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Document of

The World Bank

Report No: ICR00001745

IMPLEMENTATION COMPLETION AND RESULTS REPORT

(IDA-H2040)

ON A

GRANT

IN THE AMOUNT OF SDR 3.5 MILLION

(US$5.0 MILLION EQUIVALENT)

TO

GEORGIA

FOR AN

INFRASTRUCTURE PRE-INVESTMENT FACILITY PROJECT

September 28, 2011

Sustainable Development Department

South Caucasus Country Unit

Europe and Central Asia Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective January 31, 2011)

Currency Unit = Lari

Lari 1.00 = US$ 0.59

US$ 1.00 = Lari 1.68

FISCAL YEAR

January 1 to December 31

ABBREVIATIONS AND ACRONYMS

CPS Country Partnership Strategy

EMP Environmental Management Plan

FY Fiscal Year

HPP Hydro-Power Plant

IBRD International Bank for Reconstruction and Development

ICR Implementation Completion Report

IDA International Development Association

IPF Infrastructure Pre-Investment Facility

MoE Ministry of Energy

MoED Ministry of Economic Development

MOU Memorandum of Understanding

MW Megawatt

OPCQC Operations Services/Quality Assurance & Compliance

PAD Project Appraisal Document

PDO Project Development Objective

PPIAF Public-Private Infrastructure Advisory Facility

PSO Project Service Organization

QAG Quality Assurance Group

RAP Resettlement Action Plan

SEA Strategic Environmental Assessment

SF Safeguard Framework

TA Technical Assistance

TOR Terms of Reference

TRRC Transport Reform and Rehabilitation Center

Vice President: Philippe H. Le Houerou

Country Director: Asad Alam

Sector Manager: Henry Kerali /Ranjit Lamech

Project Team Leader: Bjorn Hamso

ICR Team Leader: Joseph Melitauri

GEORGIA

Infrastructure Pre-Investment Facility

CONTENTS

Data Sheet

A. Basic Information

B. Key Dates

C. Ratings Summary

D. Sector and Theme Codes

E. Bank Staff

F. Results Framework Analysis

G. Ratings of Project Performance in ISRs

H. Restructuring

I. Disbursement Graph

1. Project Context, Development Objectives and Design............................................. 1

2. Key Factors Affecting Implementation and Outcomes ............................................ 4

3. Assessment of Outcomes ....................................................................................... 9

4. Assessment of Risk to Development Outcome ...................................................... 11

5. Assessment of Bank and Borrower Performance ................................................... 12

6. Lessons Learned .................................................................................................. 13

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 14

Annex 1. Project Costs and Financing ...................................................................... 16

Annex 2. Outputs by Component ............................................................................. 17

Annex 3. Economic and Financial Analysis .............................................................. 19

Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 20

Annex 5. Beneficiary Survey Results ....................................................................... 22

Annex 6. Stakeholder Workshop Report and Results ................................................ 23

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR .................... 24

Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ...................... 27

Annex 9. List of Supporting Documents ................................................................... 28

MAP

i

A. Basic Information

Country: Georgia Project Name: Infrastructure Pre-Investment Facility

Project ID: P098850 L/C/TF Number(s): IDA-H2040 ICR Date: 09/28/2011 ICR Type: Core ICR

Lending Instrument: TAL Borrower: MINISTRY OF FINANCE OF GEORGIA

Original Total Commitment:

XDR 3.50M Disbursed Amount: XDR 2.93M

Revised Amount: XDR 2.93M Environmental Category: B Implementing Agencies: TRRC Ministry of Energy; PSO Ministry of Regional Development and Infrastructure (MRDI) Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual Date(s)

Concept Review: 10/31/2005 Effectiveness: 04/04/2006 04/04/2006 Appraisal: 12/20/2005 Restructuring(s): Approval: 02/16/2006 Mid-term Review: Closing: 09/30/2009 01/31/2011 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Satisfactory Government: Satisfactory

Quality of Supervision: Satisfactory Implementing Agency/Agencies: Satisfactory

Overall Bank Satisfactory Overall Borrower Satisfactory

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Performance: Performance: C.3 Quality at Entry and Implementation Performance Indicators

Implementation Performance Indicators QAG Assessments

(if any) Rating

Potential Problem Project at any time (Yes/No):

No Quality at Entry (QEA):

None

Problem Project at any time (Yes/No):

No Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Satisfactory

D. Sector and Theme Codes

Original Actual Sector Code (as % of total Bank financing) Power 56 69 Railways 9 Roads and highways 35 31

Theme Code (as % of total Bank financing) Export development and competitiveness 25 25 Infrastructure services for private sector development 50 50 Trade facilitation and market access 25 25 E. Bank Staff

Positions At ICR At Approval Vice President: Philippe H. Le Houerou Shigeo Katsu Country Director: Elene Imnadze D-M Dowsett-Coirolo Sector Manager: Ranjit J. Lamech Motoo Konishi Project Team Leader: Bjorn Hamso Tamar Sulukhia ICR Team Leader: Joseph Melitauri ICR Primary Author: Joseph Melitauri Elena Y. Chesheva F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The development objective of the Project is to facilitate infrastructure investments that have strategic importance and/or special complexity by ensuring that proper feasibility

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work is carried out in a timely manner in order to enable the government to make sound investment decisions, and where appropriate, to proceed expeditiously with further preparatory steps and mobilize adequate financing for implementation. The focus on energy and transport sectors is consistent with Governments investment priorities and CPS objectives. Specifically, the Project will finance technical assistance (TA) to assess the feasibility and effectiveness of identified investments through preparation work including technical and sectoral studies, engineering design, and analysis of economic, financial and environmental feasibility, as well as financial and legal advisory services, where required. Revised Project Development Objectives (as approved by original approving authority) (a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Studies required to lead to sound investment decision in the following areas are carried out promptly, efficiently, and are of high quality; (1) Khudoni HPP, (2) East West Highway ; (iii) other inv decisions (subject to availability of funds).

Value quantitative or Qualitative)

No studies exist 4 4

Date achieved 01/19/2006 01/01/2008 01/31/2011 Comments (incl. % achievement)

Target achieved 100 %.

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Khudoni feasibility study produced and accepted Value (quantitative or Qualitative)

No feasibility study exists Feasibility study produced/accepted

Khudoni feasibility study produced/accepted


Target achieved 100%, Khudoni feasibility study has been produced and accepted by the Panel of Experts

Indicator 2 : Khudoni environmental and social impact assessment produced and accepted Value No environmental and Khudoni Khudoni

iv

(quantitative or Qualitative)

social impact assessment exists

environmental and social impact assessment produced and accepted

environmental and social impact assessment produced and accepted


Target achieved 100%, Khudoni environmental and social impact assessment produced and accepted by environmental/social Panel of Experts

Indicator 3 : Decision to proceed with investment project or otherwise made by the Government

Value (quantitative or Qualitative)

No plans to invest exist

Decision to proceed with investment project or otherwise made by the Government

A Memorandum of Understanding to proceed with investment in Khudoni signed with the Private Investor


Target achieved 100%, Government has signed a Memorandum of Understanding with the investor to proceed with the construction of Khudoni

Indicator 4 : Detailed designs and bidding documents produced and accepted (this indicator is optional based on the indicator above)


No detailed designs and bidding documents exist

Detailed designs and bidding documents produced and accepted

Detailed designs and bidding documents for road sections produced and accepted


Target achieved 100%, detailed designs and bidding documents for road sections produced and used for the tenders

Indicator 5 : Preliminary design and Environmental Impact Assessment produced and accepted


No preliminary design and Environmental Impact Assessment exist

Preliminary design and Environmental Impact Assessment produced and accepted

Preliminary design and Environmental Impact Assessment produced and accepted


Target achieved 100%

Indicator 6 : Final designs and bidding documents produced /accepted for Roads Section 1 Value (quantitative or Qualitative)

No final designs and bidding documents exist for section 1

Final designs and bidding documents produced

Final designs and bidding documents produced /accepted

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/accepted for section 1

for section 1



Indicator 7 : Final designs and bidding documents produced /accepted for Road Section 2


No final designs and bidding documents exist

Final designs and bidding documents produced /accepted for section 2




Indicator 8 : Final designs and bidding documents produced /accepted for Road Section 3


No final designs and bidding documents produced /accepted for section 3





G. Ratings of Project Performance in ISRs

No. Date ISR Archived DO IP

Actual Disbursements (USD millions)

1 03/31/2006 Satisfactory Satisfactory 0.00 2 08/08/2006 Satisfactory Satisfactory 0.50 3 10/06/2006 Satisfactory Satisfactory 0.50 4 02/15/2007 Satisfactory Moderately Satisfactory 0.60 5 10/10/2007 Satisfactory Satisfactory 1.27 6 03/13/2008 Satisfactory Satisfactory 2.01 7 11/24/2008 Satisfactory Satisfactory 3.77 8 09/21/2009 Satisfactory Satisfactory 4.36 9 06/18/2010 Satisfactory Satisfactory 4.57

10 02/12/2011 Satisfactory Moderately Satisfactory 4.57 H. Restructuring (if any) Not Applicable

vi

I. Disbursement Profile

1

1. Project Context, Development Objectives and Design

1.1 Context at Appraisal

Georgia is a small country south of the Caucasus mountain range, sharing borders with Russia to

the north, Armenia and Turkey to the south, Azerbaijan to the east, and the Black Sea to the west.

Georgia was part of the centrally planned Soviet economy and suffered from lack of

infrastructure investment. By 1999, the power and road infrastructure had deteriorated to the

point of near-collapse; in 2000, the power sector could deliver electricity only few hours a day

and parts of the country had not received electricity for months. Georgia’s highways were also in

poor condition, which lengthened transit times, constrained the movement of goods and people,

and raised costs for road users.

In 2003, the Rose Revolution brought a new government that was committed to reviving the

economy and achieving sustained economic growth by addressing infrastructure problems.

Government declared infrastructure a priority and tackled power infrastructure on several fronts:

(i) increased budget allocations to key power facilities to arrest deterioration and restore

functionality; (ii) set electricity tariffs to cost-recovery levels (in 2006) to help make the power

sector financially sustainable; (iii) addressed power sector legacy debts to restore the sector’s

cash flow; (iv) tackled corruption and power theft through aggressive metering and collection

enforcement; and (v) revived power sector privatization efforts to offload investments from the

budget.

Government emphasized road infrastructure improvement and increased funding for the transport

sector. In 2004, an IDA Credit for US$20 million equivalent was approved to finance

rehabilitation of 500 to 750 km of local and secondary roads. To improve the main road network,

Government focused on the main transit corridor—the East-West Highway, which runs from the

port of Poti on the Black sea to the Azerbaijan border at the Red Bridge, via Tbilisi. The study

funded by Public-Private Infrastructure Advisory Facility (PPIAF) analyzed options for

upgrading the road to highway standards, and Government opted to upgrade the existing road to

four lanes and move swiftly to prepare investments. Government asked the World Bank to help

finance feasibility studies and detailed designs.

1.2 Original Project Development Objectives (PDO) and Key Indicators

The Project development objective was to facilitate infrastructure investments that have strategic

importance and/or special complexity by ensuring that proper feasibility work is carried out in a

timely manner to enable Government to make sound investment decisions, and where appropriate,

to proceed expeditiously with further preparatory steps and mobilize adequate financing for

implementation.

The achievement of the development objective was measured by the following indicators;

The Project outcome indicator was formulated as, ―sound investment decisions are made, and

where appropriate further preparatory steps are taken and adequate financing is mobilized for

investments.‖ This indicator was revised as discussed in Section 1.3 below. The revised indicator

was formulated as follows: ―studies required to lead to sound investment decisions in the

following areas are carried out promptly, efficiently, and are of high quality;‖ (1) Khudoni Hydro

Power Plant (HPP); (2) East-West Highway; and (3) other investment decisions (subject to

availability of funds).

Intermediate outcome indicator for each component was formulated as follows:

2

Component 1: (Khudoni Hydropower Plant studies):

a. Feasibility study produced and accepted

b. Environmental and social impact assessment produced and accepted

c. Government decision on whether to proceed with investment project

d. Detailed designs and bidding documents produced and accepted (if investment goes

ahead).

Component 2, sub-component 2 A: (Studies for the East-West transport corridor projects

completed):

a. Preliminary design and environmental impact assessment produced and accepted

b. Final designs and bidding documents produced and accepted for road section 1

c. Final designs and bidding documents produced and accepted for road section 2

d. Final designs and bidding documents produced and accepted for road section 3

Component 2, sub-component 2B; to be decided pending funding availability.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and

reasons/justification

The PDO was not revised; however, the PDO indicator was revised to more accurately monitor

Project objectives. The original PDO indicator was formulated as; ―sound investment decisions

are made, and where appropriate further preparatory steps are taken and adequate financing is

mobilized for investments.‖ The indicator was revised and re-formulated as follows: ―studies

required to lead to sound investment decisions in the following areas are carried out promptly,

efficiently, and are of high quality;‖ (1) Khudoni HPP, (2) East West Highway; (3) other

investment decisions (subject to availability of funds). Reformulating PDO indicator and

introducing reference to ―studies required to lead to sound investment‖ instead of ―sound

investment‖ sharpened the indicator focus and improved monitoring and evaluation. Component

2B was cancelled due to lack of funds and its outcome indicator was dropped.

1.4 Main Beneficiaries

The Project target beneficiaries were the Ministry of Energy and Ministry of Economic

Development, which was in charge of transport policy at the time.1 The Project funded feasibility

studies that supported sound and cost-effective decision making by the ministries, which is

anticipated to benefit the energy consumers, the road users, and in turn, to benefit the overall

economy.

1.5 Original Components

The Project had two components: Component 1, funding of technical assistance (TA) for

preparation of the proposed Khudoni hydropower station; Component 2, with subcomponents A

and B, aimed at funding transit corridor project preparation. Components 1 and 2A were well-

defined but subcomponent 2B was broadly defined for transit corridor projects and dependent on

funding availability after Components 1 and 2A were completed. During Project preparation,

Government contemplated potential investment in railways; this subcomponent 2B could have

1 This function was later transferred to the Ministry of Regional Development and Infrastructure which was established

in February 2009.

3

accommodated such investment preparation had Government later decided to proceed (and if

funds had been available).

Component 1: TA for hydropower project preparation (US$3.3 million).

The Grant financed feasibility studies for the Khudoni Hydropower Project to assess technical,

economic, and financial viability and determine potential environmental and social impacts of the

proposed hydropower station development. The safeguard studies included an Environmental and

Social Impact Assessment; an Environmental Management Plan; and a Preliminary Resettlement

Action Plan. On the engineering side, top priority was given to dam safety for the hydropower

station.

The study had three phases (and an optional fourth): Phase 1 studied the original dam design;

Phase 2 developed and assessed alternative dam and hydropower concepts; Phase 3 studied the

feasibility of the selected alternative, and also included an overview study of potential export

markets for Khudoni power and of Project financing options. Under a possible Phase 4 (which

was not undertaken), consultants were to develop detailed designs and specifications, undertake a

prequalification process, develop bidding documents for dam and power plant construction, and

assist during the bidding process, provided that the Government decided to proceed with the

Khudoni investment project. At the time when conclusions from Phase 3 were available, the

Government decided not to continue with Phase 4 within the time frame of this TA Project, as

according to the Ministry the private investors would undertake detailed design and there was no

need in duplicating the effort by funding Phase 4.

Component 2: TA for Preparation of Transit Corridor Projects (US$2.55 million in two sub-

components):

Sub-component A: TA for Preparation of East-West Highway Improvement Project (US$1.6

million) financed a feasibility study, preliminary design and environmental assessment of Agaiani

to Sveneti road section. Preliminary review was followed by detailed design and preparation of

bidding packages for each section. The environmental and social implications of the corridor

improvement project were analyzed as part of the technical studies. The component prepared

studies for two investment projects subsequently approved by the Board at the end of 2006 and

end of 2007: the First East-West Highway Improvement Project in the amount of US 19 million

equivalent, which financed upgrade of a 13 km section between Agaiani and Igoeti, and the

Second East-West Highway Improvement Project in the amount of US 35 million equivalent,

which financed upgrade of a 24 km section between Igoeti and Sveneti.

Sub-component B. TA for Preparation of other transit corridor projects (US$0. 95 million). The

sub-component scope was broadly defined as for transit corridor projects (road or railways) and

allowed for flexible Project design. It was anticipated that during the first phase of Project

implementation, Government would decide on appropriate use of the funds allocated under this

subcomponent, depending on priorities and funding availability after the funding needs of the two

other priority Project components were satisfied.

1.6 Revised Components

The components were not revised, though Sub-component 2B was not realized. In January 2007,

Government decided to utilize these funds under the Khudoni component.

1.7 Other significant changes

There has been no change in Project scope other than what is described above.

4

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design, and Quality at Entry

Project design reflected lessons learned from IDA-supported operations, Bank policy dialogue,

and similar projects implemented elsewhere. Based on lessons learned, the following factors were

considered key to Project success: adequate Government commitment; comprehensive Terms of

Reference (TORs) for the studies; availability of competent consultants; detailed review of

consultant outputs; and wide consultations with stakeholders and donors. These factors were

taken into consideration and were incorporated in the Project design.

The lending instrument choice was appropriate given urgent Government intentions to move

ahead with selected investments and the lack of funding to prepare necessary studies. The TA

loan was one of the few in the Bank that focused on preparing future investment projects, and it

served its purpose successfully.

The IDA had a wealth of background information on power and road infrastructure that served

Project preparation well; IDA has been reviewing potential construction for the Khudoni

hydropower station as part of formulating a power sector strategy since it was pre-assessed as the

least-cost sizable power development prospect in Georgia; and IDA was active in the road sector

and engaged in sector dialogue. To ensure efficient Project implementation, the financial

management team reviewed Georgia’s public financial management system and evaluated its

suitability for implementing IDA-funded projects in general and the IPF project in particular.

A Strategic Environmental Assessment for the power sector was undertaken during Project

implementation, but was not part of the Project design. Although the Government had made

similar studies in the past, it was during implementation realized that undertaking a SEA would

strengthen the understanding of and credibility of the Khudoni project as the project then would

be placed in merit order among alternative electricity supply-enhancing or demand-reducing

projects, and with the application of ―filters‖ that took into account environmental and social

impacts of the various alternatives. Sometime after the Government agreed with the Bank team to

undertake a SEA, it appeared that there would not be sufficient funds in the IDA grant to finance

such study. Ultimately the SEA was developed under Bank management and with Bank budget

funding.

The PPIAF funded study for the East-West highway provided analytical underpinning for

selecting road upgrade options and helped Government decide to move ahead with feasibility

studies for the Agaiani-Sveneti sections.

The Project objective was well formulated and sufficiently specific. The task was complex but the

Project objective was realistic. Project components were well defined and matched the Project

objective. Project design also envisaged a possible sub-component 2B, which was not specifically

defined and allowed sufficient flexibility without jeopardizing the main Project objective.

Project design envisaged a line ministry managing each of the two components, which turned out

to be an efficient organizational arrangement. The Ministry of Energy was responsible for the

Khudoni study (Component 1) and the Ministry of Economic Development was responsible for

implementing the transport corridor studies (Component 2), with an MoED subsidiary, the Roads

Department, managing the technical side of implementation. The financial management function

was split for each component, which was a successful arrangement. The Project Service

5

Organization (PSO) was responsible for the financial management and procurement for

Component 1, and the Transport Reform and Rehabilitation Center (TRRC) was responsible for

financial management and procurement for Component 2; both agencies had successful Project

implementation track records. In addition, TRRC was in charge of the ongoing road portfolio

incorporating four projects and two additional financing operations.

Government commitment was achieved by designating responsibility to respective Deputy

Ministers for project management. Government commitment was essential for Khudoni

component success—component outputs were widely discussed with all stakeholders.

During Project preparation, slow decision making was identified as one of the greatest risks to

Project implementation and sustainability. Despite this, Project decision making was established

in the Ministry of Energy; the Deputy Ministers, who typically have limited time, were charged

with Project management. The risk of slow decision making with regards to Khudoni hydropower

station remained high. (Risk mitigation measures and degree of mitigation are discussed below.)

The Project correctly identified key risks and proposed adequate mitigation measures. However,

Project preparation missed identifying the risk associated with the Khudoni Project site proximity

to an area outside central Government control, and the site of potential military activities.

Therefore, no mitigation measures were established for these risks. Throughout Project

implementation the risk of military activities materialized, delaying Project implementation and

contributing to overall Project delay. See section 2.2 for detailed description of the risk.

2.2 Implementation

Several actions from Government and IDA contributed to successful Project implementation; the

most important of these follow:

a. Broadening Government engagement. Government and the Bank broadened Government

agency engagement and involved the Ministry of Culture and Ministry of Environment in the

feasibility study review for the Khudoni HPP.

b. Engaging top-level experts and establishing a local panel of experts. The Bank engaged

top-level environmental and technical experts as Project team members to ensure report

quality2. In addition, for Component 1, Government assembled a panel of local engineers

with prior knowledge of the Khudoni project to work in parallel with an international Panel

of Experts mandated by Bank rules. Both panels provided comments to the reports, which

provided comfort to the Government and improved Project ownership.

c. Project team participating in public consultations. Government led the public

consultations on the environmental and social impact assessments for Khudoni, and the Bank

attended all the consultations. For Component 1 Bank staff held supplemental public

meetings with Project-affected people. Consultations on environmental and social impact

assessment for the highway were later done under the subsequent First and Second East-

West Highway Improvement Projects.

2 This arrangement benefitted mostly the Khudoni component, which had longer implementation period. Roads

component was implemented very quickly given the request by the Government to prepare the East-West Highway

Improvement projects expediously. Limited timeframe didn’t allow for a thorough review of the road designs and some

weaknesses of the design of one section Igoeti-Sveneti were identified later during construction.

6

d. Government commitment. High-level Government attention to preparing priority road

investment projects on East-West highway contributed to speedy procurement and

implementation of the studies under Component 2A, effectively completed by end-2007.

The Project Appraisal Document (PAD) explicitly envisaged cancellation of component 2B if no

savings resulted from other components. Near mid-term Project implementation, no Project

savings were expected, and it was anticipated additional funding would be required for further

geological surveys under Component 1, so Project Component 2B was canceled.

Factors impeding Project implementation

Several factors impeded Project implementation.

e. Inability to use Bank procurement rules until Project effectiveness. To expedite Project

implementation, Expression of Interest for selecting engineers for the Khudoni studies was

issued prior to Project negotiations. However, engineer selection was delayed because, until

Project effectiveness, Government could use only local procurement procedures, which are

inconsistent with the Bank procedures.

f. The procurement evaluation committee for the Khudoni studies was too large, slowing

evaluation. A seven-person evaluation committee, created by Presidential Decree, reviewed

TA proposals for Khudoni. The committee included five deputy ministers who had limited

time to review proposals, making the process inefficient. During Project implementation, the

Bank requested creation of an expert working group to assist the committee with evaluation.

The Minister of Energy created such a group, which speeded up procurement and overall

Project implementation.

g. Component A (Khudoni) required data from the Soviet-time Khudoni project, and

access to data was impeded by privatization of the entity Hydropower Project only a

month after the Engineering Consultant started his work. The old data still belonged to

the state although they were now held in a private entity. The engineering consultant

ultimately obtained access to the relevant data, but MoE could have helped the Consultant

obtaining access to the data source in a more timely fashion.

h. A one-year Closing Date extension was given on the expectation of activities that only

partly took place. The Closing Date extension was based on the understanding that the

MoE would seek additional funds from other sources to bolster Component 1. To execute a

Phase 4 for the Khudoni project (i.e. developing detailed dam and powerhouse designs and

procurement documents ready for the subsequent investment phase), more funds (upwards of

USD 500,000) would have to be mobilized in order to undertake a geological survey and

drilling program in the dam foundation area. Such program would also benefit Phase 3

(feasibility study) in that more precise estimates could have been developed for the dam

construction based on better known geology. As Khudoni’s position in the priority list of

large hydropower projects slipped, the MoE decided to postpone such further drilling and

investigation program, i.e. let it be the responsibility of a future investor. However, due to

the slow decision process in this matter, the final work on the feasibility study was delayed,

impacting the overall completion schedule.

i. Pressure to speed up Project implementation in the road sector stretched existing

capacity and reduced attention to quality. Overall, the project was successfully

7

implemented and two investment projects were prepared based on the studies funded under

the Project. However, the intense schedule and high pressure to deliver strained the capacity

of counterparts (Roads Department and the PIU), the companies hired to prepare road

designs, and the Bank team. The design companies were given limited budget and very

limited time frame to prepare designs. Some design weaknesses on the Igoeti-Sveneti section

(SEWHIP project) became apparent later during construction. It should be mentioned that

the problems with SEWHIP implementation and the costs overruns during civil works

primarily stemmed from the failure of the supervising engineer company to identify and

address any weaknesses and issues in the designs early on in the project implementation.

This will be covered in more detail during the preparation of the Implementation Completion

and Results Report (ICR) for the SEWHIP project (due in 2012). In hindsight, under the IPF

Project more time and resources should have been allocated for consultants to produce the

studies and for thorough review of all outputs, additional experts should have been involved

to strengthen the capacity of the Roads Department in monitoring the quality of the outputs.

Other significant factors affecting Project implementation are discussed below:

The Project was not formally restructured although the monitoring indicator was revised to more

accurately reflect development objective achievements. The impact of revising the indicator is

discussed in Section 2.3.

Beyond the 12 months extension of the Closing Date—until September 30, 2010— as referred to

above, the Closing Date was extended for another four months—until January 31, 2011—to

conclude pending contractual issues with the Engineering Consultant and to incorporate the

comments of the international Panel of Experts into the final feasibility report. The Panel of

Experts pointed to shortcomings in the feasibility study in a particular field (dam construction

materials) that thereafter were remedied, and the Panel’s endorsement of the feasibility study was

considered important by MoE to enhance the standing of the study work by future investors. The

contractual dispute between the MoE and the Engineering Consultant involved additional work

undertaken by the Consultant without having signed a contract addendum and cost implications

of the stretched-out completion period for reasons out of the Consultant’s control, such as the

time implications of Georgia’s armed conflict with Russia in August 2008, and other incidents.

The contractual issues were solved.

Throughout Project implementation, overall progress was rated Satisfactory, except in February

2007 when a Moderately Satisfactory rating was caused by implementation delays in Component

1, and in the last implementation status report (January 2011) when in the Bank team’s view to

conclude remaining tasks and to resolve the contractual dispute mentioned above took excessive

time (Component 1), again resulting in a Moderately Satisfactory rating.

The decision not to undertake a drilling program in the Khudoni dam area to better establish the

geological/geophysical situation was a judgment call by the Ministry of Energy in a situation

where (a) it would have to mobilize funds outside the Project to fully finance such drilling

program, and (b) it did not consider the additional information from a drilling program as

essential at that very point in time but rather an activity that future investors could finance. The

Engineering Consultant added a substantial premium to its cost estimate for the dam/power plant

to take into account the lack of detailed geological insight, but nevertheless was in a position to

deem the Project technically feasible, to which the Panel of Experts agreed. Without the drilling

program, the execution of Phase 4 of the project (development of detailed dam and powerhouse

designs and procurement documents) was impossible. The MoE made the decision not to

undertake the drilling program in late 2009, i.e. well into the last year of the project following the

8

one-year Closing Date extension. That left funds unused in the Project (the amount was not

known exactly at the time due to then still unsolved contractual dispute with the Engineering

Consultant); however, the Government apparently considered this as too late for starting new

studies under the Infrastructure Pre-investment Facility, ref. the optional Component 2 B that was

not implemented. About SDR 560,000 equivalent was ultimately returned to IDA.

No Quality Assurance Group (QAG) review was done for the Project.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

Project monitoring and evaluation was simple and straightforward; the Project envisaged TA to

develop studies for sound investment decisions, and achievement of the development objective

was measured by delivery of those studies with adequate quality. The M&E implementation was

simple in principle—indicator values were assessed during supervision missions, and captured in

the Implementation Status Reports (ISR). The supervision effort was nevertheless comprehensive,

and for the hydropower component the Bank’s project team ensured that adequate technical

hydropower expertise was included in addition to drawing on the insights from the Panel of

Experts. Furthermore, the team also drew extensively upon additional technical, environmental

and social safeguard resources from OPCQC (Operations Services/Quality Assurance &

Compliance), including on several missions.

The Monitoring system was not utilized beyond the Project, as M&E had a simple design;

indicators were linked to delivery of high-quality reports, which were then used for investment

decision making for the roads sector as described in Section 2.5 below, and expectedly to be used

for the hydropower project as well.

2.4 Safeguard and Fiduciary Compliance The Project was designed to finance only preparation of follow-on activities; provision of goods

or works was excluded so no negative impacts on the environment or society were expected from

Project implementation. However, since anticipated investments under the Project umbrella

would include components likely to rank environmental Category A or B, the Project was

classified as Category B. Investment-specific instruments of environmental due diligence could

not have been applied to this technical assistance Project, though, and a Safeguard Framework

(SF) was prepared to meet Bank safeguard requirements for this type of operation.

The Project triggered OP/BP 4.01 Environmental Assessment. The OP/BP 4.01 guiding

principles were incorporated during Project environmental classification and in developing and

disclosing all environmental documents produced during Project preparation and implementation,

in particular the public consultation process and especially for Khudoni hydropower plant-related

environmental and social work—civil society participated in developing TORs for studies, and

discussing the reports produced. The World Bank OP/BP 4.12 Involuntary Resettlement was

triggered because follow-on investments may potentially include resettlement. Therefore, the

Project developed resettlement action plans (RAPs). The RAP for Khudoni was developed into a

framework on which to base a more detailed future RAP, because studies pertaining to Khudoni

power plant have not yet been followed by investments and establishing a detailed RAP now is

premature as it would be out of date in the medium to long term. Also, an Environmental

Assessment (EA), Environmental Management Plans (EMPs), and Resettlement Action Plans

(RAPs) were prepared under Component 2 (roads), and these documents and plans were used in

the subsequent investment projects for the East-West Highway.

World Bank O.P. 7.50 Projects on International Waterways was relevant to the Project because a

future Khudoni hydropower plant would be located on a river that flows into the Black Sea. The

9

Commission for the Convention on the Protection of the Black Sea against Pollution was notified

about the Project and the safeguard requirement was met. Project compliance with environmental

and social safeguards is rated Satisfactory.

The Financial Management (FM) arrangements in place at the TRRC and the PSO for

implementation of the project were satisfactory and acceptable to the Bank. The ISR FM rating

throughout the project implementation was ―Satisfactory‖. [insert text if Audit no submitted].

All procurements under the project were carried out in consistence with the Bank guidelines and

in accordance with the methods and thresholds specified in the Grant Agreement. The Project

procurement rating was ―Satisfactory‖ till September 2009. In 2009 the rating was downgraded

to ―Moderately Satisfactory‖ due to protracted contract payment disagreement between the

Ministry of Energy and the contractor. The rating remained Moderately Satisfactory as the

disagreement was only resolved after the closing of the project.

2.5 Post-completion Operation/Next Phase

In relation to Component 1, a Memorandum of Understanding (MOU) was signed with a private

consortium for the construction of the Khudoni hydropower station. An MOU in generally is not

an investment decision however, the Government confirmed that the based on this MOU the

investment decision has been made by private investor. At the time of this ICR the feasibility

study was not provided to the private consortium in contrast with the Environmental and Social

Impact Assessment; the latter was also made publicly available on MoE’s and the World Bank’s

websites.

Studies produced under component 2A were used to prepare two Bank-financed investment

projects on the East-West Highway. In December 2006, the First East-West Highway

Improvement Project (FEWHIP) was approved and financed upgrading of the Agaiani-Igoeti

section. The Project was successfully implemented and in 2009, Additional Financing was

approved to rehabilitate the Rikoti tunnel, currently under implementation. In December 2007,

the Second East-West Highway Improvement Project (SEWHIP) was approved; most of the

works are completed and the Project will close in February 2012.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation

The Project development objective (PDO) and design remain highly relevant to existing

Government development priorities. On June 7, 2006, Parliament adopted the Main Direction of

the Energy Sector, which defined national strategic priorities; a key element is energy supply

security. Georgia intends to achieve energy security by developing its hydro power potential.

Khudoni hydropower station is among the largest and the most complex infrastructure to be

developed by private investors. Thus, the PDO remains fully aligned with this strategic

Government goal. The PDO is consistent with the current Country Partnership Strategy (CPS) for

FY10-13; one of two pillars of the CPS is restoring growth and competitiveness; reliable and

efficient power supply is fundamental to Georgia’s economic growth. Upgrading of the East-

West Highway remains a national priority, and Government has requested a series of three Bank-

funded projects to date, now under implementation.

The focus on energy and transport sectors was consistent with Government investment priorities

and Country Partnership Strategy (CPS) objectives. Specifically, the Project aimed to finance

technical assistance (TA) to assess investment feasibility and effectiveness using technical and

sector studies, engineering design, economic, financial, and environmental feasibility analysis;

and by providing financial and legal advisory services where required.

10

In 2004, Government formulated a power sector policy that identified self-sustainability and

energy security as two primary strategic objectives. Using Georgia’s vast hydro resources cost-

effectively was seen as key to reducing national import dependency on fossil fuels. Power and

road infrastructure investment was seen to contribute to goals of the 2006-09 CPS. Improved

electricity and gas infrastructure, and improved transport infrastructure were among the CPS

priorities under the overarching theme of Enabling Income and Employment Generating Growth.

3.2 Achievement of Project Development Objectives

The Project development objective was fully met, that is to facilitate infrastructure investments

with strategic importance and/or special complexity. Khudoni hydropower station exemplifies

both strategic importance and special complexity. Upon completion, Khudoni would be the

second largest hydropower station in Georgia with an installed capacity of 700 MW. Khudoni is

located upstream of hydropower station Enguri, the largest station the country with an installed

capacity of 1300 MW. Khudoni would have significant positive impact on the operation of

Enguri.

Khudoni hydropower station is also complex due to its size, location, and construction history.

Khudoni construction was halted in 1986 due to concerns about safety of the chosen design, and

environmental impact. Also financial constraints of the Government over two decades made

continuation of construction impossible. The current Government has identified Khudoni as

among the hydropower stations that will contribute to Georgia’s strategic development in the

longer term.

Component 1 output is a feasibility study and environmental and social impact assessment for

Khudoni hydropower station, studies that there is reason to expect will provide a basis for private

investment. An MOU for project development has been signed with an investor consortium thus

the rating of this component is suggested as satisfactory.

Component 2A funded development of all necessary studies for preparation of two investment

projects in the total amount of about US$54 million. This included preparation of feasibility study,

environmental assessment, and detailed designs and bidding packages for two East-West

Highway sections. As a result, 37 km of this critical Georgian transport corridor have been

rehabilitated and upgraded from 2 lane to 4 lane. Thus, the Project outcomes were fully achieved,

however, given the weaknesses in the design for Igoeti-Sveneti section, the rating of this

component is suggested as moderately satisfactory.

Investments in the East-West Highway, based on feasibility studies and designs, proceeded

expeditiously. Investment for Khudoni has yet to materialize. Government has taken adequate

steps to secure investment, but a direct causal link between feasibility studies for Khudoni and

private sector investments is difficult to establish. Nevertheless, the Project achieved its

development objective to facilitate infrastructure investment in that quality studies are available

to investors, shaving years of study work off investment plans going forward. It is clearly

expected that further project development work for Khudoni, detailed designs and completion of

safeguard arrangements prior to investments, would build directly on the work done under the

Project. It is important that the international Panel of Experts recognized the techno-economic

study of Khudoni to be on level of feasibility, and also that the international environmental/social

Panel of Experts accepted that the safeguard (framework) studies undertaken are adequate for this

stage of the project, although they have a series of critical comments to the safeguard studies that

11

are made in the panel’s last report and which thus constitutes an important supplemental report

for future investors in the hydropower project.

3.3 Efficiency

The Project funded TA for Khudoni hydropower station and East-West corridor to prepare for an

investment project; therefore, no economic and financial analyses of the TA project as such were

conducted during Project appraisal or at Project completion.

3.4 Justification of Overall Outcome Rating

Rating: Satisfactory

The Project development objective was highly relevant and fully achieved as measured against

the monitoring indicators presented in the Results Framework Analysis and Section 1.2. Project

efficiency was not assessed because the Project funded TA for Khudoni hydropower station and

East-West Highway. Closing Date was extended by 16 months due to Component 1; however, it

was never expected to be a bottleneck with respect to implementation of the Khudoni investment

project. Despite the delays in implementation of the Component 1 and quality issues with output

of the Component 2 A, the overall outcome is rated as Satisfactory.

3.5 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development

The Project itself had no direct poverty, gender, or social impact because it funded TA for

infrastructure rather than infrastructure itself. The assessment of the poverty, gender and social

impact of the follow-up infrastructure investment is outside the scope of this ICR.

(b) Institutional Change/Strengthening

The project has led to strengthening and mobilization of the local hydropower engineering

capacity, this engineering capacity was later used for the design of other hydropower station

throughout Georgia.

(c) Other Unintended Outcomes and Impacts (positive or negative)

The practice of using a local panel of experts was effective for the Khudoni hydropower station

and was replicated for other hydropower station schemes in Namakhvani and Mtkvari.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

No beneficiary survey or stakeholder workshop was conducted.

4. Assessment of Risk to Development Outcome

Rating: Moderate

The Project outcome was sound Government investment decisions in the East-West Highway. As

with regards to the hydropower component, at the time of this ICR, a private investment

consortium signed a Memorandum of Understanding for investing in the Khudoni hydropower

plant and based in the Government information the consortium is committed to proceed with the

investment. However, it cannot be excluded that the construction decision for Khudoni could be

pushed into a distant future as no construction has started at the time of the ICR. On that basis,

the risk to development outcome has been rated Moderate rather than Low for the overall Project.

Furthermore, construction of Khudoni HPP is a relatively high-risk undertaking because it is

complex—technically, financially, environmentally and socially—as is often the case with large-

12

scale hydropower projects. The size of the completed Khudoni HPP will have a substantial effect

on the national and regional energy balance. Therefore, due to complexity and size, the

construction carries considerable risk, which is among the reasons why cascade developments

like Namakhvani HPP, where investments can be broken into smaller segments and spread over

time, recently have been perceived as more attractive for investors. An added complexity for

Khudoni is its location upstream of the Enguri dam. The Enguri HPP has its reservoir in Georgia

proper and the powerhouse and control room located in the conflict region of Abkhazia. The two

power plants would need to coordinate their operations in order to enhance the economic results

for Enguri, and also for dam safety reasons for Enguri.

The East-West Highway studies financed under the Project were utilized as inputs for the Bank-

funded road investment projects. The preliminary design and environmental impact assessment

for the Agaiani-Sveneti road section and the detailed design for Agaiani-Igoeti were used for the

First East-West Highway Project (IDA-42480). Detailed design, EMP, RAP were used for the

Bank-funded Second East-West Highway Improvement Project (IDA-43730). Studies funded by

IPF have facilitated timely and efficient investment into the First and Second East-West highway

projects. Therefore, the risk to development outcome is rated Negligible to Low for this

Component 2 when assessed isolated from Component 1.

In consideration of the above, the risk to the development outcome for the overall Infrastructure

Pre-investment Facility is assessed as Moderate.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry


Based on the assessment of Project preparation and design outlined in Section 2.1, Bank

performance in ensuring quality at entry is rated as Satisfactory. Project objectives and

components were well-defined and consistent with national priorities and CPS objectives. The

project risks at the Project preparation were assessed realistically. Respectively the project was

identified, prepared, and appraised in the way that ensured that the planned development outcome

was achieved.

(b) Quality of Supervision


The World Bank conducted extensive Project supervision, involving two infrastructure sub-

sectors—energy and transport; seven supervision missions included both Bank staff and external

consultants from the two sub-sectors. In addition, the Project road sub-sector component was

supervised in parallel with the current road portfolio. The task management and supervision was

partly decentralized to the country office, which facilitated continuous Project supervision and

ensured high-quality and responsive Bank inputs.

On several occasions supervision teams were reinforced by senior Bank staff responsible for

Bank-wide oversight over dam safety and environmental and social safeguards, which heightened

supervision quality and ensured compliance with environmental and social safeguards.

In addition, the complexity of the proposed Khudoni hydropower project encouraged the Bank to

undertake extra supervisory precautions. The Project funded TA, not actual construction, but the

Project was nevertheless environmentally rated Category B. During Project supervision, the

13

Bank was actively involved in the substance of the Khudoni study and utilized its considerable

expertise in hydropower construction to the benefit of the Project. The Bank’s Project Team was

also benefitting from the hiring under the Project of a highly competent international

Engineering/Dam Safety Panel of Experts and an international Environmental/Social Panel of

Experts.

(c) Justification of Rating for Overall Bank Performance


The Project quality-at-entry and supervision are rated Satisfactory, which warrants Satisfactory

rating for the overall Bank performance.

5.2 Borrower Performance

(a) Government Performance


The Ministry of Energy and the Ministry of Economic Development were the primary

counterparts. The Ministry of Energy was active in reviewing and commenting on studies.

Government was leading public consultations for Khudoni hydropower. Despite some contractual

issues with the Engineering Consultant took an excessively long time to resolve the overall

Government performance was satisfactory. The Roads Department at the Ministry of Economic

Development participated in implementing road-related Project activities from the technical side.

Government commitment to rapid upgrade of East-West Highway contributed to the timely

completion of all Project-related studies, and quick preparation and approval of subsequent

investment projects, however the high stress level inflicted on staff and contractors for

accelerated delivery and limited time frame and budget allocated for preparation of the studies

impacted the quality of outputs.

(b) Implementing Agency or Agencies Performance


The Project Service Organization, which had a track record of satisfactorily implementing

previous Bank-funded operations (Power Rehabilitation Project, Electricity Market Support

Project), implemented also the Project’s Component 1 successfully. Component 2 was

successfully implemented by TRRC, which also had satisfactorily implemented road investment

projects. The PSO and TRRC performance in financial management and procurement functions

were satisfactory.

(c) Justification of Rating for Overall Borrower Performance


6. Lessons Learned

Six lessons emerged from the implementation of the Project. The lessons are summarized below:

First; Hydropower studies are notorious for cost overruns, most notably because the

geology on the dam site is typically not fully known at project start. Therefore, contingency

funds for additional studies should be ample or a strategy for expedient allocation of

additional funding should be identified during project preparation.

Second; When requested by government for assistance with hydropower development –

even if the request is only for undertaking studies – Bank project teams need to be mindful

of the larger river basin context and make sure that enough is known about optimum

14

placement (and types) of dams if a multi-dam development could be envisaged for the

future. Comprehensive river basin plans would of course address many issues beyond

hydropower. In the case of Khudoni, the government already had elaborate river basin

development plans, but they were from the 1990s and, prompted by suggestions from the

international Panel of Experts, were revisited during Project implementation, directly impacting

the implementation schedule by about three months. These further river basin studies, undertaken

by the Engineering Consultant, reconfirmed the adequacy of the original Khudoni dam location.

Third; Undertaking a Strategic Environmental Assessment (SEA) is prudent policy

whenever new power generation is contemplated and past SEAs are non-existent or dated.

Undertaking a SEA was originally not part of the Project’s hydropower component, and the

Government was originally of the opinion that sufficient studies of this nature had been made. In

retrospect, the Bank’s team concluded that a SEA should have been incorporated in the Project’s

initial plans. The Government agreed during Project implementation to undertake a SEA;

however, since available IDA funds at a critical point in time seemed inadequate to also finance

such study, the development of the SEA was ultimately managed by the Bank and financed over

the Bank’s supervision budget.

Fourth; Allocation of sufficient resources and time for preparation of feasibility studies and

designs is essential. Only 6 months were given for the designs, when about 12 months would

have been more appropriate and the budget allocated for the designs was only at about 1.5% of

the construction costs, when usually about 5% is allocated for projects of similar size and

complexity, The Bank should intervene in cases when the budget allocation seems insufficient for

good quality outputs, or when the delivery is too rushed.

Fifth; When a line ministry is in charge of the contract management/supervision of

consultancy assignment; a lump-sum contract, as opposed to a time-based contract seems to

be more effective. The line ministries sometimes have constrained resources for the supervision

and monitoring of the time based contract which requires close monitoring of staff-days worked

and processing monthly payments. Linking payments to the consultant to the specific

deliverables/outputs would ease the pressure on the line ministry and make implementation of the

consultancy assignment more effective.

Sixth; The Projects which envisage work s located near areas of potential military activities

or areas which are not fully under the Government control should build into the project

design mitigation measure for the potential implementation delays.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners

(a) Borrower/implementing agencies

The Borrower reviewed the ICR and provided comments which were largely of a factual nature

and have been reflected in the document. The Borrower broadly agreed with the findings of the

ICR. The Borrower's comments are also attached in Annex 7.

(b) Cofinanciers

N/A

(c) Other partners and stakeholders

The Bank’s Project team communicated extensively with Georgian NGOs that had local interest

in the Khudoni area; that had particular interest in environmental issues, and that were overseeing

15

Bank-financed projects in general. Also the Government communicated with these NGOs,

although mostly through the public consultations that took place. At the time when the Project

team realized that the development of a Strategic Environmental Assessment could add value to

the study work, i.e. by placing Khudoni in the context of other electricity supply enhancing or

demand reducing options, NGOs made the same point. The NGOs engagement gave a helpful

impetus to the plans to develop a SEA in the context of the Khudoni studies. The SEA was made

publically available.

16

Annex 1. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent)

Components Appraisal Estimate

(USD millions)

Actual/Latest

Estimate (USD

millions)

Percentage of

Appraisal

Component 1. TA for Khudoni

Hydropower Project Preparation 3.30 3.86 117

Component 2: TA for Preparation

of Transit Corridor Projects.

2.A. for Preparation of East-West

Highway Improvement Project;

2.B. TA for Preparation

2.60 1.50 58

Total Baseline Cost 5.90 5.36 91

Physical Contingencies

0.00

0.00

0.00

Price Contingencies

0.00

0.00

0.00

Total Project Costs 5.90 5.36

Front-end fee PPF 0.00 0.00 .00

Front-end fee IBRD 0.00 0.00 .00

Total Financing Required 5.90 5.36 91

(b) Financing

Source of Funds Type of

Cofinncing

Appraisal

Estimate

(USD

millions)

Actual/Latest

Estimate

(USD

millions)

Percentage of

Appraisal

Borrower 0.90 0.77 85

IDA Grant 5.00 4.58 92

17

Annex 2. Outputs by Component

Component 1: TA for hydropower Project preparation (Cost US$3.3 million)

The Grant financed two major studies; a feasibility study for the Khudoni Hydropower Project

that assessed technical, economic, and financial viability, and an Environmental and Social

Impact Assessment, the latter including an Environmental and Social Impact Assessment per se;

an Environmental Management Plan; and a Preliminary Resettlement Action Plan. In addition,

this component financed services of an international panel of experts to review technical and

environmental studies.

Activity Output

TA, Preparation of Feasibility

Study for Khudoni Hydropower

Station

Phase 1, 2, and 3 reports of Feasibility Study.

TA, Preparation of Environmental

and Social Impact Assessment

Khudoni Hydropower Station Environmental and

Social Impact Assessment

Financing of Technical and

Environmental Panel of Experts

Comments on the Feasibility Study and Environmental

and Social Impact Assessment

Component 2: TA for Preparation of Transit Corridor Projects (total component cost is US$2.55

million, divided into two sub-components)

Sub-component 2A. TA for Preparation of East-West Highway Improvement Project (sub-

component cost is US$1.6 million). The sub-component financed a feasibility study, preliminary

design and environmental assessment of road section from Agaiani to Sveneti. The preliminary

review was followed by detailed design and preparation of bidding packages for each section.

Initially it was envisioned that the Agaiani–Sveneti road would be divided into three sections, and

there would be three assignments for detailed designs and bidding documents. However, during

procurement the RD and the Bank team agreed to combine sections 2 and 3, which resulted in

preparation of designs for Agaiani–Igoeti and Igoeti–Sveneti sections, leading to two investment

projects. Environmental and social implications of the corridor improvement project were

analyzed as part of technical studies.

There were some issues with implementation of the contract for preparation of designs for the

Agaiani – Igoeti section by the consulting firm. The timeframe given for design preparation was

very tight, and there were some delays to the schedule in incorporating comments into the final

designs. As a result the Roads Department penalized the company and didn’t issue the last

payment, even though the overall designs were of good quality and the Bank team recommended

full payment. The designs for the second section (Igoeti – Sveneti) were prepared by another

company, and have experienced similar problems with very limited time allocated and pressure to

deliver. The quality of the final designs for this section was not as strong as for the first, and some

weaknesses of the designs related to profile and pavement structure became apparent later during

the construction. The review of the designs missed these weaknesses. At this time the capacity of

the RD was rather stretched, the summer vacation season further made it difficult to allocate staff

for review, and there was a big rush to issue the bidding documents.

18

Sub-component 2B. This sub-component was canceled due to lack of funding and no activities

were performed. Project design anticipated this component as contingent on savings from other

components, which did not materialize.

Activity Output

TA, Preparation of a Feasibility

Study, Preliminary Design and

Environmental Assessment Study

for Agaiani- Sveneti

Feasibility Study, and Preliminary Design

Environmental Assessment Study, EMP and RAP for

Agaiani- Sveneti

Final Designs and bidding

documents for 3 sections of

Agaiani- Sveneti road

Detailed Design and bidding documents for a section

Agaiani- Igoeti

Detailed Design and bidding documents for a section

Igoeti - Sveneti

19

Annex 3. Economic and Financial Analysis

No economic and/or financial analysis was conducted.

The Project funded studies for Khudoni Hydropower station and East-West corridor to prepare an

investment Project.

20

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/

Specialty

Lending

Supervision/ICR

Josephine A. Kida Program Assistant ECSSD

Elena Y. Chesheva Operations Officer ECSS5

Jane Olga Ebinger Sr. Energy Specialist SEGES

Majed El-Bayya Lead Procurement Specialist ECSO2

Daryl Fields Sr. Water Resources Spec. ECSS2

Bjorn Hamso Sr. Energy Economist SASDE

Satoshi Ishihara Sr. Social Development Specialist EASTS

Surekha Jaddoo Operations Analyst ECSS2

Darejan Kapanadze Sr. Environmental Spec. ECSS3

Zarafshan H. Khawaja Sr. Social Development Specialist OPCQC

Martha B. Lawrence Sr. Transport. Specialist ECSS5

Olivier P. Le Ber Lead Transport Specialist MNSTR

Antonio G. Lim Consultant EASHD

Ramon Lopez-Rivera Consultant ECSS2

Lorraine McCann Kosinski Temporary ECSSD

Joseph Melitauri Sr. Operations Officer ECSS2

Philip W. Moeller Consultant ECSSD

Marjorie Mpundu Counsel LEGAF

Alessandro Palmieri Lead Dam Specialist OPCQC

Gennady Pilch Sr. Counsel LEGOP

Wolfhart Pohl Sr. Environmental Specialist ECSS3

Lucian Bucur Pop Sr. Economist HDNSP

Kristyn E. Schrader Sr. Communications Officer ECAEX

Karl Skansing Consultant AFTSP

Radhika Srinivasan Sr. Social Scientist OPCFC

Tamara Sulukhia Country Sector Coordinator ECSSD

Arman Vatyan Sr. Financial Management ECSO3

Elizabeth C. Wang Sr. Financial Officer ECSS5

Richard Wong Consultant ECSSD

Ghada Youness Sr. Counsel LEGEM

21

(b) Staff Time and Cost

Stage of Project Cycle

Staff Time and Cost (Bank Budget Only)

No. of staff weeks USD Thousands (including

travel and consultant costs)

Lending

FY06 23 76.63

Total: 23 76.63

Supervision/ICR

FY06 10 41.73

FY07 32 221.54

FY08 35 164.26

FY09 30 145.87

FY10 18 70.19

FY11 13 31.12

Total: 138 674.71

22

Annex 5. Beneficiary Survey Results

Not Applicable

23

Annex 6. Stakeholder Workshop Report and Results

Not Applicable

24

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR

The Borrower reviewed the draft ICR and on September 2, 2011 the Ministries of Energy

and Natural Resources and Infrastructure and Regional Development provided comments.

The comments and recommendations are presented below. The recommendations are also

incorporated into the ICR’s section Lessons Learned.

1. Comments and Recommendations provided by the Ministry of Energy and Natural

Resources.

Comments:

1. Ref. 2.2 Implementation (c)

MOE had provided to the consultant part of Component A (Khudoni) required available

data (as undertaken by the contract for Consultants’ Services-annex F), but significant

part of historic data was held in archives of the design company, which was privatized

soon after engineering Consultant started his work. Although MOE was obliged for

assisting in obtaining data from only Government agencies, it still assisted the consultant

by sending support letters to Hydro Project and correspondingly receipt of the materials

was confirmed by the letter from the Consultant shortly after the effective date of the

contract.

2. Ref. 2.2 Implementation (d)

Reasons for requesting the Closing Date extension by the MOE was clearly defined by

the letter of the ministry to WB No: 02/2883 dated 27.09.2010, indicating that additional

time was needed for – reviewing assessments by the POE and also local experts of draft

final feasibility study; negotiating amendment to the contract with engineering

consultants to agree on costs associated with past activities; completion activities.

The finalization process of feasibility study was also impeded by delayed submission of

reports by the consultants, also considering that some of them were lacking significant

information and were deemed as incomplete by the MOE and POE. Thus additional time

was needed for revising the documents in proper manner for acceptance, finally

impacting the overall completion schedule. Moreover in the process of assignment

additional scope of work was identified requiring additional time and funds.

Consequently consultations regarding this particular matter took specific time resulting in

the delay of initiating next phase of the assignment.

3. Ref 4. Assessment of Risk to Development Outcome

The decision to build Khudoni HPP has been taken by the investor, thus project

implementation agreement is already signed and effective.

4. Ref 5.2 Borrower Performance (a)

25

Same as comment 1

Recommendations

Contract for consultancy services shall reflect interests of a client more clearly and adequate

mechanism in order to ensure contract management is carried out in a time efficient manner. In

particular it would be more productive payments to be linked with specific millstones and

deliverables rather than reported workdays converted into monthly payments.

2. Comments and Recommendations provided by the Ministry of Infrastructure and

Regional Development

Ministry of Regional Development and Infrastructure and Roads Department of Georgia have

positive approach on the World Bank N:IDA-H2040 Grant project, concerning of TA of

Agaiani-Sveneti road section.

The MRDI and RD comments, concerning Component 2 ―(i) feasibility study, preliminary

design and environmental assessment of Agaiani to Sveneti road section and (ii) Detail Designs

and Bidding Documents for the Agaiani-Igoeti and Igoeti-Sveveti sections‖ are following:

• On the page 6 and 7 (sub-chapter e) it is mentioned, that the design companies were

given limited budget and very limited time frame to prepare designs. The design budget was

defined by the tender and also the time frame was agreed with the World Bank.

• Last sentence of the same sub-chapter is saying, that in hindsight, under the IPF Project

more time and resources should have been allocated for consultants to produce the studies and

for thorough review of all outputs, additional experts should have been involved to strengthen

the capacity of the Roads Department in monitoring the quality of the outputs. The tender

qualification requirements should be stronger; this is the main reason of the design weakness.

• The last sentence of chapter on page 13 states that the Government commitment to rapid

upgrade of East-West Highway contributed to the timely completion of all Project-related studies,

and quick preparation and approval of subsequent investment projects, however the high stress

level inflicted on staff and contractors for accelerated delivery and limited time frame and budget

allocated for preparation of the studies impacted the quality of outputs. There was not any

pressure on the time frame and again we mention that the main reason is a very low qualification

requirements were foreseen in the tender.

• The same comment pertains to the statement on page 14, the price was defined by the

tender and World Bank has provided no objection on this. And the time frame was also agreed

with the World Bank.

• Last chapter on the 17th page is states that Roads Department penalized the consultant

company and didn’t issue the last payment for the Agaiani-Igoeti section. Foreseen that the there

were mistakes in the design; the payment was issued to the contractor company who hired the

new design company and has incorporated all mistakes.

• The last sentence of the same chapter is saying, that at this time the capacity of the RD

was rather stretched, the summer vacation season further made it difficult to allocate staff for

26

review, and there was a big rush to issue the bidding documents. The reason of the weakness is

only the low qualification of the consultant and we can say that RD staff was not on the summer

vacations.

27

Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders

Not Applicable

28

Annex 9. List of Supporting Documents

1. Strategic Environmental Assessment

2. Country Partnership Strategy for Georgia For the Period FY10-FY13

3. Supervision Aide Memoires for IPF and East West Highway Projects

4. Project Implementation Status Reports

5. IPF Project Appraisal Document

6. Second East West Highway Implementation Progress Report

7. Khudoni Hydropower Station Feasibility Study

8. Khudoni Hydropower Station Environmental and Social Impact Assessment

9. Comments on the Feasibility Study and Environmental and Social Impact

Assessment

Proposed KHUDONI Hydropower Plant

Project Study:AGAIANI-SVENETI

ChinvaliChinvali

KobuletiKobuleti

AhalciheAhalcihe

OniOni

ZugdidiZugdidi

KuleviKulevi

AhalkalakiAhalkalaki

NinocmindaNinocminda

LagodehiLagodehiMtskhetaMtskheta

KazbegiKazbegi

TkvarceliTkvarceli˘̆

GagraGagra

MestiaMestia

AmbrolauriAmbrolauri

AhmetaAhmeta

OcamciraOcamcira˘̆ ˘̆

AkarmaraAkarmara˘̆

SupsaSupsa

SenakiSenakiChaltuboChaltubo TkibuliTkibuli

SachereSachere˘̆

BorjomiBorjomi

ValeVale

BakurianiBakuriani

MarneuliMarneuli GardabaniGardabani

VakhtangisiVakhtangisiKazretiKazreti

GurdzaaniGurdzaani˘̆

TelaviTelavi

Snoris TskaliSnoris Tskali

Dedopis-CkaroDedopis-Ckaro

DzvariDzvari˘̆

SuramiSuramiMukhianiMukhiani

BrotseulaBrotseula

OzurgetiOzurgeti

KutaisiKutaisi

BatumiBatumiTBILISITBILISI

KhasuriKhasuri

SamtrediaSamtrediaPotiPoti

RustaviRustavi

GoriGori

ZestaponiZestaponi

ZZagesiagesi

FFonichalaonichala

RRed Bridgeed Bridge

SokhumiSokhumi

Kobuleti

Ahalcihe

Oni

Zugdidi

Kulevi

Ahalkalaki

Ninocminda

LagodehiMtskheta

Kazbegi

Tkvarceli˘

Gagra

Mestia

Ambrolauri

Ahmeta

Ocamcira˘ ˘

Akarmara˘

Supsa

SenakiChaltubo Tkibuli

Sachere˘

Borjomi

Vale

Bakuriani

Marneuli Gardabani

VakhtangisiKazreti

Gurdzaani˘

Telavi

Snoris Tskali

Dedopis-Ckaro

Dzvari˘

SuramiMukhiani

Brotseula

Ozurgeti

Kutaisi

Sokhumi

Chinvali

BatumiTBILISI

Khasuri

SamtrediaPoti

Rustavi

Gori

Zestaponi

Zagesi

Fonichala

Red Bridge

R U S S I A N F E D E R A T I O N

T U R K E Y

A R M E N I AA Z E R B A I J A N

R U S S I A N

F E D E R A T I O N

Enguri Hydropower Plant

B l a c k

S e a

Rion

i

Rioni

Rioni

Enguri

Chen

iscka

li

Enguri

Mtkvari (Kura)

Cho

roki

Mtkvari

Kvirilk

Aragvi

Iori

Iori

Alazanl

Ala

zanl

Iori

(Kura)

ToZagatala

To Gazah

ToAlaverdiTo Tasir˘

To Gyumri

ToSoci˘

To Vladikavkaz

To Trabzon

43°42°

41°

44° 45° 46°

43°42°41° 44° 45° 46°

40°

40°

43°

42°

41°

43°

42°

41°AZERBAIJAN

ARMENIA

ISLAMIC REP. OF IRAN

TURK

MEN

ISTANT U R K E Y

SYRIAN ARAB REP. IRAQ

GEORGIA

U K R A I N E

RUSS IAN

FEDERAT ION

KAZAKHSTAN

Tbilisi

Casp ian

Sea

B lack Sea

GLACIER AREAS

RIVERS

SELECTED CITIES

NATIONAL CAPITAL

INTERNATIONAL BOUNDARIES

ROAD SECTION STUDIED UNDER THE PROJECT

EAST - WEST ROAD CORRIDOR

MAIN ROADS

EAST - WEST RAILWAY CORRIDOR

OTHER RAILWAYS

PROPOSED KHUDONI HYDROPOWER PLANT

IBRD 34376

DECEMBER 2005

G E O R G I A

INFRASTRUCTURE PRE- INVESTMENTFACIL ITY

0 15 30 45 60 75 KILOMETERS

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries.