Services (US$0.26 million) 2.8 In order to ensure expeditious and efficient implementation of the proposed MIRP, including rapid procurement and disbursement, the Government has established an independent, non-governmental, non-profit private company--the Independent Agency for Development of Municipal Services (the Agency). All operational costs of the Agency, including technical assistance, training, and equipment to achieve the project's objectives, will be financed through the Credit for the duration of the project. As agreed with the Government during negotiations, the Agency is meant to be a temporary facility, designed to respond to an emergency situation by facilitating project implementation outside normal Government channels; upon project completion in about three years, the Agency will cease to exist. During its life, the Agency will be staffed by a General Manager, an Assistant General Manager (both Georgian nationals), a procurement adviser (expatriate specialist), secretaries and a driver. It will have its own office in Tbilisi.  - 13 - b. Technical Assistance (TA) and Studies (US$1.68 million) 2.9 Technical assistance and training will focus on such key areas as: general project organization and management, procurement planning and execution, project accounting, various technical assessments, and analysis of environmental and social impacts. Specifically, the TA subcomponent will help finance: (a) special environmental public awareness activities, parti- cularly on the Black Sea coast; (b) public relations programs to develop public support for the emergency heating assistance in Tbilisi (schools and hospitals); (c) specialized assistance for improved environmental assessment, monitoring and management; (d) development of future options for more effective management of the household waste problem in Batumi and Poti; (e) water supply development in Tbilisi and Batumi; (f) and improving the management of the urban transport system. Assistance would also be provided for a number of technical studies in the following areas: (a) Integrated Coastal Zone Management on the Black Sea coast, focusing and building on initial pollution abatement investments in Batumi and Poti (see Annex 2 for details); (b) a master plan for the Tbilisi water supply and household waste systems; (c) a sectoral study of municipal services, including housing (Annex 3 and para 5 .2g for Agreements and Recommendations).  - 14 - PART III. PROJECT IMPLEMENTATION A. Status of Project Preparation 3.1 The MIRP was identified in June, 1994, prepared during a broad based pre-appraisal mission in August 1994, and appraised in September 1994. The Agency responsible for project implementation is established, an experienced General Manager has been hired, and technical and costing data have been prepared for each of the project components. In order to speed implementation after negotiations and Credit effectiveness, the Borrower, through the General Manager and with assistance from the Bank is currently: (a) contracting a local engineering firm to prepare a detailed inventory of the needs in the Tbilisi schools and hospitals as input to the preparation of bidding documents; (b) contracting a public relations firm to inform various audiences about the project's objectives and develop an interactive communication program designed to increase the public's awareness and support; (c) finalizing a Manual of Procedures for Agency operations and accountability; and (d) preparing the first set of procurement documents. In order to facilitate the project, a Project Preparation Facility (PPF) of US$0.3 million was approved, and additional bridge funds (US$0.5 million) are expected from the Soros Foundation to start implementation of the Immediate Action Plan before project effectiveness. B. Project Cost and Financi 1. Project Cost Estimates 3.2 Total project cost is estimated at US$19.69 million equivalent. The foreign exchange costs (FEC) have been estimated for each subcomponent; combined, their overall weighted average is 87 percent of total cost. All local costs have been converted to US dollars at an exchange rate of 1,500,000 coupons per dollar. Costs are expressed in US dollars due to the unpredictability of national inflation and devaluation rates during the implementation period. 3.3 The estimates for consultancy/studies are based on typical current costs for such assignments. Investment cost estimates are based on engineering studies carried out by local and foreign consultants financed by the Bank and with the assistance of municipal officials. The unit prices come from two major sources: (a) quotations on equipment and materials from foreign and local suppliers; (b) prices for goods and works from recent contracts in Georgia. Costs have been subjected to contingencies of 14.5 percent, including physical contingencies (10 percent of base cost), and price contingencies (4.5 percent of base cost). Goods imported for the project with Credit proceeds are exempt from import duties and taxes. Annual inflation rates have been estimated as follows: TABLE 1: Local and Foreign Inflation Rates (in %) 1993 1994 1995 1996 1997 Local 4084.0 45749.7 3220.3 91.6 22.7 Foreign 0.5 3.4 2.9 3.1 2.7  - 15 - 3.4 The proposed IDA credit of US$ 18.0 million equivalent will finance 91 percent of project costs, net of duties and taxes over a three-year period. The cost summary for the project is presented in Table 2 and additional details are given in Annex 4. The government's financial contribution will be US$1.39 million equivalent, or 7.1 percent of the total project cost, with the balance to be made available by USAID (1.5 percent). The local contribution will be provided to the Agency in addition to those contributions financed by IDA and other potential co-financiers. TABLE 2: Project Cost Summary (net of taxes and duties) Cost Estimate (US$'000) (US$ '000) % Foreign % Total Local Foreign Total Exchange Base Costs A. Infrastructure Rehabilitation Component 1. Tbilisi Heating/Energy Saving 1,026.0 3,078.0 4,104.0 75 24 Urban Transport 409.0 3,681.2 4,090.2 90 24 Water Supply 66.1 1,255.9 1,322.0 95 8 Wastewater 91.5 518.5 610.0 85 4 Landfill 32.0 287.6 319.5 90 2 Subtotal Tbilisi 1,624.6 8,821.1 10,445.7 84 60 2. Batumi Water Supply 36.0 684.0 720.0 95 4 Wastewater 46.3 878.8 925.0 95 5 Landfill 73.4 415.7 489.0 85 3 Subtotal Batumi 155.6 1,978.4 2,134.0 93 12 3. Poti Wastewater 73.3 659.7 733.0 90 4 Landfill 21.8 196.2 218.0 90 1 Subtotal Poti 95.1 855.9 951.0 90 6 4. Other Cities 180.0 1,620.0 1,800.0 90 10 Subtotal Infrastructure Rehabilitation 2,055.3 13,275.4 15,330.7 87 89 Component B. Institutional Development Component 1. Project Implementation The Agency 26.8 240.8 267.5 90 2 Technical Assistance/Consulting Services 113.4 1,020.6 1,134.0 90 7 Subtotal Project Implementation 140.2 1,261.4 1,401.5 90 8 2. Studies Technical Studies 48.4 435.6 484.0 90 3 Municipal Sector Study 6.5 58.5 65.0 90 - Subtotal Studies 54.9 494.1 549.0 90 3 Subtotal Institutional Development 195.1 1,755.5 1,950.5 90 11 Component Total BASELINE COSTS 2,250.3 15,030.9 17,281.1 87 100 Physical Contingencies 225.0 1,503.1 1,728.1 10 Price Contingencies --- 681.7 681.7 4 Total PROJECT COSTS 2,475.4 17,215.7 19,691.1  - 16 - 2. Financing Plan 3.5 The financing plan for the project is presented in Table 3. The IDA Credit would be made on standard IDA terms (thirty-five years, including ten years of grace), with an annual commitment charge of 0.5 percent on the undisbursed balance, and a 0.75 percent service charge on the amount disbursed and outstanding. The foreign exchange cost requirements are estimated at US$17.21 million. The local currency requirements (equivalent of US$2.47 million) would be met partially by the Borrower from its own resources. The IDA credit would finance about 100 percent of the foreign exchange cost, 80% of local cost, and about 91 percent of the total project cost. TABLE 3: Financing Plan (US$ '000) % of Total Local Foreign Total Project Cost Government 1,389 0 1,389 7.1 IDA 1,086 16,915 18,001 91.4 USAID 0 300 300 1.5 TOTAL COSTS 2,475 17,215 19,690 100 Percentage 13.3 87 100 3. Co-financing 3.6 Parallel financing with USAID was reviewed during appraisal/negotiations. It was agreed that USAID will finance the purchase/installation of glass (US$0.3 million) as soon as possible. This funding would come from a USAID umbrella component earmarked for energy conservation investments in Georgia, and will finance weatherization of schools and hospitals. Additional funds might be provided by USAID for complementary action in the heating sector during the course of project implementation. 4. Local Contribution 3.7 Local cost contribution will come from the municipal budgets of participating cities in the form of dedicated, retained allocations from the Ministry of Finance. Each participating municipality will contribute (or be expected to contribute) to the funding of local subprojects on a matching grant basis. Contributions to project financing would total US$1.39 million. 3.8 As a condition of credit effectiveness, the Borrower would establish and make an initial deposit of US$300,000 to a specific local project bank account (Local Contribution Account), representing the 1994 local contributions (see para 5.3 of Agreements and Recommendations section). The Borrower will deposit US$272,000 equivalent on July 1, 1995. The subsequent  - 17 - semi-annual contributions of US$272,000 would be deposited by the Borrower in two installments no later than January 1 and July 1 for 1996, and January 1 for 1997. The Agency will wait until the first advance has been fully deposited in this account before awarding contracts of any significant size requiring local counterpart financing. This will ensure that the Agency has the money in time to meet its obligations towards suppliers and contractors, and thereby maintain its creditworthiness. Final agreement on the budgetary and payment procedures of the Borrower's financial contribution was reached during negotiations. 3.9 During the annual budget process, the Borrower would allocate the required local contribution for the Municipal Infrastructure Rehabilitation Project as part of the municipal budgets for the participating municipalities. The national budget will cover approximately one- third of the total local contribution. Corresponding amounts would be retained by the Ministry of Finance and deposited in a Local Contribution Account with the National Bank of Georgia. The Government has delegated the management of this account with regard to withdrawals for eligible expenditures, reconciliation of bank statements, etc., to the Agency. 5. Financial Analysis a. Financial Impact 3.10 The financial impact of this project is related to the ability of the municipalities to maintain their basic infrastructure, i.e., prevent further service degradation or complete service collapse. Inadequate infrastructure has already created serious environmental problems, including public health, and has become an obstacle to economic growth. 3.11 The least cost alternative approach would be applied to all project components, i.e. solutions are sought which attain the project's objectives at the lowest cost. For example, regarding the heating of schools and hospitals, the main guiding criteria would be the ability to extend the time for schools and hospitals to be open with acceptable safety for pupils/patients during the winter season. The solution that contributes most to this criteria at the lowest cost, including future maintenance and operation for financial sustainability, is then selected. In this case, weatherizing of buildings by installing glass in existing window frames and sealing frames and cracks has been determined as the first priority. In the case of the Tbilisi metro system, the guiding principle would be critical operational equipment needed to prevent system failure, and equipment and facilities to avert safety hazards that could cause serious or fatal accidents. b. Cost Recovery and Pricing of Municipal Services 3.12 Public utilities and urban transport are heavily subsidized at the present time. The collection of municipal utility charges is further undermined by a very high inflation of the Coupon, the national currency. A program designed to achieve significant stabilization progress has been discussed with the IMF. It includes a reduction of the budget deficit, improved control and management of the monetary system, elimination of subsidies to enterprises, increased charges for gas and electricity, and increased rates of VAT and import duties, among others. With the implementation of IMF recommendations in September, the price of bread increased 285 times, electricity 500 times, gas for cooking over 780 times, and gas for heating about 4  - 18 - times. Stabilization of the economy and the local currency would be a prerequisite for any significant improvement of the cost recovery situation. 3.13 Due to the serious state of the economy, affordability will also remain an issue for some time. The feasibility of cost recovery for municipal services through user fees or other levies is difficult to assess at the present time. In the case of urban transport, although the subsidies have been reduced in accordance with IMF recommendations in September, an estimated 50% of the riders do not pay because of either an exemption status or cheating. The gradual subsidy elimination scheme proposed by the IMF together with reduction of the free ride right was discussed with the concerned municipal officials and will be implemented over the next three years to improve fare box revenue generation needed to maintain the fleet. 3.14 Under the project, technical assistance would be provided to help municipalities to strengthen their procedures for costing, tariff setting and collection. The institutional development component includes a sector study of municipal services, which would provide analyses and recommendations to this effect. Thus, the dialogue for future sector management and reform will be strengthened with a view to establishing the basis for specific future remedial action in municipal operations. C. Institutional Arrangements 1. Borrower 3.15 The Borrower is the Republic of Georiga, represented by the Minister of Finance. In order to ensure expeditious and efficient implementation of the project, an independent Agency, which is non-governmental and non-profit in nature--named the Independent Agency for Development of Municipal Services--and referred to as the Agency, was established to act as the implementing agency of the Borrower. A special Technical Coordinating committee was established during negotiations. It will be chaired by the Ministry of Finance, with representatives from central and local governments as well as Ministry of Environment, will oversee activities of the Agency. Annex 5 provides the institutional arrangements for this Agency. 2. Independent Agency for the Development of Municipal Services a. Legal Framework 3.16 Legal procedures, required under Georgian legislation for setting up the Agency and specified during pre-appraisal, have been followed for establishment of the Agency. Formal establishment of the Agency was finalized prior to negotiations. The Agency is founded by the following Georgian institutions: the Chamber of Commerce, the Academy of Engineering, and the Tbilisi Municipality. Efforts are being considered to extend or revise the founding membership by replacing Tbilisi in due course with a representative of a group of municipalities; to this end, a Georgian Municipalities' Association is being considered. The Agency will perform its functions in accordance with the Charter of the Agency and the Manual of Procedures for the project. The Charter and the Manual were finalized during appraisal (see  - 19 - para. 5.1 a). Procedures of the Agency conform to the procurement and disbursement procedures of the Bank. Annex 6 details the legal arrangements for the Agency. b. Management of the Agency 3.17 The Agency is responsible for implementation of the project as defined in the Development Credit Agreement. Specific responsibilities of the Agency include, inter alia: (a) managing and monitoring the overall execution of the project, communicating with the Bank on issues of procurement and disbursement, and submitting progress reports on implementation; (b) communicating with the beneficiaries during all stages of implementation, and ensuring that project objectives and procedures are being followed; (c) preparing a roster of suppliers and consultants, including firms responding to the General Procurement Notice, which could be contacted to submit quotations/proposals; (d) launching bids for the procurement of goods and works, and sending Letters of Invitation to consultants; (e) conducting bid openings, evaluating bids and consultant proposals received, placing contracts with suppliers, contractors, and consultants; (f) administering the Special Account and local project bank accounts; and (g) preparing and submitting disbursement applications to the Bank, monitoring project accounts and arranging for the audits required. C. Recruitment of Agency's General Manager 3.18 A General Manager for the Agency was recruited after formal establishment of the Agency. Several candidates were interviewed and an experienced financial and management professional was identified as the best suitable candidate. The candidate has been accepted by the Government and was appointed as a General Manager by the Board of Directors of the Agency by the Board of Directors of the Agency. The candidate selected for General Manager has completed graduate level work in finance and foreign languages. He worked for a number of years as a Manager of Iberia Bank in Tbilisi (see para 5. 1c). The Agency's organizational chart was reviewed during appraisal and agreed upon (see para. 5.2f). The General Manager participated in the Negotiations. d. Supervision of the Agency 3.19 Given the urgency of the project and its economic, social and environmental importance it will be essential during implementation to have close liaison with Government in order to maintain Government's support and to have Government's input on sensitive project matters. In addition, the Government and the relevant beneficiaries (i.e., municipalities, public utilities) should have the possibility of overseeing the implementation process and to access information related to the performance of the Agency (See Annex 5, Attachments 1 and 2). In order to address both issues, a Technical Coordination Committee (TCC) was established by the order of the Minister of Finance. The Minister of Finance chairs the Committee, which also consists of representatives of the beneficiaries and of the Council of Ministers. It is expected that a representative of the Ministry of Environment will join the Committee in the near future. The Agency's General Manager will report directly to this Committee. The TCC will have the right to request the Ministry of Finance to cancel the Project Management Agreement with the Agency if performance has been deemed unsatisfactory after sufficient evidence has been presented to  - 20 - the Bank. The Project Management Agreement can be cancelled upon agreement between the Government and the Bank. 3. Contractual Arrangements 3.20 The Borrower, the Ministry of Finance, will sign a Project Management Agreement with the Agency, according to which the Agency will be authorized to act on behalf of the Government for project implementation. The draft Agreement was was discussed between the Government and the Agency and finalized during negotiations (see para. 5.1b). The signature of the Project Management Agreement would be a condition of effectiveness (see para. 5.3a of Agreements and Recommendations). This Agreement sets forth the functions, responsibilities and rights of the Agency in regard to the project implementation. For the purposes of implementation of the individual project components, the Agency will enter into sub-agreements with the municipalities (see Annex 5, Attachment 2). Such sub-agreements were finalized during negotiations and will be signed after signing the Project Management Agreement. These sub- agreements conform with the general principles of the Agreement between the Ministry of Finance and the Agency, and will delegate to the Agency all rights necessary for the execution of the project components. The obligations of contracts regarding the performance and guarantee by the contractors and suppliers will be towards the beneficiaries. D. Procurement 3.21 Procurement and disbursement will be administered by the Agency, assisted in by a Procurement Consultant. Responsibilities of the Procurement Consultant will, inter alia, include: (a) training of the Agency's staff and developing monitoring procedures for the Agency's use in managing procurement and disbursement; (b) detailing the procurement plan (types of goods, quantities, estimates, delivery requirements, procurement schedule); (c) preparing technical specifications of materials and equipment required; (d) preparing specific bid documents based on the Bank's standard documents, including notifications of bidding opportunities; (e) preparing terms of reference and finalizing documents for hiring consultants according to models prepared by the Bank; (f) participating in the evaluation of bids and proposals received and in the preparation of evaluation reports; (g) advising on contracts with successful bidders and selected consultants; (h) providing, upon request, on-the-job training to staff from the Purchasing Units of beneficiaries in order to gradually develop their capabilities in handling international procurement. 1. Procurement Procedures 3.22 Procurement procedures used in Georgia are based on arrangements which prevailed under central planning in the former Soviet Union and are not appropriate under IDA-financed projects. With the assistance of the Procurement Consultant, the Agency will apply IDA's procurement procedures, in accordance with World Bank/IDA's Guidelines for Procurement and for Use of Consultants. After discussions with each of the beneficiary agencies/departments under the municipal authorities of Tbilisi, Poti and Batumi, the Bank agreed with the Government on a list of essential imports and related services for heating systems for schools and hospitals, urban transport, water supply, sewerage, solid waste, and waste water facilities.  - 21 - During project appraisal, a Procurement Plan was prepared (see Annex 8). However, the list may be amended from time to time by the Borrower, after consulting with the Bank. The proposed procurement arrangements are presented in Table 4 below: Table 4: Summary of Proposed Procurement Arrangements (US$ million equivalent) ICB LCB OTHERS NBF TOTAL Goods 5.4 2.5 0.3 13.5 Equipment for water supply (5.0) (2.4)a Sewerage, landfill 2.4 (12.4) Urban transport, and (2.3)b Heating system 0.6 (0.5)c 2.3 ______ (2.2)d _ _ _ Works 2.6 2.3 - 4.9 (2.4) (2.0) (4.4) Consultancy - - 1.3 - 1.3 Consultancy_________________________ _______ _______ (1.2)e (1.2) TOTAL 8 2.3 9.1 0.3 19.7 of which IDA (7.4) (2.0) (8.6) (18.0) (a) LIB ($2.4) - Item available from a limited number of suppliers. (b) IS ($2.3) - Contracts below $250,000 each. (c) LS ($0.5) - Contracts below 20,000 each. (d) DC ($2.2) - Spare parts for buses, trams, and trolleys. (e) According to Bank's Consultant Guidelines. 3.23 The figures in the above Table were revised during appraisal. The few categories in the proposed Table will keep project implementation as flexible as possible. The categories have not been separated per sector, or municipality, to make it easy to reallocate funds from one sector, or municipality, to another depending on demand and performance. Consultancy arrangements include: feasibility studies, engineering, project management, technical assistance, training, procurement and inspection services. 2. Methods of procurement a) Goods * Contracts for the supply of goods and equipment estimated to cost more than US$250,000 up to an aggregated amount of US$5.0 million, shall be awarded on the basis of international competitivie bidding (ICB) procedures. Bank's Standard Bidding Documents for goods (July 1994) will be used for ICB  - 22 - procurement. Limited International Bidding (LIB) procedures will be used where there are only a limited number of suppliers of the particular goods or equipment needed (i.e., equipment for water supply, etc.) up to an aggregated amount of US$2.4 million. * Contracts for the supply of goods and equipment estimated to cost less than US$250,000, up to an aggregate amount equivalent to US$2.3 million, shall be awarded through International Shopping (IS) on the basis of quotations to be obtained from a minimum of 3 suppliers from at least 3 countries, in accordance with procedures acceptable to the Bank. * Contracts for the procurement of items or groups of items to cost less than US$20,000 each, up to an aggregate amount equivalent to US$500,000, may be awarded on the basis of Local Shopping (LS), depending on the availability of such items in Georgia. In this case, a minimum of 3 quotations should be obtained from qualified suppliers. : Direct contracting, irrespective of the contract amount, may be used under the following circumstances: (a) where the required equipment or spare parts must be compatible with existing equipment. For such purchases to be justified, the original equipment should be suitable and the advantages of having another make of equipment should have been considered and found unsuitable; (b) the equipment is of proprietary nature and obtainable only from one source; and (c) in exceptional cases where the need for early delivery of particular goods or equipment is essential. The total aggregated amount under DC is estimated to be US$2.2 million. Procurement of spare parts for buses, trolleys and trams will be arranged through LIB in case such parts could be obtained from sources other than the original manufacturers. b) Civil works * Civil works above US$500,000, up to an aggregate of US$2.4 million will be awarded on the basis of ICB following Bank's Standard Bidding Documents of July 1994. These contracts shall have prequalifications. * Smaller works with an estimated value of US$500,000 or less each will be procured through local competitive bidding procedures, acceptable to the IDA, from a list of contractors prequalified in accordance with paragraph 2. 10 of the Bank Guidelines, May 1992 (see para. 5.2.b). The Borrower will use Bank's Standard Bidding Documents (July 1994) for smalleer works through LCB. The pre-qualified roster will be established at the initial phase of the PPF by notification in the local papers.  - 23 - c) Advanced Procurement/Retroactive Financing * The project will include retroactive financing for the following reasons: (a) prevention of delays in starting the physical implementation of the TIAP; and (b) maintenance of momentum achieved during the early stage of project preparation. The expenditures will mostly cover activities required before the coming winter (weatherization of schools and hospitals). Retroactive financing is restricted to contracts entered into after appraisal, and justified, case by case, by the emergency nature of the activity. The retroactive financing considered under the project would be limited to about 10% of the credit amount for expenditures. The procedures for procurement will meet the Bank's requirements. 3. Review of Procurement Decisions by the Bank 3.24 Prior review of bid evaluations and contract award recommendations would be required for all contracts exceeding US$250,000, LIB and DC contracts. In addition, with respect to each contract estimated to cost the equivalent of US$100,000 or more, the Bank will pre-review the first two invitations to bid and contracts awarded for: (a) goods procured under contracts awarded on the basis of IS; and (b) civil works procured under contracts awarded on the basis of local competitive bidding among prequalified contractors. All contracts for spare parts, equipment of a proprietary nature, goods needed for early delivery and installation work awarded after direct negotiations with suppliers will be subject to prior review by the Bank. 4. Hiring of Consultancy Services 3.25 The contracting of consulting firms or individuals for the various studies, for technical assistance, and other services, would be done according to the Bank's "Guidelines for the Use of Consultants by World Bank Borrower and the World Bank Executing Agency" published in August 1981. 3.26 For complex, time-based assignments, the standard form of contract for consultant services issued by the Bank in May 1993 should be used. All consultant contracts will be subject to prior review by the Bank. 5. Currency of Foreign and Local Expenditures under the Credit 3.27 It is also recommended that the portion of the bid price representing local costs in Georgia be expressed in foreign currency, such as US dollars. Due to the high inflation rate in Georgia and the highly fluctuating exchange rate of the Coupons, it is presently common practice in Georgia that local contractors, suppliers, or consultants, insist on being paid in either US dollars or Rubles. Although the Ruble is now an international currency, it is not yet widely used in international trade.  - 24 - 3.28 During appraisal, ways were explored to overcome the constraints imposed on municipalities and government entities by the fact that their budgets are allotted in Coupons. These entities currently exchange Coupons into Rubles or US dollars in order to pay their local suppliers, contractors, and consultants. It was agreed during negotiations that local costs will be paid in Coupons at the official US dollar exchange rate on the payment date. 3.29 The Borrower will keep the Bank informed about the progress of the procurement activities through the submitting of a regular quarterly progress report. 6. Project Preparation Facility (PPF) 3.30 An IDA advance to Georgia in the amount of US$0.3 million has been approved to permit payments for project preparation activities related to studies and technical assistance. Contracts under PPF will be carried out in accordance with the Procurement Guidelines under IDA credits. E. Disbursement 3.31 Disbursements would be administered by the Agency. The project will consider payments in the local currency at the US$ market exchange rate on the payment date. As the economic situation changes, the Agency will consider both tendering and payment in the local currency. I. Disbursement Schedule 3.32 The proceeds of the Credit are expected to be disbursed in accordance with the disbursement schedule and summarized in Table 5, over a period of three years. This disbursement schedule was determined after taking into consideration the content of the project, which includes significant purchasing of goods, the urgency of certain project components, and the high priority given by the Government to address issues for the 1994/95 winter. The total project disbursement schedule is presented in Annex 7. The project is expected to be completed by June 30, 1997 and the Closing Date would be December 31, 1997. Table 5: Estimated IDA Disbursements (by rLscal year): (US$ million) [IDA Credit FY 1995 FY 1996 FY 1997 FY 1998 Annual 4.1 7.8 5.1 1.0 [Cumulative 4.1 11.9 17.0 18.0  - 25 - 3.33 For withdrawal of the proceeds of the proposed Credit, including the PPF advance, the estimated amounts per categories and disbursement percentages are presented in Table 6 below. Table 6: IDA Disbursements by Category (US$ million) Category Amount % of Expenditures to be Financed 1. Goods 10.4 100% of foreign expenditures Equipment/Material 100% of local expenditures (ex-factory) 80% of local expenditures for other items procured locally 2. Works 3.5 100% of foreign expenditures Public Works/Urban 80% of local expenditures Services 3. Technical Assistance' 1.2 100% of expenditures 4. Operating Costs 0.2 100% of expenditures (the Agency) 5. PPF Refinancing 0.3 6. Unallocated 2.4 TOTAL 18.0 3.34 Since the project seeks to encourage small and medium-scale enterprises for local installation works, it is important that contractors and consultants be paid promptly for services rendered. The Manual of Procedures for the project allows the Agency to give an advance against bank guarantee, and/or make payments in stages at the completion of works, as defined in the contracts. The private status of the Agency will allow its General Manager to facilitate payments, without being submitted to any additional clearances within the Government. 2. Flow of Funds 3.35 Special Account. To facilitate project implementation, the Borrower may establish a Special Account in US dollars in a major foreign commercial bank, on terms and conditions satisfactory to IDA, to cover the IDA share of expenditures. The Special Account will be opened in the name of the Borrower and managed by the Agency which has signing authority (see para. 5.2a). The authorized allocation would be US$500,000, representing about four months of average expenditures effected through the Special Account. At the request of the 1/ Includes consulting services, studies, training, project monitoring, and auditing.  - 26 - Borrower and, based on the project needs, IDA would make an initial deposit or deposits into the Special Account, up to the amount of the authorized allocation. Applications for the replenishment of the Special Account would be submitted monthly or when one-third of the amount deposited has been withdrawn, whichever occurs earlier. Documentation requirements for replenishment would follow the usual Bank procedures. In addition, monthly bank statements of the Special Account, reconciled by the Borrower, would accompany all replenishment requests. 3.36 Direct Payment. Disbursements to suppliers of goods or services would in most cases be made by the Agency from the Special Account to the supplier bank account in Georgia or elsewhere. Expenditures of more than US$200,000 would be disbursed through direct payments from the World Bank/IDA to the supplier based on fully documented withdrawal applications submitted by the Agency. Standard disbursement procedures will be applied during project implementation. The minimum application size for direct payments would be US$50,000. 3.37 SOE Procedure. Disbursements against contracts for less than US$50,000 may be made on the basis of certified Statements of Expenditures (SOEs) detailing the individual transactions, should the Borrower decide to pay certain contracts with Government funds before being reimbursed from IDA. All operating costs, including salaries and local travel expenses, would be paid out of the Local Contribution Account and be reimbursed by IDA using the SOE procedure. The documentation to support these expenditures would be retained by the Agency for at least one year after receipt by IDA of the audit report for the year in which the last disbursement was made. This documentation would be made available for review by the auditors and IDA upon request. All other disbursements would be made against full standard documentation. 3.38 Other Bank Accounts. To cover eligible local operating expenses, the Borrower/the Agency would open a local current account (Project Current Account) in a Georgian commercial bank, to be managed by the Agency, on terms and conditions satisfactory to IDA (see 5.3c of Agreements and Recommendations). This would be a condition of effectiveness. In addition, as described in para 3.8, the Borrower would open a local bank account in US dollars for the contribution to the project financing (Local Contribution Account). F. Project Management 1. Accounting 3.39 The project accounting system will be set up as described in the Manual of Procedures for the project. To ensure accountability for project funds, the Agency would: (a) maintain records of the receipts and disbursement of all funds used for the project as well as records of the value, location and condition of all items purchased but not yet utilized, (b) maintain internal controls to ensure there is an appropriate procedure to obtain or deliver goods and services, proof of receipt or delivery, that receipts and payments are accurately recorded on a timely basis, and that assets and liabilities are adequately controlled, (c) report on the use of funds, and (d) facilitate verification of these reports by independent auditors.  - 27 - 3.40 The accounting for all Special Account transactions and for all other project-related accounts will be maintained in accordance with international accounting standards. 2. Auditing 3.41 Bi-quarterly financial statements of the Agency with specific references to the IDA- financed components will be prepared and audited in accordance with International Auditing Guidelines by suitably qualified independent auditors acceptable to IDA, and submitted to IDA within three months of the close of the accounting period. Audits will also be carried out, at the same time, and for corresponding periods and in accordance with IDA guidelines, for SOEs against which disbursements have been made or are due to be made out of the Credit proceeds. Specific reference to the Special Account, SOEs, and the other project bank accounts (for the local financial contribution, and for the local operating expenses) will be made in the audit reports accompanying the financial statements. The Borrower reviewed proposed Terms of Reference for the auditor and an agreement was reached during negotiations. The Borrower proposed a short list during negotiations (see paras. 5.2c and 5.2d). Appointing and signing a contract with an auditor agreeable to IDA is a condition of effectiveness (see para 5.3d of Agreement and Recommendations). The project will finance the expenses for conducting the audits. 3.42 The project account audits would include, inter alia, verification of how the funds have been spent based on project accounting records, bank statements, etc., and provide separate opinions on: (a) sources and uses of funds and related financial reports, (b) disbursements based on Application for Withdrawal and Statement of Expenditures (SOEs), (c) the internal financial management procedures, and (d) compliance with all Bank/IDA agreements. A separate management letter with recommendations for improvements would accompany each audit report. 3. Financial Reporting 3.43 The Agency would produce consolidated financial statements at the end of each quarter and maintain records for monthly reporting, all in US$, of: (a) expenditures and commitments; (b) disbursements; (c) donor funding and disbursement (as appropriate); (d) contracts; and (e) other transaction reports (logs). The reports would distinguish sub-projects (schools, transport, water supply, etc.); expenditure category (equipment, works, services); location; and expenditure type. A printout will be sent to the Bank as a proof of the operational reporting and accounting system. The transmission of the printout, acceptable to IDA, will be a condition of effectiveness (see para. 5.3b of Agreements and Recommendations). 4. Project Monitoring 3.44 Project monitoring would be the responsibility of the Agency. Successful achievement of project objectives will require intense, ongoing monitoring of actual progress and performance to assure timely resolution of any bottlenecks and to provide quality control. Detailed, ex ante reviews by the Agency would be required of the detailed specifications of project components provided by the beneficiaries. The review would entail evaluation of their consistency with the overall project specification. In view of the emergency nature of the operation, procurement  - 28 - monitoring will be an essential element of IDA review process. Based on the procurement plan the progress reports will detail procurement related activities including consulting assignments. The receipt of goods and control of the quality of works are other areas where particularly close monitoring would be required. The Agency is expected to contract out most of these functions, as required. Separate studies to monitor issues related to wages, completion delays, unit prices, etc. may also be commissioned. Performance would be monitored and evaluated on a quarterly basis by IDA. 3.45 In addition to the financial and management audit, the Agency will commission bi- quarterly technical performance reviews to a technical consulting firmn or individual consultants with appropriate technical and managerial expertise. The timing of these reviews of the Agency should coincide with the financial and managerial audits to the extent possible. a. Mid-Term Review 3.46 A formal joint review will be carried out after about 18 months of project effectiveness. This review will be another opportunity to evaluate the effectiveness of the Agency and investments, and, if needed, to modify some major features of the project, or include new activities in the project scope in order to better meet the project objectives. (See para 5.2e of Agreements and Recommendations) 3.47 The Agency would furnish IDA with various reports on a regular basis. These reports will include: (i) quarterly progress reports on execution in a format and degree of detail acceptable to IDA, (ii) audited financial statements within three months after each semester, (iii) records and financial reports on a monthly basis; and (iv) additional information that IDA may request from time to time. The Agency would record and report on physical/volume data corresponding to the structure of financial accounts. 3.48 The Government and the Bank agreed to exchange views on the status of project implementation, particularly regarding: (a) the Agency's performance in project implementation procedures agreed with the Bank, and (b) adjustments in the project, including revisions to project structure as well as reallocations of funds within and between categories. Special performance indicators have been established and are included in Annex 9. (See para 5.2h for Agreements and Recommendations) G. Operational Plan and Project Implementation Plan 1. Borrower's Operational Plan 3.49 The Bank has appraised the Borrower's plans with respect to project operation in order to ensure effectiveness. Most of the financial investments by the project involve stabilization or rehabilitation of existing installations, managed by established municipal units or enterprises. The management and staff of these organizations are considered capable of ensuring effective installation, maintenance, and use of these investments.  - 29 - 3.50 In order to strengthen the Borrower's operational plan, the municipalities will need to pay more attention to maintenance planning and scheduling, particularly to ensure that all new electrical and mechanical equipment will be properly maintained. This will require attention to the manufacturers' maintenance recommendations, setting aside required funds, and preparing maintenance programs and plans for each equipment item. In recent years, the operational personnel have only been maintaining old and used equipment. 3.51 With respect to the solid waste disposal sites (land fills and unofficial dumps) in Batumi, Poti, and Tbilisi, new organizational and procedural arrangements will need to be established for effective operation. For the urban transport sector in Tbilisi, rationalization of the operation was recommended by the mission as a parallel activity within the municipality in order to ensure overall cost efficiency of the service delivery in the future. 2. Borrower's Project Implementation Plan (PIP) 3.52 The Borrower's Project Implementation Plan will include arrangements for the timely provision of all necessary input, adequate staffing of the Agency, training, implementation of adequate financial management procedures, specification of the monitoring and evaluation system to be applied, and implementation of other operational procedures required for effective project execution. The PIP was formalized under the Project Management Agreement (PMA) which will be signed between the Government of Georgia and the Agency. A project implementation schedule was prepared during project appraisal (See Annex 11). Dissemination of information regarding the project has been initiated and the tentative performance indicators by which the project will be monitored and evaluated have been defined during appraisal (see para 5.2h for Agreements and Recommendations). 3.53 In addition to the PMA, the Borrower will prepare a Manual of Procedures (MOP) for the project implementation activities containing more detailed guidelines to the Agency and other organizations involved in implementing the agreements reached with the government (see para 5.2i of Agreements and Recommendations). 3. Supervision Plan 3.54 As this is the first Bank-supported investment credit to Georgia, and given the particular implementation arrangements, the project is expected to require a significant supervision effort, particularly during the first year when a large portion of the procurement will be undertaken. Therefore, it is planned that about 40 staff weeks of effort for the first year and about 20 staff weeks in each of the following two years would be required for supervision. A detailed supervision plan was discussed during project appraisal and negotiations, and is attached as Annex 10 (See para 5.2h of Agreements and Recommendations). 4. Environmental Review 3.55 No new construction or development is planned under the project. There will be no primary negative environmental or socio-economic impacts. The project has been placed in the environmental screening category "B," as consistent with the provisions of Bank Operational  - 30 - Directive 4.01 "Environmental Assessment". The project will be environmentally beneficial to the communities and sectors targeted for financial assistance by: (a) reducing the degradation of municipal infrastructure systems; (b) maintaining a minimal level of operational service; (c) helping arrest declining socio-economic and environmental conditions; and (d) providing a critical contribution to reducing the health risks from infectious diseases. 3.56 The primary benefits include: (a) curtailing the threat of infectious diseases to public health by reducing the amount of raw sewage flow through the city streets in Batumi, Poti, and Tbilisi; (b) introducing a more effective system of waste collection and disposal and land fill management in Batumi, Poti and Tbilisi; (c) restoring and maintaining potable water supplies in Tbilisi and Batumi; (d) providing heating and weatherization in schools and hospitals in Tbilisi; (e) operationalizing the urban transport system; and (f) initiating a wider action program for improved management of Georgia's coastal resources. Annex 12 provides a more detailed account of the environmental review and proposed mitigation plan. 5. Public Environmental Awareness, Non-governmental Organizations, and Community Participation 3.57 Historically, a certain level of public awareness about the environment and appreciation for nature has existed in Georgia. It is probable that while this awareness still exists, wide- spread support for environmental programs has temporarily subsided due to more pressing economic and political concerns. 3.58 Nonetheless, an environmental NGO movement is gaining recognition and proliferating into more specialized groups, stemming mainly from the political party of the Georgia Greens. The Green Party, which played an active role in the Independence movement, has since gained greater representation in the Parliament, despite the nation's current focus on short-term, economic survival needs. President Shevarnadze's new party, the Citizen's Union, has incorporated many Green members with the objective of emphasizing environmental issues, including the urgency of the ecological situation on the Black Sea coast. 3.59 Current institutional relationships between government and non-governmental organizations, while new, seem cooperative. If properly encouraged, potential exists for collaboration between public and private sectors. Yet, the idea of "community-based" resource management, in which local resource users participate in planning and management decisions about their rights to, and responsibilities for, resource use, remains alien--both to communities themselves and to government institutions. Excluding the Orthodox church, there are very few indigenous cultural community institutions on which to build. While the concept of local participation is familiar to NGOs, mechanisms for achieving coordination between users and government agencies, and encouraging community decision-making and field action, are not well tested. Meanwhile, small-scale, traditional resource users on the coast, such as fishermen, wood-cutters, and farmers comprise an important group which needs to be understood in terms of their own concerns regarding the natural resource base, its use, and overexploitation. Efforts will be made in the Coastal Zone Management program to reach these groups.  - 31 - 6. Economic Analysis 3.60 One of the project's main objectives is to support the Government's economic stabilization efforts by helping to increase the productivity of the urban population in three key cities. This will be achieved through the provision of spare parts and equipment urgently needed to arrest an aggravated deterioration of basic infrastructure services (i.e., urban transport, heating, water supply and sewerage) and to lay the foundation for future improvement of the management and delivery of such services. Without this intervention, labor mobility and the productivity of urban populations will continue to decline, thus jeopardizing the national economic stabilization. It is not very meaningful to attempt to quantify precisely the aggregate impact of the proposed project, given the many distortions and uncertainties in the Georgian economy. However, an analysis has been made on individual project subcomponents which indicates that in all cases, given the rapid deterioration of key municipal services and their crucial role in national economic stabilization and future growth, the benefits are substantial, clearly outweighing costs. This is normally the case in rehabilitation interventions of this kind. In addition, individual subcomponents taken together help lay the foundation for greater future benefit to the economy by instituting or setting in motion processes that aim to improve overall management and delivery of essential municipal services. Annex 12 provides details on the qualitative analysis, which may be summarized as follows: * Tbilisi Schools and Hospitals. Immediate and short-term assistance for weatherization and heating, costing an estimated US$4.1 million, will: (a) increase public access to education and health care facilities; (b) reduce energy requirements to some extent; (c) enable pupils to attend school longer this year and in the future than in the past two years (when total school days were reduced due to winter closings) through improved facilities; (d) ensure a more continuous educational process for students by reducing the winter break from 12 weeks taken last year--which proved disruptive for the students--to approximately 5 weeks; (e) ensure continued health care services and greater access to 23 hospitals in the city during the winter; (f) increase the efficiency and utilization of hospital space through a migration of patients from hospitals which will not be weatherized (and are planned to close because of underutilization) to those 23 that are rehabilitated; (g) reduce the patient overload at ambulatory care clinics which have been burdened in the past winters by patients who are understandably unwilling to tolerate poor hospital conditions. * Tbilisi Urban Transport. Immediate and short-term assistance through the project, costing an estimated US$4. 1 million, will help: (a) increase labor mobility and thus support economic activity in the capital, (b) increase frequency of trips resulting in increased access and reduced waiting time; and (c) increase passenger safety and mitigate or stop the rate of equipment deterioration. * Water Supply in Tbilisi, Batumi: Project investments totaling US$2.04 million, will help: (a) improve environmental quality and reduce exposure to water-related disease; (b) maintain or improve the quality of drinking water; and (c) maintain existing access to water supply services.  - 32 - * Wastewater Treatment in Tbilisi. Batumi and Poti: Project investments totaling US$2.26 million, will: (a) reduce the serious hazard to the public and help alleviate environmental degradation; (b) increase access to sewerage services; and (c) increase operational efficiency by reducing electricity requirements for pumping stations and reducing somewhat the overall manpower requirements. * Solid Waste Management in Tbilisi, Batumi and Poti: Project investments totalling US$1.02 million will help: (a) reduce environmental pollution and public exposure to health hazards; (b) reduce probability of accidents at garbage landfill sites; and (c) increase operational efficiencies by increasing productivity of manpower and hours of access to needed equipment. 7. Social Analysis 3.61 No detailed social assessment was undertaken as part of project preparation or appraisal. However, some salient social features may be highlighted. More than 25% of the population, or 1.5 million, reside in the capital city of Tbilisi; three of the other major cities, Batumi, Poti and Sukhumi, are ports on the Black Sea. The Black Sea coastal watershed covers 40% of the country geographically and contains almost 40% of its population. 3.62 Until recently, standards of living in Georgia have been relatively high. A long tradition of close family ties and communal barter exchanges, combined with an historically robust agricultural economy and a large informal or underground economy, have helped maintain both cultural integrity and socioeconomic security. At the same time, Georgia has until recently enjoyed a comprehensive system of social welfare, including free health care, consumer subsidies such as bread and electricity funded from the state budget, and other welfare benefit programs (i.e., pensions, disability, maternity, child care allowances). Health standards and life expectancy have also been comparatively high, although substandard technologies have prevailed throughout FSU countries. Historically, Georgian society has been acculturated to place high values on education. By the 1980s, the Georgian population was considered among the best educated in the USSR. 3.63 Now, in the midst of a social and economic breakdown that is considered more extreme than any other former Soviet republic, living standards in all socioeconomic classes have dropped precipitously since the late 1980s. Georgia's strong economic dependency on Russia, especially in the vital energy sector and other supplies, has made it particularly vulnerable to the contraction of the Russian economy. Lay-offs, hyperinflation, and chronic shortages of basic commodities such as bread have eroded livelihoods. Although precise statistical data are not available, it is now believed that 90 percent of the population currently lives below the poverty line. Health standards are declining in certain key areas, including a rise in infant and maternal mortality rates. 8. Poverty Alleviation 3.64 The proposed project will, by stemming the further deterioration of key municipal services such as heating in hospitals, waste water treatment and landfill systems, and potable  - 33 - water supplies, help alleviate poverty to some extent, particularly the most vulnerable social groups. It is the more vulnerable groups, such as the sick, the poor, and refugees of war who suffer disproportionately when basic services breakdown and the environment degrades. In Batumi, the clogged septic tanks overflow in neighborhoods of war refugees, while those most directly exposed to the mismanaged and fast eroding landfill are impoverished grazers, garbage scavengers, and those in the area who depend on subsistence fishing and local river drinking water in order to survive. In Tbilisi, ensuring a minimal level of heat during the winter to hospital patients and school children, and upgrading potable water supplies and other urban infrastructure, contribute to the health and the welfare of marginalized groups, as well as the general population. Rehabilitation of essential municipal services, and the direct linkage to environmental resource amelioration, is fundamental in the longer term strategy of poverty alleviation.  - 34 - PART IV. BENEFITS AND RISKS 1. Benefits 4.1 The proposed project will help rehabilitate essential infrastructure in key municipalities damaged or rendered inoperable from the recent years of political conflicts and natural disasters. It will thus facilitate, in the near term, the government's macro-economic stabilization efforts and, in the long term, help provide the foundation for better managed, environmentally sound and supportive municipal service systems. Further deterioration and disruption of essential services would be unavoidable without this intervention, and could, for example in the case of the urban transport system in Tbilisi, become a significant obstacle to economic growth in the participating municipalities. Various project components are directly related to the prevention of environmental and health hazards. The Tbilisi Immediate Action Plan will help maintain crucial health care services and educational programs during the winter. Smooth operation of the Agency (project implementation unit) will have a demonstration effect and show a workable alternative to traditional procurement procedures in Georgia. Through institutional development, the project will lay the foundation for further municipal management and environmental reforms which will need to be addressed over the medium term. 2. Risks 4.2 There are several risks involved, primarily the risk of political instability in the country. The government is still in the process of consolidating its power and determining institutional responsibilities. To minimize potential problems or delays, the project is specifically: a) focusing on specific rehabilitation objects, (b) establishing a non-bureaucratic implementation Agency with special powers and capacity to undertake the implementation activities in a appropriate manner, and (c) undertaking an initial emergency phase with procurement activities in order to identify potential problems early in the project cycle. 4.3 The risk that the Agency may misuse its considerable independence will be mitigated by the selection of a well-qualified manager, whose appointment will be acceptable to IDA. Close monitoring of the implementation of the Manual of Procedures and frequent external audits will provide ample opportunity to deal with inadequate performance on the part of the Agency. 4.4 Local contractors may lack the financial or technical capacity required to implement the project in a timely manner. To reduce this risk, the project has been designed to allow for adjustments of project content between cities and sectors during the implementation period. This risk will also receive particular attention during the mid-term review. 4.5 It must be acknowledged that the general state of infrastructural disrepair is partly a function of the lack of adjustment in the economy and of the resultant lack of cost recovery mechanisms. At present, no real assurance exists regarding the long term sustainability of the operation. The macroeconomic and structural dialogue is now starting with Georgia and this operation will help reinforce the need for the continuity of this dialogue. To further mitigate this risk, the need for maintenance management procedures will be emphasized in targeted technical assistance.  - 35 - PART V. AGREEMENTS AND RECOMMENDATIONS 5.1 The following agreements were reached during Appraisal: (a) legal arrangements for the establishment of the Agency (para. 3.16); (b) draft of the Project Management Agreement between the Government and the Agency (para. 3.20); (c) appointment of, and signing of, a contract with an interim General Manager acceptable to IDA (para. 3.18); 5.2 The following agreements were reached during Negotiations: (a) agreement on the Agency's signing authority for project contracts, bank accounts, and withdrawal applications (para. 3.35); (b) agreement on the prequalification procedure of local consultants, contractors, and suppliers (para. 3.23b); (c) agreement on Terms of Reference acceptable to IDA for financial, and managerial audit of the project (para. 3.41); (d) agreement on the short list for financial, and managerial, audits (para. 3.41); (e) agreement on the scope and dates for the Annual Reviews and the Mid-term Review (para. 3.46); (f) agreement on the staffing of the Agency (para 3.18); (g) agreement on the scope and time schedule for the Housing and Municipal Services study (para. 2.9); and (h) agreement on supervision plan (para. 3.54) and performance indicators (paras. 3.52 and 3.54); (i) The Bank must receive final Governmental approval of the negotiated Credit Documents: Credit Agreement, Project Implementation Agreement, Manual of Procedures, and Project Implementation Plan (para. 3.53); 5.3 Following the signing of the Credit Documents, the requirements for Effectiveness of the Credit Documents must be completed on behalf of the Borrower, in accordance with the following provisions:  - 36 - (a) the Project Management Agreement shall have been cigned by the Borrower and the Agency and is acceptable to the Association (para. 3.20); (b) the Agency has adopted the Manual of Procedures and estabished an accounting system, both acceptable to the Association (para. 3.43); (c) the Agency has opened the Project Current Account in a commercial bank (para. 3.38); (d) the Borrower has opened the Local Contribution Account in its National Bank and has deposited an amount of $300,000 into such account (see para. 3.8); and (e) appointment of, and signing of a contract with, independent auditors acceptable to IDA (see para. 3.41). 5.4 Subject to the above conditions, the proposed MIRP is suitable for a Credit to the Government of Georgia of US$18.0 million equivalent on standard IDA terms.  - 37 - Annex 1 Page 1 of 3 DETAILED DESCRIPTION OF PROJECT INVESTMENTS The Government is facing a difficult transition which has been exacerbated by the series of civil wars and earthquakes experienced over the past 3 years. The combination of these forces has absorbed virtually all available financial resources and has created a pervasive lack of maintenance and repair of basic infrastructure services, some of which are essential for public safety, health, and effective functioning of the economy. The concern for public health and safety, and ultimately improving the welfare of the citizens of Georgia, are the fundamental catalysts that will operationalize these project investments. Annex I provides an overview of the municipal services which will be affected by the investment projects, and background information supporting the conditions of the investment projects. The Annex focuses on the TIAP energy and transport projects in Tbilisi, followed by a discussion of the different water supply, wastewater and solid waste projects in Tbilisi, Batumi, and Poti. Central heating systems. During the last several years, only a small portion of the district heating systems were operational. These systems, which have supplied hospitals, government buildings, schools, and other essential services, have suffered by receiving only the most basic maintenance. Both district heating systems and local systems use natural gas as a primary fuel. Some district boiler houses use imported mazout as an emergency fuel. However, both natural gas and mazout must be imported and due to the country's fiscal crisis (including substantial unpaid fuel bills), supplies of fuel have been meager and unreliable. Some fuel is expected to be provided this winter with external financing from bilateral donors on an emergency basis. However, even when fuel is available, effective and reliable heat delivery is questionable given the system's large efficiency losses due to inadequate maintenance. Auxiliary equipment and materials such as pumps, motors, valves, pipes, and cables are urgently required to increase both the functioning and reliability of the system. As a result of the present heating crisis in schools, children have been unable to attend school during the winter (3 months) over the last two years. Similarly, due to intolerable temperatures, hospitals have been underutilized during the past two winters. Only the most needy remain in hospitals. Others, who are also in need of hospitalization but are not willing to stay in the present conditions, seek treatment at the overburdened ambulatory care clinics. Power Supply. In the past, about 50% of Georgia's electricity was generated by hydropower plants. The other 50% was derived from natural gas-fired thermal plants. Coal once was used since Georgia has substantial deposits, but gas was substituted in the 1970s because it was cheaper then). Today, thermal generation is almost non-existent due to the lack of imported fuel. Hydropower does not have the capacity to meet electrical demand, especially during the  - 38 - Annex 1 Page 2 of 3 winter. Huge inefficiencies exist in the system on both production and distribution. As a result, the Tbilisi Power Distribution Company must ration the electricity supply through load-shedding to the residential sector. Since most hospitals share electricity lines with the residential sector, their power is also rationed. Urban Transport. Most Georgian municipalities are served by publicly-owned bus operations that are in a serious state of disrepair. Tbilisi's public transit system has two autonomous parts: Thiltrans, the above-ground transport service, which serves an estimated 150,000 passengers per day, and underground Metro, serving about 950,000 passengers daily. In 1988, when the operation was fully operational, Tbiltrans fleet included 600 buses, 150 trolley buses and 80 trams. Today, one third of the vehicles are in operation, and the other two-thirds are either under repair or cannibalized for spare parts. The Metro has two lines, together about 30 km, and 233 cars, 150 of which are in operating condition. Fares are set by the central Government and are well below cost. In order to restore service, the city has begun franchising buses to commercial operations. Drivers are responsible for fuel and spare parts, and can charge fares to cover costs, including a fee for leasing the buses and a 15% profit. In addition to an inadequate fleet, obsolete equipment and lack of spare parts, improper maintenance, restricted electricity supply to both underground and above-ground systems, as well as unrealistically low fares, the system exempts 50% of the passengers (elderly, school children, pensionners, military and others) from payment. Two other problems make the Tbilisi Metro potentially dangerous. First, the central control room burned in a fire last year and, despite some rehabilitation, is not fully functional. Secondly, accumulating water from leaking pipes in the underground, and the lack of adequate pumps to extract the water, poses a serious danger of electrocution. Water Supply. As one of the nation's most critical resources, water supplies are inconsistent, poorly managed, and, in some cases, increasingly contaminated. In Tbilisi, water is derived from two main sources, both located about 40 kilometers from the city. The supply and distribution system is currently suffering from two major problems: (i) poor condition of equipment, and (ii) poor quality and unreliability of electricity supply. The net result is that the distribution network has no spare capacity. In Batumi, in addition to 150,000 inhabitants of the city, the water supply system serves an additional 50,000 surrounding rural inhabitants. Batumi has two river intakes approximately 25 to 30 kilometers upstream from the city, as well as a borehole field with 30 boreholes to the southeast. Although the two river sources appear able to supply a sufficient quantity of water, reliability is seriously affected by the quality of the river water, which deteriorates rapidly from high turbidity during frequent storms. During high flood stages, the population is wholly dependant on the borehole supply, which is unreliable due to the limited electricity supply from the Batumi grid. In addition, there are pressure problems in the distribution network, placing considerable strain on the capacity of the system. Wastewater Treatment. The wastewater disposal facilities for Tbilisi consist of a gravity sewerage system with a collector pipeline connecting the city to the treatment works at the nearby Gardabani facility. Due to numerous leakages, there is high infiltration to ground water.  - 39 - Annex 1 Page 3 of 3 In Poti and Batumi, the sewers are in very poor condition, with limited capacity, malfunctioning pumps, and unreliable electricity supply. As a result, sewerage often floods the streets of the cities and nearby rivers, posing a public health risk and running off untreated to further pollute the marine waters of the Black Sea coast. These municipal service problems in Batumi and Poti have been identified as environmental "hot spots" by the international consortium for cleanup of the Black Sea, supported financially by the Global Environment Facility (GEF). Solid Waste Disposal. In most municipalities, solid waste is collected by a fleet of conventional open-bed trucks operating in conjunction with a number of compactor trucks. In each of the three project cities, the collection vehicle fleet is inadequate and suffers from a lack of parts and maintenance. There are nuineroLIs interrelated management problems in the solid waste sector, including health and safety hazards as well as environmental contamination. Wastes are not spread, compacted, nor covered on a regular basis. Slopes and grades of landfills are not maintained to channel surface water runoff and minimize leachate contamination. Access is uncontrolled, access roads are inadequate, and fires burn openly. In Batumi, the collection fleet delivers waste to a landfill directly sited on the Chorokhi River delta of the Black Sea. When the river reaches flood stage, entire sections of the landfill are eroded and washed into the Black Sea, depositing debris along Batumi's city shoreline. Even in non-flood periods, the river water course consistently undercuts the landfill banks, leading to the collapse of waste material into the river.   - 41 - Annex 2 Page I of 6 The Black Sea Coast Integrated Coastal Zone Managem..nt Program I. INTRODUCTION 1.0 The initial activities for the development of Georgia's Integrated Coastal Zone Management (ICZM) Program, as currently envisioned, will be funded by both GEF Black Sea funds, where available, as well as by the Institutional Development component of the Municipal Infrastructure Rehabilitation Project (MIRP) credit. Certain project investments in municipal infrastructure, namely wastewater treatment and landfill systems in the coastal cities of Batumi and Poti, were identified and prepared with financial assistance from the GEF Black Sea program. They are designed to mitigate further deterioration of the environment, particularly as it relates to increasing threats to public health. This will be achieved through improvements in water quality, wastewater treatment, garbage collection and disposal. For the first time, these investment activities will operationalize studies and identified needs in the GEF Black Sea Environmental Program's Urgent Investment Portfolio for Georgia, thereby providing a direct link and foundation for an emerging, long-term, multi-sectoral plan of improved coastal resource management. The program for coastal zone management will attempt to raise additional grant funds to support many of its proposed activities for the longer term, while at the same time helping to identify future municipal investment opportunities. II. THE BLACK SEA: Environmental Setting 2.0 Known to the ancient Greeks as "Pontos Axenos", or the inhospitable sea -- named for its rough storms and warring inhabitants -- today the Black Sea has become one of the world's most polluted water bodies. Formed by tectonic plates and characterized by vast depths (6000 feet) and a huge inland area (160,000 square miles), the Black Sea is tenuously connected to the world's oceans by the narrow, 19-mile Straight of Bosphorus leading into the Mediterranean Sea. The basin's geomorphology has influenced the sea's ecological history. Lacking a good mechanism for water exchange with larger oceans, the land-locked Black Sea has historically developed into two separate seas, one atop the other. A fertile, biologically productive water body is underlain below 450 feet by an enormous anoxic or oxygenless layer which supports no life. The two layers fail to blend due to differences in density and salinity. Without regular intra-mixing between bodies, nor regular flushing to outside oceanic sources for renewal, the top layer is trapped, akin to a closed pool of water and highly vulnerable to excessive pollution loading. 2.1 The Black Sea is the only warm water, marine environmental resource for all of Eastern Europe. Draining an area of 2.5 million square kilometers through more than 300 rivers of 17 nations, the basin stretches from Germany to Belarus and Russia. It is thus affected by the upstream activities of some 165 million people and receives thousands of tons of toxic pollutants  - 42 - Annex 2 Page 2 of 6 and sewage every year. The sea's vulnerability stems from a combination of its geomorphological isolation and its massive quantities of land-based pollution. This has created a major crisis of eutrophication, or overfertilization of the sea by nutrient loading. It has also led to the further elevation and spread of anoxic conditions which shortens the marine food chain and results in declining productivity of coastal food resources. Due to a combination of factors, including increased anoxic conditions from nutrient enrichment, a loss of top predators from overfishing, and the loss of benthic habitats -- which reduces breeding and hiding grounds for small fish, molluscs and crustaceans -- the Black Sea is now dominated by an exotic species of single-celled jellyfish (Mnemiopsis leidyi). 2.2 Three decades ago, the Black Sea fishery, characterized by mackerel, sturgeon, shad, shrimp, mullet, bonito, anchovies, oysters, and blue mussels, was five time richer than the neighboring Mediterrean. Its shallow northeast arm, the Sea of Azov, was the second most productive source of fish per acre in the world. In the past, over two million coastal inhabitants derived their livelihoods from the Black Sea fishery. Yet over the last decade the number of commercial species has plummeted from 26 to five, and ten marine species which live or reproduce along the Black Sea coast have disappeared entirely. Today, the economic losses alone from Black Sea pollution are enormous, estimated to range up to US$1 billion a year. Situated in a region undergoing massive political and economic transition, the degenerating Black Sea symbolizes another environmental tragedy of Communism. 111. GEORGIA'S COAST: Background and Threats 3.0 Georgia's 350 kilometer long Black Sea coastline exhibits a rich ecological and geological diversity of subtropical and temperate habitats (See Map 2). The subtropical climate embraces a year-round growing season for many plant species, including citrus fruits, maize, bamboo, and conifers. The Greater and Lesser Caucasus ranges to the north and south shelter the coast from the cold, easterly winter winds which are driven by arctic air masses. In addition, the Black Sea functions as a heat sink, further moderating winter temperatures. Characterized by marshes and wetlands along much of the coast, and steep cliffs and mountains in the north, major habitat types include nearshore marine fishery areas, coastal barrier dunes, extensive peat beds and marshlands, coastal deltas, and dynamic braided rivers. The extremes of elevation, hydrological regimes, and immediate proximity to both mountains and the Black Sea provide abundant niches within a narrow range for a large variety of waterfowl, mammals, and temperate and subtropical vegetation. 3.1 Georgia's Black Sea coast, with a watershed encompassing almost 40% of the nation's population, faces an ecological crisis. Decades of uncontrolled pollution from raw sewage, agricultural runoff, and industrial discharges in watershed rivers and the key port cities of Batumi, Poti, and Sukhumi, have devastated coastal waters, killing off or seriously threatening natural animal and plant life. The ongoing deterioration in coastal and marine water quality is now leading to a serious decline in biodiversity, a breakdown in productivity and functioning of  _ 43 - Annex 2 Page 3 of 6 ecological processes, and a growing threat to public health. Intensive over-fishing, and the absence of a coherent national strategy for addressing unsustainable harvesting and pollution problems, have resulted in a total collapse of commercial fishing. A once-thriving tourism industry, in which Georgia's coastline was the most popular along the entire Black Sea, has also been badly undermined. 3.2 Important wetlands, such as vegetative floodplains and marshes in Georgia's Kolkheti lowlands near Poti, have traditionally served as natural filters, trapping pollutants and sediments from the rivers, and providing natural tlood protection. Wetland plants also mitigate eutrophication by helping absorb excessive nutrients, while wetland soils favor the breakdown and release of nitrogen by certain bacteria. Bays and estuaries have historically provided spawning ground habitat, fundamental to the reproductive lifecycle of Black Sea fisheries. The coastal margin has been severely altered during the past one hundred years from the upland and localized impacts of draining the majority of these Kolkheti wetlands for agriculture. The remaining wetlands are now threatened and malfuLnctioning due to unregulated development, peat mining, channelization, and excessive pollution from wastewater, agriculture, and industrial sources. At this stage, stemming further deterioration of coastal resources is an urgent priority for ecological viability and economic recovery. 3.3 As a result of environmental degradation, public health is being seriously jeopardized on Georgia's Black Sea coastline. The most prevalent source of coastal pollution is untreated, or insufficiently treated, sewage. Sewage treatment has been identified by numerous Georgian experts as the most critical priority for the nation's coastal amelioration effort. At present, all of Georgia's coastal wastewater facilities -- where they even exist in the major cities -- are either malfunctioning or completely dysfunctional. Municipal wastewater contributes significantly to the effluent mix of organic materials and nutrients, spreading disease through pathogenic microbes. Sewage frequently backs up in the streets of Batumi, Poti and other communities before running off untreated to the sea. The quality of drinking water is compromised in many cases by contamination from polluted wastewater. The health of Georgia's citizens is growing worse as a result, with increases in the incidence of intestinal and other water-related diseases. Research indicates that digestive ailments in the coastal population are twice the national average. Beaches in Batumi and Poti are closed for a portion of every year due to gastrointestinal outbreaks or occasional incidences of cholera. 3.4 The Black Sea's natural resources have already been adversely affected by many years of poorly planned and mismanaged activity. Compounding the situation has been the nation's rapid economic decline. This has forced decision-makers into a crisis management mode, while also tending to divert attention away from fundamental environmental issues that threaten longer- term economic viability. A mnajor challenge for Georgia, and other countries in the region, is to survive the difficult period of transition to market-oriented, stIstainable development without rreversibl y da;n:mi- n I in r s. paiticuLrlFy the strategic Black Sea coastal region. There is a consensus among the highest governmental levels that the development of an  - 44 - Annex 2 Page 4 of 6 Integrated Coastal Zone Management program could provide the necessary framework and impetus for sounder development planning on the coast. The current timing of the MIRP credit provides an unusual window of opportunity to pursue this important goal as Georgia moves through its transitional period. IV. PROPOSED COASTAL PROGRAM 4.0 The Municipal Infrastructure Rehabilitation Project offers a clear linkage to Black Sea environmental initiatives by including two components: (a) Project Investments for municipal services (mainly wastewater and landfill systems) in Batumi and Poti, involving a total of over US$4 million or about one fifth of total project cost. These activities will, in addition to preventing further deterioration in essential community services, provide environmental benefits by reducing the threats of contaminated water to human health; and b) Project Institutional Development and Technical Assistance totaling about $100,000 to support immediate priority activities which will help establish and leverage a longer-term ICZM program and will, among other things, help identify future municipal investment opportunities, address institutional and managerial impediments to coastal environmental improvement, and initiate a comprehensive evaluation process that aims to further identify and ameliorate some of the additional critical pollution "hot spots" on Georgia's coast. Certain of these hot spots have already been identified by the Black Sea Environmental Programme, including the Batumi oil refinery. Expenditures of the proposed "seed" funds of $100,000 for the coastal program under the MIRP credit will be closely tied to the municipal investments and will help leverage future funds, ideally on a grant or concessional basis from the GEF, foundations, or bilateral sources. These funds will supplement currently available GEF funds for coastal zone management. V. SHORT TERM COASTAL ACTIVITIES 5.0 The objective of this coastal resource program is to achieve the stabilization, rehabilitation and, ultimately, sustainable management of essential ecological and socio-economic assets along Georgia's Black Sea coast. The short-term investments in municipal infrastructure, which will improve coastal water quality, are strategic first steps that provide a foundation for an emerging ICZM program. The following program of specific activities embraces some of the most fundamental problems and priorities identified by the Government as well as GEF and Bank missions. They are estimated to cost a total of $215,000 over the next 1-2 years, and will be funded from a combination of GEF Black Sea funds and the allocated $100,000 for ICZM under the MIRP credit. They will be implemented in a closely coordinated fashion, as follows: i) Rioni River Watershed Field Reconnaissance (Fall, 1994): to identify future municipal investment and pollution "hotspot" needs, investigate hydrological and ecological conditions of the most important coastal watershed draining the Kolkheti wetlands, and identify potential conservation and development activities along the Rioni River.  - 45 - Annex 2 Page 5 of 6 ii) Public Environmental Awareness Program on Coast: initial activities include a documentary film by Georgian NGO coalition on key ecological issues as related to municipal service investments on the Black Sea and an organizational workshop for ICZM planning in December, 1994. Other program activities with NGOs and the Georgia Public Relations firm include TV Public Service Announcements and teacher training for environmental education. iii) Regional Film on Ecology of the Black Sea by combined international and Georgia team. iv) Coastal Point Source Pollution "Hotspot" Study to identify future investment needs and Batumi Oil Refinery Environmental Audit and Terms of Reference for comprehensive, integrated feasibility study on its future role in meeting Georgia's energy requirements. v) Kolkheti Wetland Information Synthesis Study to support process of management planning for park designation in collaboration with WWF-Georgia and Lake Paliostomi Channel Options Study. vi) Municipal Level Environmental Assessment. Monitoring and Management Training in two phases: i) Batumi and Poti wastewater treatment and landfill enterprises and ii) other municipalities to build capacity to manage future investments. 5.1 Additional activities related to the coastal environmental improvement program, also to be financed under other investment components of the MIRP credit, are as follows: i) hydrological engineering feasibility study for proposed Choroki river diversion to help stabilize the landfill erosion in Batumi; ii) Batumi landfill topography survey; iii) Choroki river diversion works (pending feasibility and topography study). VI. OTHER INSTITUTIONAL ACTIVITIES 6.0 Despite its political and economic situation, Georgia continues to exhibit strong national will and commitment to longer term efforts to rehabilitate its coastal zone and improve the regional ecology of the Black Sea. In 1992 in Bucharest, the country ratified the Convention on the Protection of the Black Sea against Pollution and its Protocols. This was followed the next year in Odessa by a higher level and more broad-based Ministerial Declaration on the Protection of the Black Sea, which among other things, advocates conservation of biodiversity, and ICZM policies and planning. This year, Georgia signed the 1992 Biodiversity Convention. Georgia has also applied to the international Ramsar Convention, which protects geographically representative wetlands of international significance, and has nominated the Kolkheti wetland complex for Ramsar designation. All six coastal countries are currently negotiating a second Convention on Fisheries which would institute catch quotas. 6.1 To achieve effective rehabilitation of the Black Sea, including the regulation of its use to ensure resource recovery and renewability, a common regional management regime must be  - 46 - Annex 2 Page 6 of 6 coordinated among all six coastal nations (as well as the additional nine countries lying in the drainage basin of the Black Sea). While a momentous task, a positive start has been made on multiple fronts. Georgia has joined with the five other Black Sea coastal countries and international organizations to launch a Programme for the Environmental Management and Protection of the Black Sea (BSEP). The programme is financed from 1993-95 by the Global Environment Facility (GEF), a trust fund managed by the World Bank, the United Nations Environment Program (UNEP) and the United Nations Development Programme (UNDP). The Black Sea Project Coordination Unit in Istanbul coordinates this regional approach, and finances special studies, regional workshops, and training, with the objective of serving as a catalyst toward the coordinated, sustainable use of common property natural resources such as the Black Sea. A primary goal of the BSEP program is to use these studies to inform and attract specific operational investments from international donors. 6.2 Over this past year, with support from the BSEP, each coastal country has established a regional center of specific expertise, supported technically by Working Party groups; Georgia's regional "Biodiversity Activity Center" has been established at the Fishery Research Institute in Batumi. In collaboration with the Biodiversity Working Party, the Center is completing the compilation of a National Biodiversity Review report and maps on the current status of coastal and marine resources of Georgia. The Institute of Geography in Tbilisi is serving as the Data Management focal point for the BSEP program.  - 47 - Annex 3 Page 1 of 2 Housing and Municipal Services Sectoral Study Terms of Reference Objectives of the Study During implementation of the proposed Municipal Infrastructure Rehabilitation Project (MIRP), an informal study will be undertaken to identify future investment opportunities for the Bank's next lending program to Georgia in the sector. Since the proposed MIRP addresses urgent municipal infrastructure needs, the next lending program should include medium-to-longer term infrastructure investments. The study should investigate the state of housing and municipal services in the country, as well as efficiency of the delivery process. The study should ultimately produce a sector strategy which prioritizes future investment opportunities. Scope of the Study Investment Opportunities The assessment of housing and municipal services should include both an investigation of infrastructure needs not addressed under the MIRP (e.g. housing) as well as a secondary-phase investigation of those problems which were identified but, due to their relatively lower priority and limited resources, could not be included in the proposed lending program. The study should include the following sectoral areas: a) primary investment opportunities in housing construction, especially in: i) old Tbilisi, and particularly in those buildings which have been deemed structurally hazardous by the municipality, and ii) Western Georgia, where a great proportion of the housing stock was demolished during recent civil strife; b) primary investment opportunities for rehabilitating the heating and utilities infrastructure inside residential buildings; c) secondary investment opportunities in urban transport, water and sewerage, and solid waste management that exceed the MIRP's primary objective to mitigate further deterioration of infrastructure. The future investments identified should include, in addition, a rationalization and comprehensive analysis of the existing systems. In addition to investigating a wider range of sectoral areas, the study should explore investment opportunities in other municipalities, among others, Kutaisi - the second largest city in Georgia characterized by many of Tbilisi's same sectoral problems.  - 48 - Annex 3 Page 2 of 2 Technical Assistance Opportunities In addition to investigating investment related opportunities, the study should also encompass an investigation of policy issues, legislation, and financing arrangements surrounding the delivery of municipal services and current housing situation in selected municipalities. The general characteristics of the finances of the municipal and intergovernmental fiscal relations systems in Georgia should also be studied in order to provide the World Bank with a better understanding of the strengths and weaknesses of the current systems, new policies being considered in the Parliament, and the potential impact on future Bank lending operations. The technical assistance component can be broken down into three components: 1) municipal financing arrangements, including: a) expenditure responsibilities; b) revenue sources; c) revenue generating capacities of the municipality; d) revenue-sharing between central and local governments; e) subsidies; 2) housing maintenance and privatization arrangements, including: a) housing laws; b) housing privatization procedures; 3) operational arrangements, including: a) responsibility for delivery of urban services; b) decentralization and reform of an institutional setup for delivery of urban services. The study would be financed under the proposed lending operation in an effort to facilitate the expediency under which a subsequent program in the sector could be initiated. It is estimated to cost approximately US$65,000.  Municipal Infrastructure Rehabilitation Project Annex 4 Detailed Costs Page 1 of 4 (US$ '000) Base Cost Totals Including Contingencies Foreign Local Duties & TBILISI INVESTMENT PROGRAM 94/95 95196 96197 Total 94/95 95/96 96t97 Tolal Exch. Costs Taxes Total A. Heatina/Enerpy saving a. PrFimfary weath. of 200 schools and 23 hospitals Supply of glass 300.00 0.00 0.00 300 00 333 59 0.00 0.00 333.59 251.09 82.50 0 00 333.59 Door repair material 100.00 0.00 0.00 100 00 111.20 0 00 0.00 111.20 83.70 27 50 0 00 111.20 Othermaterials(caulking,wood) 132.00 0.00 0.00 13200 14678 0.00 0.00 14678 11048 36.30 000 146.78 Building works contracts 450.00 0.00 000 450 00 500 38 0.00 0 00 500 38 376.63 123.75 0 00 500.38 Shippingcompany(glass) 10.00 0.00 0.00 1000 11 12 0.00 000 11 12 8.37 275 000 11.12 Warehouse space 5.00 0.00 000 500 5.56 0.00 000 5.56 418 1 38 000 5.56 Quality control team 20.00 000 0 00 20 00 2224 0 00 0 00 22.24 16 74 5.50 0 00 22.24 Subtotal Primaryweath. of200 schoolsand 23 hospitals 1,017.00 0.00 000 1.01700 1,13087 000 000 1,13087 851.19 27968 000 1,130.87 Direct electriciy feeds to 15 hospitals 76.25 112.85 115 90 30500 84 79 128.32 134.68 347 79 26391 83.88 0 00 347.79 Installation of direct lines 5000 74 00 7600 20000 5560 84 14 88 32 228.06 17306 55 00 0 00 228.06 Supplyfinstall diesel generators (2 hospitals) 37.50 5550 5700 15000 4170 63.11 66.24 171.04 129.79 41 25 000 171.04 Supply of glazing kis 150.00 200.00 7500 42500 166.79 227.42 87.15 481 37 364.49 116.88 000 481 37 Installationof glazing kis 8000 120.00 10000 30000 8896 136.45 116.21 341.61 259.11 82.50 000 341.61 Roof insulatingmaterial 25.00 37.00 3800 10000 27.80 42.07 44.16 114,03 8653 2750 000 114.03 Install roof insulating material 12.50 18.50 1900 5000 1390 21.04 22.08 5701 43.26 13.75 000 57.01 Boilers (hospitals) 450.00 0.00 0.00 45000 50038 000 000 50038 376.63 123.75 000 500.38 Installation of boilers 54.00 0.00 0.00 54 00 60 05 0 00 000 60 05 45.20 14.85 0 00 60.05 Repair of 1 boiler house 0.75 1.11 1.14 300 0.83 1.26 1.32 3.42 2.60 0.83 000 3.42 Rehabilitateheatingsystems(upto50schools) 15000 500.00 350.00 1,00000 166.79 568.54 406.72 1,14206 867.06 275.00 000 1,142.06 Quality control 1250 1850 19.00 5000 13.90 21.04 22.08 5701 43.26 13.75 000 57.01 Subtotal Sec. weath. for 200 schools and 23 hospitals 1,098.50 1,137A46 851 04 3,087 00 1,221 49 1,293 39 98896 3,503 83 2,654.91 848 93 0.00 3,503.83 Subtotal Heating/Energy saving 2,115.50 1,137.46 851.04 4,104.00 2,352.36 1,293.39 988.96 4,634.70 3,506.10 1,128.60 0.00 4,634.70 B. Urban Transport 1. Tbilisi Metro Locomotive traction motors 35.00 0.00 0.00 35 00 39.00 0.00 0.00 39.00 35.15 3.85 0.00 39.00 Spare parts for traction motors 20.00 0.00 0.00 20 00 22.29 0.00 0.00 22.29 20.09 2.20 0 00 22.29 Spare parts formetrocarfiages 1900 0.00 0.00 1900 21.17 0.00 0.00 21.17 19.08 2.09 000 21.17 Batteriesandelectricalitemsforcarriages 1600 0.00 0.00 1600 17.83 0.00 0.00 17.83 16.07 176 0.00 17.83 Modernizefarecollectionsystem 0.00 132.50 132.50 26500 000 151.65 155.62 307.26 278.11 2915 000 307.26 Spare parts for rolling stock 101.25 149.85 153.90 40500 112.83 171.50 180.75 465.08 420.53 44.55 000 465.08 Rehabtitatepumpingstations 11380 120.40 20.90 25510 12681 137.80 24.55 28916 261.10 2806 000 289.16 Rehab. escalators 0.00 350.00 100.00 45000 0.00 400.58 117.45 51802 468.52 49.50 000 518.02 Upgrading power supply 238.80 305.40 210.90 755 10 266 11 34953 24770 863.33 780.27 8306 000 863.33 Rail rehabilitation 42.50 62.90 64.60 17000 47.36 71.99 75.87 195.22 176.52 1870 000 195.22 Miscellaneous equipment 60.00 88.80 91.20 24000 66.86 101.63 107.11 275.60 249.20 26.40 0.00 275.60 Subtotal Tbilisi Metro 646.35 1,209.85 774.00 2,630 20 720.26 1,384.67 909.04 3,013.98 2,724.65 289.32 0 00 3,013.98 2. Tbiltrans Trolley and overhead cable 75.00 0.00 000 75.00 83.58 0.00 0.00 83.58 75.33 8.25 0 00 83.58 Spare parts (engines, gear, brakes, etc.) 167.50 247.90 254.60 670.00 186.65 283 72 299.02 769.40 695.70 73.70 0 00 769.40 Spare parts for trolley buses 163.75 242.35 24890 655.00 182.48 277.37 29233 752.17 68012 72.05 0.00 752.17 Purchase of inspection and repair truck 15.00 22.20 22.80 60.00 16.72 25.41 26 78 68.90 62.30 6.60 0.00 68.90 Subtotal Tbiltrans 421.25 512.45 526.30 1,46000 46942 586.50 618.12 1,674.04 1,513.44 160.60 0.00 1,674.04 Subtotal Urban Transport 1,067.60 1,722.30 1,300.30 4,090.20 1,189.69 1,971.17 1,527.16 4,688.02 4,238.10 449.92 0.00 4,688.02  Municipal Infrastructure Rehabilitation Project Annex 4 Detailed Costs Page 2 of 4 (LJS$ 000) Base Cost Totals Including Contingencies Foreign Local Duties & TBILISI INVESTMENT PROGRAM 94/95 95/96 96/97 Total 94/95 95/96 96/97 Total Exch. Costs Taxes Total C. Water supply 1 Excavators and cranes 23000 0 00 0 00 230 00 256,49 0 00 0.00 256 49 243 84 12 65 0 00 256 49 2. Lorries. pipe lorry and trailor, transporter and trailor 140 00 0 00 0 00 140 00 156 12 0 00 0 00 156 12 148 42 7 70 0 00 156 12 3 Main repair vehicles 150.00 0 00 0 00 150 00 167 27 0 00 0.00 167 27 159 02 8 25 0 00 167 27 4 Laboratory equipment 800 11 84 12 16 3200 892 1358 14.33 3663 3507 1 76 000 3683 5 Chlorination dosing equipment and pipework 17,50 25 90 26 60 70 00 19,52 29 71 31.35 80,57 76 72 3 85 0 00 80,57 6 Supply/installation short wave radio communications network 25 00 75 00 100 00 200 00 27 88 86.02 117.86 231 76 220 76 11 00 0 00 231 76 7 Spare parts for electrical gear (pumping stations) 35.00 0 00 0 00 35 00 39 03 0.00 0.00 39 03 37 11 1 93 0 00 39.03 8 New pumps (w/ electrical motors) 193 00 0 00 0 00 193 00 215 22 0 00 0.00 215 22 204.61 10 62 0 00 215,22 9 High voltage motor statorsforpump motors 17200 000 0 00 172 00 191.81 000 000 191 81 182 35 9 46 000 191.81 10 Replacement electric motors 30.00 7000 0 00 100 00 33.45 80 29 000 113 74 108 24 5.50 0 00 113 74 Subtotal Water supply 1,000.50 182.74 138.76 1,322.00 1,115.71 209.60 163.54 1,488.85 1,416.14 72.71 0.00 1,488.86 D. Wastewater 1 Sewer cleaning equipment 22.50 33.30 34 20 90 00 25.06 38 03 40 03 103.11 88 26 14 85 0 00 103.11 2 Spare parts forsewer repairs 1250 1850 1900 5000 13.92 21 13 22.24 5728 4903 8625 000 57.28 3. Sewer renovation 75.00 111.00 114 00 300 00 83.52 126.77 133.42 343.70 294.20 49 50 0 00 343.70 4. Gardabani wastewater treatment plant (renovation) 42.50 6290 6460 17000 47.33 71 83 7560 19476 16671 2805 000 19476 o Subtotal Wastewater 152.50 225.70 231.80 610.00 169.82 257.76 271.28 698.86 598.21 100.65 0.00 698.86 E. Landfill 1 Used compactor garbage transfer trucks and spare parts 121 50 18000 000 301 50 13539 20601 000 341 40 30824 3317 000 341.40 2 Spare parts for repair of existing vehicles 1600 0 00 0 00 18 00 20.06 0 00 0.00 20.06 18 08 1.98 0 00 20.06 Subtotal Landfill 139.50 180.00 0.00 319.50 155.45 206.01 0.00 361.46 326.32 35.15 0.00 361.46 Total Tbilisi Investment Program 4,475.60 3,448.20 2,521.90 10,445.70 4,983.02 3,937.92 2,950.95 11,871.89 10,084.86 1,787.03 0.00 11,871.89 M Tblcomt Ax4  Municipal Infrastructure Rehabilitation Project Annex 4 Detailed Costs Page 3 of 4 (US$ '000) Breakdown of Totals Incl. Cont. Base Cost Totals Including Contingencies Foreign Local Duties & 94/96 96/96 96/97 Total 94/96 95196 96197 Total Exch. Taxes Total BATUMI MUNICIPALITY A. Water supply 1. Supplyfinstallation of diesel generator 60.00 50.00 0.00 110.00 66.91 57 35 0.00 124.26 118.21 6.05 0.00 124.26 2. Supplyfinstallationof boreholepumps 80.00 100.00 100.00 280.00 89.21 11470 117.86 321.77 306.37 15.40 0.00 321.77 3 Equipment for main repairs 50.00 72.00 50.00 172.00 55.76 82 58 58.93 197.27 187.81 9.46 0.00 197.27 4 Spare pipes for water main repairs 50.00 38.00 0.00 88.00 55.76 4358 000 99.34 94.50 4.84 0 00 99.34 5. Communications network 10.00 40.00 000 5000 11 15 4588 000 57.03 54 28 2 75 000 57.03 6. Chlorination dosing equipment 20.00 0.00 0.00 2000 2230 0 00 0.00 22.30 21.20 1 10 000 22 30 Subtotal Water supply 270.00 300.00 150.00 720.00 301.09 344.09 176.79 821.97 782.37 39.60 0.00 821.97 B. Wastewater 1. Sewer cleaning equipment 20.00 29.60 30.40 80.00 22.30 33.95 35.83 92.08 87.68 4 40 0 00 92.08 2. Spare parts for sewer repairs 10.00 1480 15.20 40.00 11.15 16.98 17.91 46.04 4384 220 0.00 46.04 3 Sewer renovation 101.25 149.85 153.90 405.00 112 91 171 87 181.39 466.17 443.90 2228 0.00 466.17 4 Upgrading 3 Pumping Stations 100.00 148.00 152.00 400.00 111.52 169 75 179.15 460.42 438.42 22.00 0.00 460.42 Subtotal Wastewater 231.25 342.25 351.50 925.00 257.88 392.55 414.28 1,064.71 1,013.84 50.88 0.00 1,064.71 C. Landfill 1 Newlandfiflcompactor/dozer 50.00 74.00 76.00 200.00 55.68 84.51 88.95 229.13 196.13 3300 0.00 229.13 2 Tractorandtrailor (garbage collection) 10.00 14.80 1520 40.00 11.14 16.90 17.79 45.83 39.23 6.60 0.00 45.83 3. Spare parts (garbage vehicle maintenance) 3.75 5.55 570 15.00 4.18 6.34 6.67 17.18 14.71 2.48 0.00 17.18 4. River engineering works 58.50 86.58 88.92 234.00 65.14 98.88 104.07 268.09 229.48 38.61 0.00 268.09 Subtotal Landfill 122.25 180.93 185.82 489.00 136.13 206.63 217.47 660.23 479.66 80.69 0.00 560.23 Total BATUMI 623.50 823.18 687.32 2,134.00 695.10 943.27 808.64 2,446.91 2,276.76 171.16 0.00 2,446.91 POTI MUNICIPALITY A. Wastewater 1. Sewer cleaning equipment 19.50 28.86 29.64 78.00 21.73 33.03 34.81 89.57 80.99 8.58 0.00 89.57 2. Spare parts for sewer repairs 20.00 29.60 30.40 80.00 22.29 33.88 35.70 91.87 83.07 8.80 0.00 91.87 3. Sewer renovation 25.00 37.00 38.00 100.00 27.86 42.35 44.63 114.84 103.84 1 1 .00 0.00 114.84 4. Refurbishment of 4 sewage pumping stations 83.75 123.95 127.30 335.00 93.33 141.86 149.51 384.70 347.85 36.85 0.00 384.70 5. Tractors and tanks (for septic tanks) 35.00 51.80 53.20 140.00 3900 59.29 62.48 160.77 145.37 15.40 0.00 160.77 Subtotal Wastewater 183.26 271.21 278.64 733.00 204.21 310.40 327.14 841.74 761.11 80.63 0.00 841.74 B. Landfill 1. Landfill equipment 42.50 62.90 64.60 170.00 47.36 71.99 75.87 195.22 176.52 18.70 000 195.22 2. Spare parts/maintenance 12.00 17.76 18.24 48.00 13.37 20.33 21 42 55.12 4984 5 28 000 55.12 Subtotal Landfill 64.50 80.66 82.84 218.00 60.73 92.32 97.29 250.34 226.36 23.98 0.00 250.34 Total POTI 237.76 351.87 361.38 951.00 264.94 402.72 424.43 1,092.08 987.47 104.61 0.00 1,092.08 OTHER MUNICIPALITIES A. Equipment 225.00 333.00 342.00 900.00 250.73 381.12 401.67 1,033.52 934.52 99.00 0.00 1,033.52 B. Civil works 225.00 333.00 342.00 900.00 250.73 381.12 401.67 1,033.52 934.52 99.00 0.00 1,033.52 Total OTHER MUNICIPALITIES 460.00 666.00 684.00 1,800.00 501.46 762.24 803.34 2,067.03 1,869.03 198.00 0.00 2,067.03 otherC.goo  Municipal Infrastructure Rehabilitation Project Annex 4 Detailed Costs (USS '000) Page 4 of 4 Base Cost Totals Including Contingencies For. Local Duties 94/95 95/96 96/97 Total 94/95 95/96 96/97 Total Exch. Costs &Taxes Total I Agency's Costs A. Equipment Computers and small equipment 4,50 2 80 0 00 7.30 5 01 3 20 0 00 8 22 7 42 0 80 0.00 8.22 Printer and typewriter 1 70 1 50 0 00 3 20 1 89 1 72 0 00 3 61 3 26 0 35 0.00 3.61 Photocopier 4 00 0.00 0 00 4 00 4 46 0 00 0 00 4 46 4 02 0 44 0.00 4 46 Fax machine and telephones 1 50 0 50 0 00 2 00 1.67 0 57 0 00 2 24 2 02 0 22 0 00 2,24 Generator 5 00 0 00 0 00 5 00 5 57 0 00 0 00 5 57 5 02 0 55 0.00 5 57 Software 1 50 1 00 0 00 2.50 1 67 1 14 0 00 2 82 2 54 0 28 0.00 2 82 Heaters 050 050 000 1.00 056 0.57 000 1 13 1 02 011 000 1 13 Total Equipment Costs 18 70 6 30 0 00 25 00 20 84 7 21 0 00 28 05 25 30 2 75 000a 28 05 B. Company's operating costs Salaries 20 30 22 70 27 20 70 20 22 62 25 98 31 95 80 55 72 83 7 72 0.00 80,55 Officemanagement 3010 4620 5180 128.10 3354 5288 6084 14726 13316 1409 000 14726 Miscellaneous equipment 12 90 15,30 16 00 44 20 14 38 17 51 18 79 50 68 45 82 4 86 0 00 5068 Total Recurrent Costs 63 30 84 20 95 00 242.50 70 54 96 37 111 57 278 48 251.81 26.68 0 00 278 48 Total Agency Costs 82.00 90.50 95.00 267.50 91.38 103.58 111.57 306.53 277.10 29.43 0.00 306.53 :t Support Activities A Technical Assistance IProcurementConsultant 12000 18000 10000 40000 133.72 20601 11745 45718 41318 4400 000 457.18 2 Survey Specialist 2.50 3 70 3 80 10.00 2 79 4 23 4 46 11.48 10 38 1 10 0 00 11 48 3 Technical Supervision 50 00 45 00 40 00 135.00 55 72 51.50 46 98 154 20 139 35 14 85 0 00 154.20 4 Accounting/Auditing consultdnt 30 00 45 00 40 00 115.00 33 43 51 50 46,98 131.91 119.26 12 65 0 00 131 91 Subtotal Technical Assistance 20250 27370 183.80 66000 22566 31325 215.87 754.77 68217 72.60 0,00 75477 tin B. Public Relations Actions 1 Launchingworkshop/seminar 2260 1740 1500 55.00 25.18 1991 17.62 62.72 5667 605 000 62.72 2 Public Awareness Campaign 10 00 20,00 5.00 35.00 1114 22 89 5.87 39.91 36 06 3.85 000 39 91 Subtotal Public Relations Actions 32 60 37 40 20 00 90.00 36 33 42 80 23 49 102.62 92 72 9 90 000 102.62 C. Consulting Services 1 Batumi Landfill Topographical Survey 6,25 925 950 25.00 696 1059 11,16 28.71 2596 2.75 0.00 28 71 2 FeasibilityforBatumilandfillprotection 1000 1480 1520 40.00 11.14 16.94 1785 45.93 41,53 440 000 45.93 3 TbilisiBatumi/Poti sewerage network mapping 26.00 38,48 39 52 104.00 28.97 44 04 46 42 119 43 107 99 11 44 000 119.43 4 ModelingofBatumiwatersupplynetwork 10.00 14.80 15.20 40.00 11.14 1694 1785 4593 41.53 4.40 0.00 45.93 5 UrbanTransportmanagement 35.00 2480 2020 80.00 3900 2838 23.72 91 11 82.31 880 000 91.11 6 Coastal Zone Program a Pollution "hotspot" study 20.00 000 0 00 20,00 22.29 0 00 0 00 22.29 30 58 3 30 0 00 22,29 b Municipal level training in EA 30.00 000 0 00 30.00 33.88 0 00 0 00 33 88 20 09 2 20 0 00 33.88 c Kolkheti wetlands-Lake Paliostomi info, synthesis 1500 000 000 1500 16.72 000 000 16.72 1507 1 65 0.00 16 72 d Coastal zone public awareness campaign 15.00 15 00 0 00 30 00 16,72 17 17 0 00 33 88 30 58 3 30 0 00 33 88 SubtotalCoastalZoneProgram 8000 1500 000 9500 89.60 1717 0.00 10677 95.87 10.45 000 10632 Subtotal Consulting Services 167.25 117.13 9962 384.00 186.38 13406 117.00 437.43 39519 42.24 000 43743 Subtotal T.A.I Consulting Services 402.35 428.23 303.42 1,134.00 448.36 490.11 356.36 1,294.83 1,170.09 124.74 0.00 1,294.83 D. Studies 1 TbilisiWaterSupplyMasterPlan 15000 000 000 150.00 16715 0.00 000 167.15 15065 1650 000 16715 2 Tbilisi Waste Management Master Plan 69.00 0 00 0 00 69.00 76 89 0 00 0 00 76 89 69 30 7 59 0 00 76 89 3 Municipal Sector Study 65.00 0 00 0 00 65.00 72 43 0 00 0 00 72.43 65 28 7 15 0 00 72A43 4 Fare Collection System Study 50.00 0 00 0.00 50.00 55.72 0 00 0 00 55.72 50 22 5 50 0 00 55 72 5 Communication study 15.00 000 000 15.00 16872 0.00 000 16.72 1507 1 65 000 16 72 6 Studies (other cities) 200,00 0 00 0 00 200.00 222 87 0 00 0 00 222 87 200 87 22 00 0 00 222 87 Total Studies 549.00 0.00 0.00 549.00 611.78 0.00 0.00 611.78 551.39 60.39 0.00 611.78 Total Institutional Development 1,033.35 518.73 398.42 1,950.50 1,151.52 593.69 467.93 2,213.14 1,998.58 214.56 0.00 2,213.14 -SibUd g-O  - 53 - Annex 5 Page 1 of 3 Institutional Arrangements 1. The institutional setup of this project is reflected in the legal and contractual documents, defining relationships between the Central Government, the Ministry of Finance, the Beneficiary Municipalities (hereafter referred to as Beneficiaries), the executing entity, titled the Independent Agency for Development of Municipal Services (hereafter referred to as the Agency), contractors, consulting firms, and individual consultants. 2. In order to ensure expeditious and efficient implementation of the Georgia Municipal Infrastructure Rehabilitation Project (MIRP), it has been decided to establish a non- governmental, non-profit entity which will be authorized to manage IDA and local funds available for the Project. However, the purposes of the Agency are broader. They include overall support to development of urban services through acquisition of appropriate skills for managing foreign and local funds, and their application for this particular project, as well as for other possible investment projects or tasks. 3. In order to ensure viability and efficiency of this arrangement, four main components have been integrated in the Charter, as well as in the other legal documents related to the Agency: (i) the legal structure of the Agency; (ii) the relationship between the Central Government and the Agency; (iii) the relationship between the Beneficiaries and the Agency and (iv) the relationship between the Agency and sub-contractors. 4. The Charter of the Agency determines its legal structure (see Annex 6). The Agency is an independent, non-governmental, non-profit organization, which is registered in accordance with the Georgian legislation. It is liable for all of its property. Its proposed structure and status ensures sufficient independence of the Agency and, at the same time, gives the Government a tool to supervise its activity. 5. The Agency is founded by the Chamber of Commerce of the Republic of Georgia, the Academy of Technical Sciences, and the Tbilisi Municipality, hereafter referred to as the Founders. However, any other non-governmental institution can join the Founders, if the later agree to this, with the status of co-founders. It is expected that as soon as an Association of Georgian Municipalities is created, it will become co-founder of the Agency. The Founders will cover all fees required for registration of the Agency. 6. The Board of Directors is the governing body of the Agency. The Directors will be appointed by the managers of the Founders, two selected from each. The Board will convene its meetings upon request of any of the Founders, or upon request of the management of the Agency. The Directors will not be remunerated for fulfilling their functions. 7. The Board will appoint a General Manager of the Agency. The General Manager is responsible for managing the activity of the Agency on a daily. basis, including hiring the staff. In his/her activity, the General Manager follows the Manual of Procedures of the  - 54 - Annex 5 Page 2 of 3 Agency and reports directly to the Board of Directors. The General Manager will receive appropriate rem11uLn1eration for his\hier- activity. 8. For implemiienitationi ot' the Georgia Municipal Infrastructure Rehabilitation Project, the Agency will enter- into the Project Management Agreement with the Ministry of Finance of Georgia (see Alnnlex 6). On behalf of the Ministry of Finance, the Agreement will be signed by the high ranklineg official of the Ministry, not lower than Deputy Minister. On behalf of the Agency. the Agreement will he signed by the General Manager of the Agency. 9. The lProject Man1agemernt Agreement will authorize the Agency to manage IDA and local f'unds available for the purposes of the Project. While in charge of project implementation. the Board of Director-s should ensure appropriate qualifications of the General Manaoer. Therefore, the General Manager has to be acceptable to the Government of Georgia ancd to IDA at all times. For the same purposes, the Manual of Procedures of the Agency has to comply with procurement, dishursement and other IDA requirements. The Manual ot Procedur-es establishes rules for operations of the Agency, including sample bidding documiienits, sample contracts with consultants, and the like. The experience in similar arrangemenits demonstrates that such a manual is extremely useful for the company's daily OperatiOl)s. since it outlinles, inl much detail. all internal and external procedures which bind the Agenicy. 10. For the purposes ot' the Project, the Beneficiaries will enter into sub-agreements with the Agency. Suclh sub-agreemiienits will authorize the Agency to act on the behalf of the Beneficiaries in all aspects regarding implementation of the corresponding project components. Printciples of the sub-agreements shall comply with the General Principles of the Project Management Agreemiienit between the Agency and the Ministry of Finance. The Manual of Plocedur-es applies as well to procedures to be followed for execution of the sub- agreemenits. 11. The Project Management Agreement between the Agency and the Ministry of Finance and Sub-Agreements between the Agency and the Beneficiaries are consistent with Georgian legislation and create the appropriate legal basis for fulfilling the tasks assigned. 12. In order to support and supervise execution of the Project Management Agreement between the Ministr-v of Finance and the Agency, the Government of Georgia will set up the Technical Coordci nationi Committee, hereafter referred to as the Committee. Appropriate documentation, required for establishment of such Committee is provided to IDA (see Annex 6). The Committee will be comprised of representatives of the Aid Coordination Unit within the Council of Ministers, the Ministry of Finance, the Beneficiaries, the Economic Advisory Council of the I-lead of State, the Ministry of Envionment, and the Founders. 13. The main purposes of the Committee are: (i) to provide sufficient support to the activity of the Agency on the highest political level of the Government and (ii) to supervise compliance of' the project implementation process with the requirements of the Credit Agreement. Tle Commiiittee will convenie its meetings upon a reqiucst of any of its members,  - 55 - Annex 5 Page 3 of 3 but not less than every six months. 14. The relations of the Agency with the Central Governmnent, the Beneficiaries, and the contractors and consultants are shown in Attachments 1 and 2.  iX B ----------- -------- z I ________~~~~~~~~x E40 cE I _ .F.0.--- - - - -1- --1 - V)~~~~~~~~~~' Fo . ,l ,l _ --------,-- . --.:-------. Ifi z , , ,.,,/=.v,0 I _____________________________________________________________________________________.____.. {0- Ig II'  - 57 - GEORGIA MtNTCIPAI. INTRASTRU(`CTURE REHIAB3ITATION PROJECT Annex 5 AUachmcnt 2 CONTRACTUAL FRAMEWORK PROJECT BENEFICIARIES - LOCAL GOVI.LRNMN[S & PUBLIC UnILTILS * TBlLISI * BATU.MI * P(JI I * OTH13R crriFs SUB-AGREEMENT I NON-PROFIl ! NON^GOVERNMENA I t ~AGENCY) CONTRACTF CONTRACT FOR FOR WORKS DESIGN/ WORKS SUPERVISION (1) |7CONTRACTORS CONSULTANTSI, WORKS/GOODS FEASIBILUTYISUPERVISION (1) sometimes two contracts/often one   - 59 - Annex 6 Page 1 of 3 The Charter of the Independent Agency for Development of Municipal Services 1. General Conditions and Purposes 1.1 An Independent Agency for Development of Municipal Services (further referred to as the Agency) is a noni-governmental non-profit organization. 1.2 The purposes of the Agency are to support development of public enterprises involved in provision of urban services; introduce methods of competitive bidding for works required in the sector: provide assistance to local governments in dealing with international donors and, particularly, to ensure expeditious and efficient implementation of the proposed Georgia Municipal Infrastructure Rehabilitation Project (further referred to as the Project). 1.3 The Agency is established and acts in accordance with the Laws of the Republic of Georgia concerning the private sector. 1.4 The Agency will follow in its activity the Charter of the Agency and the Manual of Procedures of the Agency, agreed upon by the Ministry of Finance of the Republic of Georgia. 1.5 The Agency is competent and acquires the status of a legal entity from the moment of its registration in accordance with the acting legislation of Georgia. 1.6 The Agency is created for the period of 3 years. The term of the Agency will be automatically cancelled, unless a decision on liquidation of the Agency has been adopted by the Board of Directors 2 months prior to termination of the aforementioned period. 1.7 The office of the Agency is located at the following address: 27, Rusteveli Ave. 2. Functions and Responsibilities of the Agency 2.1 The functions and responsibilities of the Agency in respect to the Municipal Infrastructure Rehabilitation Project are defined in the Project Management Agreement between the Ministry of Finance of the Republic of Georgia and the Agency. 2.2 For the purposes of implementation of the Project components the Agency will enter into sub-agreements with the final beneficiaries, i.e. municipalities of Tbilisi, Poti, Batumi.  - 60 - Annex 6 Page 2 of 3 2.3 The Agency will be responsible, inter alia, for implementation of the Project components as defined in the Credit Agreement between the Government of Georgia and the World Bank, and for monitoring of the implementation process. 2.4 The Agency has the right to select contractors, negotiate and sign contracts for supplies and works on behalf of the Borrower in accordance with the Credit Agreement and the Manual of Procedures. The Agency has the right to manage banking accounts open in the name of the Borrower for the purposes of the Project. 3. The Fouinders of the Agency 3.1 The founders of the Agency, on the Trustee Basis, are the Chamber of Commerce of the Republic of Georgia, the Academy of Technical Sciences, and the Tbilisi Municipality. 3.2 Other non-governmental organizations of Georgia can join the Founders at any time, subject to agreement with the Founders, with the status of co-founder of the Agency. 3.3 The Board of Directors is a governing body of the Agency. Directors will be appointed by the management of the founding organizations, two selected from each. The Board will meet upon the request of any of the Founders. The Founders carry out public supervision of the Agency. 3.4 The Founders do not carry responsibility for results of any activities of the Agency. Any Registration fees required should be covered by the Founders. All other possible operational expenises of the Founders in regard to the Agency will be compensated by the Agency. 4. Support and Supervision of Agency's Performance with Respect to Project Inipleiineiitation 4.1 Support and supervision of the Agency's performance with respect to the Project implementation anid fulfillment of the obligations, assumed by the Agency under the Project Management Agreement with the Ministry of Finance will be rendered by a Technical Coordination Committee (further referred to as the Committee) consisting of high level representatives of' the Aid Coordination Unit in the Council of Ministers, the Ministry of Finance, nmunicipalities of Tbilisi, Batumi, Poti, the Economic Advisory Council of the Head of State, Ministr-y of Envir-onmnent, and the Founders of the Agency. 4.2 The Commiilttee will have access to all information related to the performance of the Agency and its activities. 4.3 Tlle Commiiittee will use its best effort to ensur-e political support to, and facilitate the activity of' tllc Agency  - 61 - Annex 6 Page 3 of 3 4.4 The Committee will have a right to request the Ministry of Finance to cancel the Project Managemiient Agreement with the Agency or to dismiss the General Manager of the Agency, if performance of the Agency or of the General Manager has been deemed unsatisfactor-y and sufficient evidence has been presented. 4.5 Periodic financial and technical reviews of the Agency's performance will be carried out by an exter-nal auditor. Periodical interim reports and complete annual audit reports will be submitted to the Committee and the Founders. 4.6 The accounting and reporting system of the Agency should satisfy the general principles as defiled in the Credit Agreement. 5. Staffing of the Agency 5.1 The management of the Agency will be executed by the General Manager, who will be appointed by the Board of Directors of the Agency in consultation with the Government of Georgia to ensur-e that his/her qualifications and experience are adequate. 5.2 The Agenicy will hire personnel for Disbursement and Procurement procedures, and support staff. 5.3 The Agency will retain, when required, an independent consultant or consulting firm, with various skills appropriate for undertaking specific tasks. 6. Finanicial Sources and Property of the Agency 6. 1 Financial sources of the Agency are obtained from the proceeds of the Credit or available unider local financing, as stipulated in the Project Management Agreement. 6.2 The property of the Agency for the period of its existence is equipment and other inventory needed for fulfillment of its purposes. 6.3 The Agency is liable with all of its property. 7. The Liquidation of the Agency 7.1 Decisions on liquidation or extension of the terms of the Agency are made by the Board of Directors. Procedures of liquidation are defined by the Board in accordance with Georgia legislation. 7.2 The property left after liquidation will be at the disposal of the Government of Georgia.   - 63 - Annex 7 Page 1 of 1 GEORGIA MUNICIPAL INFRASTRUCTURE REHABILITATION PROJECT Estimated Schedule of Disbursements (US$ millions) Bank Fiscal Semester Disbursement Cumulative Disbursement % Year Ending in Semester Amount of Total Credit 1995 a 12/31/94 1.2 1.2 6 06/30/95 3.3 4.5 23 1996 12/31/95 4.3 8.8 45 06/30/96 4.1 12.9 66 1997 12/31/96 3.5 16.4 83.6 b 06/30/97 2.1 18.5 94 1998 b 12/31/97 1.1 19.6 100 a Includes initial deposit into the Special Account. b Rate of disbursement reduced to recover advance made to Special Account.   - 65 - GEORGIA - MUNICIPAL INFRASTRUCTURE REHABILITATION PROJECT Annex 8 PROCUREMENT IMPLEMENTATION PLAN Page I of 4 Ref City Description Proc. Est. Start T RI f. C ItDciio I code amount Year Tp CONSULTANTS Water supply STIP. Technical assistance for design and I M WS Batumi specification of radio communication installations. DC 15,000 1995 C Transport STIP. Study for modernisation of fare 2 T TR Tbilisi collection system. DC 50,000 1995 C 3 I P1 MS Municipal Sector Study DC 65,000 1995 C 4 T LF Tbilisi Landfill STIP. Study for solid waste master plan. DC 69,000 1996 C 5 CONSULTANTS TOTAL DIRECT CONTRACTING DC 199,000 C Water supply STIP. Technical assistance for design and 6 M WS Tbilisi specification of radio communication installations. SL 15,000 1995 C 7 I Pi TA Technical assistance AccountingfDisbursmneit SL 95,000 1995 C Tbilisi & Batumi 8 M WS I Pot) Sewerage network mapping SL 104,000 1995 C 9 T WS Tbilisi Water supply STIP. Study for water supply master plan. SL 150,000 1996 C 10 M MU XX Technical Feasibility sutdies "Other Cities" SL 200,000 1995 C Technical assistance. Procurement advisor for the 11 I I Pi TA Agency SL 400,000 1995 C |CONSULTANTS TOTAL SHORT LIST SL 964,000 C TOTAL CONSULTANCY SERVICES 1,163,000 GOODS Tbil/Bat./ Wastewater STIP. Sewer clealling equipment and sewer 1 M WW Poti jetting vehicles (3no.) ICB 248,000 1996 G _ Tilisi & Water supply STIP Design supply and installation of 2 M WS Batumi short %kavc radio communication equipment ICB 250,000 1996 G Water supply STIP. Supply of tipping lorries, pipe lorry, 3 T WS Tbilisi transporter & water main repair vehicles. ICB 290,000 1995 G Heating STIP Suppl! onhN of indepeindent heating 4 T HS Tbilisi systems for 19'7 schools ICB 300,000 1995 G Landfill STIP. Supply of 3 transfer tnicks, 45 cu.m. 5 T LF Tbilisi capacitN. ICB 301,500 1995 G Heating STIP Supply only of secondary glazing kits for 6 T HS Tbilisi 197 schools and 22 hospitals. ICB 425,000 1995 G Water supply STIP. Purchase of new water pumps Tbilisi & complete with electric motors. 7 M WS Batumi 29 units Tbilisi/15 units Batumi. ICB 473,000 1995 G Heating STIP Supply and installation of independent 8 T HS Tbilisi boilcrs for hospitals. ICB 484,000 1995 G Heating IAP Supply only of electrical cable for dedicated 9 T HS Thilisi ecectricilt supplics lo hospitals ( I 5 no ) ICB 700,000 1994 G  - 66 - GEORGIA - MUNICIPAL INFRASTRUCTURE REHABILITATION PROJECT Annex 8 PROCUREMENT IMPLEMENTATION PLAN Page 2 of 4 Ref i D Proc. Est. Start Typ R If. j City I Description codc amount I Year Tel W;jstc.rater STIP. Refurbishmlient of wastewater pumping Batluini & stations inciltidi ig rencuval of electri cal anid mechan ical 10 M WW Poti installations. ICB 735,000 1995 G Tbilisi uN%acr suppN Purchase of eX,cavators & cranes. Tbilisi. Batumni landfill Purchalsc of tracked compactor/dozcr Batumi & Batumit s:atcr supply Purchase of nains repair equip. 11 33fTBP Poti Poli wsater supplh Purchase of mains repair cquipilent. ICB 772.000 1995 G GOODS TOTAL INTERNAT. COMP.BIDDING ICB 4,978,500 G 12 T WS Tbilisi Water supplh SlIP. Laboratory equlipiienL IS 32,000 1996 G 13 T TR Tbilisi Transp lAP Suppl of NMctro locomotive traction motors. IS 135,000 1995 G Transport STIP NMetro - rehabilitation of purmping 14 T TR Tbilisi station, Russian supplh Is 155,000 1995 G Transport STIP. Purchase of inspectioni and repair tnick 15 T TR Tbilisi for Tbiliraits surfa;lc transp)ort IS 160(),(0 1996 G 1b 1 rIR Tbilisi Transporl IAI' SupplI ol trolle and train overhcead cable iS 175,000 19955 G 17 T HS Tbilisi Heatinig IAP SuIpp ol timiiber etc for v.iiidoss franies. IS 180,000 1994 G Water supplh Sl'IP Supply of spare pipes for ssater main 18 B WS Batumi repairs: pipes for stock IS 188,000 1995 G Water suippiy STIP Supply only replacement electric 19 T WS Tbilisi motors for existing pum1ips IS 200,000 1995 G Tbilisi Wastcewater STIP Spare parts for scu~er repairs: pipe Batumi & stocks 150-600mini. dia., concrcte, uPVC,asbestos 20 M WW Poti cement is 170,000 1995 G Landfill STIP Batuii: supp1y of agricultiral tractors and trailers for solid %kastc collcctioni Batuini & Wastewater STIP Poti: supplk of agricultural tractors 21 M WW Poti and suctioll tanikcrsfor septic tiank cntpt'ing. IS IX80,0()( 1995 G Transport STIP Metro - upgrade pouer supply, 22 T TR Tbilisi switchgear. IS 180.000 1995 G 23 T HS Tbilisi Heating IAP SuIpply of timl1ber etc, for window frames. IS 220,000 1994 G 24 M Other Purchase of Equipment (provision for other cities) IS 200,000 25 M Other Purchasc ol Spare parns (pro%ision for other citics) IS IU(),()()() GOODS TOTAL INTERNATIONAL SHOPPING IS 2,275,0114) C Tbilisi & Walcr supply STIP Purchase and installation of 26 M WS Batunii chlorination dosing eqtuipmciit LIB 90()000 1995 G Wastewater STIP Gardabani wastewater treatment plant; reneual of electrical and mechanical installations for 27 T WW Tbilisi preliminars and primarv treatient. LIB 270,000 1996 G Tratisport STIP Metro - upgrade poser stipplv. electrical 28 r TR Tbilisi equipment LIB 280,000 1995 G Transport STIP. Metro - upgrade power supply, HV 29 T TR Tbilisi equipment LIB 295,(()0 1995 G  - 67 - GEORGIA - MUNICIPAL INFRASTRUCTURE REHABILITATION PROJECT Annex S PROCUREMENT IMPLEMENTATION PLAN Page 3 of 4 * I I |Pruc.Il Est. Start Ref. City Description code aot Year Type I_IcIde amount Year 18/TI Heating STIP Tbilisi & Water Supply STIP Batumni. B/HS/ Tbilisi & Suppply and installation of standby diesel generators. (2 30 M WS Batumi no. hospitals Tbilisi. water borehole source, Batumi.) LIB 250,000 1995 G 31 T TR Tbilisi Transpor STIP. Mctro - modernise fare collection syst. LIB 265,000 1996 G Heating IAP Supply of glass and mastic for 32 T HS Tbilisi vcatheri/ation of 197 schools and 22 hospitals. LIB 302,000 1994 G 33 M P Other Purchase of Equipmenl (provision for other cities) LIB 300,000 1996 G 34 M P Other Purchase of Spare parts (provision for other cities) LIB 300,000 1996 G GOODS TOTAL LIMITED INTERNAT. BIDDING LIB 2,352,000 G Landfill STIP. Supply only of spare parts for existing 35 B LF Batumi solid wvasic collection vehicles. LS 20.000 1995 G Water supply STIP. Spares for HV control gear at 36 T WS Tbilisi e.xisting watr pumping stations. Russian supply. LS 20,000 1995 G Transport TIAP Supply of batteries and electrical items 37 T TR Tbilisi for Metro carriages. LS 19,000 1995 G Landfill STIP Supplh only of spare parts for existing 38 T LF Tbilisi solid waste collection vehicles. LS 18,000 1995 G 39 T TR Tbilisi TranspoTt lAP Supply of spares for Metro carriages. LS 19,000 1995 G 40 M AGENCY Office equipment for the Agency LS 20,000 1994 G Provision for miscellanous equipments (for 41 M P Other municipalities) under approximatly 1) contracts LS 200.000 1996 G Provision for spares (for niunicipalities) tinder 42 M P Other approximatly 7 contracts LS 150,000 1996 G GOODS TOTAL LOCAL SHOPPING LS 466,000 G 43 T TR Tbilisi Traiis on IAP Su I s ares for existing traction motors SSC 20,000 1995 G Water supply STIP Spares for HV control gear al 44 T WS Tbilisi existing water pumping stations. Ukraine supply. SSC 20.000 1995 G Landfill STIP. Purchase of spare pans for repair and 45 P LF Poti rnaintienance of existing solid waste collection vehicles. SSC 48,000 1995 G Water supply STIP. Supply only HV motor stators for 46 T WS Tbilisi existing pumps. SSC 172,000 1995 G Transpon STIP. Metro - spare parts for rolling stock. 47 T 'R Tbilisi Russian suppl) SSC 250.000 1995 G Transport STIP Metro - spare parts for rolling stock. 48 T TR Tbilisi Ukraine supply. SSC 205,000 1995 G 49 T TR Tbilisi Transport STIP. Metro - supply of miscellaneous equip. SSC 240,000 1996 G Transport STIP. Supply of spare parts for existing trolley 50 T TR Tbilisi bus and tram fleet - Ukraine. SSC 655,000 1995 G Transport STIP Supply of spare pans for existing bus St T TR Tbilisi fleet - Ikarus, Hungary. SSC 670,000 1995 G GOODS TOTAL SOLE SOURCE CONTRACT SSC 2,280,000 G TOTAL GOODS 12,351,500  - 68 - GEORGIA - MUNICIPAL INFRASTRUCTURE REHABILITATION PROJECT Annex 8 PROCUREMENT IMPLEMENTATION PLAN Page 4 of 4 I I ~~~~~~~~~~~~~~~Proc. 1 Est. 1Start Ref. City Description Proc_ Est. Start Type code amount Year WORKS _ Heating IAP Building contract for installation of urgent 1 T HS Tbilisi primary weatherization LCB 45,000 1994 W Heating IAP Building contract for installation of urgent 2 T HS Tbilisi primary weatheriz.ation LCB 45,000 1994 W Heating IAP Building contract for installation of urgent 3 T HS Tbilisi primary weatherization LCB 45,000 1994 W Wasiewater STIP. Sewer renovation works. Civil 4 P WW Poti engineering construction contract. LCB 130,000 1996 W Landfill STIP. River engineering works; site fencing at existing landfill site. Civil engineering construction 5 B LF Batumi contract LCB 234,000 1996 W Heating IAP - Installation of cables for dedicated 6 T HS Tbilisi electricity supplics to hospitals. LCB 400,000 1994 W Wasiewater STIP Sewcr renovation. civil engineering 7 T WW Tbilisi construction contract. LCB 300,000 1996 W Wastewater STIP. Sewer renovation works: civil 8 M P Other engneering construction contract. LCB 400,000 1996 W Wastewater STIP. Sewer renovation works; civil 9 B WW Batumi engneering construction contract. LCB 405,000 1996 W TOTAL LOCAL COMP. BIDDING LCB 2,004,000 W Heating STIP Building %sorks contract for installation of 10 T HS Tbilisi secondary glazing. Approx. ICB 561,000 1995 W Heating [AP Building contracts for installation of II T HS Tbilisi prima.rN weatherization ICB 690,0)00 1995 W Heating STIP. Installation of independenl school heating 12 r HS Tbilisi sysems. ICB 700,000 1995 W Waslewater STIP. Sewer renovation works; civil 13 M P Other engneering construction contract. ICB 490,000 1996 W TOTAL INTERNAT. COMP. BIDDING ICB 2,441,000 W TOTAL WORKS 4,445,000 TOTAL PROCUREMENT PLAN 17,959,500  - 69 - Annex 9 Page 1 of 2 Performance Indicators Tentative primary monitoring indicators to measure project progress and the Agency's management efficiency are specified in this Annex. Tentative targets to be achieved for each project year are indicated. The indicators and their targets were reviewed during the Appraisal mission. General Indicators for the Agency Performance The Agency's general management will be measured against the following criteria: Independent Agency for Development of Municipal Services INDICATOR Year I Year 2 Year 3 Contract amounts signed with foreign and 40% 80% 100% local enterprises (of total project amount). Number of contracts completed (% of 40% 80% 100% estimated total number of contracts in the project). Percentage of contracts completed on time 50% 70% 80% Percentage of contracts completed on budget. 50% 75% 90% Percentage of payments to suppliers and 50% 70% 80% contractors within 30 days of invoice reception. Average time for processing local contracts 8 weeks 6 weeks 4 weeks (period from specification completion to award of contract). Indicators per Project Component The following indicators would be examined to confirm the success of the respective project component. (Note: All percentages are targets compared to the situation at the time of credit effectiveness).  - 70 Annex 9 Page 2 of 2 Project Component Year 1 Year 2 Year 3 Heating/Energy Sector Tbilisi Schools and Hospitals . Primary weatherization %losss of schools days 50 20 0 Secondary weatherization % loss of school days 20 10 0 Dedicated electrical supply lines (15 Hospitals) No. of power failures during 6 month period 4 10 15 Transport Sector Metro - passenger miles increase 15% 20% 25% Buses - passenger miles increase 10% 20% 25% Tbilisi Water Supply No. of water main repairs per week 10 15 20 No. of bacteriological failures of water supply per week <10 <5 <2 Tbilisi Wastewater Km. of sewer cleaned per month 5 5 10 Tbilisi Solid Waste % increase in solid waste removed (by weight) 20% 25% 30% Batumi Water Supply % reduction in supply interruptions based on hrs./month. 10% 20% 30% No. of bacteriological failures of water supply per week . <10 <5 <2 Batumi Wastewater Km. of sewer cleaned per month 4 6 8 No. of pumping stations refurbished 1 3 5 Batumi Solid Waste % of landfill surface graded and covered 30% 80% 100% Poti Wastewater Km. of sewer cleaned per month 2 3 4 No. of pumping stations refurbished 1 3 4 % increase in septic tanks emptied per month 10% 20% 25% Poti Solid Waste % of landfill surface graded and covered 25% 60% 100%  - 71 - Annex 10 GEORGIA MUNICIPAL INFRASTRUCTURE REHABILITATION PROJECT Supervision Plan The supervision plan below supplements the regular review requirements for procurement actions, advisory services, and general administration. It is important to note that since this is the Bank's first investment project in the country, there exists little local implementation experience. Therefore, supervision will include technical assistance experts from the Bank. Approximate Dates Activity | Expected Skill Staff- (month/year) | | Requirements Weeks 12 / 94 Supervision Task Manager 12 (Project Launch) Procurement Specialist Operations Specialist Engineering Environment 3 - 4 / 95 Supervision Task Manager 10 Review overall progress Procurement and the implementation of Disbursement procurement and Engineering accounting procedures. 6 - 7 I 95 Supervision Task Manager 10 Review overall progress. Procurement Engineering Environment 9 - 10 1 95 Supervision Task Manager 8 Review overall progress. (others as required) 3 - 4 1 96 Mid-term Review: Task Manager 10 Detailed review of project (others as required) and compliance with covenants. 9 - 10 / 96 Supervision Task Manager 8 Review overall progress. (others as required) 4 - 5 / 97 Supervision Task Manager 6 Review overall progress. (others as required) 11 -12 / 97 Supervision Task Manager 6 (Project Completion)   - 73 - Annex 11 Project Implementation Schedule Page 1 of 3 GEORGIA Municipal Infrastructure Rehabilitation Project 1 1995 L 196 1997- ID Name Q l 2IQ 4Q 2IW 1~W~2 40 1 HEATING/ENERGY SAVING 2I 03V4NG HEATING/ENERGY SAVING 2 Immediate Action Plan . Immediate Action Plan 3 Purchase glass 4 Purchase door material 5 Purchase other materials 6 Building works contracts 7 Hire shipping company 8 Short Term Investment Plan Short Term InvestetPa 9 Purchase direct electricity feeds (15 hospitals) 10 Install direct lines 11 Install diesel generators 12 hospitals) 12 Supply of glazing kits |l 1 3 Contracts for installation of kits 14 Purchase roof insulating material l 15 Install roof material 16 Purchase boilers (hospitals) /2 ,'/4g./ 17 Install boilers 18 Repair boiler 19 Rehab. school heating systems 1 20 URBAN TRANSPORT ~ 'URBAN TRANSPORT 21 Tbilisi Metro 1 I 22 Immediate Action Plan _ Immediate Action Plan 23 Locomotive traction motors 24 Spare parts for traction motors 25 Spare parts for metro carriages 26 Batteries/electrical items for cartiages . 27 Short term investment plan Short term investment plan 28 Study on fare collection system . 29 Modernize fare collection system 30 Spare parts for rolling stock 31 Rehab. pumping stations 32 Upgrade power supply 33 Rail rehabilitation .___d 34 Purchase misc. equipment 35 Project: GEORGIA MIRP Critical //////////////S//ffi/ Progress Summary 1 Date: 10/7/94 Noncritical Milestone *Rolled Up Page 1  - 74 - Annex 11 Page 2 of 3 GEORGIA Municipal Infrastructure Rehabilitation Project 1995 1 '36 1997 ID Name Q4 Q01 020 Q3 0 Q4 010 Q2 0 Q3 Q4 01 Q2 03 4 1 36 Tbiltrans . 37 Immediate Action Plan Immediate Action Plan 38 Purchase trolley/overhead cable 39 Short Term Investment Program , Short Term Investment P 40 Purchase spare parts lengines, gear, etc.) 41 Purchase spar3 parts (trolley buses) 42 Purchase inspection/repair truck 43 WATER SUPPLY WATER SUPPLY 44 Tbilisi . _ Tbilisi 45 Study for water supply master plan 46 Purchase excavators and cranes 47 Purchase lorries 48 Purchase main repair vehicles 7' 49 Purchase lab equipment . 50 Purchase chlorination equipment . 51 TA for commnunications network 52 Install communications network 53 Purchase spare parts (pumping stationsl 54 Purchase new pumps 55 Purchase hv motor stators 56 Purchase replacement motors a 57 Batumi _ I Batumi 58 TA for design of comm. network 59 Purchase diesel generator | 60 Install diesel generator | 61 Purchase eqmt for main repairs 62 Purchase spare pipes 63 Purchase communications network 64 Purchase chlorination eqmt 65 WASTEWATER ER WASTEWATE 66 Tbilisi vTbilisi 67 Purchase sewer cleaning eqmt 68 Purchase spare parts . 69 Sewer renovation ._E 70 Renovate cardabani plant . Project: GEORGIA MIRP Critical Progress Summary 2 Date: 1017194 Noncritical Milestone *Rolled Up C) Page 2  - 75 - Annex 11 Page 3 of 3 GEORGIA Municipal Infrastructure Rehabilitation Project 1995 19'5 1997 ID Name Q4 01 Q2 0 Q3 4 1 2 3 40Q1 JQ2 0Q3Q4Q1 71 Batumi Batumi 72 Purchase sewer cleaning eqmt . 73 Purchase spare parts for sewer repairs 74 Sewer renovation 75 Upgrade pumping stations 13) _______| 76 Poti _P Poti 77 Purchase sewer cleaning equiment 78 Purchase spare parts for sewer repairs 79 Sewer renovation 80 Refurbish pumping stations (4) 81 Purchase tractors and tanks . 82 LANDFILL . T _~~~~~~y LANDFILL 83 Tbilisi _ _ Tbilisi 84 Study solid waste master plan 85 Procure garbage transfer trucks & spare parts ,,,,, 86 Purchase spare parts for vehicles 87 Batumi Batumi 88 Purchase compactor/dozer 89 Purchase tractor and trailor 90 Purchase spare parts Li 91 River engineering works 92 Poti Poti 93 Purchase equipment 94 Purchase spare parts .i 95 STUDIES _ ___ _ __ _ __ _ STUDIES 96 Tech. feas. studies (other cities) 97 Municipal Sector Study _ 98 Sewerage network mapping (T,B,P) Project: GEORGIA MIRP | Critical P rogress Summary g 3 Date: 10/7/94 Noncritical Milestone *Rolled Up Page 3   - 77 _ Annex 12 Page 1 of 11 Georgia Municipal Services Rehabilitation Project Environmental Review and Mitigation Plan I. EXECUTIVE SUMMARY 1.0 The environmental review and mitigation plan is prepared in accordance with Operational Directive 4.01 for a Category B classification. This Project will entail no new construction or development. There will be no primary environmental and socio-economic negative impacts. In a few investments there are minor secondary impacts. In general, the investments will have positive primary and secondary impacts in reducing public health risks. Current investment efforts will contribute to some improvements in the natural resource base. Mitigation and monitoring efforts, outlined in Table 1, are proposed during the implementation and operation of the proposed investment activities. 2.0 At a minimum, the investment Project will: (i) reduce the degradation of municipal infrastructure systems; (ii) maintain a minimal level of operational integrity; (iii) arrest the declining socio-economic and environmental conditions; and (iv) provide a critical contribution to reducing the health risks from infectious diseases. II. INTRODUCTION 3.0 The Ministry of Health states that the health, economic, and social consequences of water pollution have already become evident to the residents of Georgia. The level of morbidity by waterborne gastrointestinal infection diseases in several regions of Georgia has dramatically increased in the last decade. The consumption of untreated drinking water which has contributed to outbreaks of acute gastrointestinal diseases have been occurring almost every year during the last decade. Annual outbreaks of dysentery have taken place in Tbilisi with an average of 150 cases a year. An increase of morbidity of children with Hepatitis A is evident in the region of the Black Sea basin. 'Fhe beaches of the Black Sea are strongly polluted from high bacterial counts (e.coli) ranging from 43,000,000 mg/l to 110,000,000,000,000 mg/I. Of equal concern is the unmanaged disposal of municipal waste which has lead to increase in infectious diseases, impacts on water quality, and exposure to vermin. 4.0 The project investments in Batumi and Poti have the additional environmental benefits of helping to alleviate serious pollution from some of the most critical "hot spots" on Georgia's coast as identified by the GEF-supported Programme for the Environmental Management and Protection of the Black Sea. Institutional development and technical assistance activities will help lay the foundation for a long range resource conservation and management program on Georgia's coast.  - 78 - Annex 12 Page 2 of 11 III. REHABILITATION PROJECTS Baseline Conditions 5.0 Tbilisi Transportation: Since almost 90% of the urban transport users are dependant on the Metro, it is important to improve the system to maintain cohesion of city operations and improve the safety environment. Exposed electric cables and wires as well as water and oil leakages resulting from a poorly managed system create a hazardous environment for passengers. The investment plan would provide spare parts and improve system operations so that the social benefit of passenger safety is achieved, in addition to efficiency gains. Analysis of Alternatives 5.1 With no action, the transportation infrastructure would continue to deteriorate and threaten the operations and efficiency of the entire transportation system, and significantly increase the potential for accidents. Use of individual vehicles would be the only alternative to public transportation system. The use of individual vehicles is not a cost effective, practical, and environmentally sensitive alternative. Impacts/Mitigation/Monitoring 5.2 The proposed immediate and short term action will have positive primary and secondary impacts in reducing the potential for paralysis of urban operations and providing better systems operations. Tree pruning, required for clearance of overhead electric cables, will be managed in a sensitive way to reduce impacts to trees. The Metro and Thilitran oversight committee and the TCC (Technical Coordination Committee) will monitor transportation service operations and management. 6.0 Tbilisi Heating. For the past two winters, all 200 schools in the country's capital were closed and many of the city's most critical hospitals had limited operational capacity due to the lack of heating, including fuel shortage, degraded heating infrastructure, and poor weatherization of buildings. To help provide the necessary environment to maintain a basic level of educational and health services through the winter, investments to mitigate this situation should be initiated immediately (before the onset of winter). Analysis of Alternatives 6.1 Alternative heating options, such as the use of kerosene heaters, were deemed inappropriate for schools and hospitals as they were considered extremely unsafe for operation in the presence of children. Additionally, the noxious fumes from the use of kerosene heaters in closed, unventilated rooms would have a significant adverse public health impact. For these reasons, kerosene heaters were deemed unsafe. Other space heating alternatives depended too heavily on unavailable fuel and electricity inputs. The option of taking no action would have a significant detrimental impact on the continuity of education and on the vulnerable hospital patients of Tbilisi. Impacts/Mitigation/Monitoring 6.2 The dominant environmental issue is the public health risk of exposure to cold/freezing conditions. The TIAP would provide continuous power supply to hospitals,  - 79 9 Annex 12 Page 3 of 11 implemenit primllary weatherization for 200 schools and 23 hospitals. Weatherization of schools would provide positive impacts on public health, create a foundation for developing long term enlvironimental conservation strategies, and contribute positively to the social fabric of the communiity. 6.3 Weatherizatioin of these facilities may indirectly reduce the uncontrolled harvesting of urban trees fo r firewood; thus, this approach impacts positively on the environmental. To reduce the poor air quality in hospitals, low sulfur mazout fuel (.5%) will be recommended. Although the project does not encompass the purchase of fuel, the municipality has ensured that fuel will be provided for the critical facilities identified. 7.0 Waiter Sul)plv aInd Distribuition (Tbilisi and Batumni): The water supply and distribution system is currently suffering from defective equipment, leakage, and an unreliable electrical supply. Contituous loss of pressure in the distribution system and the consequent emptying of mains give rise to potable water quality problems due to groundwater infiltration into the network. In most districts, water supplies are only made available for two-hour periods. During winter monitlhs, wheni electricity shortages are acute some residents are deprived of water for periods of up to 4 days. In Batumi, the lack of treatment capabilities during flooding forces tlle river intakes to the Water Supply Enterprise to close and requires the city to be dependant on borehole water supply (which is energy intensive). The short-term investmenit project intends to reduce the rate at which the system is deteriorating, reduce wastage of water, maintain water quality, and improve utilization of the system in each city. Analysis of Alter-nlatives 7.1 An alter-native to improvements in public water supply is the use of bottled water. However, bottled water can only be used for consumption and does not satisfy the need for other uses. Furtlhermore, bottled water is not cost effective, and it increases the production and use of bottles and containers, which is energy intensive. Taking no action will only prolong the inadequate supply of potable water and continue the risk to public health. 7.2 Sole dependency on borehole supply would require a detailed investigation of groundwater resource supply and management of groundwater supply. Sole dependency on river water- is limaited during periods of high flow due to increase of turbidity in river water. Impacts/Mitig,ationi/Monitoring 7.3 Improvinig the distribution of potable water would have a positive impact on public health by reducing the occurrence of infectious diseases. A potential negative impact could result if chlorine, a hazardous gas, is not properly handled and stored. Management plans will be developed for storage and handling of chlorine. Temporary impacts would result from disruption in traffic and water supply due to pipeline repairs. The Water Supply Enterprise will be advised on improving water supply system operations. The TCC will review and supervise components of the project implementation activities. 8.0 Water Treatmlent Facility (Tbilisi/Gardaboni): Currently only the mechanical screens are is operating while intermittent electrical power prevents operation of the secondary  - 80 _ Annex 12 Page 4 of 11 biological treatment within the facility. The dominant environmental issue pertains to the poor quality of water discharging into the Kura River. Additionally, the disposal of sludge, including both industrial and municipal wastes, is potentially toxic and therefore can cause environmental problems on the land which it is dumped on. The short term investments would include the renovation of sufficient primary tanks and associated systems, to permit a total of seven tanks in service. Analysis of Alternative 8.1 Taking no action would continue the deterioration of the treatment facility system, and continue to impact water quality of the Kura River. With regard to establishing the proposed dedicated hydropower facility which will be utilizing power plant cooling water to provide power to the facility, preliminary calculation indicate there is insufficient hydraulic head to generate sufficient electricity to make the Gardaboni facility somewhat self-sufficient. Impacts/M itigation/Monitoring 8.2 Improvements to primary treatment would provide appropriate capacity consistent with the flow arriving at the works. Operating consistent primary treatment operations at a minimum would slightly improve the quality of the effluent being discharged into the Kura River. The TCC will monitor the implementation activities. 9.0 Sewerage Systems( Tbilisi, Batumi, and Poti): Thirty to forty percent of the Tbilisi's sewers are reported to be out of service because of blockages. This is a problem in all three cities and has caused flooding into the streets and consequent public health risks evidenced through the rise of infectious diseases. The proposed short-term investment would supply pumps, spare parts, sewer renovation and cleaning equipment to maintain operational integrity of the system and reduce sewerage overflow in the streets. Analysis of Alternatives 9.1 There are no cost effective feasible alternatives in either city. All three are very dependant on the existing sewerage infrastructure. Both Poti and Batumi are located in a topographically flat river floodplain areas where gravity drainage is poor and Tbilisi is located in an area where alternative use (ie. septic systems) are not geographically feasible. Furthermore, installation of self composting systems is neither cost effective nor viable in cities as it is a system which serves primarily residential areas. Impacts/Mitigation/Monitoring 9.2 The proposed investment for cleaning equipment and supply of spare parts would improve the pipeline system and reduce sewerage flow into the streets, resulting in a reduction to public health risks. This reduced exposure to infectious diseases would be the primary positive impact. 9.3 A temporary negative impact, if sewerage management is not improved, would include the potential increase in flow from cleaned pipelines which would discharge into the Kura River. A temporary impact may result from disturbance and disruptions during sewer  - 81 - Annex 12 Page 5 of 11 main repairs. Appropriate construction measures will be taken to reduce impacts. The TCC will monitor the implementation activities. Technical Assistance/Institutional Needs 9.4 The Water Supply Enterprises in all three cities will be advised on improving sewerage system management. Technical Assistance will be provided to work with the City Design Institutes to conduct the Sewerage Network Mapping which will entail a closed circuit television inspection survey. 9.5 The Integrated Coastal Zone Management Strategy will incorporate intermediate and long term management efforts for waste water treatment to reduce the impacts of sewerage outflow on Black Sea coastal resources. 10.0 Solid wvaste disposal (Tbilisi, Batumi, and Poti): The dumps or landfills in all three cities are posing problems to public health, surface and ground water quality, and local air quality. In Tbilisi, there are a number of non-sanctioned dumps located throughout regions of the city which are located on river banks, commonly have open fires, and are infested with vermin. The proposed short term action for Tbilisi includes establishing a dump-truck transfer system that would allow more efficient operation of trash disposal to the sanctioned landfills and a systematic reduction of hazards which arise from the illegal dump sites. 10.1 In Batumi, the landfill is located at the bank of the Choroki River floodplain delta and is causing adverse environmental hazards, including poor water quality and deteriorating public health from the rapidly eroding landfill debris which washes to up on the coastline of the Black Sea. Additionally, the landfill impacts its informal users (i.e. scavengers, shepherds, grazers) who derive their livelihood on the resource. In Poti, much of the landfill was cannibalized from the civil conflicts and remains unmanaged. The short-term investment strategy includes the provision spare parts and equipment to improve landfill management in both locations. Analysis of Alternatives 10.2 The proposed Technical Assistance for a topographical survey of the existing landfill site may provide insights on a possible feasible alternative site, possibly adjacent to the current landfill. Similarly, a feasibility study should be conducted in Poti to identify alternative sites, if necessary. Impacts/Mitigation/Monitoring 10.3 The closure of unauthorized dumps in Tbilisi would have a positive impact on the surface and groundwater quality by reducing runoff and leachate problems to the Kura river. The dump closure will also improve air quality from reduced burning trash, and reduce public health risks from infectious diseases. The TCC will review transfer system operations and dump closures.  - 82 - Annex 12 Page 6 of 11 10.4 In B3atumi and l'oti. landfill investments would have significant positive impacts on the puiblic hlealth anld local and regional water quality by reducing exposure of contaminants and debris in the water. Implemiientation of a landfill management plan, if prepared properly, should have bhotl primary positive impact on public health, and a secondary positive socio- economlIi' impact on the infor-mal users of the landfill. Care should be taken to not dislocate these people durinlg operationis. The TCC will review landfill management and operations. Technical Assistance 10.5 Techlical Assistance will be provided for a Tbilisi Waste Management Master Plan. The plan would propose to incorporate a community public participation component in waste management and recyclinig as one step in a strategy to reduce waste and improve its disposal. 10.6 In 13Latum1i. technical advice will be provided for a topographical survey of the existing landfill site undertaken using aerial survey. Technical Assistance will also be provided for a Landfill Protection Program. This study for will focus on floodplain protection as an interim measur-e to diver-t the flow in the channel and reduce landfill bank undercutting and erosion. Additionally, the work program may include a feasibility study for a channel modification strategy anid temlpor-ar-y bank stabilization of the Choroki River in order to mitigate landfill elosionl into the Sea. In both Batumi and Poti, Technical Assistance will be provided for the Integrated Coastal Zone Management Strategy (ICZM). The ICZM will incorporate intermiediate, slhort-term-s, and long term management efforts to reduce the impacts of the landfill operations on the Black Sea coastal resources.  - 83 - Annex 12 Page 7 of 11 MUNICIPAL INFRASTRUCTURE REHABILITATION PROJECT TABLE 1. ENVIRONMENTAL MITIGATION PLAN INVESTMENT ISSUES ACTIVITIES IMPACTS MITIGATIONS MONITORING PROJECT TRANSPORT TIAP General Tbilisi * metro and * purchase of * positive im- * positive im- * for monitoring rolling stock spare parts for pacts to socio- pacts will not and review: require spare metro and rolling economic fabric require mitigation Metro over- parts stock of the city effort sight committee and Tbiltrans * system in * improvements * provide better oversight com- disrepair to power distribu- system operations mittee will be tion system for established * control room metro and rolling * more energy in disrepair stock efficient system X operational Short Term * tree pruning * tree pruning equipment and * revision of will be managed infrastructure in fare structure to minimize deteriorated impacts to trees conditions * improve opera- tional equipment * poor manage- ment of repair * improve tracks operations * restore control room * refurbish vehicles  - 84- Annex 12 Table 1 coilt. Environimiienital Mitigation Plan Page 8 of 11 INVESTMENT ISSUES ACTIVITIES IMPACTS MITIGATION MONITORING PROJECT HEATING TIAP General General Tbilisi * insufficient * repairs to * positive pri- positive impacts TCC will review heating in schools glazing of schools mary and second- will not require projects/instal- and hospitals ary impacts on mitigation effort lation * no insulation public health in buildings * installation of 2nd glazing to * reduce impact * deteriorated schools and hos- on urban forests conditions pitals * no negative * no electricity * installation of primary or sec- independent ondary impacts heating systems socio-economic and natural re- * provisions of sources dedicated electri- city lines Short Term * repair the fabric of build- ings Specific Specific * insulation of * public health * insulation will * TCC will roofs concerns from be specified as inspect insulation insulation asbestos free * provisions for products independent heating systems in hospitals * provisions for * noise from * the generators * TCC will eval- independent generators will be housed, uate optimal electricity for and placed in location for hospitals locations to min- placement of imize impacts generators from noise * use of mazout * use of low- fuel sulphur fuel (<0.5%)  - 85 Annex 12 Table 1 cont. Environmenital Mitigation Plan Page 9 of 11 INVESTMENT ISSUES ACTIVITIES IMPACTS MITIGATION MONITORING PROJECT WATER Both Cities Both Cities Both Cities * Water Supply SUPPLY * interrupted Short Term * positive pri- Enterprise will be Tbilisi and water supply mary and second- advised on system Batumni ary impacts on management and * limited electri- public health operations cal supply * equipment for * temporary * appropriate * TCC will re- * loss of water repairing mains impacts; disrup- construction view repair pressure tion in traffic due measures mini- activity to pipeline repairs mize impacts * water loss due to leakage * chlorination * providing * secondary im- * proper storage * management plant in poor chlorination pact: chlorine is and handling of plan will be de- condition equipment toxic gas chlorine veloped for han- dling chlorine * switch gear and materials for pumping (motor) equipment Specific Specific Batumi Batumi - deteriorated * standby gen- * noise from * the generators * TCC will pumps and elec- erators and re- generators will be housed supervise place- trical equipment placement pumps and placed in ment and housing locations to min- of generators Tbilisi imize impacts * laboratory/ from noise * management equipment for plan and training water quality will be provided testing for laboratory operations * studies: prepa- ration of water distribution man- agement plan  - 86 - Annex 12 Table I cont. Environmental Mitigation Plan Page 10 of 11 INVESTMENT ISSUES ACTIVITIES IMPACTS MITIGATION MONITORING PROJECT WASTEWATER All Cities All Cities All Cities * Water Enter- COLLECTION * untreated sew- * sewer cleaning * primary and prise will be AND erage discharged equipment secondary posi- advised on system TREATMENT to river tive impacts on management and Poti * spare parts for public health operations Tbilisi * sewer network sewer parts Batumi in deteriorated * positive sec- condition ondary impacts on water quality * frequent block- and ecosystem ages in sewers * excavating and flooding in equipment * temporary * appropriate * TCC will streets impacts from construction review repair * basic renova- disturbances measures to activity * no equipment tion of primary during sewer minimize impacts available for treatment facili- repair cleaning sewers ties Tbilisi * intermnittent * sewerage line * appropriate * water quality electricity Poti cleaning may sewer line man- testing will be * refurbishment have possible agement and initiated * treatment facil- of pumping temporary im- piping will be ities inadequate stations pacts on river implemented water quality with All Cities * primary treat- * vehicles and flushing the CCTV inspection ment under equipment for system of sewers for capacity emptying septic future sewer line tanks improvements * no secondary and tertiary treat- ment * treatment facil- ities non-access- ible, bridge in- operational  - 87 - Annex 12 Table 1 cont. Environmental Mitigation Plan Page 11 of 11 INVESTMENT ISSUES ACTIVITIES IMPACTS MITIGATION MONITORING PROJECT SOLID WASTE * disposal of * study and * positive pri- * TCC review of COLLECTION waste in uncon- implementation mary and second- landfill operations AND DISPOSAL trolled landfill! for interim river ary impacts on Batumi dumps at river's bank stabilization public health, edge to reduce landfill water quality, and erosion into river air quality * water quality * appropriate problems from * landfill man- * temporary sediment and runoff/debris aged equipment negative impacts erosion control washing into the from increased measures river * new collection turbidity during and transport construction of * limited supply vehicles river bank stabil- of vehicles and ization equipment * spare parts * unmanaged * landfill man- * socio-economic * landfill man- disposal agement strategy impacts to infor- agement strategy mal users of the will be sensitive * open burning landfill to informal users of the landfill e socio-economic * compensation impact to gravel and reestablish- operators on the ment of gravel river channel operations in river bed Tbilisi * disposal of * equipment, * positive im- * management * TCC review of waste in unauth- vehicles to estab- pacts would plan will de- landfill operations orized dumps in lish transfer col- reduce impacts on veloped regions of the lection system public health city * unauthorized * Study - a * positive im- dumps will be * water quality feasibility study pacts on air closed impacts from to produce master quality urban runoff and plan for future leachate development of * positive im- municipal solid pacts on water * poor incinera- waste collecting quality tor operations and disposal operations * fires at dumps Poti * unmanaged * equipment for * positive im- * management * TCC will landfill landfill operations pacts to public plan would be review landfill health, water developed operations quality, and air quality   - 89 - Annex 13 Page 1 of 2 The Project's Qualitative Benefits Because of the urgent character of the Project, cost recovery requirements, normally applied to public sector projects, are not applicable in this case. Therefore, benefits cannot be quantified and the economic analysis, based on qualitative characteristics, will sufficiently reflect the effectiveness of the investment. The major benefit of the Project is to provide financing for arresting further deterioration and maintaining operations of key municipal services in 3 cities. Thus, the Project will allow the Government of Georgia and the beneficiaries to avert potential system collapses or disaster, which otherwise might occur. Thus, the project has an explicit preventive and mitigation nature. In addition, this project will lay the foundation and facilitate further intervention of the Bank and other donors into the sector. Tbilisi Schools and Hospitals. COST BENEFITS Total cost of the component is US$ 4.1 The length of the academic year will not be million and it will be implemented only in shortened. Tb iIi si Providing heating for 23 hospitals, thus ensuring health care services through the winter for needy population Increased access to 200 educational and 23 health care facilities during the winter period through Reduction of energy requirements for heating of schools and hospitals Tbilisi Urban Transport COST BENEFITS Total cost of the component is US$ 4.1 Increased frequency of trips, resulting in: million and it will be implemented only in (a) increased access; (b) reduced waiting Tbilisi tinme Increased mobility of labor resources Increased passenger safety Decelerating equipment deterioration rate Increasing sustainability of operations  - 90 - Annex 13 Page 2 of 2 Water Supply COST BENEFITS Total: US$ 2.0 million, of which: Maintaining quality of drinking water (a) US$ 1.3 million Tbilisi component Reducing exposure to diseases (b) US$ .7 million Batumi component Maintaining existing access to water supply services Sustaining deterioration rate of pumping equipment Wastewater Treatment COST BENEFITS Total cost: US$ 2.2 million, of which: Reducing exposure to health hazard (a) US$ .6 million Tbilisi component (b) US$ .9 million Batumi component Increasing access to sewage services (c) US$ .7 million Poti component Reducing negative environmental impact of exposed sewage by mitigating air and water pollution Increasing efficiency of operations by: (a) reducing electricity requirements for pumping stations and (b) reducing manpower requirements Solid Waste Management COST BENEFITS Total: US$ 1.0 million, of which: Reducing exposure to health hazards (a) US$ 0.5 million Batumi component Increasing safety of landfill sites by (b) US$ 0.3 million Tbilisi component reducing probabi]ity of accidents (c) US$ 0.2 million Poti component Mitigating negative environmental impacts by reducing water, air pollution and litter Increasing efficiency of operations by: (a) decelerating deterioration rate of equipment; (b) increasing hours of access to equipment; (c) increasing productivity of manpower  - 91 - Annex 14 Republic of Georgia Municipal Infrastructure Rehabilitation Project Selected Documents Available in the Project File l. Project Preparation a) Signed Letter of Agreement for Project Preparation Advance from the Deputy Prime Minister, dated September 23, 1994. b) Letters from Government to Soros Foundation, dated September 23 and 29, 1994. 2. Environmental Data Sheet dated September 9, 1994. 3. Minutes from Review Meeting before Pre-Appraisal mission, dated July 18, 1994. 4. Feasibility/Preparation Studies a) Dedicated Electricity Feed Study for Hospitals (MEB International October 6, 1994) b) Weatherization of Schools and Hospitals (RMA consultants - August 30, 1994) c) Coastal Zone Management Study (Delaney, August 24, 1994) d) Wetlands Study (Huppman, August 26, 1994) e) Black Sea Biodiversity Study (Wilson, August 25, 1994) t) Water Supply Study for Tbilisi and Batumi (Halcrow consultant - August 30, 1994) g) Waste water Treatment for Study Tbilisi, Batumi, and Poti (Halcrow consultant - August 30, 1994) h) Landfill Study for Tbilisi, Batumi, and Poti (Cummings, August 29, 1994) i) Urban Transport Study for Tbilisi (GITEC, August 29, 1994) 5. RVP Authorization to Appraise, dated September 13, 1994. 6. Legal Documents a) Development Credit Agreement b) Project Management Agreement between Ministry of Finance and Agency c) Agency's Manual of Procedures d) Charter of the Agency e) Sub-Agreements with Municipalities f) Delegation of Agency to General Manager 7. Negotiations a) Minutes of Negotiations, dated October 5, 1994. b) RVP Approval to Negotiate in field ad referendum, dated September 23, 1994. c) RVP Approval of Negotiations outcome, dated October 7, 1994.   IBRD 261 63 41 30 RUSS AN -1 30 X | FEDERATION a n i - K \ GEORGIA \ < \s ~~~~~~~~~~~~~~TURKEY eR0NA WASTEWATER p 1 TREATMENT PLANT E LANDFILL / .o, Poti Lesa Lanchk6ui Dzurkve (~~~~~~~~~~ ... AN DEE-E AREAS......._ {Chakva GEORGIA t; . ~~MUNICIPAL INFRASTRUCTURE o SE REHABILITATION PROJECT BLACK SEA COAST ..._ iAND WETLAND AREAS A N WASTEWATER TREATMENT (PDARL .~ ;. A v + LANDFILLS 13 SL- Po I LANDFI LL gn $1.............. CTIE5ANDDEVELOPED AREAS 9 ~ ~~~~~~~~~~~~~~~~~~ S-> s