Georgia - Social Investment Fund Project

Document of The World Bank Report No: 17144-GE PROJECT APPRAISAL DOCUMENT ONA PROPOSED CREDIT IN THE AMOUNT OF SDR 14.6 MILLION TO GEORGIA FOR A SOCIAL INVESTMENT FUND PROJECT November 11, 1997 Infrastructure Sector Europe and Central Asia Regional Office  CURRENCY EQUIVALENTS (Exchange Rate Effective 10/97) Currency Unit = Lari (L) Lari 1 = US$0.8 US$1 = Lari 1.30 MEASUREMENT Square feet I = 0.09 Square Meter (sqm, mi2) I square mile (27,878,400 square feet) = 2.588 square kilometers (kM2) I acre (43,460 square feet) = 0.405 hectare ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy FDD Fund for Democracy and Development FE Follow-up Engineer FSU Former Soviet Union FY Financial Year GDP Gross Domestic Product GSIF Georgia Social Investment Fund GOG Government of Georgia ICR Implementation Completion Report IDA International Development Association IMF International Monetary Fund IS International Shopping ISU Institutional Support Unit LSMS Living Standards Monitoring Survey MPC Microproject Committee MPU Microprojects Unit MIS Management Information System MOF Ministry of Finance NCB National Competitive Bidding NGO Non-governmental Organization NS National Shopping O&M Operation and Maintenance PHRD Policy & Human Resources Development Fund (Japan) PIP Project Implementation Plan PIU Project Implementation Unit PPF Project Preparation Facility SAC Structural Adjustment Credit SDR Special Drawing Right SDS State Department of Statistics TA Technical Assistance USAID US Agency for International Development Georgia - FISCAL YEAR January 1 - December 31 Vice President, Europe and Central Asia: Johannes Linn (ECAVP) Country Director: Judy O'Connor (ECC03) Director, Infrastructure Sector: Ricardo Halperin (ECSIN)) Georgia Team Leader, Infrastructure Sector Robert Maurer (ECSIN)  Georgia Social Investment Fund Project CONTENTS A. Project Development Objective ..............................................................2 1. Project Development Objective and Key Performance Indicators ...............................................2 B. Strategic Context ..............................................................2 1. Sector-related CAS Goal Supported by the Project .............................................................. 2 2. Main Sector Issues and Government Strategy ..............................................................2 3. Sector Issues to be Addressed by the Project and Strategic Choices ...................... .....................3 C. Project Description Summary ............................................................................4 1. Project Components ..............................................................4 2. Key Policy and Institutional Reforms Supported by the Project ..................................................4 3. Benefits and Target Population .............................................................4 4. Institutional and Implementation Arrangements ..............................................................S D. Project Rationale ..............................................................7 1. Project Alternatives Considered and Reasons for Rejection ........................................................7 2. Major Related Projects Financed by the Bank and/or Other Development Agencies ................. 8 3. Lessons Learned and Reflected in the Project Design .............................................................. 8 4. Indications of Borrower Commitment and Ownership ..............................................................9 5. Value Aded of Bank Support in this Project ........................ ......................................9 E. Summary Project Analyses .............................................................9 1. Economic and Financial Assessment .............................................................9 2. Fiscal Assessment ..............................................................9 3. Technical Assessment ............................................................. 10 4. Institutional Assessment ............................................................. 10 5. Social Assessment ............................................................. 11 6. Environmental Assessment .............................................................11 7. Participatory Approach ............................................................. 12  ii F. Sustainability and Risks ........................ 12 1. Sustainability ........................ 12 2. Critical Risks ........................ 14 3. Possible Controversial Aspects ........................ 15 G. Main Loan Conditions ........................ 15 1. Effectiveness Conditions ........................ 15 2. Other ........................ 15 H. Readiness for Implementation ........................ 15 I. Compliance with Bank Policies ........................ 15 Annexes Annex 1. Project Design Summary Annex 2. Detailed Project Description Annex 3. Estimated Project Costs Annex 4. Cost-Effectiveness Analysis Summary Annex 5. Financial Summary Annex 6. Procurement and Disbursement Arrangements Table A. Project Costs by Procurement Arrangements Table Al. Consultant Selection Arrangements Table B. Thresholds for Procurement Methods and Prior Review Table C. Allocation of Loan Proceeds Annex 7. Project Processing Budget and Schedule Annex 8. Documents in Project File Annex 9. Statement of Loans and Credits Annex 10. Country at a Glance Map No. IBRD 29195  Project Appraisal Document Page 1 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Europe and Central Asia Regional Office Project Appraisal Document GEORGIA SOCIAL INVESTMENT FUND PROJECT Date: November 11, 1997 Task Team Leader: Robert Maurer Country Director: Judy O'Connor Sector Director: Ricardo Halperin Project ID: GE-PA-39929 Sector: Infrastructure Program Objective Category: Poverty Alleviation Lending Instrument: Investment Credit Program of Targeted [X] Yes [ ] No Intervention: Project Financing Data [] Loan [ X] Credit [] Guarantee [ Other [Specify] For Loans/Credits/Others: IDA Credit Amount (US$m/SDRm): $20.0 million/SDR 15.1 million Proposed terms: [X] Multicurrency [ ] Single currency, specify Grace period (years): 10 [] Standard Variable [ ] Fixed ]LIBOR- based Years to maturity: 35 Commitment fee: 0.50% on undisbursed credit balance, beginning 60 days after signing less any waiver Service charge: 0.75% Financing plan (US$m): Source Local Foreign Total Government 5.8 5.8 Local Communities 2.5 2.5 IDA 19.9 0.1 20.0 Total 28.2 0.1 28.3 Borrower: Georgia Guarantor: N/A Responsible agency: Georgia Social Investment Fund Estimated disbursements (Bank 1998 1999 2000 2001 FY/US$M): Annual 4.3 4.9 5.2 5.6 Cumulative 4.3 9.2 14.4 20.0 Project implementation period: 4 years Expected effectiveness date: 1/15/98 Expected closing date: 06/30/02 OSD PAD Forn: July 30, 1997  Project Appraisal Document Page 2 A. PROJECT DEVELOPMENT OBJECTIVE 1. Project Development Objective and Key Performance Indicators (see Annex 1) The project aims to support vulnerable groups among the Georgian population by improving access to basic social and economic services on a sustainable basis through rehabilitation of existing infrastructure where social returns are highest and where basic services would otherwise be inaccessible to the poor, particularly in remote mountainous areas. The Georgia Social Investment Fund (GSIF) would improve access to basic services by mobilizing resources (public and private) and channeling them through small investments (microprojects) that have high likelihood of generating sustainable benefits. The project's secondary development objectives are to: (i) strengthen the capacity of private, small-scale contractors so that they can benefit directly or indirectly from contracts financed by the GSIF, and build the capacity of communities so that they can prepare and implement small projects; (ii) generate employment by requiring labor-intensive civil works in GSIF financed microprojects; and (iii) build greater capacity for policy makers to monitor and analyze trends in the level and structure of poverty in Georgia. The key performance indicators would be proportion of microproject funds devoted to poorest and least-serviced areas, and proportion of microprojects generating benefits two, three and four years after the investment. Annual performance indicators agreed by the Borrower and the IDA are given in Annex 1. B. STRATEGIC CONTEXT 1. Sector-related Country Assistance Strategy (CAS) Goal supported by the Project CAS document number: 17000-GE Date of latest CAS discussion: October 21, 1997 IDA supports the Government of Georgia in its poverty reduction efforts, while leaving an important role to the private sector in the provision and financing of social services. The GSIF is consistent with the country assistance strategy (CAS) two core objectives of poverty reduction by protecting human capital and building up the skills of the labor force, and fostering development of the private sector while growth recovers and additional public and private resources and capacity are developed. 2. Main Sector Issues and Government Strategy The main concern with respect to local govermment in Georgia is related to its inherent institutional weakness. The symptoms of weakness common to the Former Soviet Union (FSU) local governments are particularly distressing in Georgia, because of mutually reinforcing effects of recent economic recession, war, and general breakdown of civil order. Among specific institutional issues are: (i) little accountability to residents on the part of municipal authorities because there are neither mechanisms allowing citizens to monitor the actions of local governments nor any formal procedures to voice civil discontent or call for removal of poorly performing officials; (ii) an insufficient regulatory framework defining the relative allocation of powers and responsibilities both between central and local government and among different bodies within the same municipality; (iii) inefficiencies in the management of the municipality's administrative functions with overstaffing and unclear allocation of responsibilities among local officials; (iv) communication problems between municipalities and the center. Ultimately, such a situation is causing a significant disconnect between civil society and its leaders.  Project Appraisal Document Page 3 Until recently, the structure and function of local governments were based on provisions provided by a number of Presidential decrees intended to carry Georgia through a transitional phase leading to local elections tentatively scheduled for early 1998. At the same time institutional adjustments in the local government sector were focusing on resources allocation and did not affect the Soviet-style local government structure. Since the end of 1995 on the wave of a gradual economic recovery, the Government and the Parliament have made considerable progress toward the municipal and regional development program and a comprehensive decentralization strategy including inter alia: (i) the establishment of the legal and regulatory framework; (ii) promoting the fiscal and economic independence of local government; (iii) improving service delivery for local population; and (iv) improving utilization of local resources for the development of local social infrastructure . 3. Sector Issues to be addressed by the Project and Strategic Choices Institutional weakness of local governments, loose legal framework, and lack of trust between some local govermnents and their constituents undermine the local governments capacity to undertake demand-driven investments on their own. The proposed project would help promote the sustainability of small-scale basic social and economic infrastructure at the local level and alleviate poverty. The project would establish a quick and efficient mechanism to rehabilitate infrastructure, generating both community and Government support for the effectiveness of this mechanism. This would be achieved by ensuring the participation of community members in the identification, implementation and supervision of microprojects across a variety of sectors (i.e. health, water, sanitation, etc.). The approach would engender an attitude of increased self-reliance by communities and a gradual assumption of responsibility and participation in the delivery of services and maintenance of infrastructure facilities. It would promote local capacity building at the community, municipal government, and private contractor level. Finally, the project would provide a bridge between a state- centered approach to operation and maintenance of infrastructure to a decentralized system with greater cost recovery and civil society participation. A key institutional mechanism to carry this out is the Georgia Social Investment Fund (GSIF), recently established with a charter by Presidential decree. With US$60,000 as the average size of a microproject and targeting mostly rural communities, the Bank support is complementary to activities already started in the urban areas. Integral part of the municipal strategy and presently recognized as a top priority project for the Government, the Bank is expected to provide long-term, sustainable infrastructure benefits to vulnerable communities. This priority arises principally from the need to create and sustain an adequate infrastructure base and network upon which a strong private sector and economy can develop. This in turn will provide the only true sustainable support to maintain the standard of living for Georgia's citizens. The GSIF also seeks to support the development of civil society, by encouraging the participation of communities and/or NGOs in the identification and implementation of projects, and by building the capacity of communities and local governments. This process will help contribute to the shift of responsibilities and authority to the community level. At the same time, stronger communities help build more responsive and accountable local governments. State Chancellery, Municipal Sector Policy Letter, May 1997.  Project Appraisal Document Page 4 C. PROJECT DESCRIPTION SUMMARY 1. Project Components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown) Rehabilitation of Small Scale Physical 24.7 87.3 17.3 70.0 Infrastructure _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Support to Small Contractors Institution-building 0.4 1.5 0.3 72.5 and Communities Institutional Support to GSIF Project Management 2.1 7.4 1.6 74.6 Support for Monitoring of Institution- building 0. 1.3 0.3 80.0 Living Standards Project Preparation Facility Physical, Institution-building 0.7 2.6 0.5 68.0 Total 28.3 100.0 20.0 70.5 2. Key Policy and Institutional Reforms supported by the Project The GSIF project supports the Borrower's municipal development program strategy to improve mobilization of local resources and transparency in their use; rehabilitation and improved maintenance of public assets; and introduction and expansion of cost recovery for basic services. The project has potential to complement activities focused on smaller communities interrelated to other IDA operations in the municipal sector. 3. Benefits and target population People in approximately 400 communities would benefit from the resulting improvements in the availability, regularity or quality of basic social and economic services and from greater economic activity due to demand for local labor, materials, contractors and suppliers. Priority would be given to villages in mountainous areas that have been neglected historically in terms of infrastructure development and to communities ranked among the poorest and most in need of infrastructure. According to demand expressed during the pilot phase, water supply, irrigation, roads, and schools rehabilitation are expected to be common microprojects, which have a high social return. More than 350 small private contractors are estimated to benefit from training and participation in competitive bidding. Families of employed laborers arising from the estimated 494,000 employees labor days generated would also benefit.2 Local government representatives as members of microproject committees are expected to acquire practical experience in procurement on a competitive basis, works supervision, budgeting and financial management. 2 Assumes 30% labor content, average wage US$15/day.  Project Appraisal Document Page 5 4. Institutional and Implementation Arrangements Implementation period: The project would be implemented over a period of four years (1998- 2001) in accordance with the Project Implementation Plan in the Operational Manual. Executing agencies: Georgia Social Investment Fund (GSIF), State Department of Statistics (SDS). The GSIF is an autonomous, newly created entity filling an institutional gap by providing efficient, direct support for small-scale grassroots development. The SDS would be the executing agency for the Monitoring of Living Standards Component, with support of the GSIF in procurement and disbursement activities, accounting, and financial reporting. Project oversight (policy, guidance, etc.): The GSIF Board, composed of high ranking ministry representatives and a non-governmental representative, would approve GSIF policies and procedures, including the Operational Manual, annual budgets and work plans, quarterly and annual reports and appoint an independent auditor. Project coordination: GSIF Unit. The project would strengthen the institutional capacity of the GSIF which would also act as the Project Implementation Unit (PIU). The GSIF Board would relinquish execution of day-to-day operations to the GSIF PIU headed by the GSIF Executive Director. The GSIF PIU would comprise five units, manned by skilled professionals recruited competitively and employed on annual, renewable contracts. The GSIF PIU would appraise, finance and supervise the execution of microprojects, monitor the budget and financial operations, assist Microproject Committees (MPCs) in procurement of microprojects, and ensure all activities are in compliance with the Operational Manual. The GSIF PIU would coordinate with local government and line ministries to ensure proposed microprojects are in compliance with local authorities and ministry plans, norms, standards, and operating budgets and to avoid duplication of funding. Project Monitoring: Project monitoring and evaluation would be the responsibility of the GSIF, contracting out these functions when appropriate. The objectives of the monitoring and evaluation activities would be to: (a) determine if there is compliance between the Operational Manual and procedures for implementing microprojects and executing contracts; (b) provide information regularly on progress toward achieving desirable results and facilitating reporting to the GSIF Board, the Government and the IDA; (c) alert GSIF managers to actual or potential problems in implementation so that adjustments can be made; and (d) determine whether the project is benefiting the intended people and how. The monitoring and evaluation system for the GSIF would comprise microproject monitoring by GSIF staff and communities, the Management Information System (MIS), and a beneficiary assessment. GSIF staff would be responsible for visiting microprojects periodically and preparing individual reports which are fed into the MIS. Members of the microproject committee would also be responsible for monitoring and verifying progress and quality of works contracts. Good microproject monitoring is crucial because it provides the baseline information for beneficiary and impact assessments and provides much of the input for the MIS tracking of the GSIF portfolio. While the MIS would generate information on the physical and financial progress of works, a beneficiary assessment would be used to evaluate the impact of microprojects on communities and other social and institutional issues affecting microproject implementation and sustainability. Management Information System. The GSIF developed a sophisticated MIS during project preparation, based on systems used in other social funds. This computerized system would track progression of microprojects through the microproject cycle, provide transparency and accountability of financial flows, monitor adherence to the targeting strategy and apportionment of resources by district, monitor civil works progress based on field supervision reports, and flag microprojects experiencing unusual delays and cost overruns. These features make the MIS a powerful management  Project Appraisal Document Page 6 tool in day-to-day decision-making. MIS-generated performance reports would be an integral part of the monthly and quarterly reports submitted to the GSIF Board, potential donors, and the Bank. Financial Management: The GSIF project financial management system, including accounting, financial reporting and auditing arrangements, has been assessed as acceptable to the Bank. The financial and accounting procedures, together with terms of reference (TORs) for accounting and financial specialists, and financial reporting formats are outlined in the GSIF Financial and Administrative Procedures. TOR for financial, managerial and procurement audit are included in the GSIF Operational Manual. The GSIF Financial and Administrative Unit is adequately staffed with two qualified accounting specialists. Accounting Information submitted to the IDA by the GSIF PIU would comply with international accounting standards. Cash accounting, used by GSIF for its own financial management purposes, may be used for project accounting. Project accounts would be maintained by the GSIF PIU separately from any other existing accounts. GSIF, having the responsibility for orderly and efficient recording and safeguarding of the project assets and resources would: (a) ensure accountability for project funds; (b) maintain records of the sources of funds, and the relevant accounts, broken down into the various types of expenditure for the project; (c) maintain internal controls to ensure that financial records are reliable, complete and provided on a timely basis; (d) report on the use of funds; (e) facilitate verification of these reports by independent auditors; and (f) provide information, as required, to the IDA. Financial Reporting. During project implementation, the GSIF PIU would submit a quarterly Project Financial Management Report in the agreed format to IDA. The Report would include: (i) Summary of Sources and Uses of Funds Report by project categories of expenditures, showing the IDA credit and funds from other donors separately in currency as determined by project design; (ii) Summary of Expenditures by project components, for the current fiscal year and accumulated to date; (iii) Summary of Statement of Expenditures (SOEs) by individual application reference number and amount3; (iv) Special Account Statement providing reconciliation of amounts in the Special Account; (v) Expenditures Report by disbursement category providing details of eligible project expenditures during the current quarter and next quarter; (vi) Balance Sheet showing Accumulated Fund of the Project, bank balances, other assets of the project, and project liabilities. Financial Audit. GSIF would be responsible, on behalf of the Borrower, for providing to the IDA, within 6 months after the end of each fiscal year (including the fiscal year of the final IDA disbursement) the financial, managerial, and technical audits of the Project that are acceptable to the IDA. During the first year of implementation, such audits would be conducted on a semi-annual basis. GSIF would have the required Financial Statements for each year audited by an independent auditor acceptable to the IDA in accordance with standards that are acceptable to the IDA4. The auditor would be appointed in sufficient time to carry out its responsibilities, including: (a) a review of the financial management systems at the beginning of project implementation; and (b) periodical reviews of the project financial management systems thereafter. An audit of financial statements would include: (a) an assessment of the adequacy of accounting and internal control systems to monitor expenditures and other financial transactions and ensure safeguarding of project-financed assets; (b) a determination 3 The total withdrawals under the SOE procedure should be added to expenditures financed by the IDA under regular procedures, which together would be equal to total expenditures financed by the IDA shown in Summary of Expenditures. 4 The International Standards on Auditing, published annually by the International Federation of Accountants and widely adopted by the accounting profession, is an example of standards on auditing that are acceptable to the IDA.  Project Appraisal Document Page 7 whether GSIF has maintained adequate documentation of all relevant transactions; and verification that expenditures submitted to the IDA are eligible for financing under the project, and identification of any ineligible expenditures. The use of a special account (SA) and statements of expenditures (SOEs) would be addressed separately in the auditor's opinion. The IDA-required audits would not cover possible donor-funded activities, even if supervised by the IDA. Management and Technical Audit. The GSIF would be subject to annual procurement and technical audits. During the first year of implementation, such audits would be conducted on a semi- annual basis. Following principles similar to those used for financial audits, the experts would verify and certify the proper application at all levels of guidelines set forth in the Operational Manual as well as compliance with all of the GSIF's contractual obligations. Special attention would be paid to verifying information from worksites. The audit periodicity would be examined during the mid-term project review. D. PROJECT RATIONALE In 1996, the Government of Georgia requested IDA's assistance for the preparation of a project to address the decline in living standards and support basic social services during the transition to a market-based economy. Project design and preparation was carried out jointly with the Georgia Social Investment Fund (GSIF). The project is consistent with the CAS discussed on October 21, 1997, by the Board of Directors. 1. Project Alternatives considered and Reasons for Rejection During project design several alternatives were considered including: (a) designating a line ministry or a public agency to administer and implement the GSIF; (b) increasing national contribution to the total project costs; (c) including a microcredit scheme into the project design; and (d) no intervention at all. While institutional arrangements under (a) would be more simple than under the proposed project design, the demand-driven nature of the GSIF requires that it is set up as an autonomous social development agency that can respond quickly to communities' needs in a participatory manner. This is consistent with the institutional set up and autonomy of other social investment funds such as the Armenian Social Investment Fund. If successful, the participatory approach and procedures used by the GSIF should be transferred to other actors, such as local governments. At present, institutional weaknesses of local governments, loose legal framework for operations, and the lack of trust between some local governments and their constituents undermine their capacity to undertake GSIF-type microprojects on their own. An increase in the national contribution (i.e., Government's and community's contribution) under (b) in the total project costs was assessed as not feasible due to the present difficulties in mobilizing counterpart project financing in Georgia and the vulnerable population targeted under the project. The proposed microcredit scheme under (c) would divert too much energy and effort from the primary objective of the GSIF. The project-team also considered the no-intervention scenario, particularly given already ongoing humanitarian activities in Georgia. However, the rapidly diminishing level of foreign emergency assistance clearly suggests the need for rapid intervention.  Project Appraisal Document Page 8 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned) Infrastructure Rehabilitation Bank-financed Municipal Infrastructure S S Municipal Development S S Transport S HS Reducing Poverty through Health S S Improving Quality and Access to Agriculture Development S S Basic Social Services IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons Learned and Reflected in the Project Design The IDA has been involved in a number of investment operations in Georgia since Independence and the above mentioned projects are relevant to the development objective of the Georgia Social Investment Fund. Lessons Learned from the GSIF Pilot Phase: Preparation of the project has benefited from the one year pilot phase funded by the United States Agency for International Development (USAID) and with funds from the Plroject Preparation Facility (PPF). Nine pilot microprojects were implemented, three in Tbilisi and six in several of the poorest districts in Southern Georgia. Additional microprojects are underway in four other pilot districts. The pilot phase confirmed many communities are motivated to work together in selection and implementation of small infrastructure microprojects, are willing to contribute to the costs, though in-kind contributions must substitute for cash in many instances. Small private contractors emerged in response to the competitive bidding procedures used by the GSIF, even in remote regions, and good quality of work was produced. Another lessen learned is the close connection between quality of microproject appraisal and follow up, requiring flexibility for the GSIF to contract out construction designs and special studies (such as geological and topography studies) to qualified firms and to monitor quality of work continuously. (Consequently, two technical reviews are scheduled foi the first year of the project). Generating greater awareness of and increased commitment by communities to operation and maintenance of microprojects emerged early on as a challenge. A number of design features were integrated into the project (see F. 1), including requiring a community contribution, assessing sustainability plans during appraisal, and making technical assistance available under the second component to support communities in organizing and managing users associations. A need arose for a two-stage appraisal process to prioritize incoming proposals in an unbiased manner, and this has also been reflected in the final Operational Manual. The pilot phase also helped the GSIF to define timing and substance of training and technical assistance to communities and contractors, and to develop and test mechanisms for coordinating with central and local governments to ensure microprojects are consistent with norms, standards, and operating budgets. Finally, the pilot illuminated the importance for GSIF to establish staff performance targets and a review system, both of which would be in effect under the proposed project. Lessons Learned from Bank Project Implementation in Georgia include: (a) strong government ownership, commitment and clear priority are key; (b) emphasis on capacity building is needed to mitigate the riskcs associated with inexperienced project counterparts; (c) simple and small-  Project Appraisal Document Page 9 scale projects are more successful, and (d) intensive support and assistance are needed during project preparation and implementation. General Lessons Learned from SIFs Implementation: General lessons emerging from SIFs around the world include: (i) objectives should be clear and based on community involvement; (ii) institutional arrangements for project implementation should be designed to avoid bureaucratic procedures, but coordination with line ministries is also important; (iii) well-qualified, professional staff with performance incentives are necessary; (iv) there should be an incremental approach, building upon and scaling up activities; and (v) great attention is needed to operation and maintenance. The project design has integrated and taken into consideration these lessons. 4. Indications of Borrower Commitment and Ownership The Ministry of Finance has requested IDA support for the proposed project in the form of the Project Preparation Facility (in amount of US$0.5 million equivalent). Also, the Government of Georgia demonstrated its interest in a social investment fund by soliciting help from the USAID to fund the pilot phase, including a number of microprojects in some of the poorest and most remote areas of the country. The government set up the GSIF Board with representation from four government ministries and agencies as well USAID and two NGOs. The project activities proposed to be financed as reflected in the components above have been discussed with the GSIF and the Government. 5. Value Added of Bank Support in this Project The IDA brings to bear in the project its global experience in helping to design social funds which can be an effective approach in achieving the objectives held by the Borrower and IDA for the project. Additionally, the IDA maintains an effective link with the Borrower for policy-guidance and institutional development in the infrastructure sector through its dialogue and ongoing investment lending program of which the proposed project is a part. E. SUMMARY PROJECT ANALYSIS Detailed assessments are in the project file - see Annex 8, also see Annex 4 - Project Impact, Benefits and Risks ) 1. Economic and Financial Assessment (supported by Annex 4) Given the nature, number and size of microprojects and given that the GSIF would be demand driven, no detailed economic and financial analysis can be undertaken ex ante. However, basic economic indicators such as cost/employee-day created or cost/beneficiary, as well as cost benefit analysis where possible (with applicable caveats), would be estimated during appraisal of individual microprojects, as stipulated in the Operational Manual. Furthermore, a unit cost database would be regularly updated to aid in preparation and monitoring of budgets for microprojects. 2. Fiscal Assessment The impact of the project on governmental finances would include incremental taxes (V.A.T. of 20% and local taxes) and social security payments (approximately 31 % of wages) by private contractors delivering works, goods and services for about 400 microprojects to be implemented during the project life at the estimated total cost of about US$24.7 million equivalent. At the same time, the microproject management costs would be absorbed by communities through participation in microproject management (Microproject Committees) and community contributions in cash and in kind that, on average, would cover 16% of microproject costs. In particular, community contributions in cash are estimated to reach approximately US$2.5 million equivalent or about 9% of the total project cost.  Project Appraisal Document Page 10 The project would benefit from the counterpart contribution from the central government budget estimated at US$6 million or 21% ofthe total project cost. The availability and certainty of counterpart funds, declared by the Ministry of Finance during project post-appraisal, was confirmed during Negotiations. 3. Technical Assessment An assessment of the Microproject Component was conducted by the project team based on GSIF's implementation of nine microprojects and promotion and appraisal of many more. Detailed reports are in the project files. There is clearly a connection between the quality of staff and the quality of work on microproject preparation, appraisal and supervision which resulted in most microprojects of very good quality and a small number rated less than satisfactory where appropriate corrective actions were taken. The strengths of the GSIF include its core set of documents and forms and good application by the staff in the field; a technically strong and motivated Microprojects Unit; sound methodology for collection of user prices and cost estimates; and a demonstrated commitment to community participation. 4. Insdituional Assessment This consists of two parts covering both: (a) Institutional Capacity of the GSIF, and (b) Microproject Comnittees. (a) Institutional Capacity of the GSIF: The GSIF would be responsible for implementation of microproject activities. The GSIF was established one year ago as an autonomous agency with funding from USAID and a Japanese PHRD Fund for project preparation. The resources for project preparation enabled the GSIF to gain experience to deliver the expected outputs of the project. The GSIF Board, responsible for overall management of the project, now comprises six members, including one representative from the Georgia NGO community. The GSIF PIU is now fully functional with adequate staffing arrangements. Unit managers have a minimum four months experience in their position which is sufficient time to get a good grasp of their roles and responsibilities. For the living standards monitoring component, the State Department of Statistics would be responsible for preparation of TOR, specifications, and carrying out Living Standards Monitoring Surveys (LSMS), while the GSIF PIU would play a facilitator role with overall responsibility for procurement, disbursement, accounting and financial reporting. (b) Microproject Committees. Microproject Committees (MPCs), elected during open community meetings, would take responsibility for preparation and supervision of investments on behalf of the community. The legal status of MPCs was clarified during preparation of the project to ensure they retain juridical power to enter into contracts, receive public resources, and administer community resources. Every pilot microproject was implemented through a MPC, consisting of 4-7 members. The pilot experience confirmed the MPC have a very strong interest in fulfilling the roles and responsibilities given in the Operational Manual, including: (a) completing proposal form based on the consensus of the community members who participated in the community meeting, completing other documentation and disseminating the contents to the community members; (b) ensuring community contribution is delivered in a timely manner; (c) jointly preparing tender package and evaluating bids with GSIF; (d) selecting competitively, supervising and paying a daily supervisor to supervise the contractor on behalf of the community; (e) informing community members of works progress, problems or changes; and (f) reporting to the GSIF every six months on use of the infrastructure, preventive maintenance undertaken, cost recovery collection and use, and adherence by officials to commitments for operation and maintenance. To support MPCs in fulfilling their responsibilities, technical assistance and training would be made available either directly by the GSIF or through qualified contractors at pivotal points, such as during preparation of proposals, bid evaluation, and operation and maintenance.  Project Appraisal Document Page 11 5. Socdal Assessment The GSIF would have a finite amount of resources while the demand is great. A key social issue in the proposed project is determining how to increase the likelihood that poor and vulnerable groups would have a higher likelihood of receiving benefits than those who are less needy. GSIF has developed a transparent targeting strategy based on a ranking of administrative districts using proxy indicators of poverty and need to arrive at a "needs score". Estimated funds for microprojects have been apportioned across the districts giving greater weight to those with the highest needs score. The needs score indicates the areas selected in Southern Georgia for the pilot phase were the poorest and most vulnerable districts in the country. GSIF would restrict activities during the first year of the project to these districts as well as others with the highest needs scores. To increase the likelihood that the poorest and most vulnerable communities are not disadvantaged in competing for the limited district funds, promotional efforts would target every village to ensure information and access to technical assistance is available. The requisite community contribution could be decreased in exceptional cases when the community is unable to meet this requirement. Communities that have demonstrated initiative in solving common problems in the last two years would have an advantage over less active communities. The annual beneficiary assessment would explore relationships between poverty, community dynamism, other factors and access to GSIF resources. Another important social issue arises from Georgia's diverse ethnic and religious citizenry, resulting in many mixed communities and many comprised of one ethnic or religious group. During the pilot phase, microprojects were implemented in ethnically diverse regions. In communities where Georgian is not the first language, as was the case in some communities where the pilot microprojects were carried out, Russian is used in communication and documentation. The pilot experience showed some communities were not able to transcend internal divisions and arrive at a collective decision. When community members are unable to agree on their priority investment and composition of a microproject committee, the GSIF is unable to respond to their needs until the community reaches consensus. The beneficiary assessment would be used to gain understanding of the reasons why some communities that are targeted by the GSIF promotion activities do not put forward proposals. While the GSIF emphasizes collective decision making over identification of microproject, cultural and political factors mean local government and informal leaders that exert influence over community matters also influence microproject decision-making. Some local officials are perceived as untrustworthy and unrepresentative. Attitudes toward local officials may improve in the near future when local government elections are conducted in 1998. Again, the beneficiary assessment used in other SIFs to explore these and other social factors would be useful to explore decision-making and potential influence by formal and informal leaders in microprojects. 6. Environmental Assessment . Environmental Category []A []B [X] C The proposed project is expected to have a positive environmental impact. The overall project should have a positive impact on the physical and social environment, especially by rehabilitating sanitation and water-supply facilities. The pilot phase showed water is a common priority among communities in Georgia. Replacement of leaking pipes and rehabilitation of water infrastructure would help protect the environment. Likewise, improvements in schools would often times improve energy efficiency. To safeguard the environment, the GSIF would incorporate environmental criteria into microproject appraisal and selection in accordance with the Environmental Impact Assessment methodology in the Operational Manual. Whenever a microproject would have an identifiable negative impact, an appropriate mitigation plan would be submitted to IDA. Microprojects with serious  Project Appraisal Document Page 12 negative impacts would be excluded from funding. The environmental impact methodology and mitigation plans would be monitored during Bank supervision of the GSIF and the mid-term review. 7. Participatory Approach Primary Beneficiaries and Other Affected Groups: The pilot phase enabled GSIF to work extensively in more than 20 communities and for various periods of time in about 50 more. From this interaction, operating procedures and documents were developed and refined, including methods for the community to select, prepare and implement the microproject. Local and regional governments were directly involved in calling open community meetings, contributing funds, and delegating their juridical powers to microproject committees. Other Key Stakeholders: Key ministry officials were consulted throughout project preparation, first through consultative meetings and later through their representation on the GSIF Board, which approved selection of the management of the GSIF, identified pilot areas, and approved the Operational Manual. A bilateral donor and NGO with years of experience also sat on the GSIF Board to provide guidance and a non-governmental perspective. Community Role and Participation during Implementation: The active participation of communities during the pilot phase would be standard procedure for the main phase of the project. These include: open community meetings; election of microproject committees; cost sharing by community members; provision of training and technical assistance to communities to make cost estimates, prepare microprojects and implement them. Microproject Committees would take responsibility for preparing the microproject proposal, collection and delivery of the community contribution, preparation of tender packages, evaluation of bids, selection of a daily supervisor, monitoring quality and quality of construction work before contractor is paid, reporting back to community members on progress of construction, and reporting to the GSIF on implementation of the plan, budget and schedule for operation and maintenance of the rehabilitated facility. Beneficiary assessment would be used as a tool to evaluate the link between these participatory features of the proposed project and project impacts. F. SUSTAINABILrrY AND RIsKS 1. Sustainabiity Sustainability of benefits arising from microproject investments is of paramount importance to meeting the program development objectives. Building on the experience of SIFs in general and especially the experience in ECA, the design reflects several strategic principles and numerous design features to improve likelihood of sustainability. The institutional arrangements, guiding documents (such as the Operational Manual), and monitoring indicators were designed with these principles very much in mind. Delivering high quality construction works to attract resources from communities for investment cost-sharing and cost recovery during operation and maintenance. An important underlying assumption in project design is poor quality work would undermine communities' motivation to ensure benefits are sustained. The connection between quality of work and sustainability would be a subject of the annual beneficiary assessment.  Project Appraisal Document Page 13 Rewarding active communities for their motivation leading to a demonstration affect in less active communities. A proxy indicator for an active community is self-initiated improvements made in the community in the last two years. Responding to communities' demands. Demand would be verified through observation by the GSIF of open community meetings and election of microproject committees as well minutes of meetings. Community contributions of a minimum 16% with 3% coming from direct beneficiaries and users would also be an indicator of collective demand. Fostering informed decision-making. During microproject preparation and appraisal, communities would be expected to calculate recurrent costs for the rehabilitated facility, assess reliability of sources of funding, and develop a plan for securing requisite resources (financial and technical, such as from regional or central governments and user cost recovery), and when appropriate provide a schedule for preventive maintenance (e.g. clearing of road calverts and preventive maintenance of water pumps). These prerequisites reinforce the main development objective of the project, that is investments should be made only when the benefits are likely to be sustained. A by- product is likely to be better informed community members who view the microproject implementation as the first step of a longer process. To aid communities in establishing or strengthening organizational capacity needed for operation and maintenance (e.g. new water users associations), GSIF would gather and disseminate information and encourage communities to seek out organizations with a comparative advantage in this area. In addition, the GSIF can use funds from the second component to enter into contractual agreements with qualified NGOs and individuals to provide TA when it is not available in communities who show demand and potential.5 Proposals from communities that establish partnerships would be prioritized for implementation. Maintaining consistency between investments, government plans and reform programs. The GSIF has good mechanisms for verifying investments are part of government programs, including: (a) ministry norms and standards would be used; and (b) written guarantees would be required prior to procurement from concerned ministry or local government that there is no plan to privatize or close the facility and that key inputs would be provided for operation and maintenance. During the pilot phase, the GSIF demonstrated good capacity to remain consistent with ministerial standards, norms and operating budgets. As indicated below, the more serious risk arises because sector reforms are in early stages and most policy, regulatory (including modifications to standards and norms), and financing relationships are ill-defmed and uncertain. To minimize the risk, the GSIF would monitor developments in policies, regulatory frameworks and financing mechanisms in order to adapt its activities. To do this, the GSIF would rely on direct links with key informants in ministries and on guidance from the GSIF Board. Furthermore, the GSIF would establish links with donor-supported reform programs (i.e. project implementation units) in sectors of GSIF activity, most importantly health, education, cultural heritage, water and local government/municipal reforms. S The GSIF would seek grant funds from donors to increase the amount of money available to support communities in organizing for operation and maintenance.  Project Appraisal Document Page 14 2. Critical Risks (reflecting assumptions in the fourth column of Annex 1): Annex 1, cell "from Outputs to Objective " Quality of microprojects. Poor quality would undermnine Technical Assistance first 3/4 months with community's commitment to operation and maintenance. emphasis on quality. Flexibility to contract out microproject designs and special studies to specialists. Technical Review twice the first year and annually thereafter. Willingness, capacity and experience of communities to M Dynamic communities with proven track record organize for operation and maintenance. have higher likelihood of getting GSIF funds. GSIF acts as referral body for communities to secure support from NGOs, donors, etc- for O&M organizational help. GSEF can finance TA from NGOs, firms, or individuals to support communities with organization and administration of O&M plans. Impact of existing and changing govermment norms, S Use of written guarantees from ministries standards, policies, plans, regulations, and financing (Education, Health) and local authorities prior to mechanisms on quality and cost-effectiveness of microproject approval. investments. Links with key informants in ministries, local governments. Guidance from GSIF Board. Links with PIUs. Access by the poorest and most vulnerable communities to M Apportionment of resources for microprojects was GSIF resources. There is a risk these communities could weighted to favor poorest districts. be neglected due to inability to meet prerequisites for Promotion efforts to be done in every village. microprojects (including homogeneity to arrive at a Technical assistance and training is available to collective decision) and unforeseen factors. communities to prepare proposals and participate in implementation of works. Beneficiary assessment sample would include communities that did not put forward proposals to understand why they did not propose a microproject. In exceptional cases, the GSIF may lessen the 16% community contribution for poor communities. Decentralization process clarifies and increases local N Emphasize in country dialogue and budgetary governments' authority and participation in infrastructure support discussions. rehabilitation and O&M. Public resources for operation and maintenance are M Emphasize in country dialogue and budgetary maintained or increased. support discussions. Autonomy of GSIF. Interference by line ministries in daily N GSIF Board has broad representation. operations of the GSIF would compromise its autonomy, Public awareness campaign emphasizes effectiveness and credibility. transparency and special status of GSIF Annex 1, cell 'from Components to Outputs" M Commitment from MOF was given early on. Delays in delivery of counterpart funds Community contributions could be increased Capacity of GSIF to appraise and implement an average of H Employees are given one-year renewable contracts, 100 microprojects a year. with quarterly performance reviews. Underperformers can be easily replaced. Flexible budget and procedures enable GSIF to sub- contract for design preparation and technical studies to free up GSIF staff for other tasks. Overall Risk Rating M Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk)  Project Appraisal Document Page 15 3. Possible Controversial Aspects No apparent controversial aspects at this time. G. MAIN LOAN CONDITIoNS 1. Effectiveness Conditions * Deposit of counterpart financing equivalent to 3 months project activities. * Approval of Operational Manual by GSIF Board * Management Information System satisfactory to IDA * Microprojects fully appraised and ready for tendering (20 microprojects for total amount of US$800,000 equivalent) 2. Other * Maintenance of PIU. * Carrying out the project in compliance with the Operational Manual. * Carrying out annual financial, managerial and technical audits. * Mid-Term Review. * Project monitoring according to Project Performance Indicators. * Preparation of an Implementation Completion Report (ICR). * Mitigation plan for microprojects with negative environmental impact. H. READINESS FOR IMPLEMENTATION [I The engineering design documients for the first year's activities are complete and ready for the start of project implementation. [XI Not applicable. [ I The procurement documents for the first year's activities are complete and ready for the start of project implementation. [X] The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. [ ] The following items are lacking and are discussed under loan conditions (Section G): I. COMPLIANCE WITH BANK POLICIES [X] This project complies with all applicable Bank policies. Task Team Leader: Robert Maurer Sector Director: Ricardo Halperin Country Director: Judy O'Connor  Project Appraisal Document Page 16 ANNEXES  Project Appraisal Document Page 17 Annex 1 Project Design Summary Georgia: Social Investment Fund Project * C' ~~~~~~. .............*.*.*.*.* . .. ..~~~~~~.. ... ..... .. .. ........~~~~~~, ~ ~ """':...:...... ... . .... . . i n. Sector-related CAS Goal: (Goal to Bank Mission) Poverty Reduction. Protect human State Department of Poverty reduction remains a key capital by improving access of the Statistics (SDS). objective of the Government of population to basic social and economic Georgia. services and foster development of the private sector. Project Development Objective: (Objective to Goal) Improve access to basic social and Proportion of microproject funds devoted to the 10 poorest and least- Incomes of the poor are economic infrastructure on a serviced districts of the country. [11% over life of the project] State Department of maintained or increased to sustainable basis through rehabilitation Statistics (SDS) overcome financial obstacles of existing infrastructure where social Proportion of microprojects generating benefits 2/3/4 years after Poverty Assessment inhibiting access to basic returns are highest and where basic investnment, i.e. the measurable improvements in service delivery, quality, Bank Supervision services. Most importantly, services would otherwise be and coverage as a result of the microproject continue in the following Beneficiary Assessment economic growth continues and inaccessible to the poor, particularly in years [95% of microprojects generate benefits 2 years after the its effects are equitably remote mountainous areas. investnent; 90% of microprojects after 3 years; 85% of microprojects distributed, targeting of social after 4 years] assistance programs is improved and levels of assistance are maintained and increased. Reform processes continue and produce improvements in the level and quality of services delivered.  Project Appraisal Document Page 18 .. r~~~ m n i~~f ~ iIn..................... .. . ~~~~~~~~~~W w -................ .:X4i .m-:i: ~ : ......... Outputs: (Outputs to Objective) a. Increased external and domestic a. Level of co-fmancing attracted. [US$100,000 grant for O&M support MIS Microprojects are appraised, resources for infrastructure over life of the project.] Bank Supervision approved and implemented investments. a. average size of community contribution. [ I 6%/16%/.18%/20%] Beneficiary Assessment according to the Operational a. average size of contribution from users directly. [3%/3%1/5%1/5%] Technical Audit Manual. a. proportion of microprojects with community contribution 20% or higher. [5%I5%/10%/l0%] Non-interference in GSIF a. proportion of microprojects with cofmancing from local/regional operations. government. [500/o50%/60%1/70%] Achieve good quality of work. b. Proportion of microprojects introducing or increasing user charges and b. Increased cost recovery for basic other forms of cost recovery. [10%/15%/20%/25%] Norms and standards result in services. efficiency and high satisfaction. c. Proportion of microprojects with positive or neutral environmental c. Protecting the environment, such as consequences. [95%/97%/99%/100%] Decentralization process through improvements in drinking c. Proportion of microprojects with environmental action plans. continues, clarifying roles and water quality. [5%13%/1%10%1 authority of local governments. d. Proportion of microprojects with 30% labor content or higher. Total public funds for operation d. Greater local economic activity due [70%l73%/76%l80%] and maintenance of small to demand for local labor, materials, d. Labor content as proportion of total microproject costs. [30%] infrastructure are maintained or contractors and suppliers. d. Regional distribution of contracts to contractors. increased. e. Total microproject funds per capita devoted to rural and mountainous e. Redress regional imbalances, areas. [US$5.25] particularly in mountainous areas. f. Living standards monitoring survey is conducted annually. f. Continuous poverty monitoring. g. Proportion of contracts for works and services procured competitively. g. Enhanced competition in the private [95%] sector and fostering its development. g. Proportion of microprojects procured through NS or NCB. 1950/O] g. Proportion of daily supervisors selected from more than 2 candidates. [80%185%o90%o95%] g. Increasing proportion of bids are responsive. [50%/60%1/700/%/80%] h. Improved procurement and works h. Proportion of MPC members attending training. [50%/60%1/65%/65%] supervision skills of local governments h. Local governments use competitive procurement in non-GSIF works who will have to cope with the after involvement with GSIF. increased demands arising from the decentralization process. ___  Project Appraisal Document Page 19 . . ,,, ,, , , . ..... .. , , , , , , n BW ' ' '' '"''' ''''''''-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. . . . . . . . . . . . Project Components/Sub-components: (see Inputs: (budget for each component) Bank Supervision (Components to Outputs) Annex 2 for project description)* Disbursement Records Counterpart funding is available. a. Microprojects a. US$24.7m Audits a. Number of microprojects proposals received per year. [160/200/250/160] MIS Community contributions average a. Number of microprojects appraised (second stage) per year. [100/160/170/180] 16%. a. Number of microprojects completed per year. [80-90/100/110/125] a. Average cost per beneficiary for completed microprojects.[US$30] Timely release of disbursement to a. Proportion of microprojects with satisfactory technical ratings to total completed contractors and suppliers. per year. [90%/92%/94%/96%] a. Number of contracts with IDA and GSIF Board prior review. [not more than Contractors are available locally to 6/7/7/6] undertake works. a. Proportion of MPC with woman chairperson. [20%] Prices remain steady (low inflation). b. Project management b. US$2.1m b. Proportion of GSIF operating costs to total cost of microprojects per year'. Capacity of GSIF to appraise and [9%/8%8%7%] implement average 100 b. Average time between proposal submission and first field visit for appraisal. [14 microprojects/year. days] b. Average time for first and second stage appraisal. [14 days] Good quality TA and training is b. Proportion of payments made within 7 days of receipt of SAW. delivered upon demand to MPC and [950/n/95%/97%/l/97%] contractors. b. Proportion of contracts with change order exceeding 20% of contract price. [not morethan 150/o/150/%/10%/e/10%] b. Proportion of contracts suspended before completion. [less than 70/o/5%/o/30/o/3%] b. Proportion of contracts completed on time. [70%/75%/800%/80%] b. Proportion of contracts completed on budget. [600/%/75%/80%/80%] b. Average difference between contract price and final microproject price. [not more than 150/%/10%/o/10%/10%] c. Support to contractors and communities c. US$0.4m c. Average number of training workshops conducted per region for contractors (exclusive of pre-tender conferences). [5] c. Average number of workshops conducted per region for MPCs. [5] c. Number of contractors attending training who bid on at least I GSIF contract. [80%] c. Proportion of consultants contracted by GSIF who are women. [20%] d. Living standards monitoring d. US$0.4m Note: *PPF total cost of US$0.7 million is not included in this Annex. I Does not include vehicles, computers, and other start-up investment costs.  Project Appraisal Document Page 20 Annex 2 Georgia: Social Investment Fund Project Project Description Component I: Rehabilitation of Small-Scale Infrastructure (US$ 24.7 million of which credit US$17.3 million) Implementation of approximately 400 microprojects, costing not more than US$150,000, identified and implemented by communities with a minimum of 16% community contribution, using local contractors, suppliers and laborers whenever possible. Such works may include improvements in water supply, sanitation, solid waste management, and rehabilitation of local clinics, primary schools and feeder roads. Emphasis would be placed on financing microprojects that promote community participation in microproject identification and implementation, incorporate cost sharing by communities and regional or local government, and that integrate plans for operation and maintenance. Detailed procedures are described in the Operational Manual to promote, appraise, prioritize, approve, implement, supervise, and evaluate microprojects. Microprojects would follow a cycle, which would include the following stages. Targeting GSIF funds are limited while the country's infrastructure rehabilitation needs are great. In order to prioritize the use of the limited funds, a geographic targeting strategy would be applied based on a study conducted during the pilot phase to rank districts according to proxy indicators of poverty and infrastructure need. For the first year, regions with the highest "needs score" would be eligible for investments to avoid over-extension of GSIF capacity and resources. Additional districts would be eligible the following years as GSIF's capacity and experience grows. The sum equivalent to 15 percent of the total available for microprojects would be set aside for microprojects in Abkhazia and Tskinvali region in the event that it becomes possible for the GSIF to operate there. Identification and Preparation a Communities that qualify under the targeting methodology would be encouraged to convene an open community meeting to decide on their priority investment and elect a microproject committee. The microproject committee would be responsible for completing the standard proposal form, ensuring the community contribution is delivered, selecting a daily supervisor (on-site), procuring a contractor jointly with the GSIF to undertake the work, informing the community of progress, and approving overall satisfaction of the work. Technical assistance would be provided by the GSIF (directly or through contractual arrangements) to the community and to the microproject committee. Technical assistance to the community would include preliminary technical feasibility studies and cost estimates to ensure the community can make an informed choice with regard to (a) the selection of the infrastructure and (b) level of investment to be made in the infrastructure to produce cost effective benefits. Technical assistance to the microproject committee would support fulfillment of tasks related to procurement of a daily supervisor and contractor, payment procedures, and supervision.  Project Appraisal Document Page 21 Appraisal and Prioritization All proposals received by GSIF would be screened during the first stage of appraisal according to preliminary criteria, including: from a targeted community; microproject cost does not exceed US$150,000; microproject is among the typology of microprojects; proposal package is complete (with technical designs or sketches, copies of licenses and permits for proposed work, explanation of how the community participated in identification, willingness to contribute to costs, and a plan and budget for operation and preventive maintenance). The GSIF would conduct a second stage appraisal of all microprojects that meet the preliminary criteria by ranking them according to social, institutional, technical, and financial criteria given in the Operational Manual, The appraisal would include a field visit by a GSIF engineer and community participation specialist. Microprojects that score the highest would be implemented first; a minimum score would be required for approval. Community Contribution A minimum of 16% of the microproject cost would be required from the community. Contributions may be in cash or in-kind. Whenever possible, contributions would be made in cash. Although community contribution could be provided by a sponsor, a minimum of 3 % of the microproject costs would be required from the community members (users) directly. Contributions in-kind would be verified and valued by GSIF staff. The amount, type and timing of delivery of the community contribution would be stipulated in a standard framework agreement signed between the requesting community's Microproject Committee and GSIF. Examples of community contribution include technical designs for preparation of the microproject; construction materials and equipment needed for microproject implementation which can be easily monetized; labor; and equipment and supplies needed for operation that can be easily monetized (e.g. desks, textbooks). Sustainabiity A completed microproject proposal would include a simplified plan, budget and schedule for operation and preventive maintenance for the proposed microproject prepared by the community. During appraisal, the GSIF engineer would review the budget and plan with the community. Water and sanitation projects would require cost recovery and other forms of community contribution for operation and maintenance, and such cost sharing would be encouraged in all microprojects. Another condition for approval is a Memorandum of Understanding signed between the GSIF and the relevant ministry or local authorities, attesting to the commitment by the ministry/authorities to maintain and operate the facility. Approval The GSIF would consider for approval all microprojects costing $75,000 or less. All microprojects approved by the GSIF and valued above $75,000 would be forwarded to the GSIF Board for approval and the World Bank for no-objection prior to implementation. Procurement and Implementation A framework agreement between the microproject committee and the GSIF would be signed following approval of the microproject, describing the duties and liabilities of all parties, technical specifications, budget, procurement method and contracting procedures. GSIF would oversee  Project Appraisal Document Page 22 procurement of a contractor and a daily supervisor by the microproject committee, in accordance with the Operational Manual. Payment to the contractor would be in parallel with progress achieved and only after the microproject committee and GSIF engineer verifies the work is satisfactory. Completion and Handover Upon completion of the civil works, a completion and hand-over meeting would be held for each microproject to determine whether the work is completed according to the terms of the original works contract. After the retention period, the microproject committee members, contractor and local supervisor would receive a certificate attesting to his/her good quality of work. Component II: Institutional Supportfor GSIF (US$2.1 million of which IDA credit US$1.6 million) This component would support GSIF through provision of equipment, vehicles, salaries, operating costs, training, technical assistance, and financing for monitoring and evaluation of the implementing activities. Training and technical assistance would be carefully designed to ensure proper implementation of the project and to support GSIF's quality control of microprojects, financial planning and management capabilities. Support would be provided to the GSIF finance and administration units through supervision missions. Staff development through technical assistance, study tours and institutional courses would be provided to GSIF staff to continuously upgrade their technical and managerial skills. Institutional support to GSIF in the form of international and local technical assistance would also be provided under this component to maintain the Management Information System (MIS) designed during the pilot phase. This computerized system would track progression of microprojects through the microproject cycle, provide transparency and accountability of financial flows, monitor civil works progress based on field supervision reports, and flag microprojects experiencing unusual delays and cost overruns. MIS-generated output would be integrated into the daily decision making activities and operations of GSIF and be an integral part of the reports submitted by GSIF management to the GSIF Board and of quarterly reports and comprehensive annual reports submitted to donors. While the MIS would generate information on physical and financial progress of works, other monitoring and evaluation devices would be utilized to evaluate the impact of GSIF financed microprojects on benefiting communities. A beneficiary assessment would be undertaken each year to ascertain the impact of GSIF financed microprojects on communities. The beneficiary assessment and other aspects of monitoring and evaluation are explained in greater detail in the Operational Manual. Component III: Support to Small Contractors and Communities (US$ 0.4 million of which IDA credit US$0.3 million) The experience of other social investment funds shows training and technical assistance can improve project outcomes when it is well targeted and delivered, though it also increases operating costs. Experience also shows it is very difficult to distinguish "orientation, "training" and "capacity building" for contractors and communities from other SIF functions, especially promotion, procurement and follow-up activities. The purpose of this component would be to provide the GSIF with resources in addition to its operating budget to provide technical, managerial and organizational support to small contractors and communities to enhance their capacity to perform their functions related to the microproject. The GSIF does not seek to build capacity of private contractors in areas unrelated to microproject implementation (e.g. marketing, accounting), nor to  Project Appraisal Document Page 23 other micro-enterprises (such as carpenters, electricians, traders and transport enterprises) peripherally involved in GSIF activities.2 Because GSIF would rely on small private construction contractors to execute work contracts, the capacity of contractors to prepare bids using World Bank procurement guidelines and undertake works successfully has important consequences on achievement of project objectives. The pilot phase demonstrated contractors are available and interested in supplying works, even in remote areas, and there is a range of experience and capacity among contractors. The pilot also shows the importance of openness and transparency of the bidding process to level the playing field among contractors. Procedures that ensure wide advertisement of tenders, clarity of bidding packages, justification of winners and explanation to all bidders of disqualified bids inform newly created and experienced contractors of opportunities and requirements and help them learn from mistakes. GSIF's adherence to these procedures, which are described in the Operational Manual, is the first step toward improving capacity of contractors. Another opportunity for contractors to learn would be pre-tender conferences conducted by the GSIF and the MPC. A pre-tender conference would be required for every contract executed under NCB guidelines. Costs associated with delivering pre-tender conferences are included in this component. During the pilot phase, GSIF staff also provided training one-on-one to contractors. As the GSIF portfolio grows, it would become increasingly difficult for this service delivery mechanism to continue. Consequently, when demand is sufficient in geographic areas, training would be provided to groups of contractors through workshops, most likely prior to announcement of tenders. The pilot experience shows training should focus on: (a) estimating costs and schedule of works; (b) integrating the conmmunity contribution, especially in-kind contributions, into the bid and work schedule; and (c) following contractual arrangements and technical specifications.3 Costs for training workshops are also included in this component. The component would also enable the GSIF to provide training and technical assistance to communities in general and microproject comnmrittees in particular. The pilot experience shows there is a range of capacity among communities to prepare sound proposals. Difficulties are most apparent in estimating (a) costs for alternative microprojects/facilities in a given community; (b) level of investment needed (extent of rehabilitation) to improve a given microproject/facility cost-effectively; and (c) operation and maintenance (recurrent) costs for alternative microprojects, after the initial investment. Reliable estimates are important so that communities can make informed decisions. In order to respond to this need, the GSIF would provide information during promotion to communities on prices from similar microprojects implemented elsewhere. Standard estimates for taxes and overhead would also be given. Since most of the microprojects would be rehabilitation, recurrent costs would be available from local authorities in most cases. With experience, GSIF's capacity would increase to advise communities on the type of works to be done to produce improvements that are cost effective and that reduce operating and expensive repair costs in the future. (Winterization of schools, for example, can reduce energy costs.) 2 While there may be a need for support to these actors, the GSIF does not have the institutional capacity to deliver this support. Increased demand for services and products as a result of the GSIF may strengthen these small businesses, but it is more appropriate to view this outcome a byproduct of the GSIF and not an explicit objective. The GSIF wrl not seek to build the capacity of small businesses other than small private contractors, because the GSIF does not have the mandate or capacity to take on these objectives. 3 The GSIF will hold a workshop in the Mtshketa-Mtiante region prior to project effectiveness to get an indication of response and effectiveness of group training.  Project Appraisal Document - Page 24 From the pilot microprojects, it is known that MPCs would require training, technical assistance and supervision at critical junctures to help them fulfill their functions. In particular, to: (a) competitively select a daily supervisor, especially evaluate qualified candidates; (b) prepare tender packages with assistance of the GSIF and prepare contracts with daily supervisor and works contractor; (c) analyze bids; (d) supervise daily supervisor; (e) check and approve Statements of Accomplished Works (SAWs); and (f) develop and implement sustainability plans. MPCs also need clarity of their rights to monitor the contractor's work and bring problems to the attention to the GSIF. To deliver training at these critical junctures, the GSIF would provide training and orientation through (i) workshops with participation from experienced MPCs; and (ii) one-on-one assistance by GSIF staff during site visits. This component would cover the costs of delivering workshops, which should become the norm for delivery of training to MPC. One-on-one assistance, which would likely decrease over time as the GSIF portfolio grows, would be covered under operating costs of the GSIF. This component would also include costs for the GSIF to finance contracts with qualified individuals, firms or NGOs to provide organizational, managerial, and other technical assistance to MPCs to establish or strengthen users associations. Technical assistance would be provided based on demand and availability of qualified providers with demonstrated capacity to deliver services in Georgia. In the event that recurring gaps emerge in the capabilities of daily supervisors, the GSIF would have resources under this component to respond through training and technical assistance. This component would also fund regional launch workshops to disseminate information to government officials, contractors and communities about the GSIF and its procedures. Component IV: Supportfor Monitoring of Living Conditions (US$0.4 million of which IDA credit US$0.3 million) This component would finance shortfalls in the State Department of Statistics' (SDS) budget for conducting the living standards monitoring survey (LSMS) in 1998 and 1999. The survey covers 3500 households throughout Georgia. The component would cover technical assistance including study tours, training, transportation, remunerators' salaries and equipment. In the event the SDS would secure additional resources from the State budget or donors, funds designated for this component would be extended to LSMS in year 2000 and/or 2001, or be reallocated. The GSIF would retain overall responsibility for procurement, disbursements, financial reporting, and auditing of activities under this component. Preparation of TOR and specifications, selection of interviewers, and supervision of the surveys would be done by the SDS. The benefits of this component would be improved capability to analyze poverty levels and trends and greater understanding of the diverse characteristics of poverty, with desegregation by gender, age, income and other criteria. The Living Standards Monitoring Survey findings, supplemented by data from the MIS, would be used by the GSIF in refining its district-by-district targeting map, which is based on "needs" as of summer 1997. The LSMS poverty data would be especially useful to the GSIF during project years 3 and 4 to ensure that new or remaining pockets of vulnerability are identified.  Project Appraisal Document Page 25 Annex 3 Georgia: Social Investment Fund Project Estimated Project Costs Project Preparation Facility 0.7 0.7 Monitoring of Living Standards 0.2 0.1 0.3 Support to Contractors and Communities 0.3 0.3 Institutional Support to GSIF 1.7 1.7 GSIF Microprojects 24.7 24.7 Total 27.7 0.1 27.8 Total Baseline Cost Physical Contingencies 0.2 X 0.2 Price Contingencies 0.3 0.3 Total Project Cost 28.2 0.1 28.3 Note: Total project costs are based on April 1997 prices, revised in October 1997. Due to the evolving nature of the Georgian economy, all estimated costs are based on the US dollar. Physical contingencies were estimated at about 7% of total baseline cost. Price contingencies used the following estimated inflation rates to adjust costs during project implementation: 7% for 1998, 6 % for 1999, 6% for 2000, and 6% for 2001. No contingencies have been applied to the microproject component. Any increase in the average microproject cost, estimated at US$60,000, would be reflected in a reduced number of microprojects financed. Project expenditures other than foreign technical assistance will be subject to taxes according to the existing tax legislation.  Project Appraisal Document Page 26 Annex 4 Georgia: Social Investment Fund Project Cost-Effectiveness Analysis Summary - Benefits and Risks A. Benefits The project, IDA's third intervention in the infrastructure sector in Georgia, would contribute to the two core objectives of the CAS of poverty reduction by building up the skills of the labor force and fostering development of private sector. The Project would contribute to Georgia's program of economic and social reconstruction by providing rehabilitated infrastructure and services in a number of vital basic sectors. The GSIF project design integrates the Bank-wide lessons from previous experience in the infrastructure sector and social investment funds. Quantifying the fiscal impact of the project and expected benefits to the economy is problematic due to lack of appropriate data and complexity of concepts. The Bank's Georgia Poverty Assessment, to be completed in 1998, as well as the monitoring of living conditions financed under the project, would provide additional and updated information that may facilitate a future evaluation of the project's impact. More specifically, the main benefits of the project would include: (a) from the government and service Provider's point of view, the proposed microprojects would protect vital capital assets needed to develop human capital and to enable economic growth to continue; (b) from the beneficiary's point of view, GSIF would enable community members to take decisions about the type and level of investment to be made in their community, and to hold their elected representatives (Microproject Committee) accountable for the use of the GSIF grant and contributions from the community; (c) from the regulatory point of view, the project would strengthen the country's ability to collect and analyze poverty data which underlies targeting of cash benefits and other governmental programs to support the poor. Component I: Rehabilitation of Small-Scale Infrastructure Fiscal impact: Based on the pilot phase data, it is estimated that during the life of the project, about 400 microprojects benefiting roughly I million people, (approximately 20% of the population of Georgia) would be implemented4. The component would generate jobs through financing of labor-intensive microprojects and creating demand from local suppliers, transporters, etc. As a result, the component would have significant economic activity generating impact, especially in remote mountainous regions where the current levels of economic activity are low. Cost recovery: The component would help to increase cost recovery for basic social services provided through social and economic infrastructure rehabilitated under the project. Poverty impact: The microprojects would deliver immediate benefits to families with laborers employed by private contractors. The microprojects would also bring improvements in regularity, quality or coverage of basic services, such as availability or quality of water supply and improved conditions for children enrolled in schools. This estimate is based on an average size of community in Georgia with approximately 2000 beneficiaries and a estimated number of about 400 microprojects to be implemented under the project.  Project Appraisal Document Page 27 Non-project scenario: In the absence of the project further deterioration in provision and accessibility of basic social and economic infrastructure would be anticipated. In particular, basic services would be inaccessible to the poor, in particular in remote mountainous areas. Alternatives considered: During project design the Government of Georgia with the assistance of the Bank considered and assessed a range of options, including: (a) increasing national contribution to the total project costs; (b) including a microcredit scheme into the project design; and (c) no intervention at all. An increase in the national contribution (i.e., Government's and community's contribution) under (a) in the total project costs was evaluated as not feasible due to the present difficulties in mobilizing counterpart project financing in Georgia and the vulnerable population targeted under the project. The proposed microcredit scheme under (b) would divert too much energy and effort from the primary objective of the GSIF. The project-team also considered the no-intervention scenario, particularly given already ongoing humanitarian activities in Georgia. However, the rapidly diminishing level of foreign emergency assistance clearly suggests the need for rapid intervention. Environmental Analysis: The criteria for microproject selection would include environmental concerns. In particular, microprojects with serious negative environmental impact would be excluded from funding, and an appropriate mitigation plan would a requirement for microprojects with an identifiable negative environmental impact. The environmental assessment methodology and a sample microproject environmental assessment questionnaire are outlined in the GSIF Operational Manual. Performance Indicators: A monitoring plan was agreed during project appraisal, reviewed during post- appraisal, and includes key development impact indicators (see Annex 1). The GSIF Operational Manual includes a more detailed plan for monitoring and evaluation. Component II: Institutional Supportfor GSIF Institutional Capacity: During the first year of the pilot phase, the GSIF developed its capacity as the project executing agency. At the project appraisal in May 1997, the GSIF was considered fully functional with adequate staffing arrangements. However, there is a need to further strengthen the institutional capacity of the GSIF to enable the project executing agency to support a large number of communities in implementing microprojects in various sectors. Non-project Scenario: At present, institutional weaknesses of local governments, loose legal framework for operations, and the lack of trust between some local governments and their constituents undermine their capacity to undertake social investment fund-type microprojects on their own. Alternatives considered: During project design an option including designating a line ministry or a public agency to administer and implement the social investment fund (SIF) was considered. While such an institutional arrangement would be more simple than under the proposed project design, the demand- driven nature of the GSIF requires that it is set up as an autonomous social development agency that manages funds allocated for addressing community needs in a more participatory manner by involving communities in the identification and management of works, which should provide for increased sustainability. If successful, the mechanisms to support the participatory approach used by the GSIF could be transferred to local governments. Such a transfer could be facilitated by the GSIF Operational Manual, Financial and Administrative Procedures, and Implementation Guidelines prepared by the GSIF to operationalize and streamline its innovative approach to microproject identification, appraisal and implementation with community participation. Performance Indicators: see Annex 1.  Project Appraisal Document Page 28 Component m: Support to Small Contractors and Communities Fiscal Impact: About 400 contracts will be issued that would benefit small private contractors providing a boost to the small contracting industry. The impact of the project on governmental finances would include incremental taxes (V.A.T. of 20%, and local taxes) and social security payments (approximately 31% of wages) by private contractors delivering works, goods and services for about 400 microprojects to be implemented during the project life at the estimated total cost of about US$24.7 million equivalent. Povrty Impact: Based on the pilot projects and on other similar activities conducted by NGOs and other groups in Georgia, it is estimated that families of employed laborers would also benefit from the estimated 494,000 employees labor days generated by the project. This calculation is made under assumption of 30% microproject average labor content, average wage US$ 15/day inclusive of taxes and social insurance. Impact on Contractors' Skills: All contractors would have access to training in procurement to help them participate in competitive bidding and undertake works in accordance with work contracts. It is expected that economic growth would be sufficiently robust by the end of the project as a result of economic restructuring, to provide new work opportunities for the small contractors who benefited from the contracts and the training provided through the GSIF Project. Impact on Community Participation and Project Sustainability: Community participation in microprojects is anticipated to increase local initiatives in the area of social support, and provide incentives to beneficiaries to get involved in the maintenance of the rehabilitated infrastructure. T.A. financed under this component would support communities demonstrating interest in strengthening organizational, managerial and technical skills. Non-project Scenario: In absence of a project the following would be anticipated: (i) private contractors, less skilled in competitive procurement and small project management, leading to more expensive interventions in infrastructure; and (ii) less local initiatives at the community level, would be anticipated. Performance Indicators: see Annex 1. Component IV: Supportfor Monitoring of Living Conditions Institutional capaci: The State Department of Statistics (SDS), as the executing agency for the component, has adequate human resource capital to carry out the Living Standards Monitoring Survey (LSMS) under the project. Moreover, the component builds on institutional strengthening efforts started and financed under the Structural Adjustment Credit (SAC I). The component would benefit the institutional capacity of the SDS by providing computer equipment, TA and training, when necessary, for sampling, questionnaire design and data analysis. Policy Analysis Impact: The LSMS would provide the Government of Georgia with data for improved policy analysis that would also permit better anticipation of the likely impact of transition policy on the poor, so that efficient and effective compensation can be designed. Non-project Scenario: In absence of a project, the following would be anticipated: (i) poor oversight of poverty and living standards; (ii) irregular and unreliable policy monitoring and evaluation; (iii) less skilled managerial and line staff. Performance Indicators: see Annex 1.  Project Appraisal Document Page 29 B. Risks Major risks facing the project arise from quality of microprojects in the field which underlies communities' willingness to contribute to investment and recurrent costs of facilities; willingness, capacity and experience of communities to organize for operation and maintenance and increase the likelihood of sustaining microproject investments; impact of existing and changing government norms, standards, policies, plans, regulations, and financing mechanisms on quality and cost-effectiveness of investments; possible delays in counterpart funds; and the capacity of the GSIF to maintain good productivity to implement an average 100 microprojects a year. To reduce the frst risk, the GSIF would have access to technical assistance during the first quarter of the proposed project with emphasis on quality control, a technical review would be conducted twice during the first year and annually thereafter to monitor quality and flag problems, and technical designs and studies would be sub-contracted to qualified and licensed professionals to ensure microprojects are prepared with high technical quality. To increase communities' willingness and capacity to contribute to operation and maintenance of rehabilitated facilities, such as to establish or strengthen a water users' association, the GSIF would encourage community participation as outlined in the Operational Manual and link communities with NGOs or other donor programs to obtain organizational assistance. Use of written guarantees from ministries (such as Ministry of Education and Ministry of Health) and local authorities responsible for water supply systems, would be required prior to microproject approval to increase the likelihood that investments are consistent with government norms, plans, reforms etc. GSIF would also establish direct links with key ministries and with project implementation units involved with sector reforms, as well seek guidance from the GSIF Board, to be informed of changes that could affect GSIF activities. Dialogue with the Ministry of Finance has informed them of the GSIF and the importance of meeting the schedule for delivery of counterpart funds. Without counterpart funds, additional community contributions would be required for the GSIF to continue financing of microprojects. Performance targets and reviews with an appropriate incentives structure would increase the likelihood that the professional staff hired under the GSIF would achieve high productivity to achieve the targeted number of microprojects per year.  Project Appraisal Document Page 30 Annex 5 Georgia: Social Investment Fund Project Financial Summary Years ending December 31 (in US$ million - base year 1998) . .. ........ _ Project Costs Investment Costs 5.5 6.2 J 7.0 7.5 Recurrent Costs 0.6 0.5J 0.5 0.5 Total 6.1 6.7 7.5 8.0 Financing Sources (% of total project costs) IDA 15% 17% 18% 20% Government 5% 5% 6% 6% Community Contribution / 2% 2% 2% 2% Beneficiaries Total 22% 24% 26% 28% Main assumptions: - The project becomes effective in January 1998. - GSIF would be able to carry out about 80 microprojects the first year.  Project Appraisal Document Page 31 Annex 6 Georgia: Social Investment Fund Project Procurement and Disbursement Arrangements Procurement (Procurement methods- TableAl andA2) Procurement activities under the project would fall under one of the following areas; (i) works, (ii) goods; (iii) consultants' services; and (iv) operating costs. Detailed procurement arrangements are described in the Procurement Implementation Plan given in the Operational Manual. Procurement arrangements have been designed to: (i) increase microproject sustainability through involvement of communities and local governments in implementation and maintenance of microprojects; (ii) increase capacity of contractors at the local level; (iii) respond to the need for flexible use of procurement methods, given the differences and disparities in the institutional capacity of communities, availability of services, markets and local contractors, and familiarity of local contractors with competitive bidding in different regions; and (iv) be in compliance with the "Guidelines for Procurement under IBRD Loans and IDA Credit" (January 1995, revised January and August 1996). Consulting services to be financed from the credit proceeds would be procured in accordance with the "Guidelines- Selection and Employment of Consultants by World Bank Borrowers", January 1997 ("Consultants Guidelines"). In order to achieve the project objectives, competitive bidding procedures have been developed. These procedures are described in detail in the Operational Manual which would be subject to IDA's prior review and approval. During project mid-term review, the need to continue with such procedures would be reevaluated. Experience and Tasks of Implementing Agencies GSIF, an autonomous entity, would be the project implementing agency. GSIF would oversee all procurement activities under the project, and be responsible for coordinating all microproject activities in Georgia. GSIF's experience in public procurement was gained in managing a pilot project advance from USAID of US$700,000, a project preparation grant from the Government of Japan of US$420,000, and a Project Preparation Facility of US$500,000. GSIF would be responsible for ensuring that all the Microproject Committees (MPC) undertake procurement according to rules stated in the Operational Manual. For each microproject, the GSIF would enter into a framework agreement with a Microproject Committee (MPC). The MPC would be permitted to procure goods, works and services according to terms and conditions stated in the framework agreement and consistent with the Operational Manual. The GSIF would pay contractors or suppliers directly when requested by the MPC and after ensuring that requested payment is adequately documented and justified. Procurement of vehicles, equipment and technical assistance for GSIF and the SDS would be conducted by the Procurement Unit of the GSIF. At the microproject level, the GSIF Procurement Unit would be responsible for ensuring that procurement arrangements for microprojects are in compliance with procurement procedures as stated in the Operational Manual and in the framework agreement, and for assisting MPCs in meeting procurement requirements as and when required. Procurement training would be provided for GSIF staff, MPCs and contractors involved in procurement by consultants who are proficient in IDA procurement guidelines and procedures. The general procurement notice for technical assistance would be provided to the IDA prior to the Board presentation.  Project Appraisal Document Page 32 The GSIlF PIU would also develop and maintain a database of potential contractors based on their institutional capacity, experience, and ability to work in specific regions using labor intensive methods. A database of qualified consultants and consulting firms to provide technical studies or special appraisals of microprojects would also be compiled. In addition, as part of the MIS, the GSIF would maintain a database of unit costs for works, materials and services commonly required for project implementation as part of the cost control system. This database would be updated as necessary and be used to review the microproject budget during appraisal. In competitive procurement, the database would be used as a means of tracking the efficiency of procurement. Specific Procurement Arrangements Civil Works. A large amount of civil works (very small contracts) up to an aggregate amount of US$24.7 million (of which IDA Credit US$17.3 million equivalent) and spread over 4 years would be procured under the proposed project. The size of the civil works would range between US$5,000 to US$150,000, with an average cost of US$60,000 and would not attract foreign competition. Therefore, National Competitive Bidding (NCB) procedures would be used for contracts greater than US$30,000. For contracts costing US$30,000 or less, three written quotations procedure would be the norm. Under the three quotation procedure, the contract would be awarded to the bidder with the lowest price, capacity, and means to execute works. In cases where three quotations cannot be obtained and the microproject does not exceed US$10,000 estimated price, implementation by the Microproject Committee, including contracting labor and purchasing materials, if necessary, would be permitted. Detailed procedures of procurement methods are described in the Operational Manual. Goods. Procurement of goods (total amount of US$0.3 million of which IDA Credit US$0.2 million equivalent) for the GSIF and the State Department of Statistics would include computer and other office equipment, vehicles, office furniture, supplies, etc. and would be procured by the GSIF through International Shopping (IS) and National Shopping (NS). The estimated value of these packages is not likely to exceed US$150,000 each during the four years of project implementation. Procurement would be in accordance with IDA Guidelines for Procurement (January 1995 and as revised in January and August 1996), using standardized bidding documents and contract forms acceptable to IDA as outlined in the Operational Manual. Goods would be procured through National Shopping for contracts of less than US$30,000 and International Shopping for goods costing US$150,000 and less. National Shopping would be based on at least three quotations; International Shopping on three quotations from at least two countries. Consultants' Services. Consultants' Services under the project would include public awareness campaign; financial, managerial and technical audits; beneficiary assessment studies; monitoring and evaluation studies, technical assistance and training to contractors, communities, GSIF PIU staff and the employees of the State Department of Statistics, and study tours. In particular: (i) Quality Cost Based Selection (QCBS) procedures would be used for contracting firms for public awareness campaign, and audits. The total value of the contracts is estimated to be amount of US$0.3 million, of which IDA credit is US$0.2 million equivalent. (ii) Selection under a Fixed Budget (FBS) procedures would be used for contracting firms for other studies (beneficiary assessments, other impact studies, and study tours) , following prior consultation with the Bank. The total value of the contracts is estimated at US$0.12 million, of which IDA credit is US$0.1 million equivalent.  Project Appraisal Document Page 33 (iii) Individual Consultants would be used for technical assistance (TA) assignments and training; because such assignments are likely to be several, of diversified nature, and short in duration. The total value of TA and training contracts is estimated at US$0.3 million, of which IDA Credit is approximately US$0.2 million equivalent. Contracts for individual consultants will be procured according to Bank guidelines and prior consultation with the Bank. The average value of such contracts would be less than US$10,000. GSIF Incremental Operating Costs. The GSIF Incremental Operating Costs include salaries, microproject related travel and subsistence, vehicles insurance, office maintenance, utilities, fuel for office heating, communication services fees (phone, fax, electronic mail, radio communication system with remote areas), office supplies, postage, bank charges, etc. Equipment, vehicles, supplies will be purchased under NS procedures. Reimbursement will be made on a basis of annual budgets pre- approved by the Bank. Prior review thresholds (Table B) Works: First two NCB contracts and all contracts for microprojects procured under NCB procedures in amount greater than US$75,000. The first two contracts for microprojects procured under three written quotation procedures in amount less than US$30,000. Goods: All contracts for good procured costing more than US$30,000. Consultants' services: All contracts for consulting firms in amount greater than US$50,000. All contracts for individual consultants above US$10,000. Disbursement Allocation of loan proceeds (Table C) Microprojects (works, goods and services); Goods (GSIF operations and support to communities and contractors), TA and Training; GSIF Operational Costs Use of statements of expenditure (SOEs): Individual consultants < US$10,000, Consulting Firms < US$50,000 Goods <US$30,000, Works < US$75,000 Special Account: GSIF: Initial (US$0.75 equivalent), Maximum Authorized (US$1.5 million equivalent) when the aggregate amount of withdrawals from Credit Account plus the total amount of all outstanding special commitments are equal or exceed SDR 2 million.  Project Appraisal Document Page 34 Annex 6 Table A.1: Project Costs by Procurement Arrangements (in US$ million equivalent) 1. Works Civil Works for Microprojects 24.7 24.7 (17.3) (17.3) 2. Goods Vehicles and Equipment 0.3 0.3 (0.3) (0.3) 3. Services TA and Training, Study Tours 0.7 X _ X 0.7 (0.5) (0.5) GSIF Operating Costs 1.9 1.9 (1.4) (0.4) Reimburse PPF 0.7 0.7 (0.5) (0.5) Total _ - 28.3 28.3 IDA (20.0)* (20.0)* Note: "*Other" under Civil Works for Microprojects refers to NCB and three written quotations and Implementation through the Microproject Committees (MPCs). A further breakdown is not possible due to the demand-driven nature of the GSIF. "* Other" under Vehicles and Equipment refers to International and National Shopping. "* Other" under TA and Training refers to Consulting Services, Study Tours and Training. N.B.F. = Not Bank-financed Figures in parenthesis are the amounts to be financed by the IDA credit. * Numbers may not add up due to rounding.  Project Appraisal Document Page 35 Annex 6 Table A.2: Consultant Selection Arrangements (optional) (in US$ million equivalent) QCBS QBS SFB LCS CQ Other N.B.F A. Firms 0.3 0.1 0.4 (0.2) (0.1) (0.3) B. Individuals 0.3 0.3 ______________ _______ _____ _______ _____ _(0.2) (0.2) 0.3 0.1 0.3 0.7 | Total (0.2) (0.1) (0.2) (0.5) Note: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines), Commercial Practices, etc. N.B.F. = Not Bank-financed. Figures in parenthesis are the amounts to be financed by the Bank loan.  Project Appraisal Document Page 36 Annex 6 Table B: Thresholds for Procurement Methods and Prior Review I ~~~~~~~~~~~~~~~~~~~~~~~~~- US $ thousands US $ millions 1. Works >$30,000 NCB First two contracts & all contracts > US$75,000 <$30,000 Three Quotations 2 first contracts <$10,000 Implementation by Microproject Committee (MPC) 2. Goods >$30,000 All contracts 3. Services (i) Consulting Firms >$50,000 QCBS, FSB TOR, LOI, Evaluation Reviews, Contracts (ii) Individuals >$10,000 Selection of TOR, Evaluation E:_________________ =__________________ Individuals Reviews, Contracts  Project Appraisal Document Page 37 Annex 6 Table C: Allocation of Credit Proceeds Microprojects: goods, works and services 16.3 80% Goods 0.3 100% foreign expenditure, (GSIF Operations, Support for Monitoring of 100% local expenditure (ex Living Standards, Support To Communities factory) and Contractors) 80% local expenditure TA and Traininig 0.5 100% of total expenditures Incremental Operating Costs 1.4 80% of total expenditures (GSIF Operations, Support for Monitoring of Living Standards, Support To Communities and Contractors) Refinance PPF 0.5 100% Unallocated 1.0_ |TOTAL 20.0* * Numbers may not add up due to rounding.  Project Appraisal Document Page 38 Annex 7 Georgia: Social Investment Fund Project Project Processing Budget and Schedule Lending US$169,500 US$121,700 (as of 10/30/97) Supervision FY1998 US$45,400 Time taken to prepare the project (months) First Bank mission 06/10/1996 06/10/1996 (identification) Appraisal mission departure 04/29/1997 04/29/1997 Negotiations 09/15/1997 11/4/1997 Planned Date of 01/01/1998 01/15/1998 Effectiveness Prepared by: Georgia Social Investment Fund (GSIF) Preparation assistance: PPF - US$0.5 million PHRD grant - US$0.4 million I USAID grant - US$0.7 million Bank staff who worked on the project included: . . ~ .... ........ Robert Maurer Senior Urban Specialist, Georgia Infrastructure Program Team Leader Mary Beth Schmidt Social Funds Specialist Anna D. Staszewicz Financial Analyst Anush Bezhanyan Civil Engineer/Social Fund Technical Specialist Luigi Giovine Institutional Specialist Jagdish Jassal Procurement Specialist Caroline Makram Milad Team Assistant Irakli Managadze Operations Assistant Betsy McGean Social Scientist Eric Peterson Architect/Technical Specialist Sergei Popov Water Engineer/Technical Specialist Manzoor Rehman Civil Engineer/Technical Specialist Shobha Subramanian Team Assistant  Project Appraisal Document Page 39 Annex 8 Georgia: Social Investment Fund Project Documents in the Project FiIe* A. Project Implementation Plan (PIP) * PIP - October 1997 B. Bank Staff Assessments * Field Visit Report - Anush Bezhanyan Post Appraisal Mission - October 1997 * Appraisal Report - Mary Beth Schmidt - May 1997 C. Other * GSIF Concept Paper - USAID/Save the Children/FDD - October 1996 * Operational Manual - October 1997 - GSIF Financial and Administrative Procedures Manual - October 1997 - GSIF Engineers Field Handbook - October 1997 - Analysis of the State of Development of Main Social Infrastructure Branches in the Regions of Georgia - K. Arabuli, D. Mouravidze, G. Medzemariashvili, K. Shevardnadze and others, August 1997 - TA Final Report - Nubar Goudsouzian, GSIF Resident Advisor - October 1997 - Microproject Quality Control Report - Tom McAloon, GSIF Technical Assistance Consultant - September 1997 - MIS Initial Design Report - ASIF MIS Team, March 1997 - Final MIS Design Report - Christian Hurtado, GSIF MIS Consultant, September 1997 - Norms and Standards manual to be used by GSIF - Tom McAloon, GSIF Technical Assistance Consultant, July 1997 * Proceedings of the GSIF Concept Workshop - Tbilisi, June 1997 * Armenia SIF Study Tour Report - GSIF Delegation, May 1997 * Honduras Study Tour Report - GSIF Management Team, June 1997 *Including electronic files.  Project Appraisal Document Page 40 Annex 9 Status of Bank Group Operations in Georgia IBRD Loans and IDA Credits in the Operations Portfolio Difference Between expected original Amount in US$ Millions and actual Loan or Fiecal disbursements a/ Project ID Credit Year Borrower Purpose No. IBRD IDA Cancellations Undisbursed Orig Frm Rev'd Number of Closed Loans/credits: 2 Active Loans GE-PE-44797 IDA29830 1998 GOVERNMENT OF GEORGIA SAC II 0.00 60.00 0.00 60.49 0.00 0.00 GE-PE-50910 IDA29760 1998 GEORGIA MUNICIPAL DEV. 0.00 20.90 0.00 20.67 0.00 0.00 GE-PE-51034 IDA29840 1998 GOVERNMENT OF GEORGIA SATAC II 0.00 5.00 0.00 5.06 0.00 0.00 GE-PE-35784 IDA29580 1997 GOVERNMENT OF GEORGIA POWER REHAN. 0.00 52.30 0.00 41.50 42.31 0.00 GE-PE-44830 IDA29440 1997 GOVERNMENT OF GEORGIA OIL INSTITUTION BLDG 0.00 1.40 0.00 1.37 1.40 0.00 GE-PE-8415 IDA29410 1997 GOVT. OF GEORGIA AGRICULTURE DEVELOP. 0.00 15.00 0.00 13.77 14.48 0.00 GE-PE-39892 IDA28090 1996 GOVERNMENT OF GEORGIA TRANSPORT 0.00 12.00 0.00 5.79 6.50 0.00 GE-PE-44388 IDA28480 1996 REPUBLIC OF GEORGIA STRUCT. ADJUST. TA 0.00 4.80 0.00 2.98 3.17 0.00 GE-PE-8414 IDA28520 1996 GOVERNMENT OF GEORGIA HEALTH 0.00 14.00 0.00 11.97 12.62 0.00 GE-PE-8413 IDA26410 1995 GOVERNMENT OF GEORGIA INSTITUTION BUILDING 0.00 10.10 0.00 .30 -.33 0.00 GE-PE-8417 IDA26580 1995 MINISTRY OF FINANCE MUNICIPAL INFRA. REH 0.00 18.00 0.00 2.41 3.99 0.00 Total 0.00 213.50 0.00 166.31 84.14 0.00 Active Loans Closed Loans Total Total Disbursed (IBRD and IDA): 44.94 137.04 181.98 of which has been repaid: 0.00 0.00 0.00 Total now held by IBRD and IDA: 213.50 135.00 348.50 Amount sold : 0.00 0.00 0.00 of which repaid :0.00 0.00 0.00 Total Undisbursed 166.31 0.00 166.31 a. Intended disbursements to date minus actual disbursements to date as projected at appraisal. b. Rating of 1-4: see OD 13.05. Annex D2. Preparation of Implementation Summary (Form 590) . Following the FY94 Annual Review of Portfolio performance (ARPP), a letter based system will be used (MS = highly Satisfactory, S = satisfactory, U = unsatisfactory, hU - highly unsatisfactory): see proposed Improvements in Project and Portfolio Performance Rating Methodology (SecM94-901), August 23, 1994. Note: Disbursement data is updated at the end of the first week of the month. Generated by the Operations Information System (OIS)  Project Appraisal Document Page 41 Annex 10 Georgia at a glance Eumope & POVERTY and SOCIAL Central Low- Georgia Asia Income Development diamond Population mid-1996 (millions) 5.4 479 1,125 GNP per capita 1996 (US$) 850 2,180 1,750 Life expectancy GNP 1996 (billions US$) 4.6 1,043 1,967 Average annual growth, 1990-96 Poputation (%) -0.2 0.3 1 A GNP .4X Laborforce (%) -0.1 0.5 1.8 per G prosasy Most recont estimate (latest year available since 1989) capita enrollment Poverty: headcount index (% of populatIon) 30 Urban population (% oftotalpopulatIon) 58 65 56 Life expectancy at birth (years) 73 68 87 Infant mortality (per 1,000 live bitrhs) 18 26 41 Access to safe water Child malnutrition (% of children under 5) Access to sale water (% of popula3ion) Illiteracy (% of population age 15+) 1 Gross primary enrollment (% of school-age population) 82 97 104 Georoia Male 82 97 105 Low4ncome group Female 81 97 101 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1975 1985 1994 1998 1996 e/ GDP (billons USS) .. .. 1.2 2.9 4.6 Economic rdos Gross domestic investmnenttGDP .. 34.3 1.6 4.0 5.0 Exports of goods and non-factor se,vices/G .. .. 38.0 16.2 11.8 Openness of economy Gross domestic savingslGDP .. 31.1 -32.1 -7.2 -1.5 Gross national savingslGDP .. .. -34.3 -10.1 -2.6 Current account balance/GDP -36.7 -14.1 -7.6 Interest payments/GDP .. .. 2.6 2.9 1.4 Savings Investment Total debttGDP .. .. 79.1 42.0 29.8 Total debt servicelexports at .. .. 0.4 7.4 7.6 Present value of debttGDP .. .. 93.8 23.7 Present value of debttexports .. .. .. 217.7 .. Indebtedness 1976-85 1986-96 1994 `1995 1998 el 1997-05 (average, annual growth) Georgia GDP 5,3 -19.0 -11.4 2.4 10.5 6.9 Low-ncomegroup GNP per capita 4.5 -17.2 -13.1 2.0 12.7 6.8 Exports of goods and nfs .. .. .. -11.3 20.2 9.1 STRUCTURE of the ECONOMY 1975 1985 1994 1995 1996 el (% ofGDP) hi Growth rates of output and Invsbtment (%) Agricuiture .. 25.5 34.2 35.3 33.5 150 Industry .. 39.6 31.9 26.7 25.1 Manufacturing .. 30.2 23.9 20.1 18.9 75./ Services .. 34.8 33.9 38.0 41.3 o< = Private consumption .. 55.8 125.7 100.0 92.8 General govemment consumption .. 13.0 6.5 7.2 8.8 GDI - DP Imports of goods and non-factor services .. .. 71.7 27.4 18.4 1975684 1985-95 1994 1995 1996 el (average annual growth) Growth rates of exports and Imports %) Agriculture .. -12.4 -58.3 5.5 3.0 30 Industry .. -22.0 2.7 1.0 2.0 Manufacturing .. -21.3 -20.5 1.0 2.0 20 Services .. -20.5 31.8 54.0 16.3 s/ Private consumption .. -12.2 -7.1 -10.4 2.6 aI0 01I 92 93 94 as General govemment consumption .. -26.1 -35.0 52.7 52.7 -12 Gross domestic Investment .. -24.8 -65.2 123.0 43.4 -20 O Imports of goods and non-factor servIces .. .. .. -15.5 9.1 Gross natIonal product 5.5 -18.5 -13.0 2.4 12.7 Exports ---Imports The diamonds show four key indicators In the country (in bold) compared wIth Its Income-group average. If data are missing, the diamond wAII be Incomplete. a / Debt service due after rescheduling. bt GDP at factor cost e / Estimate  Project Appraisal Document Page 42 Georgia PRICES and GOVERNMENT FINANCE 1975 1985 1994 1995 1996 eI Domestic prices Inflation (%) (%/ change) 20.000 Consumerpr'ices . ..15,606.5 182.7 39.3 Implicit GDP deflator 0.7 -4.5 17,271.5 182.7 40.2 Government finance a/ 1 Current revenue (excl. grants) . .. 4.2 5.1 8.1 go 91 92 93 94 90 99 Current budget balance (exci. grants) . .. -19.0 -6.1 -4.3 -GOP def. -O-CPI Overall surplusfdeficit (exci. grants) . .. -20.0 -7.2 -5.5 TRADE (millions US$) 17 195 19 19 96el Export and import levels (milli. US$1 Total exports (fob) . .. 381 347 400 .0 Black Metal . .. 34 38 75 Tea13 11 2 Manufactures . . 300 265 233 Total imports (cd) . .. 744 688 733 Food18 16 18 200 Fuel and energy . .. 278 185 184 =l Capital goods . .. 88 121 127 99 90 91 92 93 94 95 96 Export price index (1987=-100) . Import price index (1987=100) ..xprt .1pot Terms of trade (1987=100).. . BALANCE of PAYMENTS 1975 1985 1994 1995 1996 ef (Millions US$) Current account balance to GDP retio I%) Exports of goods and non-factor services 473 469 541 Imports of goods and non-factor services 893 791 841 0 Resource balance -420 -322 -300 89 a 90 91 9 Net factor income . .. -37 -88 -50 Li Net current transfers .. .. 5 00 Current account balance, -30 - before offictal transfers . .. -448 -408 -350 -4 Financing items (net) . .. 450 448 269 Changes in net reserves . .. -2 -40 81 Menlo:__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Reserves including gold (mill. US$) 43 158 158 Conversion rate (local=J$) 555412.4 857.5 1263.0 EXTERNAL DEBT and RESOURCE FLOWS__ _______________ 1975 1993 1994 1995 1998 el (millions US$) Composition of total debt, 1996 (mili. US$) Total debt outstanding and disbursed . .. 985 1,212 1,365 IBRD . .. 0 0 0 IDA . .. 1 84 185 A e Total debt service b/ . . 2 35 42 0 165 IBRD . .. 0 0 0 IDA *. . 0 0 1 c Composition of net resource flows195 Ofricial grants . .. 170 189 141 14. Ofricial creditors . .. 118 173 186 E 1. Private creditors . 0 0 0 806 Foreign direct Investmnent . .. 8 6 20 Portfolio equity . .. 0 0 1 World Bank program Commitments . .. 28 75 91 A -IBRD E - Bilaterml Disbursemnents . .. 1 83 81 B- IDA 0 - Other multlateral F - Private Principal repayments . .. 0 0 0 C -IMF G0- Short-term Net flows . .. 1 83 81 ____________________ Interest paymnents . .. 0 0 1 Net transfers . .. 1 83 80 International Economics Department Note: Estimates for economies of the former Soviet Union are subjec to more than tihe usual range of uncerteinty. a. Government finance data exclude grants. b I Debt service due after rescheduling. eI Estimate  IBRD 29195 4U' 4 4D' A13- A4 5 GEORGLA. 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IF RAN A2 43. 4,4 AISRM NI-A ER AI A NOVEMBER 1997