Project 2 of the Investment Program will improve WSS services in Anaklia and Mestia. The outcome of project 2 is improved access to WSS infrastructure in Anaklia and Mestia.
Component 1: Infrastructure Improvement
The first component will support infrastructure investments to rehabilitate, improve, and expand WSS facilities in Anaklia and Mestia, and benefit approximately 8,000 permanent residents of the areas and 20,000 tourists by the end of the project period. This translates to approximately 2.4% of the population benefited by the investment program. Project 2 includes construction of 67 km water network, 76 km of sewer network, and a 4.3 MLD STP. The WSS infrastructure will improve the quality of life in the two towns and cater to an ultimate design population of 50,000 persons including tourists by 2040.
Component 2: Institutional Effectiveness
Financial management, accounting, and institutional development targets will focus on service centers in Anaklia and Mestia. The activities under this component are financed by the tranche 1 loan.
Component 3: Project Implementation Support
Project implementation support financed through tranche 1 of the MFF will provide construction supervision oversight of works under project 2. A Construction Supervision firm recruited under project 1 will oversee the supervision of WSS system and the STP planned under project 2. Similarly, the public awareness program undertaken under project 1 will help achieve targets in Anaklia and Mestia, under project 2.
|Project Rationale and Linkage to Country/Regional Strategy
The Urban Services Improvement Investment Program (the Investment Program) will improve water supply and sanitation (WSS) services in Georgia's urban centers, which includes provincial capitals, secondary towns and economically important towns. The Investment Program will include (i) infrastructure improvement to rehabilitate, improve, and expand WSS services; (ii) enterprise resource planning and management to improve the service utility's efficiency and sustain investments in the long-term; and (iii) Investment Program management and implementation support.
Georgia has a population of 4.43 million and serves as an important nodal point for inter-regional trade flows connecting the South Caucasus and landlocked Central Asia with the Black Sea and Mediterranean basins. The country's gross domestic product (GDP) is $10.5 billion with an annual growth of 5.9% (2004-09). Its economy is based on remittances, metal export and trade that constitute 75.3% of the country's own revenues sources ($2.78 billion in 2009).
The 2008 war with Russia and the global financial crisis had a significant impact on the country's economy. To overcome the slowdown, Georgia implemented deep and far-reaching structural and institutional reforms aimed at improving overall economic management, raising the country's competitiveness through attractive business climate, strengthening safety nets and upgrading dilapidated infrastructure and municipal services.
However, recovery has been slower than anticipated. While the real GDP growth rate for 2010 is projected at 4.5%, an increase from 2.3% in 2008 and -3.9% in 2009, revenue shortfalls continue to exert pressure on public expenditures. Preliminary foreign direct investment (FDI) in the first half of 2010 was $273 million (down by 6.4% year-on-year) but is showing signs of improvement. Main sectors that attract FDI are real estate, industry, construction, and transport and communications. Unemployment continues to remain high at 16.9% (2% higher than 2008) and is a major concern. In 2010, around 21% of the country's population lived in poverty and 8.8% in extreme poverty. A 2009 UNICEF survey on Social Welfare Monitoring also found that poverty was concentrated in secondary towns. Further, the survey found poverty incidences were high among female-headed households (25%).
As one measure to enhance revenues and economic growth and alleviating poverty, the government has increased its emphasis on regional development through targeted social and physical infrastructure investments. The government's economic growth strategy draws from the Program of the Government of Georgia (2008-12) and includes development and expansion of the Batumi port and a free industrial zone at Poti (along the Black Sea Coast and of strategic geospatial importance), improvement of road and rail linkages across the country, establishment of agro-processing industries in select urban centers to capitalize on agriculture produce and build on the farm to market principle, and development of tourist centers along the Black Sea coast and the Svaneti and Kazbegi regions.
To address imminent pressures on physical infrastructure, the Ministry of Regional Development and Infrastructure (MORDI) has undertaken various initiatives, and in particular, interventions to improve water supply and sanitation (WSS) across the country. Government spending itself is insignificant and in 2009, MORDI spent only $10 million for water supply and $1 million for sewerage improvements in the country - a mere 0.1% of its GDP - while donors provided bulk of the funding for WSS improvements; approximately $350 million to date. To date, donor financing in the WSS sector is approximately $350 million. Funds were channeled through the MDF with onlending to local governments. Investments in the past were spread thin across all local bodies in the country. Consequently, service efficiency was not significantly improved though sections of ageing or dilapidated infrastructure were rehabilitated or replaced. As a result, the Government felt the need to comprehensively improve services in priority towns through future donor funds.
WSS services are now provided by three service utilities (i) Georgia Water and Power Company (GWPC) that serves Tbilisi and Rustavi (31.8% of country's population); (ii) Batumi Water Company and Adjara local self governments that serves the Adjara Autonomous Region (8.6% of country's population); and (iii) United Water Supply Company of Georgia LLC (UWSCG) that serves the rest of the country (58.5% of country's population). The State Commission on Water Supply and Energy (SCWSE) provides policy direction, and the Georgia National Energy and Water Regulatory Commission is responsible for economic regulation.
Most economic growth centers proposed for development by the government are in the region served by UWSCG. In this region, only 69.7% urban population has piped water supply and 15.5% urban population has access to sewerage system. Sewage from the reticulated network is discharged directly into streams or water channels without any treatment. The Investment Program socioeconomic surveys (which included an assessment of WSS coping strategies and willingness to pay) indicate that WSS services are irregular and severely affect the poor and internally displaced persons. Households headed by women account for 23.4% of Investment Program beneficiary households. Sick days due to waterborne illnesses are also higher for women (12) than for men (5).
UWSCG is a fledgling organization and is currently refining its business processes with donor assistance. UWSCG's financial management requires significant improvement - revenue collections are 72% (49% residential and 94% non-residential) for the first half of 2010, and for the same period its revenue is $3.62 million and expenditure is $6.65 million requiring a 50% government subsidy. Average residential WSS tariffs set by the Georgia National Energy and Water Supply Regulatory Commission (GNEWSRC) for 2010 is $0.15/cum while UWSCG's tariff estimates based on revenue recovery is $0.21/cum. Clubbed with poor collection efficiency, the gap is expected to widen over time if adequate revenue enhancement measures are not implemented expeditiously.
The Urban WSS Policy for UWSCG reflects the government's development agenda and aims to provide quality WSS services to all urban population by 2020 - ensuring technically, financially and institutionally sustainable services (see Appendix 2, Problem Tree Analysis). Consequently, the investment plan estimates to achieve the objectives are $1.6 billion. The sector road map being developed indicates the actions, institutional responsibilities, and timelines to meet the development agenda - it builds on cross-cutting issues that include planning, core service delivery and asset management, institutional development, financial management, legislations and regulatory actions.
The proposed Investment Program fits within the overall growth context (para 5) and the efforts underway to match infrastructure with the emerging needs. It will focus on improving WSS services in priority towns of Kutaisi, Poti, Marneuli, Zugdidi, Anaklia and Mestia, and benefit approximately 335,000 persons (38% of urban population in UWSCG region). It will also comprehensively improve WSS services in the selected economic centers rather than spreading thin the investments and diluting the impact. The Investment Program supports ADB's interim operational strategy (2008-09) objectives, which is consistent with the government's agenda to improve WSS service delivery through effective implementation of legal, economic, and financial frameworks for local self-governance.