Georgia - Transport Rehabilitation Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-6719-CE MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVEL.OPMENT ASSOCIATION TO TPE EXECUTTVF DIRECTORS ON A PROPOSED CREDIT IN AN AMOUNT EQUIVALENT TO SDR 8.1 MILLION TO THE REPUBLIC OF GEORGIA FOR A TRANSPORT REHABILITATION PROJECT DECEMBER 26, 1995 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EOUIVALENTS (as of September, 1995) Currency Unit = Lari 1 Lari = US$0.8403 US$1 = 1.19 Lari AVERAGE EXCHANGE RATES (Prior to September. 1995) Coupons per US$1 December 1993 January 1994 April 1994 July 1994 120,000 200,000 1,200,000 1,500,000 August 1994 May 1995 July 1995 2,000,000 1,300,000 1,300,000 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS ATC Air Traffic Control IRI International Roughness Index CAS Country Assistance Strategy MoEP Ministry of Environmental Protection CIS Commonwealth of Independent States NCB National Competitive Bidding CLAU Caucasus Logistics Advisory Unit NEAP National Environmental Action Plan CMEA Council for Mutual Economic Assistance NGO Non-Governmental Organization DC Direct Current NIF Non-IDA Financed EA Environmental Assessment NPV Net Present Value EBRD European Bank for Reconstruction and PHRD Policy and Human Resources Development Development EMU Electric Motorized Unit SDR Special Drawing Rights ERR Economic Rate of Retum SEIC Socio-Economical Information Committee EU European Union SOE Statement of Expenditure FSU Former Soviet Union TA Technical Assistance FY Fiscal Year TACIS Technical Assistance for CIS countries GDP Gross Domestic Product TCC Transport Coordination Committee GSC Georgian Shipping Company TRP Transport Rehabilitation Project GTZ German Agency for Technical TRRC Transport Reform and Rehabilitation Cooperation Center IAS International Accounting Standards TSM Transport Sector Memorandum IBRD Intemational Bank for Reconstruction and USAID United States Agency for International Development Development ICB Intemational Competitive Bidding VAT Value Added Tax ICR Implementation Completion Report vpd vehicles per day IDA International Development Association WFP World Food Program GEORGIA - FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY REPUBLIC OF GEORGIA TRANSPORT REHABILITATION PROJECT Credit and Project Summary Borrower: Republic of Georgia Implementing Agencies: Transport Reform and Rehabilitation Center, Highway Concern, Railway Department Poverty Category: Not applicable Amount: SDR 8.1 (US$12 million equivalent) Terms: 35 years maturity, including a 10 year grace period, on standard IDA terms Commitment Fee: 0.50 % on undisbursed credit balances, beginning 60 days after signing, less any waiver. Onlending Terms: Funds would be on-lent to implementing agencies for 5 years, plus 1 year of grace, at a fixed rate equal to 7.07%, and repayable in local currency, determined as of the date or respective dates of repayment. Financing Plan: See Schedule A, Table A.2. Net Present Value: US$ 12 million discounted at 10% (36 % Economic Rate of Return on 86 % of project costs). Staff Appraisal Report: 15029 - GE Map: IBRD no. 26918 Project ID Number: GE - PA - 39892 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not othen4ise be disclosed wiLhout World Bank authorization.   MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE IDA TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF GEORGIA FOR A TRANSPORT REHABILITATION PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed development credit to the Republic of Georgia for SDR 8.1 million (the equivalent of US$12 million) on standard IDA terms, with a maturity of 35 years, including a ten year grace period, to help finance a project for urgent rehabilitation and policy reform in the Transport Sector. The proceeds of the credit would be onlent to modal agencies for 5 years, plus 1 year of grace, at a fixed interest rate equal to 7.07%. The project will be supported with cofinancing from other donors, among them the EU and the USA, and local funds. Country and Sector Background 2. The Republic of Georgia has 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 occupies the western portion of the isthmus between the Caspian and Black Seas. The eastern portion is the Republic of Azerbaijan while the land-locked Republic of Armenia takes up a part of the southern portion. The three republics together constitute a buffer region between Russia to the north and Iran and Turkey to the south and the west. Two major mountain ranges (the Main and Lesser Caucasus Chains) run through this region in an east-west direction and constitute major barriers to north-south movements. Georgia controls most of the valley between the two ranges, and the mountain pass that separates the east and west portions of the isthmus. 3. Georgia was the first of the non-Baltic states to declare independence from the Former Soviet Union (FSU), on April 9, 1991. Soon after its independence, however, the country became embroiled in political and civil strife that had a devastating effect on the nation's economy, infrastructure and social stability, further compounding the difficult transition to a market economy. 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. During the same period, the Government also fought armed supporters of a previous administration, generating additional casualties and destruction. A cease-fire in Abkhazia is now in effect, and although the Government does not control the region, an agreement involving Russia and the United Nations has been signed to work out a peaceful solution of the conflict. Georgia joined the Commonwealth of Independent States (CIS) and Russian peacekeeping forces are now in Abkhazia to work out the return of refugees to the province and to reopen the route to Russia. 4. The transport sector shows significantly reduced traffic flows in all modes compared with those of only a few years ago. About one fourth of 1990 levels were observed in 1993. Little, if any, maintenance (even basic routine maintenance) is being done. The impression is that the transport system is "existing on its capital stock". The asset base is eroding and may, within the next five years, deteriorate to the point at which maintenance and rehabilitation are no longer possible. If this occurs, the only option will be costly and complete reconstruction. Worsening the picture, the conflict in Abkhazia severely damaged road and particularly railway infrastructure: several bridges were blown up on the critical link between the Black Sea ports and eastern Georgia; railway electric wires were vandalized and the signalization system was destroyed. The effects of this deterioration of the transport system have been felt by other economic sectors that rely upon it.  2 I. Country and Sector Background 5. The sector still operates under the organizational and policy structures of earlier days, with the exception of the aviation sub-sector which restructured infrastructure and traffic control under commercial principles while liberalizing air transport. Pervasive in the sector has been the absence of meaningful cost recovery and resource mobilization, with the inevitable consequence of unfunded operating entities, poor service and degradation of infrastructure and equipment. The sector itself fell in disarray, as evidenced by the fact that transport statistics are no longer being collected, and there is no sectoral focus at the policy making level. 6. Most recently, there are clear indications of a serious intent to reform the regulatory and legal framework of the sector. During project preparation, legislation has been approved to implement a system of road user charges, privatization of road transport has been significantly advanced, and legislation liberalizing road transport has been approved. These steps are adequate to carry out the project and make it sustainable. 7. The sector needs to move toward privatization and much greater use of the market mechanism than previously. In this regard, the recent reorganization of the aviation sub-sector is demonstrative of how such a program of reforms leads to greater efficiency, availability of finance, new investments and improved maintenance. The reduced level of economic activity provides a convenient window of opportunity in which to effect the necessary institutional and policy changes. This project, in conjunction with efforts by the EU, is designed to initiate the most urgent changes required. Improved sector performance is indispensable for the economy to recover. The options and priorities for sector reform are reviewed in the report Georgia - Transport Sector Memorandum (Report No. 13978-GZ) and reflected in a Letter of Sector Development Policy signed at negotiations. 8. In summary, to improve efficiency under the current extreme shortage ofpublic funds, the Government has little choice but to commercialize transport operations, while reducing its own public role to a minimum of regulatory functions and, where necessary, ownership of the stock of infrastructure. Project Objectives 9. The Transport Rehabilitation Project, which would be the first transport sector operation in Georgia, would have the following objectives: (a) to support policy reform in the transport sector and restructure its institutions to operate in a market economy; and (b) to repair and maintain some of the most critical elements of the transport system. Project Description 10. In 1994, the Government expressed interest in a project to address the pressing rehabilitation needs of the transport system, and an official request was made in December 1994. An identification mission visited Georgia in May 1995, to discuss: (i) the policy and sector reform recommendations of the Transport Sector Memorandum; and (ii) the possible composition of the Transport Rehabilitation Credit. Furthermore, the Government expressed interest in accelerating the preparation of the proposed Transport Rehabilitation Credit and its components (see Schedule C for key project processing events). Project preparation has been assisted by a PHRD grant from the Government of Japan. The project follows closely the short term recommendations of the Transport Sector Memorandum. Cost recovery features under the project and the repayment schedule for funds onlent, assure a favorable fiscal impact, without any demands on the fiscal budget. In addition, the project makes  I. Country and Sector Background 3 substantial contributions to economic efficiency in other sectors while reducing transport costs. An environmental analysis leading to a mitigation program integral to the project has been carried out. 11. This project is consistent with the Country Assistance Strategy (CAS) as discussed by the Board of Directors during the presentation of the Rehabilitation Credit (Cr. 2697-GE) on March 30, 1995. It addresses one of the two key economic constraints identified, transport and energy. As a transit economy, Georgia and its neighbors, Armenia and Azerbaijan, need an effective transport and communication infrastructure. However, transport institutions and infrastructure have deteriorated and this has resulted in poor and costly services. In particular, the investment program would include projects to support rehabilitation and efficiency improvements in transport while promoting an environment more conducive to private sector development. 12. The components of the proposed project are: (a) Institution Building Component (US$ 4.9 million). It would include consultant services for: (i) advice and support to teams preparing sector reforms; (ii) technical assistance for the formulations of technical and legal frameworks necessary to the restructuring, commercialization and privatization of sector entities; (iii) managerial assistance for public and private transport enterprises; (iv) a training program to update transport technical staff from the private and public sectors; and (v) project management. (b) Investment Component (US$ 13.2 million). It would include financing for: (i) a road maintenance program, including selected equipment and spares for road maintenance as well as emergency repairs and the necessary imported road building materials; and (ii) a railway sub-component, including bridge repairs and the required structural steel, track materials (ties, rails and fastenings), spares for locomotives, and communications and selected signalling equipment. The total project cost is estimated at US$ 20 million, net of taxes and duties, including physical and price contingencies (see Schedule A, Table A. 1). The foreign exchange component is US$ 11.1 million, or about 56% of total project costs. Cost recovery flows under the project are sufficient to cover unexpected increases in local costs. The project would complement private sector investments under consideration in the port sub-sector. Project Financing 13. IDA would finance US$ 12.0 million, or 60% of total project costs. Other donors would finance US$ 6.0 million. Tentative grant allocations include: US$ 1.0 million from the EU; US$ 2.5 million from Germany; US$1.0 million from the United States; and US$ 1.5 million from the World Food Program (WFP). Local funds would finance the remaining US$ 2.0 million (see Schedule A, Table A.2). IDA funds would be on-lent to implementing agencies for 5 years, plus 1 year of grace, at a fixed rate equal to 7.07%, and repayable in local currency. Confirmation of cofinancing arrangements for technical assistance and other investments is expected at the earliest at the time of Credit Effectiveness, and no later than 1996. 14. The effectiveness of project implementation and the development impact of IDA's contribution to project finance would not be affected by major unforeseen delays in securing project cofinancing for technical assistance, since: (i) it would be applied to self contained, high priority project components; (ii) the TA needed initially is already in place at the Highway Concern (PHRD), the Railway Department (Germany) and project implementation (EU); and (iii) the repair capacity of the agencies is  4 I. Country and Sector Background adequate. Cofinancing will enhance project objectives, in particular speeding up the volume of work on the railways and on institutional reforms in ports. Project Implementation 15. Project implementation will be the overall responsibility of the Transport Reform and Rehabilitation Center (RRC). Each implementing agency (the Highway Concern and the Railway Department) would appoint a project manager and provide the necessary staff support, under the supervision of the head of the agency and the coordination of the TRRC, to implement its sub-component and be responsible for the procurement of related project items (see Schedule B). Each agency would also be responsible for sub-component accounting, and would submit periodic implementation progress reports to the TRRC. The TRRC will also coordinate the inputs of cofinancing partners and other Government agencies, be responsible for hiring auditors for all project audits, be the primary point of contact with IDA, and consolidate all project reports for their submission to IDA. Project financed consultants would assist project implementation agencies with: (i) project management; (ii) procurement; (iii) accounting. In addition, the supervision of works by the Highway Concern will be supported by a program of technical assistance which includes field supervision and control, and contract management and administration. 16. In addition, the TRRC would be responsible for arranging training programs, would serve as a channel for technical information available from outside of Georgia, and as a link to further foreign technical assistance. The training programs will focus on contracting, procurement, budgeting, and will address the most urgent needs of the evolving private construction industry in the transport sector, including subjects such as: bidding, bid evaluation, cost and quality control and general conditions of contract. On subjects such as business administration, the training will be broad-based, intended as a means of familiarizing industry personnel with the needs of private sector operations. Project Sustainability 17. The quantifiable benefits of the project are expected to give a rate of return in excess of 36% on 86% of project costs. This is far greater than could be achieved by any other measures to improve transport infrastructure to a comparable extent, and results from the selection of priority sections using economic criteria as well as the rehabilitation nature of the project, with emphasis on infrastructure maintenance, and equipment repairs. The sustainability of the project will be assured by: (i) the implementation of cost recovery measures (road user charges and adjustment of railway tariffs); (ii) restructuring of State owned enterprises on a commercial basis, including divestiture of non transport and non performing assets; and (iii) privatization and liberalization of road transport and road and construction industries. A financial analysis from a Government as well as an agency perspective, has shown that subject to the implementation of the measures proposed, the project would be sustainable. Lessons Learned from Past Operations in the Country /Sector 18. In response to the Government's new focus on economic reform, the Bank has initiated a broader program of lending and sector work in municipal infrastructure, energy, health, agriculture, transport and environment. Three lending operations were approved in FY1995: The Institution Building Credit (US$10.1 million, approved by the Board in July 1994), which provides support to the country's privatization efforts, financial sector reform, tax and customs administration strengthening and economic policy development; the Municipal Infrastructure Rehabilitation Credit (US$18 million, approved in November 1994); and the Rehabilitation Credit (US$75 million, approved in March, 1995) which  I. Country and Sector Background 5 supports the Government's economic reform program, aimed at restoring macroeconomic stability and at promoting the resumption of growth and improvement in living standards (see Schedule D for the status of Bank Group operations). The proposed Transport Rehabilitation Project would be the first operation of the Bank to support essential needs of transport infrastructure in Georgia. 19. The Bank's experience in the transport sector has been substantial over the last fifty years. This experience has highlighted, in addition to investments, the need to focus on: (i) the institutional capacity to carry out the project; (ii) cost recovery mechanisms; (iii) policy reform; and (iv) emphasis on maintenance and rehabilitation of existing assets. The project incorporates these experiences in its design as exemplified, in particular, by recent developments in the European Union, Eastern Europe, Russia, and Latin America. 20. Traditionally, transport projects financed by the Bank have been designed to respond to an expanding demand for infrastructure and services. In Georgia, as in other economies in transition to a market economy, this is not the case, yet much needs to be done. Infrastructure is deteriorating, traffic is about a fourth of what it used to be six years ago, and institutional capacity and policy making functions have suffered. This has led to a project design which addresses both the need to alleviate bottlenecks, while assisting the implementation of broad-based policy and institutional reform. Rationale for IDA Involvement 21. Given that in the transport sector debt capacities are small and revenues limited, any financing made available to the sector, and to Georgia generally, needs to be on concessional terms. Most external donors are focusing their assistance efforts in Georgia almost exclusively on humanitarian aid. Up to now, IDA is the only concessional source available to help finance programs to address the severe transport dysfunctions in Georgia. Assistance from IDA will play a significant role in helping foster an environment in which economic stabilization and growth can take root while laying the foundation for improved management and operations in the transport sector. 22. The project is consistent with and supports the Country Assistance Strategy discussed by the Board of Directors on March 30, 1995, as indicated under the Project Description section above. Agreed Actions 23. At negotiations, agreement was reached on the following: (a) preparation of comprehensive quarterly progress reports, including a Mid-Term Implementation report and a completion report within six months of the credit's closing date; (b) implementation of project accounting and auditing arrangements and reporting under (a) above by June 30 of each year; (c) on-lending terms for project funds as follows: funds would be on-lent to modal agencies for 5 years, with one year grace period, at a fixed rate equal to 7.07%, and repayable in local currency, determined as of the date or the respective dates of repayment;  6 I. Country and Sector Background (d) implementation of all measures required by the project's environmental mitigation plan no later than March 15, 1996; (e) execution of a pavement management system study no later than October 31, 1996, and revision and adjustment of road user charges to implement the recommendations of a Pavement Management Study no later than June 30, 1997; and (f) establishment of a system of collection of fuel taxes and road user charges at border crossings, and enforcement of national environmental and fuel quality standards no later than March 15, 1996. 24. The conditions of credit effectiveness are the following: (a) conclusion of project implementation agreements between the Borrower, and the Railway Department and the Highway Concern; (b) appointment of key staff to the TRRC and to component implementation units; and (c) establishment of a Project Account on terms and conditions satisfactory to IDA. 25. In addition, the conditions of disbursement are the following: (a) Road repair works - submittal of an implementation schedule of a program of privatization of road construction and maintenance units acceptable to IDA; and (b) Railway investments - specification of an investment program acceptable to IDA and in such detail as the Association shall reasonably request. Poverty Category 26. Not applicable. The project was not designed to have a direct impact on poverty. Environmental Aspects 27. The Bank determined that the proposed project requires a Category B rating, as defined in the Bank's Operational Directive on Environmental Assessment, since it is not expected to have any significant negative environmental impact. A limited environmental analysis, consistent with the project's Category B environmental classification, has been performed and adequate mitigation measures proposed. 28. The components included in the project are not expected to generate any significant environmental problems since work would be done on existing infrastructure, utilizing as much as possible existing equipment. However, in the case of the road maintenance sub-component, some minor environmental concerns arise from: (i) potential for harmful emissions from asphalt plants; (ii) the quarrying, crushing and removal of aggregates frorn quarries and river beds; (iii) noise, dust and disruption of traffic during the rehabilitation and maintenance work; (iv) disposal of waste materials; and (v) lack of drainage and resulting erosion.  I. Country and Sector Background 7 29. Important elements of the mitigation plan include: (i) the initiation of emission control and testing to determine actual rather than projected levels of pollution from asphalt plants; (ii) a review of procedures and formats for the environmental reports for asphalt plants and the quarrying of gravel; and (iii) training of construction managers; and (iv) introduction of contractual guarantees to assure compliance by contractors with environmentally sound and safe standards. Program Objective Categories 30. The project would contribute directly to sustainable development of Georgia by preserving key transport infrastructure. It would also make a significant contribution to the development of the private sector in the country through the competitive bidding of public works and the privatization of the road construction and maintenance industry, the licensing of port and railway operators, and the divestiture of some non-transport activities currently under ownership of transport entities. The project will also assist small farmers and tradesmen in their efforts to begin to develop private business ventures by assuring that they have access to markets for their products. Project Benefits 31. Institution Building Component: This component will support the program of reforms under preparation by the Government of Georgia, by accelerating the development of the policy framework in the transport sector. The reforms will result in lower costs and better transport services and are summarized in a Letter of Sector Development Policy signed by the Government. Although the Institution Building component, which accounts for about 25 % of total project costs, does not lend itself to conventional economic rate of return analysis, it will help to: (i) consolidate a new and downsized role for the State in transport; (ii) create an enabling environment for the development of competitive transport markets; (iii) introduce fiscal discipline in the sector; and (iv) privatize and divest from state owned transport entities. All these actions tend to increase entrepreneurs' perception of fairness, openness and freedom from intervention, and will make Georgia a more attractive investment choice for potential investors. For the purpose of the economic evaluation, technical assistance to the Highway Concern and the Railway Department has been included in the total costs of the respective investments. 32. Investment Component: This component, by maintaining and rehabilitating key transport infrastructure, will remove a real risk of facing critical bottlenecks in the transport system. In the short term, it will ensure that the basic transport infrastructure remains available to transport humanitarian assistance to Georgia, Armenia and Azerbaijan, and that trade activities which are developing in other economic sectors can actually take place. More specifically, for each of the investment sub-components: (a) Road Maintenance Program: This sub-component, representing about 40% of total project costs (inclusive of technical assistance), will greatly increase the Highway Concern's capacity to carry out key maintenance and rehabilitation of Georgia's public road network, by introducing an equitable road user charges system. It will prolong the life of the highway system and delay and/or avoid costly reconstruction of main roads. The program will also reduce vehicle operating costs and maintenance, as well as road accident risks. An additional benefit would be the experience gained by the construction industry in carrying out road maintenance work on a competitive basis. The Economic Rate of Return for this sub-component is estimated to be in excess of 46 %, based on savings in vehicle operating costs and delayed and/or avoided costs of reconstruction. (b) Railway Sub-Component: This sub-component (about 46% of total project costs, inclusive of technical assistance) has been evaluated on the basis of: (i) reduced rail operating costs; (ii)  8 I. Country and Sector Background generated freight traffic benefits resulting from increased levels of service resulting from the project; and (iii) reduced passenger traffic after tariff adjustments. There are other benefits of the project which were not quantified, such as the removal of potential bottlenecks which, if left untouched, would lead to the complete stoppage of railway transport to and from the Black Sea ports. This would be critical for the transport of food-aid and capital goods to Georgia and neighboring countries. In addition, the railway sub-component will also enhance cost- effectiveness and management skills for future railway operations in a market-oriented economy, and will improve safety on the railway system by rehabilitating bridges, track, and some selected telecommunications and signalization elements. The Economic Rate of Return for this sub- component is estimated to be about 29%. The Economic Rate of Return for the Investment Component (inclusive of technical assistance), representing 86% of project costs, would be in excess of 36%, with a Net Present Value discounted at 10% of US$ 12 million. The results of a Sensitivity Analysis have indicated that the project is robust, with a significant economic return on investments under likely scenarios for variations in traffic, project costs, and operating costs. Project Risks 33. In light of the results of the sensitivity analysis, remaining project risks mainly relate to the ability of the Government of Georgia, after setting-up the Transport Reform and Rehabilitation Center, to create the framework for the project agencies (the Highway Concern and the Railway Department) to establish effective implementation units capable of carrying out project activities and perform contracting and procurement effectively. 34. Institution Building and Policy Reforms. The risks of this component relate to the degree of commitment of the Government and of project agencies to continue the chosen program of sector reforms. Although the government has taken a series of decisive and courageous measures over the last few months, and there is a growing number of top government officials committed to reform, there is not yet unanimous support for all the aspects of the reform program. For example, such matters as the implementation of equitable road user charges and collection procedures are likely to challenge the local capacity to effect change. 35. Road Maintenance. Risks in this sub-component include: (i) the ability of the Highway Concern to put in place a contracting system for road rehabilitation and maintenance works; (ii) availability of a steady flow of resources necessary to implement the program; and (iii) the lack of experience of newly privatized construction companies. Risks (i) and (iii) which are more important for the future will be mitigated by technical assistance being provided under the project. Regarding (ii), a fulfilled on September 2, 1995, the Government enacted legislation to introduce a road user charge system, which will provide the necessary funds even under gradual enforcement and compliance schedules. 36. Railway Rehabilitation. The risks relate to the capacity and commitment of the Railway Department to undertake a major restructuring, including in particular divestiture of non-transport related activities, a staff reduction program and significant tariff increases. Even though these aspects are included in the Letter of Sector Development Policy, and technical assistance would be made available under the project, the long-term commitment of the Railway Department to reform is still to be determined. This aspect has been addressed by the inclusion of a disbursement condition on all railway investments which are subject to the submittal to IDA of an acceptable railway investment plan and related financial statements.  I. Country and Sector Background 9 37. Other Risks. Another risk of the proposed project is delayed implementation due to inadequate capacity within the Government and the project agencies. Given the state of disrepair of the transport network, a timely implementation and rapid materialization of benefits from the proposed Transport Rehabilitation Credit are essential to its success. To reduce that risk, continuous effort has been provided by the Bank during project preparation by setting up training and working sessions by procurement specialists through a PHRD grant, by additional training financed under the Credit, and through the mobilization of further external technical assistance. 38. Finally, there is a risk that civil strife in Georgia might resurface. Negotiations are taking place in search of a lasting resolution to problems in Ossetia and Abkhazia, but there is still uncertainty regarding their final outcome. Recommendation 39. I am satisfied that the proposed Credit would comply with the Articles of Agreement of the Association and I recommend that the Executive Directors approve it. James D. Wolfensohn President Attachments: Schedules A - D Washington, D.C. December 26, 1995  - 10- SCHEDULE A REPUBLIC OF GEORGIA TRANSPORT REHABILITATION PROJECT SCHEDULE A Table A.1: Summary of Project Cost Estimates Component US$ million Foreign as % of Total l Local Foreign Total I. Institution Building 1.8 2.6 4.4 59% II. Investments Road Maintenance Program 4.5 2.1 6.6 32% Railway Sub-component 1.7 4.9 6.6 74% Project Management 0.2 0.3 0.5 60% Base Cost (July 1995 prices) 8.2 9.9 18.1 55% Physical Contingencies (5.5%) 0.7 0.3 1.0 30% Price Contingencies (5%) -- 0.9 0.9 100% TOTAL 8.9 11.1__ 20.0__ 56 Table A.2: Financing Plan Sources of Funds Local Foreign Total IDA 4.0 8.0 12.0 Other Donors (to be determined) 2.9 3.1 6.0 Local Funds 2.0 -- 2.0 [ TOTAL 8.9 11.1 20.0  - 11 - SCHEDULE B REPUBLIC OF GEORGIA TRANSPORT REHABILITATION PROJECT SCHEDULE B - PART I Table 11.3: Summary of Proposed Procurement Arrangements (US$ million equivalent, including price and physical contingencies) Procurement Method Project Elenent ICB NCB Other NlF" Total Cost 1. Works 1.1 Road repairs 4.59 4.59 (2.59) (2.59) 1.2 Rail bridge rehabilitation 0.73 0.73 2. Goods, Spares and Equipment 2.1 Bitumen and fuel oil for road 0.61 0.61 resurfacing (0.61) (0.61) 2.2 Materials for road bridge 0.26 0.26 rehabilitation (0.26) (0.26) 2.3 Aggregates (road resurfacing) 0.39w 0.39 (0.39) (0.39) 2.4 Stnrctural steel for rail bridges 0.38 0.38 (0.38) (038) 2.5 Spares for: rail 1.25 1.25 roads ...... 0.80 0.62" 1.42 (0.80) (0.62) (1.42) 2.6 Track Materials, Rails, Sleepers, 1.37 1.65 3.02 Commununication, and Signalling (1.37) (137) 3. Consultant Services & Training 3.1 TA for project implementation 0.67d' 0.67 (0.67) (0.67) 3.2 TA for modal agencies 1.42' 2.37 3.79 (1.42) _ (1.42) 4.1mplementation Support 4.1 Office Equipment 0.36w' " 0.36 (0.36) (0.36) 4.2 Vehicles 0.08"' 0.08 (0.08) (0.08) 4.3 Administration and other logistical support 0.22' 0.22 (0.22) (0.22) 4.4 Emissions, Monitoring and Control 0.23 0.23 (0.23) (0.23) 5. Unallocated Railway Investments 2.00 2.00 (2.00) (2.00) TOTAL 5.65 4.59 3.76 6.00 20.00 (5.65) (2.59) (3.76) - (12.00) ote: Amounts in parenthesis are financed by WA. .1 Non-IDA Financed, financed by any of EU, German bilateral aid, USAID, and the Government of Georgia. i National Shopping, NS. d International shopping, IS vI IDA would finance consultants, in accordance with IDA Guidelines on use of consultants (Short Lists-SL & Individual Consultants-IC). Includes utilities, operating costs (including local staff salaries), and supplies, payable under Statements of Expenditure(SOE)  - 12 - SCHEDULE B REPUBLIC OF GEORGIA TRANSPORT REHABILITATION PROJECT SCHEDULE B - PART II Estimated Disbursement Schedule IDA Quarter Disbursements Cumulative Cumulative Fiscal Year ending by Disbursements by Disbursements Quarter end of Quarter (% of total) (US$ min) (US$ mln) FY 96 Dec-95 0 0 0% Mar-96 0 0 0% Jun-96 0.5 0.5 5% FY 97 Sep-96 0.5 1.0 10% Dec-96 2.0 3.0 30% Mar-97 2.5 5.5 55% Jun-97 1.5 7.0 70% FY 98 Sep-97 1.5 8.5 85% Dec-97 0.5 9.0 90% Mar-98 0.5 9.5 95% Jun-98 0.3 9.8 98% FY 99 Sep-98 0.1 9.9 99% De-98 0.1 10.0 100%  - 13 - SCHEDULE C REPUBLIC OF GEORGIA TRANSPORT REHABILITATION PROJECT SCHEDULE C Time-Table of Key Project Processing Events Time Taken to Prepare the Project Six Months Government Request to IDA for Assistance to the Transport Sector December 18, 1994 Release to Government of Transport Sector Memorandum April 24, 1995 Discussion of Transport Sector Memorandum and Project Identification May 11, 1995 Completion of Preparation of Project Documentation November 15, 1995 Negotiations December 11, 1995 Board Presentation (Planned) January 18, 1996 Planned Date of Effectiveness February 28, 1996  - 14 - SCHEDULE D REPUBLIC OF GEORGIA TRANSPORT REHABILITATION PROJECT SCHEDULE D STATUS OF BANK GROUP OPERATIONS (As of November 15, 1995) Country: Republic of Georgia Amount in US$ million (less cancellations) Loan No. Fiscal Borrower Purpose Original Amount Year IDA Undisbursed C2697 95 Republic of Georgia Rehabilitation 75.0 18.6 C2641 95 Republic of Georgia Institution Building 10.1 6.4 C2658 95 Republic of Georgia Municipal Infrastructure 18.0 14.5 Total 103.1 39.5 Total disbursed: 67.9 of which has been repaid 0.0 Total amount now held by IDA: 67.9 Total undisbursed: 39.5 STATUS OF IFC OPERATIONS Country: Republic of Georgia Georgia became a member of the International Finance Corporation in June, 1995. To date, no investments have been made.  EBRD 26918 GEORGIA - - - - - - - ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-EC0,JO,-C ZO'JES > ! t S n ~~~~~~~~~~~~~~~~~~~~~~~R U 5 S I A N F E D E R A T I O N BUIL ECON U3 C AREA RUSSIAN FEDER N o TSEECTEDCllES s' - A *UTOPLOUOUS JEPVRL,C IUSSRI CENTERS~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~(D UT~OOU -PBU [SS) EMI _ NATIONAL CAPETAI -. ) - ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~RIVERS _ Giol>, . / j ; \ oz / i J \ 2 Zff 9 C.LACIER A2EAS SECO.DRY RA.S .3ou ! , ,,,} i _ 5, RAILROADS - .< ' I/ - 4 t "'' ~~4tr - {. \ - - DISTRICT BOUNDARIES - UTONOR.OjD REPULSUC lASSR) BOU.OARIES -. - INTERN-TnONsL BOUNDARIES Black z >R ) i Sea E ..~~~~. , RTJ _. ,_-4 ,. - 5}=\ - j\.Is ,, ce~~~~~'- s J ; l r,dolLi3S dnT U R K E Y - U rooi. e RAb_d,,_ P.6~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I. X3tEY L 5i >>> nhsVJorld30nz L ou= !I S ;Dt 3SJSEU'ZAEIEAE AR ME N IA , A.RAIA UK". 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