Georgia - Restructuring of the Transport Ministry Project

Report No. PID5982 Project Name Georgia-Restructuring of the Transport... Ministry Learning and Innovation Loan Region Europe and Central Asia Sector Transportation Project ID GEPE56514 Borrower Government of Georgia Implementing Agency TRRC 12 Kazbegi Avenue Tbilissi 380060 Georgia Tel: (995 32) 99 04 61 Fax: (995 32) 888 96 98 (ext 147) Environment Category C Date This PID Prepared December 16, 1997 Projected Appraisal Date March 15, 1998 Projected Approval Date April 30, 1998 by RVP Country and Sector Background 1. Georgia is a country of 5.4 million people bounded by the Black Sea, Russia, Azerbaidjan, Armenia and Turkey. At independence in April 1991, it appeared to be among the best placed of the former Soviet States to make a successful transition. It had highly educated staff force, a long tradition of entrepreneurship, a significant underground economy, a prosperous agricultural sector and substantial natural resources. Its location made it a primary transit corridor in the Caucasus. However two years of civil conflict and an eroded government authority resulted in a collapsed economy with high short term debt, low output, and hyperinflation. In mid 1994, Georgia made a significant turnaround and embarked in a stabilization program supported by the Bank and the IMF that reduced inflation to less than 14 percent in 1996 and fiscal deficit to 5.5 percent per year and stimulated again the economy. 2. Georgia's opportunities for growth largely depends on the country's capacity to enhance Government revenues (9.4 percent of GDP in 1996), integrate into international markets and attract foreign investment. In this regard the recovery of trade in 1996 following the sharp decline of imports and exports in 1995, is encouraging. Exports grew by 20 percent contributing to a significant decline of the current account deficit to below 8 percent of GDP. Trade data although deficient, show significant penetration into new markets : about 50 percent of exports are toward non-FSU countries and among those, Turkey has become the most important trade partner. Notwithstanding these accomplishments, Georgia's economic recovery remains fragile.  3. The severe deterioration of basic infrastructure (energy, transport, water supply) represents a critical barrier to private investment and growth. In Georgia, it is the result of a combination of factors : the lack of investment and maintenance for a number of years; and inefficient organizational and institutional structure dominated and regulated by large monopolies, state-owned enterprises/departments; and a very precarious financial situation due to inadequate pricing policies and low collection payments. The Government is aware that, due to the limited public resources, alleviation of these infrastructure bottlenecks will require a financial rehabilitation of private investments. A number of steps have already been taken in this direction with tariffs increases and the introduction of user charges, improvement in collection of payments and some restructuring of the sector in view of subsequent privatization. However, enforcement of payment discipline is not yet fully achieved; the legal/regulatory framework for private participation is not yet in place; and privatization is still at an early stage. Objective 4. The project objectives would be to develop the capability and capacity of the Ministry of Transport to implement efficiently the transport sector reforms outlined in the Transport Sector Memorandum (Report # 13978), and to increase the operational autonomy of the Transport Agencies (State Departments). Progress towards these objectives would be monitored by comparing the pace of reform with the existing reform schedule, by conducting transport user surveys and by ensuring that Transport Agencies become independent, have their own income and capacity to borrow. This project will enable the Georgian Government and the Bank to experiment Government restructuring in Georgia with a small scale approach prior to its broader application. The lessons learned from making transport agencies operationally independent, selecting the staff in a clear and transparent way, training the staff and retaining it within the Government, may be applicable, if not directly replicable, in a wide scale Civil Service Sector Reform. Description 5. The project would combine (a) restructuring of the Ministry of Transport (MOT) and independence/commercial operations of Transport Agencies (State Departments); and (b) support of the training strategy for the sector to expose new MOT staff and Georgian decision-makers to sector reform management. a) Restructuring of the MOT and independence of Transport State Agencies (US$1.5 million). The component would cover technical services to : (i) reorganize the MOT and its staff around the new functions needed in a market economy using the recommendations prepared under the World Bank Transport Rehabilitation Project and described in two reports entitled "Organizational Structure, Personnel and Ministerial Action" and "Action Plan 1997"; (ii) draft new statutes for transport State Agencies guaranteeing their independent and commercial operations and increasing their - 2-  accountability; (iii) determine proper information flows within the transport sector; (iv) provide office technology to support the new MOT organization for a period of five years; and (v) monitor the process for two years. This would also include refurbishment of the Ministry and provision of Information Technology. b) Training of MOT staff and Georgian decision makers (US$0.7 million) would cover the training requirements outlined in the "Development Strategy for the Transport Sector (March 1997)" and would be performed by the Training Unit of the Transport Reform and Rehabilitation Center (TRRC), which successfully provided training to 120 persons under the Transport Rehabilitation Project. This component would consist in training the newly recruited staff, creating an information center gathering relevant publication on worldwide experiences in transport restructuring, and in offering study tours for higher level ministry officials to countries where restructuring has been successful. Financing 6. Total project costs are estimated at US$2.5 million including US$0.3 million of price and physical contingencies. An IDA Credit would finance US$2.3 million of the estimated project cost and the Ministry of Transport would provide US$200,000 to cover some local costs. Implementation 7. The TRRC, which acted as the PIU of the Transport Rehabilitation Project would be reconducted as the PIU of this project, given its excellent performance on the previous project. The project team would be composed of a Project Implementation Unit (PIU), working groups within each involved agency or entity, and Georgian and foreign experts. The preparation work would be managed by the PIU. The PIU would coordinate the activities of the working groups, hire consultants, contract services and purchase goods as necessary for the preparation of the project. 8. Consultant services would be procured in accordance with the World Bank "Guidelines", dated January 1997, on the "Selection and Employment of Consultants by World Bank Borrowers". Sustainability 9. Project sustainability would be directly linked to the quality of the technical services provided by international consultants and to the political/social acceptance of restructuring and increased user charges corresponding to cost recovery levels. The Project components have been designed primarily to achieve transport sector sustainability thanks to enhanced policy formulation prepared at a faster rate. Lessons learned from past operations in the country/sector 10. The Bank's first credit to Georgia was the Institution Building Credit of US$10.1 million in 1994. This was followed in 1995 by a -3 -  Municipal Infrastructure Credit of US$18.0 million and a Rehabilitation Credit of US$75.0 million. In Fiscal Year 1996, a Transport Project of US$12.0 million, a SATAC of US$4.8 million and a SAC of US$60.0 million were approved. In Fiscal Year 1997, a Health Credit of US$14.0 million and an Agriculture Credit of US$15.0 million were approved. In Fiscal Year 1998, a Municipal Development and Decentralization Project of US$20.9 million and a Social Investment Fund Project of US$20 million were approved. During the first phase of assistance to the Transport Sector, the impact of the Bank on the course and types of reforms has been substantial and has helped establishing a fruitful policy dialogue and building a good partnership with the Government. The implementation of the Transport Rehabilitation Project has been very successful and the project is close to completion less than two years after becoming effective. Nevertheless, the extent and scope of assistance provided remained limited in part due to resource constraints. The serious deterioration of the basic infrastructure, the stringent financial constraints faced by the Government, and the need to undertake wide-ranging reforms to rebuild and transform the Georgian economy mean that request for support largely exceeded what the Bank was able to offer, leaving a substantial agenda for the coming years. This project would be consistent with the Bank Country Assistance Strategy (Report # 17000-GE para. 57) that specifies that the Transport Sector would be considered for an early use of adaptable lending instruments such as Learning and Innovation Loans. Environmental Aspects 11. The Project would be classified as Category C since it would have no impact on the environment. Program Objective Categories 12. The project would contribute directly to environmentally sustainable development of Georgia by accelerating the pace of reform in the Transport Sector, enabling an increased participation of the private sector in transport operations and the development of public-private partnership in financing new infrastructure. Contact Point: Pedro N. Taborga, Task Manager The World Bank 1818 H Street N.W. Washington, DC 20433 Telephone No.: (202) 473-4312 Fax No.: (202) 522-3641 Note: This is information on an evolving project. Certain components may not necessarily be included in the final project. Processed by the InfoShop week ending February 6, 1998. - 4 -