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Completion Report

Project Number: 41122 Loan Number: 2716 September 2014

Georgia: Road Corridor Investment Program–

Tranche 2

This document is being disclosed to the public in accordance with ADB’s Public Communications Policy 2011.

CURRENCY EQUIVALENTS

Currency Unit – lari (GEL)

At Appraisal At Project Completion (1 December 2010) (25 November 2011)

GEL1.00 = $0.5679 $0.6034 $1.00 = GEL1.7606 GEL1.6574

ABBREVIATIONS ADB – Asian Development Bank JNA – joint needs assessment km – kilometer MFF – multitranche financing facility TA – technical assistance

NOTE The fiscal year (FY) of the government of Georgia ends on 31 December. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2009 ends on 31 December 2009.

Vice-President W. Zhang, Operations 1 Director General K. Gerhaeusser, Central and West Asia Department Director X. Yang, Transport and Communications Division, CWRD Team leaders R. Idei, Transport Specialist, CWRD

S. Khan, Lead Portfolio Management Specialist, CWRD Team members L. Alejandro, Associate Project Officer, CWRD

N. Bustamante, Senior Operations Assistant, CWRD G. Kiziria, Senior Project Officer (Infrastructure), CWRD P. Seneviratne, Principal Transport Specialist, CWRD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

BASIC DATA i

I. PROJECT DESCRIPTION 1

II. EVALUATION OF DESIGN AND IMPLEMENTATION 2

A. Relevance of Design and Formulation 2

B. Project Outputs 2

C. Project Costs 3

D. Disbursements 3

E. Project Schedule 3

F. Implementation Arrangements 4

G. Conditions and Covenants 4

H. Consultant Recruitment and Procurement 4

I. Performance of Consultants, Contractors, and Suppliers 4

J. Performance of the Borrower and the Executing Agency 4

K. Performance of the Asian Development Bank 5

III. EVALUATION OF PERFORMANCE 5

A. Relevance 5

B. Effectiveness in Achieving Outcome 5

C. Efficiency in Achieving Outcome and Outputs 5

D. Preliminary Assessment of Sustainability 6

E. Impact 6

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 6

A. Overall Assessment 6

B. Lessons Learned 6

C. Recommendations 7

APPENDIXES 1. Project Framework 9 2. Project Cost and Financing Plan 11 3. Status of Compliance with Loan Covenants 12 4. Chronology of Major Events 16 5. Contribution to the ADB Results Framework 17

BASIC DATA

A. Loan Identification 1. Country 2. Loan Number 3. Project Title 4. Borrower 5. Executing Agency 6. Amount of Loan 7. Project Completion Report Number

Georgia 2716 Road Corridor Investment Program–Tranche 2 Republic of Georgia Ministry of Regional Development and Infrastructure $150.00 million 1478

B. Loan Data 1. Appraisal – Date Started – Date Completed 2. Loan Negotiations – Date Started – Date Completed 3. Date of Board Approval 4. Date of Loan Agreement 5. Date of Loan Effectiveness – In Loan Agreement – Actual – Number of Extensions 6. Closing Date – In Loan Agreement – Actual – Number of Extensions 7. Terms of Loan – Interest Rate – Maturity (number of years) – Grace Period (number of years)

14 July 2010 16 July 2010 25 November 2010 26 November 2010 8 December 2010 24 March 2011 23 May 2011 13 May 2011 0 30 November 2014 25 November 2011

a

0 Sum of London interbank offered rate-based and 0.60% as provided by Section 3.02 of the Loan Regulations (2001),

b less a credit of 0.30% as

provided by Section 3.03 of the Loan Regulations.

b

25 5

a The tranche was cancelled on 25 November 2011. The total disbursed amount was $177,730.

b ADB. 2001. Ordinary Operations Loan Regulations; Applicable to LIBOR-based Loans made from ADB’s Ordinary

Capital Resources (1 July 2001).

ii

8. Disbursements a. Dates Initial Disbursement

8 September 2011

Final Disbursement

12 October 2011a

Time Interval

1.13 months

Effective Date

13 May 2011

Original Closing Date

30 November 2014

Time Interval

43.57 months

a Canceled at financial closing of loan on 25 November 2011.

b. Amount ($‘000)

Category Original

Allocation Net Amount

Available Amount

Disbursed Undisbursed

Balancea

1 Works 97,900 0 0 97,900

2 Consulting services

15,700 178 178 15,522

3. Project Management support

1,400 0 0 1,400

4. Unallocated 35,000 0 0 35,000 Total 150,000 178 178 149,822 a

Canceled at financial closing of loan on 25 November 2011.

9. Local Costs (Financed) Not applicable

C. Project Data

1. Project Cost ($‘000)

Cost Appraisal Estimate Actual

Foreign Exchange Cost 185,000 8,222

Total 185,000 8,222

2. Financing Plan ($’000)

Cost Appraisal Estimate Actual

Implementation Costs Borrower Financed 35,000 8,044 ADB Financed 150,000 178

Total 185,000 8,222

ADB = Asian Development Bank.

iii

3. Cost Breakdown by Project Component ($‘000)

Component Appraisal Estimate Actual

A. Base Cost 1. Civil Works 91,100 0 2. Cross-border Facilitation 7,800 8,044 3. Construction Supervision 7,500 178 4. Project Management Support 1,400 0 5. Preparation of Project 3 7,200 0 6. Land Acquisition and Resettlement 15,000 0 7. Taxes and Duties 20,000 0 B. Contingencies 35,000 0

Total 185,000 8,222

4. Project Schedule

Item Appraisal Estimate Actual

Recruitment of Consultants 1. Feasibility Study, Detailed Design and Bidding Documents for Project 3

By Q3 2010

not recruited

2. Construction Supervision By Q2 2011 not recruited 3. Cross-border Facilitation By Q1 2011 not recruited Civil works for constructing 14-km bypass Procurement Q1 2011–Q2 2011 not procured Completion of Work Q1 2014 not completed Improvement of cross-border facilitation Procurement Q2 2011–Q3 2011 Q1 2010 Completion of Work Q4 2011 Q4 2011 km = kilometer, Q = quarter.

5. Project Performance Report Ratings

Implementation Period

Ratings

Development Objectives

Implementation Progress

From 8 December 2010 to 25 November 2011 Actual Problema

a As of 1 January 2011, the project performance reporting system was replaced with eOperations.

D. Data on Asian Development Bank Missions

Name of Mission Date No. of

Persons No. of

Person-Days Specialization of Members

b

Reconnaissance Missiona 1–4 February 2010 5 20 a, aa, c, f, p

Reconnaissance Missiona 29–30 April 2010 3 6 c, f, t

Appraisal Missiona 14–16 July 2010 3 9 c, f, t

Consultation Missiona 9–11 May 2011 3 9 c, p, t

Consultation Missiona 28 June–2 July 2011 2 10 c, t

Inception Missiona 28 August–

2 September 2011 3 18 a, c, t

a Missions were combined for other projects.

b a = analyst, aa = administrative assistant, c = country coordination officer, f = financial analysis specialist,

p = project officer, t = transport specialist.

I. PROJECT DESCRIPTION

1. Georgia’s road network is a crucial component of national and subregional transport and trade infrastructure. The east–west highway is part of the Asian highway network connecting Georgia and Turkey to Azerbaijan and Central Asia. The southern corridor connects the country to Armenia. A joint needs assessment (JNA) in 2008 by the government of Georgia and its development partners showed that the poor condition of the road network was hampering economic growth.1 The government accordingly updated its road investment plan in 2009, aiming to improve key national and subregional corridors.2 In support of this plan, the Asian Development Bank (ADB) provided a multitranche financing facility (MFF).3 The MFF, not exceeding $500 million from ordinary capital resources and Special Funds resources, was approved by the Board on 29 September 2009. 2. Tranche 1 (Loan 2560, project 1) for $118.8 million was approved on 6 October 2009 and Tranche 2 (the project) for $150 million on 8 December 2010. The second periodic financing request for the project, received from the government on 1 July 2010, included (i) construction of a new 2-lane bypass road of the 14 kilometer (km) Batumi Bypass, (ii) improvement of border facility and simplified cross-border procedures, and (iii) a feasibility study and detailed design for the subsequent tranche.4 The project was intended to promote economic development and subregional trade, and accelerate regional cooperation and integration. It aimed to create better trade logistic corridors and thus facilitate cross-border movement of people and cargos. The expected project outcome was an improved subregional road network. 3. ADB project preparatory technical assistance (TA) for preparing the Ajara Bypass Road Development Project identified 48 km of two bypass roads (34 km of the Kobuleti bypass road and 14 km of the Batumi bypass road) for the Road Corridor Investment Program and examined the viability—technical, economic, poverty and social, and safeguards (environment and land acquisition/resettlement)—of constructing the Ajara bypass roads.5 Because of the limited resources allocated for project 1 in 2009, project 1 was formulated to cover the 34-km Kobuleti bypass road, with the project to cover the remaining 14-km Batumi bypass road. 4. When the detailed design for the project was completed in September 2011, 9 months after the loan approval, it was found that the road alignment proposed during the project preparatory TA had to be changed to minimize environmental impacts. The realignment would increase the project cost to $259 million, 1.4 times more than the appraised cost of $185 million, to take all necessary measures to meet with engineering and safeguards requirements. The government subsequently informed ADB in September 2011 of its decision to postpone the construction of the Batumi bypass road. At the government’s request ADB canceled the loan on

1 The joint needs assessment was conducted under the World Bank’s leadership, as a response to Georgia’s urgent

need to recover from damage and economic loss caused by hostilities in August 2008. In addition to the Asian Development Bank, the European Bank for Reconstruction and Development, the European Commission, the European Investment Bank, and the International Finance Corporation joined the assessment.

2 Government of Georgia, 2009. Plan for Road Infrastructure Development 2009–2013. Tbilisi.

3 ADB. 2009. Report and Recommendation of the President to the Board of Directors on a Proposed Multitranche

Financing Facility to Georgia for the Road Corridor Investment Program. Manila. 4 The subsequent tranche (tranche 3) was originally planned to finance another section of the Georgia’s national

highway networks. However, the scope was changed to additional financing for project 1 to fill financing needs identified during the detailed design stage. Tranche 3 was approved on 22 December 2011 with $140 million from ADB’s ordinary capital resources (Loan 2843-GEO, project 3).

5 ADB. 2008. Technical Assistance to Georgia for Preparing the Ajara Bypass Roads Development. Manila (TA

7059-GEO, approved on 28 January 2008, for $600,000).

2

25 November 2011. The government did, however, finance and complete the project’s cross-border facilitation component, totaling $8.04 million, while ADB financed only $0.18 under the consulting service category (paras. 9 and 11).

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

5. The Ajara bypass roads were a high priority of the government and included in the JNA (footnote 1). European Route E70 constitutes a key highway and international transit route for traffic from Turkey to Azerbaijan and the Caspian Sea. It is connected to the major Georgian Black Sea ports of Batumi and Poti, providing Armenia, Azerbaijan, and other Central Asian countries with an entry and exit point to and from Europe. However, the highway passes through the center of Kobuleti and Batumi, resulting in heavy congestion and increased transport costs, long delivery times, and hazardous road conditions. This constitutes an impediment to regional trade. The construction of the Ajara bypass roads, including the Batumi bypass road, was intended to promote domestic and regional trade and traffic, and thus contribute to regional economic integration and cooperation. Responding to the government’s urgent need, the project design was prepared consistent with (i) ADB’s interim operational strategy for 2008–2009,6 (ii) the government’s updated road transport infrastructure development plan (footnote 2), and (iii) the JNA. The cross-border facilitation component was to be implemented in Sarpi, located at the extension of the Ajara bypass roads, with the expectation it would enhance land transport trade between Georgia and Turkey (one of the government’s priorities was increasing regional trade with surrounding countries, including Turkey).7 Hence, the project’s original scope is considered relevant. 6. The preliminary design undertaken by the project preparatory TA was re-examined by the detailed design consultant, engaged in 2010 under project 1 (para. 11). The consultant conducted the necessary engineering surveys and safeguards impact assessment. After re-examination, it was found that: (i) realignment was needed to mitigate environmental impacts, as part of the original proposed alignment was located close to geologically fragile mire, identified as a wetland of international importance recognized in the Ramsar Convention on Wetlands, and costs for environmental management during construction were expected to be very high; and (ii) the realignment would involve additional construction works, including five tunnels, 21 bridges and three interchanges, and land acquisition and resettlement. The cost of the civil works component increased accordingly, resulting in the cancellation of the project (para. 4). B. Project Outputs

7. The project outputs at appraisal comprised (i) a new 2-lane bypass road of approximately 14 km skirting Batumi constructed, (ii) improved border infrastructure and simplified cross-border control procedures, and (iii) a feasibility study and detailed design for project 3. 8. Of the expected outputs, only the improvement of cross-border facilities and simplification of cross-border procedures were completed, which were financed directly by the government. These improvements have reduced processing time at the Georgia–Turkey border

6 ADB. 2008. Interim Operational Strategy (Georgia): 2008–2009. Manila.

7 Georgia is a member of the Black Sea Economic Cooperation Pact.

3

in Sarpi by about 30%. Output (i) of construction of the Batumi bypass road was not achieved because of the expected cost overrun (para. 4). After identifying the financial gaps in project 1 at completion of the detailed design, the scope of tranche 3 was changed to additional financing for project 1, instead of financing an additional highway section, making output (iii) unnecessary. C. Project Costs

9. At appraisal, the total project cost was estimated at $185 million, comprising $150.0 million from ADB and $35.0 million from the borrower. At completion, the total project cost was $8.22 million, including $8.04 million in the government financing and $0.18 million in ADB financing. The government financed the entire cross-border facilitation component, totaling $8.04 million, as it did not conduct procurement for the component in accordance with relevant ADB guidelines, and retroactive financing did not eventuate (para. 15). During detailed design of the civil works component the estimated cost increased from $91.1 million to $160 million, mainly because of the additional bridging and tunneling works that were found to be required (para. 6). The cost for the associated land acquisition and resettlement, and taxes and duties were also expected to increase. On 25 November 2011 the government requested that ADB defer construction of the Batumi bypass road and cancel the loan, and ADB approved the cancellation. The undisbursed amount ($149,822,270) was subsequently canceled. The appraisal and actual financing plans are in Appendix 2. D. Disbursements

10. The disbursement of $177,730.23 was made from the loan for the payment of consulting services, in accordance with ADB’s Loan Disbursement Handbook (2007, as amended from time to time), using the direct payment procedure. The unutilized loan balance of $149,822,270 was canceled on 25 November 2011. 11. The sole disbursement made under the project was for the construction supervision consultant, engaged under project 1. The consultant did not work directly for the project. During the investment program appraisal in 2009, ADB and the government agreed that the consulting services procured under project 1 for detailed design and construction supervision should also be used for the project, excluding the cross-border facilitation component. The agreed payment arrangements were as such that all the expenditures for the detailed design consultancy package would be paid from the project 1 loan account, with expenditures for the lead construction supervision consulting firm disbursed from the project 1 loan account, while expenditures for associated firms would be disbursed from the project loan account. The construction supervision consultant was engaged and commenced work in February 2011, and the project disbursed funds totaling $177,730.23. Since the project’s cancellation in November 2011, all other expenditures for the contracts have been disbursed from the project 1 and project 3 accounts until now. E. Project Schedule

12. The project was originally envisaged to be implemented over 3 years with an estimated completion date of 31 May 2014. The loan was declared effective in May 2011 and cancelled on 25 November 2011, about 3 years ahead of the anticipated date of loan closure (30 November 2014).

4

F. Implementation Arrangements

13. The Ministry of Regional Development and Infrastructure was the executing agency, and its Roads Department was the implementing agency. The Roads Department was assisted by the Eurasian Transport Corridor Investment Center for overall financial management, including disbursement. The Ministry of Finance was designated as the implementing agency for the cross-border facilitation component. G. Conditions and Covenants

14. The status of compliance with loan covenants is summarized in Appendix 3. Those covenants that required compliance prior to the date of loan cancellation had been complied with. Other covenants were not due and could not be complied with because of the project’s premature termination, within 7 months of loan effectiveness. 15. Retroactive financing could not be applied because the government overlooked following the ADB’s procurement guidelines, which was a condition for retroactive financing. The government conducted procurement for the cross-border facilitation component in accordance with its own procurement procedures until the contract signing, and these were not consistent with ADB procurement guidelines. H. Consultant Recruitment and Procurement

16. Consultant recruitment. At appraisal, three consulting services packages were designed, one each for (i) feasibility study and preparatory works for the subsequent tranche, (ii) construction supervision of civil works, and (iii) construction supervision for the cross-border facilities. However, no recruitment was undertaken under the project. The detailed design consultant engaged under project 1 served as the design engineer for the project section and adjoining the sections financed by project 1 (para. 11).8 17. Procurement. At appraisal, one civil works package for constructing the Batumi bypass road was prepared. However, no procurement was conducted. I. Performance of Consultants, Contractors, and Suppliers

18. It is not relevant to assess the performance of any consultants or contractors, as none of them were engaged under the project. J. Performance of the Borrower and the Executing Agency

19. The performance of the borrower (Georgia) and the executing agency (Ministry of Regional Development and Infrastructure) was satisfactory—both took timely actions in requesting ADB to cancel the loan immediately after realizing the borrower could not afford the substantial cost overrun associated with the design changes made during the detailed design. Despite early project closure, the executing agency took a keen interest to become familiar with ADB’s procurement guidelines, and with ADB’s close guidance, developed a good understanding of the disbursement procedures.

8 The detailed design consultant was recruited in 2010, under project 1. The original terms of reference included the

task of detailed design of the sections under project 1 and the project.

5

K. Performance of the Asian Development Bank

20. Overall, the performance of ADB was satisfactory. After the project’s approval, ADB fielded three missions in 2011, including two consultation missions and one inception mission. ADB continued consultations with the government on overall implementation of the investment program, and provided assistance when needed to resolve identified issues in a timely manner, including taking prompt action on loan cancellation. This has helped strengthening the relationship between the government and ADB.

III. EVALUATION OF PERFORMANCE

A. Relevance

21. The project was relevant at appraisal, as the design was in line with the government’s updated road transport infrastructure development plan (footnote 2) and ADB’s operational strategy (footnote 6) and recent country operation business plan.9 It was expected to respond to the need to mitigate traffic congestion on the existing project road and poor custom facilities, which were hampering efficient trading of commodities. The project’s relevance at completion cannot be assessed as it was cancelled within 7 months following loan effectiveness. 22. Considering the intensive engagement of various related agencies in the formulation of a long-term sector roadmap and the executing agency’s ongoing active involvement in the execution of projects 1 and 3 under the investment program, the government’s overall capacity for preparing and administering road projects has improved considerably.10 B. Effectiveness in Achieving Outcome

23. The project is rated ineffective in achieving expected outcome as it achieved only the cross-border facilitation component, which was fully financed by the government. 24. The completed component has been recognized a vital trade facility, not only between Georgia and Turkey but for the Caucasus region. To boost trade and ease the movement of people for other purposes, including tourism, Georgian and Turkish nationals are not required to have the passports for crossing the Sarpi border point.11 Further, the cargo volume at the Sarpi cross-border facility has been progressively increasing after the completion, from 1.91 million ton in 2010 to 2.79 million ton in 2013.12 The constructed border facilities are extensively utilized for trade between Turkey and the other Caucasus countries, including Armenia and Azerbaijan. Thus, the component is contributing to achievement of the project’s outcomes. C. Efficiency in Achieving Outcome and Outputs

25. The project is rated inefficient, as only one output was achieved out of the three. The achieved output of the cross-border facilitation component was completed within the original schedule, however the government did not comply with ADB’s procurement-related requirements and financed the entire amount (para. 15).

9 ADB. 2012. Country Operations Business Plan: Georgia, 2012–2013. Manila.

10 ADB. 2014. Georgia Transport Sector Assessment, Strategy, and Road Map. Manila.

11 World Bulletin. 2011. Turkey, Georgia Start Passport-Free Border Crossing. 31 May.

12 The data was provided by the Ministry of Finance, Georgia.

6

D. Preliminary Assessment of Sustainability

26. Without outputs and outcomes, the project’s sustainability assessment is not applicable. Nonetheless, the recently formulated sector road map (footnote 10) states that the following items need to be closely monitored and improved using the government’s resources during implementation of the investment program: (i) policy arrangement, (ii) budget for operation and maintenance works, (iii) staff expertise and institutional capacity, and (iv) implementation of standardized road safety measures. E. Impact

27. An assessment of the project impact cannot be made because of the project cancellation. However, the government improved cross-border infrastructure, provided the required equipment and streamlined custom clearance procedures. This has facilitated smooth custom clearance for commodities traded between Georgia, Turkey, and neighboring countries.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

28. The project was unsuccessful in achieving the expected impact, outcome, and outputs. 29. One of the investment program’s outcomes at appraisal was to improve subregional road network, and the corresponding output was 120 km–200 km of subregional roads improved, as the investment program was expected to improve the entire Ajara bypass roads under project 1 and the project and another national highway section under project 3 (it was to be selected during the project). However, the investment program’s scope was reduced to the Kobuleti bypass road, with more than half of the ADB financing to be used for constructing that bypass; the remaining amount is considered insufficient to finance the additional sections. With the project’s cancellation, the abovementioned investment program’s outcomes cannot be achieved. B. Lessons Learned

30. Need for adequate resource allocation to preparatory works for new projects. The cost overrun of the civil works component was a primary reason for the cancellation, and was caused by inadequacies in the investment program appraisal with respect to safeguards, engineering design and the cost estimate. The project preparatory TA (footnote 5) was conducted with very limited resources—only about $0.75 million was allocated to complete a comprehensive feasibility study for the investment program within 8 months, which was insufficient for a country that had become an ADB member country only one year before the TA’s commencement, and for construction of roads in a greenfield site. The budget and implementation duration should have been carefully examined and discussed in depth with the government prior to the project preparatory TA’s implementation. ADB currently has a different financial modality to provide project preparatory support to its developing member countries, called as project design advance, that involves more robust funding for needed studies and detailed advance design, with greater government ownership. 31. Need for comprehensive due diligence in safeguards and technical aspects. The cost overrun had two major causes: (i) an insufficient safeguard assessment during appraisal, and (ii) an inaccurate cost estimate. A comprehensive safeguards impact assessment

7

during appraisal could have avoided the later realignment. Detailed analysis of alternative alignments and their associated potential safeguards impacts, both of environmental and social, should have been conducted as well. The original alignment was to be located in the vicinity of the protected wetland area, which should have been examined together with the cost for environmental mitigation measures to be implemented. Several factors contributed to the inaccurate cost estimate, including market volatility.13 The estimates were prepared in 2009, when global construction activity was low. ADB has discussed with the government the need to minimize the risk of estimation errors or design changes in future projects. As a first step, the government and ADB agreed to plan robustly and execute preparatory work with more attention to detail, especially with regards to engineering designs, safeguards, procurement and cost estimation. The government will also explore value-engineering and non-traditional project delivery methods such as design–build to mitigate the risks the project encountered during implementation. Furthermore, the critical cost factors and the technical parameters of roads to be improved in future projects should be examined, with allowance for price and quantity adjustments for uncertainty, and including adequate contingencies to minimize the risk of cost overruns. 32. Need for the government’s continuous capacity enhancement in project preparation. The government should have conducted its own robust due diligence prior to processing new projects, particularly in terms of engineering and safeguards. Further, international financial institutions, including ADB, should continue providing technical support, including institutional and capacity development programs, to enable the executing and implementing agencies to independently prepare projects with sound technical inputs. C. Recommendations

1. Project Related

33. Follow-up action. The Batumi bypass road is a part of a vital road section to be constructed along the Black Sea, in terms of trade and traffic, and serves as part of European Route E70, connecting the Russian Federation, Armenia and Azerbaijan to Turkey, while feeding sea routes to Europe through the ports of Poti and Batumi. Construction of the bypass road will help accommodate the expected increases in domestic and international passenger and trade traffic. It is recommended that the government includes the construction of the Batumi bypass road in their development pipeline. At present, the bypass road remains as one of the government’s investment pipelines, while the timing has yet to be decided by the government.

2. General

34. Close monitoring of the ongoing project preparatory technical assistance. The project preparatory TA for the Secondary Road Improvement Project is underway.14 To avoid the insufficient technical and safeguards assessment as the project experienced, the TA should be closely monitored by ADB and the government.

13

Since 2008, construction activities have risen sharply, thereby lowering competition for tenders and pushing up material prices. Global steel, diesel, labor, and bitumen prices have risen at an average annual rate of about 7% since 2006. Local prices have been influenced by the 6.4% gross domestic product growth in 2010—following growth of 2.3% in 2008 and –3.8% in 2009—and a 10% appreciation of the currency.

14 ADB. 2013. Technical Assistance to Georgia for Preparing the Secondary Road Improvement Project. Manila (TA 8411-GEO, approved on 30 July 2013, for $1,000,000).

8

35. Continuous support to the government’s capacity enhancement. Since 2007, ADB’s investment in Georgia has been increasing across various sectors, and this trend is expected to continue, with an ongoing need for ADB support in project preparation, due diligence activities, and project implementation. It is recommended that ADB continue to support to the government in various areas associated with transport sector operations through TA or capacity strengthening programs attached to sovereign projects, which will enhance the government’s capacity in various areas and thereby contribute to the country’s economic growth.

Appendix 1 9

PROJECT FRAMEWORK

Design Summary Performance

Targets/Indicators

Data Sources and Reporting Mechanisms Status at Completion

Impact By 2020 Increase in subregional trade and tourism revenues.

4% increase in subregional trade through the Turkish border 5 years after project completion 10% yearly increase in registered visitors to Adjara region 5 years after completion

Regional and national data from the Statistical Yearbook of Georgia

Not applicable. Impacts are likely to be achieved after completion of the overall investment program but this will not be due to the project.

Outcome By 2015 Improved subregional road network.

Increase in average traffic volume between Batumi and Sarpi from 7,400 per day in 2010 to 9,400 in 2015 Decrease in travel time for the Choloki–Sarpi trip to less than 0.6 hour after project completion Decrease in road accident rate from 1.3 per million vehicle-km on the existing road in 2009, to 0.68 on Batumi bypass road by 2015

Roads Department surveys Accident statistics from the Georgian Police

Not achieved, because of the project cancellation. The achievement of the outcome indicators will be appropriately measured only after completion of the sections financed under tranches 1 and 3.

Output By 2014

1. 14 km two-lane bypass road skirting Batumi

Increase in road capacity to 12,000 vehicles per day after project completion Maintenance of the IRI value for the bypass roads at no higher than 3.0 within 5 years after project completion

Roads Department surveys Supervision consultants’ report

Not achieved, due to the project’s early termination. Not achieved, due to the project’s early termination.

2. Improvement in

cross-border infrastructure and procedures and documentation

Reduction in average customs processing time per vehicle at the Sarpi border crossing from 30 minutes in 2010 to 20 minutes by 2015 60 person-months of international training for customs staff completed by the end of 2013

Achieved, but with the government’s own financing. Not achieved. No international training was conducted.

10 Appendix 1

Design Summary Performance

Targets/Indicators

Data Sources and Reporting Mechanisms Status at Completion

3. Tranche 3 project (project 3) prepared and ready for ADB approval

Feasibility study completed by March 2011 Detailed design completed by December 2011

Bid document developed by March 2012

Not achieved, as the scope of project 3 was changed to additional financing for tranche 1. Not achieved, as the scope of project 3 was changed to additional financing for tranche 1. Not achieved, as the scope of project 3 was changed to additional financing for tranche 1.

Activities with planned Milestones 1. 14 km 2-lane bypass road skirting Batumi 1.1 Civil works contracts awarded by April 2011 1.2 Construction work started in June 2011 1.3 Completed in March 2014 2. Improvement in cross-border infrastructure and procedures and documentation 2.1 Cross-border infrastructure and customs equipment procured and installed by December 2011 3. Project 3 prepared and ready for ADB approval 3.1 Consultants recruited by September 2010 3.2 Feasibility study completed by March 2011 3.3 Detailed design completed by December 2011 3.4 Bidding document developed by March 2012

Inputs at Appraisal ($ million) ADB: 150.00 Government: 35.00 Total: 185.00

Actual Inputs ($ million) ADB: 0.18 Government: 8.04 Total: 8.22

ADB = Asian Development Bank; IRI = international roughness index; km = kilometer, OCR = ordinary capital resources. Note: The project framework above is the updated design and monitoring framework. Source: Asian Development Bank; International Monetary Fund e-Library Data. http://elibrary-data.imf.org (accessed 9 June 2014).

Ap

pe

ndix

2 11

PROJECT COST AND FINANCING PLAN ($ million)

Item

Appraisal Estimate Actual

ADB Government Total Percentage ADB Government Total Percentage

A. Base Cost 1. Civil Works 91.10 18.80 109.90 58.9 0.00 0.00 0.00 0.0 2. Cross-Border Facilitation 7.80 1.20 9.00 4.9 0.00 8.04 8.04 97.8 3. Construction Supervision 7.50 0.00 7.50 4.1 0.18 0.00 0.18 2.2 4. Project Management Support 1.40 0.00 1.40 0.8 0.00 0.00 0.00 0.0 5. Preparation of Project 3 7.20 0.00 7.20 3.9 0.00 0.00 0.00 0.0 6. Land Acquisition and Resettlement 0.00 15.00 15.00 8.1 0.00 0.00 0.00 0.0 Subtotal (A) 115.00 35.00 150.00 80.7 0.18 8.04 8.22 100.0 B. Contingencies Subtotal (B) 35.00 0.00 35.00 19.3 0.00 0.00 0.00 0.0 Total 150.00 35.00 185.00 100.0 0.18 8.04 8.22 100.0

ADB = Asian Development Bank. Source: Asian Development Bank; Georgia Ministry of Finance.

12 Appendix 3

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Reference in Loan Agreement Description Status at Completion Implementation Arrangement Schedule 5, para 1 As the Project Executing Agency, MORDI shall

have the overall responsibility for the implementation of the Project. RD, as the implementing agency for the Project, shall be assisted by ETCIC. FPU shall handle all Project implementation activities under the supervision and guidance of the chairman or vice-chairman of the RD. FPU shall be comprised of technical staff assigned from within the RD and engaged from outside, as appropriate.

Complied with.

Schedule 5, para 2 For Part 2, MOF shall be responsible for its implementation as an implementing agency. The Deputy Minister (Administrative Department) of MOF shall have the responsibility for overall implementation, while the Head of the Administrative Department of MOF shall act as a project director and shall be responsible for day-to-day Project implementation activities of Part 2.

Complied with.

Sector Covenants Schedule 5, para 3 The Borrower shall ensure that: (a) the Project

Road is constructed in accordance with the technical specifications of the design and within the timeframe agreed with ADB; (b) relevant construction supervision, quality control, and contract management are performed in accordance with internationally acceptable standards; and (c) all Goods, Works and Consulting Services shall be monitored continuously and evaluated periodically so that relevant designs, professional conduct, and outputs, as the case may be, are in accordance with the relevant national and international standards, criteria, best practices, and agreements, and are in compliance with relevant ADB's policies.

Not applicable. Not started due to earlier closure.

Schedule 5, para 4 The Borrower shall ensure that RD installs appropriate road safety signs and facilities during the Project implementation and after completion, such as warning signs, pavement markings, road signs and signals, and hazard barriers, all in compliance with industry's best practices and relevant international conventions to which the Borrower is a party. The Borrower shall further ensure that RD monitors the accident rate and traffic volume after commencement of the operation of the Project Road and institutes appropriate safety enforcement measures.

Not applicable. Not started due earlier closure.

Schedule 5, para 5 The Borrower shall ensure that actual annual expenditures for road maintenance (including emergency maintenance, but excluding

Not applicable. The project was closed only about 5 months after the

Appendix 3 13

Reference in Loan Agreement Description Status at Completion

rehabilitation and new construction) for roads within the jurisdiction of RD are increased or maintained in line with the overall national budget trends during 2010–2015, bearing in mind objective affordability constraints.

effectiveness.

Schedule 5, para 6 If any of the following events is anticipated: (a) any change in ownership of the road, road facility, or structure financed under the Project; (b) any sale, transfer, or assignment of interest or control in the road, road facility, or structure financed under the Project; or (c) any lease or other contract or modification of the functions and authority of the RD over operation and maintenance of any road, road facility, or structure financed under the Project, then the Borrower shall ensure that ADB’s consent is obtained before the effective date of any of the aforesaid events. The Borrower shall also ensure that any of the aforesaid is carried out in a legal and transparent manner.

Not applicable. Assumed cases listed did not occur, due to earlier closure.

Environmental Covenants Schedule 5, para 7 The Borrower shall cause MORDI to ensure that

the Project is designed, carried out, maintained, and monitored in compliance with: (a) all applicable environmental laws and regulations of Georgia; (b) ADB's Safeguard Policy Statement (2009); (c) the EARF; and (d) the EMP, including the mitigation measures and monitoring requirements arising from the implementation of the EIA. The Borrower shall cause MORDI to submit periodic environmental monitoring reports on a semi-annual basis during Project construction; each such report shall describe, among others, relevant compliance issues and corrective actions, if any.


Schedule 5, para 8 The Borrower shall also cause RD to ensure that: (a) Works contractors’ specifications include requirements to comply with the environmental mitigation measures contained in the EIA and EMP, and (b) Works contractors are supervised to ensure compliance with the requirements of the EIA and EMP.


Social Safeguards Covenants Schedule 5, para 9 The Borrower shall cause MORDI to ensure that:

(a) the LARP is carried out promptly and efficiently in line with all applicable laws and regulations of Georgia and ADB's Safeguards Policy Statement (2009); and (b) the implementation of the LARP is duly monitored and evaluated, and the results are reported to ADB, all in accordance with the LARP. The Borrower shall also ensure that land and right-of-way required for the Project implementation are made available to the Project in a timely manner. The Borrower shall cause MORDI to submit

Not applicable. No land was acquired.

14 Appendix 3


periodic progress reports on a semi-annual basis during Project construction; each such report shall describe the progress of the implementation of resettlement activities and relevant compliance issues and corrective actions, if any.

Schedule 5, para 10 The Borrower shall cause RD to ensure that Works contractors commence relevant construction only after the pertinent part of the LARP has been implemented with respect to the relevant road section in accordance with the terms of the LARP. More specifically, no physical displacement or economic displacement shall occur and no notice to proceed is issued to relevant Works contractors until: (a) compensation at full replacement cost has been paid to each displaced person according to the LARP for relevant Project components or sections that are ready to be constructed; and (b) other entitlements listed in the LARP have been provided to displaced persons.

Not applicable. No land was acquired.

Schedule 5, para 11 The Borrower shall cause RD to ensure that: (a) all local consultations with respect to safety, social, and cultural issues during the Project implementation are carried out in accordance with the summary poverty reduction and social analysis prepared for the Project; and (b) the mechanisms for maximizing local employment benefits are included in relevant bidding documents for contracts financed under the Project.

Not applicable. No civil works were undertaken, including preparation of bidding documents.

Schedule 5, para 12 The Borrower shall cause RD to ensure that all Works contractors: (a) comply with all applicable labor laws of Georgia; (b) use their best efforts to employ women and local people, including disadvantaged people, living in the vicinity of the Project; (c) disseminate information on the risks of sexually transmitted infections to those at worksites employed during construction; (d) provide equal pay to men and women for work of equal type; (e) provide safe working conditions for all workers; and (f) abstain from using child labor. The Borrower shall cause RD to further ensure that relevant Works contracts financed under the Project include specific clauses on these undertakings, and compliance is strictly monitored during the Project implementation.


Schedule 5, para 13 The Borrower shall cause RD to ensure that each Works contract includes a requirement to conduct an information and education campaign on sexually transmitted diseases and HIV/AIDS for construction workers as part of the health and safety program at campsites during the construction period.


Schedule 5, para 14 The Borrower shall undertake concrete and adequate measures to detect and prevent

Not applicable. No civil works were

Appendix 3 15


trafficking of humans, wildlife, endangered species, and illegal substances on the Project Road.

undertaken.

Schedule 5, para 15 The Borrower shall comply with ADB's Anticorruption Policy (1998, as amended to date) for the purposes of the Project. The Borrower, consistent with its commitment to good governance, accountability and transparency, agrees (a) that ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive or coercive practices relating to the Project, and (b) to cooperate fully with any such investigation and to extend all necessary assistance consistent with Borrower's legislation. The Borrower shall ensure, or cause to ensure, that all contracts financed by ADB under the Project include provisions specifying the right of ADB to audit and examine the records and accounts of (a) relevant implementing agencies, and (b) all contractors, suppliers, consultants, and other service providers, as such records and accounts relate to the Project. The Borrower shall further ensure that corrective or preventive action is taken to prevent misallocation of resources in relation to the Project.

Complied. The government complied with ADB’s Anticorruption Policy. Also, the government submitted the audit report for FY 2011 to ADB in 2012, and the report was confirmed acceptable.

ADB = Asian Development Bank, EARF = environmental assessment and review framework, EIA = environmental impact assessment, EMP = environmental management plan, ETCIC = Eurasian Transport Corridor Investment Center, FPU = foreign project unit, FY = financial year, HIV/AIDS = human immunodeficiency virus/acquired immunodeficiency syndrome, LARP = land acquisition and resettlement plan, MOF = Ministry of Finance, MORDI = Ministry of Regional Development and Infrastructure, RD = Roads Department.

16 Appendix 4

CHRONOLOGY OF MAJOR EVENTS

Date Main Event 2009 29 September The multitranche financing facility for the Road Corridor

Investment Program approved. 2010

1–4 February Reconnaissance mission fielded 29–30 April Reconnaissance mission fielded 1 July The periodic financing report for Tranche 2 of the Road Corridor

Investment Program received. 14–16 July Appraisal mission fielded 25–26 November Loan negotiations held. 8 December The tranche approved. 2011

9–11 May Consultation mission fielded. 28 June–2 July Consultation mission fielded. 28 August–2 September Inception mission fielded. 25 November The government of Georgia requested that ADB cancel the

unused amount. The loan balance was cancelled and loan account was closed.

ADB = Asian Development Bank. Source: Asian Development Bank.

Appendix 5 17

CONTRIBUTION TO THE ADB RESULTS FRAMEWORK

No. Results Framework

Indicatorsa Targetsb Achieved Methods or Comments

1 Cross-border cargo volume facilitated (tons per year)

N/A 2.70 million ton in 2013

Increased the trade volume at the Sarpi border point from 1.91 million ton in 2010 to 2.70 million ton in 2013.

ADB = Asian Development Bank, km = kilometer, N/A = not applicable. a This is a standard transport sector indicator for Level 2 (Output and Outcome) as defined in ADB. 2013.

Guidelines for the Use of ADB's Results Framework Indicators for Core Sector Outputs and Outcomes. Manila. b At appraisal, the target was not set.

Source: Asian Development Bank; Georgia Ministry of Finance.