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Document ofThe World Bank

Report No: 17144-GE

PROJECT APPRAISAL DOCUMENT

ONA

PROPOSED CREDIT

IN THE AMOUNT OF SDR 14.6 MILLION

TO

GEORGIA

FOR A

SOCIAL INVESTMENT FUND PROJECT

November 11, 1997

Infrastructure SectorEurope and Central Asia Regional Office

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CURRENCY EQUIVALENTS(Exchange Rate Effective 10/97)

Currency Unit = Lari (L)Lari 1 = US$0.8US$1 = Lari 1.30

MEASUREMENTSquare feet I = 0.09 Square Meter (sqm, mi2 )

I square mile (27,878,400 square feet) = 2.588 square kilometers (kM2)I acre (43,460 square feet) = 0.405 hectare

ABBREVIATIONS AND ACRONYMS

CAS Country Assistance StrategyFDD Fund for Democracy and Development

FE Follow-up EngineerFSU Former Soviet UnionFY Financial Year

GDP Gross Domestic ProductGSIF Georgia Social Investment FundGOG Government of GeorgiaICR Implementation Completion ReportIDA International Development AssociationIMF International Monetary Fund

IS International ShoppingISU Institutional Support Unit

LSMS Living Standards Monitoring SurveyMPC Microproject CommitteeMPU Microprojects UnitMIS Management Information System

MOF Ministry of FinanceNCB National Competitive BiddingNGO Non-governmental Organization

NS National ShoppingO&M Operation and Maintenance

PHRD Policy & Human Resources Development Fund (Japan)PIP Project Implementation PlanPIU Project Implementation UnitPPF Project Preparation FacilitySAC Structural Adjustment CreditSDR Special Drawing RightSDS State Department of StatisticsTA Technical Assistance

USAID US Agency for International Development

Georgia - FISCAL YEARJanuary 1 - December 31

Vice President, Europe and Central Asia: Johannes Linn (ECAVP)Country Director: Judy O'Connor (ECC03)Director, Infrastructure Sector: Ricardo Halperin (ECSIN))Georgia Team Leader, Infrastructure Sector Robert Maurer (ECSIN)

GeorgiaSocial Investment Fund Project

CONTENTS

A. Project Development Objective .............................................................. 2

1. Project Development Objective and Key Performance Indicators ............................................... 2

B. Strategic Context .............................................................. 2

1. Sector-related CAS Goal Supported by the Project .............................................................. 22. Main Sector Issues and Government Strategy .............................................................. 23. Sector Issues to be Addressed by the Project and Strategic Choices ...................... .....................3

C. Project Description Summary ............................................................................ 4

1. Project Components .............................................................. 42. Key Policy and Institutional Reforms Supported by the Project .................................................. 43. Benefits and Target Population ............................................................. 44. Institutional and Implementation Arrangements .............................................................. S

D. Project Rationale .............................................................. 7

1. Project Alternatives Considered and Reasons for Rejection ........................................................ 72. Major Related Projects Financed by the Bank and/or Other Development Agencies ................. 83. Lessons Learned and Reflected in the Project Design .............................................................. 84. Indications of Borrower Commitment and Ownership .............................................................. 95. Value Aded of Bank Support in this Project ........................ ...................................... 9

E. Summary Project Analyses ............................................................. 9

1. Economic and Financial Assessment ............................................................. 92. Fiscal Assessment .............................................................. 93. Technical Assessment ............................................................. 104. Institutional Assessment ............................................................. 105. Social Assessment ............................................................. 116. Environmental Assessment ............................................................. 11 7. Participatory Approach ............................................................. 12

ii

F. Sustainability and Risks ........................ 12

1. Sustainability ........................ 122. Critical Risks ........................ 143. Possible Controversial Aspects ........................ 15

G. Main Loan Conditions ........................ 15

1. Effectiveness Conditions ........................ 152. Other ........................ 15

H. Readiness for Implementation ........................ 15

I. Compliance with Bank Policies ........................ 15

Annexes

Annex 1. Project Design SummaryAnnex 2. Detailed Project DescriptionAnnex 3. Estimated Project CostsAnnex 4. Cost-Effectiveness Analysis SummaryAnnex 5. Financial SummaryAnnex 6. Procurement and Disbursement Arrangements

Table A. Project Costs by Procurement ArrangementsTable Al. Consultant Selection ArrangementsTable B. Thresholds for Procurement Methods and Prior ReviewTable C. Allocation of Loan Proceeds

Annex 7. Project Processing Budget and ScheduleAnnex 8. Documents in Project FileAnnex 9. Statement of Loans and CreditsAnnex 10. Country at a Glance

Map No. IBRD 29195

Project Appraisal Document Page 1

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENTINTERNATIONAL DEVELOPMENT ASSOCIATION

Europe and Central Asia Regional Office

Project Appraisal Document

GEORGIASOCIAL INVESTMENT FUND PROJECT

Date: November 11, 1997 Task Team Leader: Robert MaurerCountry Director: Judy O'Connor Sector Director: Ricardo HalperinProject ID: GE-PA-39929 Sector: Infrastructure Program Objective Category: Poverty AlleviationLending Instrument: Investment Credit Program of Targeted [X] Yes [ ] No

Intervention:

Project Financing Data [] Loan [ X] Credit [] Guarantee [ Other[Specify]

For Loans/Credits/Others: IDA Credit

Amount (US$m/SDRm): $20.0 million/SDR 15.1 millionProposed terms: [X] Multicurrency [ ] Single currency, specify

Grace period (years): 10 [] Standard Variable [ ] Fixed ]LIBOR-based

Years to maturity: 35Commitment fee: 0.50% on undisbursed credit balance, beginning 60 days after signing less any waiver

Service charge: 0.75%

Financing plan (US$m):Source Local Foreign Total

Government 5.8 5.8Local Communities 2.5 2.5IDA 19.9 0.1 20.0

Total 28.2 0.1 28.3

Borrower: GeorgiaGuarantor: N/AResponsible agency: Georgia Social Investment Fund

Estimated disbursements (Bank 1998 1999 2000 2001FY/US$M):

Annual 4.3 4.9 5.2 5.6Cumulative 4.3 9.2 14.4 20.0

Project implementation period: 4 years Expected effectiveness date: 1/15/98 Expected closing date: 06/30/02

OSD PAD Forn: July 30, 1997


A. PROJECT DEVELOPMENT OBJECTIVE

1. Project Development Objective and Key Performance Indicators (see Annex 1)

The project aims to support vulnerable groups among the Georgian population by improvingaccess to basic social and economic services on a sustainable basis through rehabilitation of existinginfrastructure where social returns are highest and where basic services would otherwise be inaccessibleto the poor, particularly in remote mountainous areas. The Georgia Social Investment Fund (GSIF)would improve access to basic services by mobilizing resources (public and private) and channelingthem through small investments (microprojects) that have high likelihood of generating sustainablebenefits. The project's secondary development objectives are to: (i) strengthen the capacity of private,small-scale contractors so that they can benefit directly or indirectly from contracts financed by theGSIF, and build the capacity of communities so that they can prepare and implement small projects; (ii)generate employment by requiring labor-intensive civil works in GSIF financed microprojects; and (iii)build greater capacity for policy makers to monitor and analyze trends in the level and structure ofpoverty in Georgia.

The key performance indicators would be proportion of microproject funds devoted to poorestand least-serviced areas, and proportion of microprojects generating benefits two, three and four yearsafter the investment. Annual performance indicators agreed by the Borrower and the IDA are given inAnnex 1.

B. STRATEGIC CONTEXT

1. Sector-related Country Assistance Strategy (CAS) Goal supported by the Project

CAS document number: 17000-GE Date of latest CAS discussion: October 21, 1997

IDA supports the Government of Georgia in its poverty reduction efforts, while leaving animportant role to the private sector in the provision and financing of social services. The GSIF isconsistent with the country assistance strategy (CAS) two core objectives of poverty reduction byprotecting human capital and building up the skills of the labor force, and fostering development of theprivate sector while growth recovers and additional public and private resources and capacity aredeveloped.

2. Main Sector Issues and Government Strategy

The main concern with respect to local govermment in Georgia is related to its inherentinstitutional weakness. The symptoms of weakness common to the Former Soviet Union (FSU) localgovernments are particularly distressing in Georgia, because of mutually reinforcing effects of recenteconomic recession, war, and general breakdown of civil order. Among specific institutional issues are:(i) little accountability to residents on the part of municipal authorities because there are neithermechanisms allowing citizens to monitor the actions of local governments nor any formal procedures tovoice civil discontent or call for removal of poorly performing officials; (ii) an insufficient regulatoryframework defining the relative allocation of powers and responsibilities both between central and localgovernment and among different bodies within the same municipality; (iii) inefficiencies in themanagement of the municipality's administrative functions with overstaffing and unclear allocation ofresponsibilities among local officials; (iv) communication problems between municipalities and thecenter. Ultimately, such a situation is causing a significant disconnect between civil society and itsleaders.


Until recently, the structure and function of local governments were based on provisionsprovided by a number of Presidential decrees intended to carry Georgia through a transitional phaseleading to local elections tentatively scheduled for early 1998. At the same time institutionaladjustments in the local government sector were focusing on resources allocation and did not affect theSoviet-style local government structure. Since the end of 1995 on the wave of a gradual economicrecovery, the Government and the Parliament have made considerable progress toward the municipal andregional development program and a comprehensive decentralization strategy including inter alia: (i) theestablishment of the legal and regulatory framework; (ii) promoting the fiscal and economicindependence of local government; (iii) improving service delivery for local population; and (iv)improving utilization of local resources for the development of local social infrastructure .

3. Sector Issues to be addressed by the Project and Strategic Choices

Institutional weakness of local governments, loose legal framework, and lack of trust betweensome local govermnents and their constituents undermine the local governments capacity to undertakedemand-driven investments on their own. The proposed project would help promote the sustainabilityof small-scale basic social and economic infrastructure at the local level and alleviate poverty. Theproject would establish a quick and efficient mechanism to rehabilitate infrastructure, generating bothcommunity and Government support for the effectiveness of this mechanism. This would be achievedby ensuring the participation of community members in the identification, implementation andsupervision of microprojects across a variety of sectors (i.e. health, water, sanitation, etc.). Theapproach would engender an attitude of increased self-reliance by communities and a gradualassumption of responsibility and participation in the delivery of services and maintenance ofinfrastructure facilities. It would promote local capacity building at the community, municipalgovernment, and private contractor level. Finally, the project would provide a bridge between a state-centered approach to operation and maintenance of infrastructure to a decentralized system with greatercost recovery and civil society participation. A key institutional mechanism to carry this out is theGeorgia Social Investment Fund (GSIF), recently established with a charter by Presidential decree.With US$60,000 as the average size of a microproject and targeting mostly rural communities, theBank support is complementary to activities already started in the urban areas.

Integral part of the municipal strategy and presently recognized as a top priority project for theGovernment, the Bank is expected to provide long-term, sustainable infrastructure benefits to vulnerablecommunities. This priority arises principally from the need to create and sustain an adequateinfrastructure base and network upon which a strong private sector and economy can develop. This inturn will provide the only true sustainable support to maintain the standard of living for Georgia'scitizens. The GSIF also seeks to support the development of civil society, by encouraging theparticipation of communities and/or NGOs in the identification and implementation of projects, and bybuilding the capacity of communities and local governments. This process will help contribute to theshift of responsibilities and authority to the community level. At the same time, stronger communitieshelp build more responsive and accountable local governments.

State Chancellery, Municipal Sector Policy Letter, May 1997.


C. PROJECT DESCRIPTION SUMMARY

1. Project Components (see Annex 2 for a detailed description and Annex 3 for a detailed costbreakdown)

Rehabilitation of Small Scale Physical 24.7 87.3 17.3 70.0Infrastructure _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Support to Small Contractors Institution-building 0.4 1.5 0.3 72.5and CommunitiesInstitutional Support to GSIF Project Management 2.1 7.4 1.6 74.6Support for Monitoring of Institution- building 0. 1.3 0.3 80.0Living StandardsProject Preparation Facility Physical, Institution-building 0.7 2.6 0.5 68.0

Total 28.3 100.0 20.0 70.5

2. Key Policy and Institutional Reforms supported by the Project

The GSIF project supports the Borrower's municipal development program strategy to improvemobilization of local resources and transparency in their use; rehabilitation and improved maintenanceof public assets; and introduction and expansion of cost recovery for basic services. The project haspotential to complement activities focused on smaller communities interrelated to other IDA operationsin the municipal sector.

3. Benefits and target population

People in approximately 400 communities would benefit from the resulting improvements in theavailability, regularity or quality of basic social and economic services and from greater economicactivity due to demand for local labor, materials, contractors and suppliers. Priority would be given tovillages in mountainous areas that have been neglected historically in terms of infrastructuredevelopment and to communities ranked among the poorest and most in need of infrastructure.According to demand expressed during the pilot phase, water supply, irrigation, roads, and schoolsrehabilitation are expected to be common microprojects, which have a high social return. More than350 small private contractors are estimated to benefit from training and participation in competitivebidding. Families of employed laborers arising from the estimated 494,000 employees labor daysgenerated would also benefit.2 Local government representatives as members of microprojectcommittees are expected to acquire practical experience in procurement on a competitive basis, workssupervision, budgeting and financial management.

2 Assumes 30% labor content, average wage US$15/day.


4. Institutional and Implementation Arrangements

Implementation period: The project would be implemented over a period of four years (1998-2001) in accordance with the Project Implementation Plan in the Operational Manual.

Executing agencies: Georgia Social Investment Fund (GSIF), State Department of Statistics(SDS). The GSIF is an autonomous, newly created entity filling an institutional gap by providingefficient, direct support for small-scale grassroots development. The SDS would be the executingagency for the Monitoring of Living Standards Component, with support of the GSIF in procurementand disbursement activities, accounting, and financial reporting.

Project oversight (policy, guidance, etc.): The GSIF Board, composed of high rankingministry representatives and a non-governmental representative, would approve GSIF policies andprocedures, including the Operational Manual, annual budgets and work plans, quarterly and annualreports and appoint an independent auditor.

Project coordination: GSIF Unit. The project would strengthen the institutional capacity ofthe GSIF which would also act as the Project Implementation Unit (PIU). The GSIF Board wouldrelinquish execution of day-to-day operations to the GSIF PIU headed by the GSIF Executive Director.The GSIF PIU would comprise five units, manned by skilled professionals recruited competitively andemployed on annual, renewable contracts. The GSIF PIU would appraise, finance and supervise theexecution of microprojects, monitor the budget and financial operations, assist MicroprojectCommittees (MPCs) in procurement of microprojects, and ensure all activities are in compliance withthe Operational Manual. The GSIF PIU would coordinate with local government and line ministries toensure proposed microprojects are in compliance with local authorities and ministry plans, norms,standards, and operating budgets and to avoid duplication of funding.

Project Monitoring: Project monitoring and evaluation would be the responsibility of theGSIF, contracting out these functions when appropriate. The objectives of the monitoring andevaluation activities would be to: (a) determine if there is compliance between the Operational Manualand procedures for implementing microprojects and executing contracts; (b) provide informationregularly on progress toward achieving desirable results and facilitating reporting to the GSIF Board,the Government and the IDA; (c) alert GSIF managers to actual or potential problems inimplementation so that adjustments can be made; and (d) determine whether the project is benefiting theintended people and how. The monitoring and evaluation system for the GSIF would comprisemicroproject monitoring by GSIF staff and communities, the Management Information System (MIS),and a beneficiary assessment. GSIF staff would be responsible for visiting microprojects periodicallyand preparing individual reports which are fed into the MIS. Members of the microproject committeewould also be responsible for monitoring and verifying progress and quality of works contracts. Goodmicroproject monitoring is crucial because it provides the baseline information for beneficiary andimpact assessments and provides much of the input for the MIS tracking of the GSIF portfolio. Whilethe MIS would generate information on the physical and financial progress of works, a beneficiaryassessment would be used to evaluate the impact of microprojects on communities and other social andinstitutional issues affecting microproject implementation and sustainability.

Management Information System. The GSIF developed a sophisticated MIS during projectpreparation, based on systems used in other social funds. This computerized system would trackprogression of microprojects through the microproject cycle, provide transparency and accountabilityof financial flows, monitor adherence to the targeting strategy and apportionment of resources bydistrict, monitor civil works progress based on field supervision reports, and flag microprojectsexperiencing unusual delays and cost overruns. These features make the MIS a powerful management


tool in day-to-day decision-making. MIS-generated performance reports would be an integral part of themonthly and quarterly reports submitted to the GSIF Board, potential donors, and the Bank.

Financial Management: The GSIF project financial management system, includingaccounting, financial reporting and auditing arrangements, has been assessed as acceptable to the Bank.The financial and accounting procedures, together with terms of reference (TORs) for accounting andfinancial specialists, and financial reporting formats are outlined in the GSIF Financial andAdministrative Procedures. TOR for financial, managerial and procurement audit are included in theGSIF Operational Manual. The GSIF Financial and Administrative Unit is adequately staffed with twoqualified accounting specialists.

Accounting Information submitted to the IDA by the GSIF PIU would comply with internationalaccounting standards. Cash accounting, used by GSIF for its own financial management purposes, maybe used for project accounting. Project accounts would be maintained by the GSIF PIU separatelyfrom any other existing accounts. GSIF, having the responsibility for orderly and efficient recordingand safeguarding of the project assets and resources would: (a) ensure accountability for project funds;(b) maintain records of the sources of funds, and the relevant accounts, broken down into the varioustypes of expenditure for the project; (c) maintain internal controls to ensure that financial records arereliable, complete and provided on a timely basis; (d) report on the use of funds; (e) facilitateverification of these reports by independent auditors; and (f) provide information, as required, to theIDA.

Financial Reporting. During project implementation, the GSIF PIU would submit a quarterlyProject Financial Management Report in the agreed format to IDA. The Report would include: (i)Summary of Sources and Uses of Funds Report by project categories of expenditures, showing the IDAcredit and funds from other donors separately in currency as determined by project design; (ii)Summary of Expenditures by project components, for the current fiscal year and accumulated to date;(iii) Summary of Statement of Expenditures (SOEs) by individual application reference number andamount3; (iv) Special Account Statement providing reconciliation of amounts in the Special Account;(v) Expenditures Report by disbursement category providing details of eligible project expendituresduring the current quarter and next quarter; (vi) Balance Sheet showing Accumulated Fund of theProject, bank balances, other assets of the project, and project liabilities.

Financial Audit. GSIF would be responsible, on behalf of the Borrower, for providing to theIDA, within 6 months after the end of each fiscal year (including the fiscal year of the final IDAdisbursement) the financial, managerial, and technical audits of the Project that are acceptable to theIDA. During the first year of implementation, such audits would be conducted on a semi-annual basis.GSIF would have the required Financial Statements for each year audited by an independent auditoracceptable to the IDA in accordance with standards that are acceptable to the IDA4. The auditor wouldbe appointed in sufficient time to carry out its responsibilities, including: (a) a review of the financialmanagement systems at the beginning of project implementation; and (b) periodical reviews of theproject financial management systems thereafter. An audit of financial statements would include: (a) anassessment of the adequacy of accounting and internal control systems to monitor expenditures andother financial transactions and ensure safeguarding of project-financed assets; (b) a determination

3 The total withdrawals under the SOE procedure should be added to expenditures financed by the IDA underregular procedures, which together would be equal to total expenditures financed by the IDA shown inSummary of Expenditures.

4 The International Standards on Auditing, published annually by the International Federation of Accountantsand widely adopted by the accounting profession, is an example of standards on auditing that are acceptable tothe IDA.


whether GSIF has maintained adequate documentation of all relevant transactions; and verification thatexpenditures submitted to the IDA are eligible for financing under the project, and identification of anyineligible expenditures. The use of a special account (SA) and statements of expenditures (SOEs)would be addressed separately in the auditor's opinion. The IDA-required audits would not coverpossible donor-funded activities, even if supervised by the IDA.

Management and Technical Audit. The GSIF would be subject to annual procurement andtechnical audits. During the first year of implementation, such audits would be conducted on a semi-annual basis. Following principles similar to those used for financial audits, the experts would verify andcertify the proper application at all levels of guidelines set forth in the Operational Manual as well ascompliance with all of the GSIF's contractual obligations. Special attention would be paid to verifyinginformation from worksites. The audit periodicity would be examined during the mid-term projectreview.

D. PROJECT RATIONALE

In 1996, the Government of Georgia requested IDA's assistance for the preparation of a projectto address the decline in living standards and support basic social services during the transition to amarket-based economy. Project design and preparation was carried out jointly with the Georgia SocialInvestment Fund (GSIF). The project is consistent with the CAS discussed on October 21, 1997, bythe Board of Directors.

1. Project Alternatives considered and Reasons for Rejection

During project design several alternatives were considered including: (a) designating a lineministry or a public agency to administer and implement the GSIF; (b) increasing national contributionto the total project costs; (c) including a microcredit scheme into the project design; and (d) nointervention at all. While institutional arrangements under (a) would be more simple than under theproposed project design, the demand-driven nature of the GSIF requires that it is set up as anautonomous social development agency that can respond quickly to communities' needs in aparticipatory manner. This is consistent with the institutional set up and autonomy of other socialinvestment funds such as the Armenian Social Investment Fund. If successful, the participatoryapproach and procedures used by the GSIF should be transferred to other actors, such as localgovernments. At present, institutional weaknesses of local governments, loose legal framework foroperations, and the lack of trust between some local governments and their constituents undermine theircapacity to undertake GSIF-type microprojects on their own. An increase in the national contribution(i.e., Government's and community's contribution) under (b) in the total project costs was assessed asnot feasible due to the present difficulties in mobilizing counterpart project financing in Georgia and thevulnerable population targeted under the project. The proposed microcredit scheme under (c) woulddivert too much energy and effort from the primary objective of the GSIF. The project-team alsoconsidered the no-intervention scenario, particularly given already ongoing humanitarian activities inGeorgia. However, the rapidly diminishing level of foreign emergency assistance clearly suggests theneed for rapid intervention.


2. Major related projects financed by the Bank and/or other development agencies (completed,ongoing and planned)

Infrastructure Rehabilitation Bank-financedMunicipal Infrastructure S SMunicipal Development S STransport S HS

Reducing Poverty through Health S SImproving Quality and Access to Agriculture Development S SBasic Social ServicesIP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory)

3. Lessons Learned and Reflected in the Project Design

The IDA has been involved in a number of investment operations in Georgia sinceIndependence and the above mentioned projects are relevant to the development objective of theGeorgia Social Investment Fund.

Lessons Learned from the GSIF Pilot Phase: Preparation of the project has benefited fromthe one year pilot phase funded by the United States Agency for International Development (USAID)and with funds from the Plroject Preparation Facility (PPF). Nine pilot microprojects wereimplemented, three in Tbilisi and six in several of the poorest districts in Southern Georgia. Additionalmicroprojects are underway in four other pilot districts. The pilot phase confirmed many communitiesare motivated to work together in selection and implementation of small infrastructure microprojects,are willing to contribute to the costs, though in-kind contributions must substitute for cash in manyinstances. Small private contractors emerged in response to the competitive bidding procedures used bythe GSIF, even in remote regions, and good quality of work was produced. Another lessen learned isthe close connection between quality of microproject appraisal and follow up, requiring flexibility forthe GSIF to contract out construction designs and special studies (such as geological and topographystudies) to qualified firms and to monitor quality of work continuously. (Consequently, two technicalreviews are scheduled foi the first year of the project). Generating greater awareness of and increasedcommitment by communities to operation and maintenance of microprojects emerged early on as achallenge. A number of design features were integrated into the project (see F. 1), including requiring acommunity contribution, assessing sustainability plans during appraisal, and making technical assistanceavailable under the second component to support communities in organizing and managing usersassociations. A need arose for a two-stage appraisal process to prioritize incoming proposals in anunbiased manner, and this has also been reflected in the final Operational Manual. The pilot phase alsohelped the GSIF to define timing and substance of training and technical assistance to communities andcontractors, and to develop and test mechanisms for coordinating with central and local governments toensure microprojects are consistent with norms, standards, and operating budgets. Finally, the pilotilluminated the importance for GSIF to establish staff performance targets and a review system, both ofwhich would be in effect under the proposed project.

Lessons Learned from Bank Project Implementation in Georgia include: (a) stronggovernment ownership, commitment and clear priority are key; (b) emphasis on capacity building isneeded to mitigate the riskcs associated with inexperienced project counterparts; (c) simple and small-


scale projects are more successful, and (d) intensive support and assistance are needed during projectpreparation and implementation.

General Lessons Learned from SIFs Implementation: General lessons emerging from SIFsaround the world include: (i) objectives should be clear and based on community involvement; (ii)institutional arrangements for project implementation should be designed to avoid bureaucraticprocedures, but coordination with line ministries is also important; (iii) well-qualified, professional staffwith performance incentives are necessary; (iv) there should be an incremental approach, building uponand scaling up activities; and (v) great attention is needed to operation and maintenance. The projectdesign has integrated and taken into consideration these lessons.

4. Indications of Borrower Commitment and Ownership

The Ministry of Finance has requested IDA support for the proposed project in the form of theProject Preparation Facility (in amount of US$0.5 million equivalent). Also, the Government ofGeorgia demonstrated its interest in a social investment fund by soliciting help from the USAID to fundthe pilot phase, including a number of microprojects in some of the poorest and most remote areas ofthe country. The government set up the GSIF Board with representation from four governmentministries and agencies as well USAID and two NGOs. The project activities proposed to be financedas reflected in the components above have been discussed with the GSIF and the Government.

5. Value Added of Bank Support in this Project

The IDA brings to bear in the project its global experience in helping to design social fundswhich can be an effective approach in achieving the objectives held by the Borrower and IDA for theproject. Additionally, the IDA maintains an effective link with the Borrower for policy-guidance andinstitutional development in the infrastructure sector through its dialogue and ongoing investmentlending program of which the proposed project is a part.

E. SUMMARY PROJECT ANALYSIS

Detailed assessments are in the project file - see Annex 8, also see Annex 4 - Project Impact,Benefits and Risks )

1. Economic and Financial Assessment (supported by Annex 4)

Given the nature, number and size of microprojects and given that the GSIF would be demanddriven, no detailed economic and financial analysis can be undertaken ex ante. However, basiceconomic indicators such as cost/employee-day created or cost/beneficiary, as well as cost benefitanalysis where possible (with applicable caveats), would be estimated during appraisal of individualmicroprojects, as stipulated in the Operational Manual. Furthermore, a unit cost database would beregularly updated to aid in preparation and monitoring of budgets for microprojects.

2. Fiscal Assessment

The impact of the project on governmental finances would include incremental taxes (V.A.T.of 20% and local taxes) and social security payments (approximately 31 % of wages) by privatecontractors delivering works, goods and services for about 400 microprojects to be implemented duringthe project life at the estimated total cost of about US$24.7 million equivalent. At the same time, themicroproject management costs would be absorbed by communities through participation inmicroproject management (Microproject Committees) and community contributions in cash and in kindthat, on average, would cover 16% of microproject costs. In particular, community contributions incash are estimated to reach approximately US$2.5 million equivalent or about 9% of the total projectcost.


The project would benefit from the counterpart contribution from the central government budgetestimated at US$6 million or 21% ofthe total project cost. The availability and certainty of counterpartfunds, declared by the Ministry of Finance during project post-appraisal, was confirmed duringNegotiations.

3. Technical Assessment

An assessment of the Microproject Component was conducted by the project team based onGSIF's implementation of nine microprojects and promotion and appraisal of many more. Detailedreports are in the project files. There is clearly a connection between the quality of staff and thequality of work on microproject preparation, appraisal and supervision which resulted in mostmicroprojects of very good quality and a small number rated less than satisfactory where appropriatecorrective actions were taken. The strengths of the GSIF include its core set of documents and formsand good application by the staff in the field; a technically strong and motivated Microprojects Unit;sound methodology for collection of user prices and cost estimates; and a demonstrated commitment tocommunity participation.

4. Insdituional Assessment

This consists of two parts covering both: (a) Institutional Capacity of the GSIF, and (b)Microproject Comnittees.

(a) Institutional Capacity of the GSIF: The GSIF would be responsible for implementation ofmicroproject activities. The GSIF was established one year ago as an autonomous agency with fundingfrom USAID and a Japanese PHRD Fund for project preparation. The resources for projectpreparation enabled the GSIF to gain experience to deliver the expected outputs of the project. TheGSIF Board, responsible for overall management of the project, now comprises six members, includingone representative from the Georgia NGO community. The GSIF PIU is now fully functional withadequate staffing arrangements. Unit managers have a minimum four months experience in theirposition which is sufficient time to get a good grasp of their roles and responsibilities. For the livingstandards monitoring component, the State Department of Statistics would be responsible forpreparation of TOR, specifications, and carrying out Living Standards Monitoring Surveys (LSMS),while the GSIF PIU would play a facilitator role with overall responsibility for procurement,disbursement, accounting and financial reporting.

(b) Microproject Committees. Microproject Committees (MPCs), elected during opencommunity meetings, would take responsibility for preparation and supervision of investments onbehalf of the community. The legal status of MPCs was clarified during preparation of the project toensure they retain juridical power to enter into contracts, receive public resources, and administercommunity resources. Every pilot microproject was implemented through a MPC, consisting of 4-7members. The pilot experience confirmed the MPC have a very strong interest in fulfilling the rolesand responsibilities given in the Operational Manual, including: (a) completing proposal form based onthe consensus of the community members who participated in the community meeting, completingother documentation and disseminating the contents to the community members; (b) ensuringcommunity contribution is delivered in a timely manner; (c) jointly preparing tender package andevaluating bids with GSIF; (d) selecting competitively, supervising and paying a daily supervisor tosupervise the contractor on behalf of the community; (e) informing community members of worksprogress, problems or changes; and (f) reporting to the GSIF every six months on use of theinfrastructure, preventive maintenance undertaken, cost recovery collection and use, and adherence byofficials to commitments for operation and maintenance. To support MPCs in fulfilling theirresponsibilities, technical assistance and training would be made available either directly by the GSIFor through qualified contractors at pivotal points, such as during preparation of proposals, bidevaluation, and operation and maintenance.


5. Socdal Assessment

The GSIF would have a finite amount of resources while the demand is great. A key socialissue in the proposed project is determining how to increase the likelihood that poor and vulnerablegroups would have a higher likelihood of receiving benefits than those who are less needy. GSIF hasdeveloped a transparent targeting strategy based on a ranking of administrative districts using proxyindicators of poverty and need to arrive at a "needs score". Estimated funds for microprojects havebeen apportioned across the districts giving greater weight to those with the highest needs score. Theneeds score indicates the areas selected in Southern Georgia for the pilot phase were the poorest andmost vulnerable districts in the country. GSIF would restrict activities during the first year of theproject to these districts as well as others with the highest needs scores. To increase the likelihood thatthe poorest and most vulnerable communities are not disadvantaged in competing for the limited districtfunds, promotional efforts would target every village to ensure information and access to technicalassistance is available. The requisite community contribution could be decreased in exceptional caseswhen the community is unable to meet this requirement. Communities that have demonstrated initiativein solving common problems in the last two years would have an advantage over less activecommunities. The annual beneficiary assessment would explore relationships between poverty,community dynamism, other factors and access to GSIF resources.

Another important social issue arises from Georgia's diverse ethnic and religious citizenry,resulting in many mixed communities and many comprised of one ethnic or religious group. Duringthe pilot phase, microprojects were implemented in ethnically diverse regions. In communities whereGeorgian is not the first language, as was the case in some communities where the pilot microprojectswere carried out, Russian is used in communication and documentation.

The pilot experience showed some communities were not able to transcend internal divisionsand arrive at a collective decision. When community members are unable to agree on their priorityinvestment and composition of a microproject committee, the GSIF is unable to respond to their needsuntil the community reaches consensus. The beneficiary assessment would be used to gainunderstanding of the reasons why some communities that are targeted by the GSIF promotion activitiesdo not put forward proposals.

While the GSIF emphasizes collective decision making over identification of microproject,cultural and political factors mean local government and informal leaders that exert influence overcommunity matters also influence microproject decision-making. Some local officials are perceived asuntrustworthy and unrepresentative. Attitudes toward local officials may improve in the near futurewhen local government elections are conducted in 1998. Again, the beneficiary assessment used inother SIFs to explore these and other social factors would be useful to explore decision-making andpotential influence by formal and informal leaders in microprojects.

6. Environmental Assessment . Environmental Category []A []B [X] C

The proposed project is expected to have a positive environmental impact. The overall projectshould have a positive impact on the physical and social environment, especially by rehabilitatingsanitation and water-supply facilities. The pilot phase showed water is a common priority amongcommunities in Georgia. Replacement of leaking pipes and rehabilitation of water infrastructure wouldhelp protect the environment. Likewise, improvements in schools would often times improve energyefficiency. To safeguard the environment, the GSIF would incorporate environmental criteria intomicroproject appraisal and selection in accordance with the Environmental Impact Assessmentmethodology in the Operational Manual. Whenever a microproject would have an identifiablenegative impact, an appropriate mitigation plan would be submitted to IDA. Microprojects with serious


negative impacts would be excluded from funding. The environmental impact methodology andmitigation plans would be monitored during Bank supervision of the GSIF and the mid-term review.

7. Participatory Approach

Primary Beneficiaries and Other Affected Groups: The pilot phase enabled GSIF to workextensively in more than 20 communities and for various periods of time in about 50 more. From thisinteraction, operating procedures and documents were developed and refined, including methods forthe community to select, prepare and implement the microproject. Local and regional governmentswere directly involved in calling open community meetings, contributing funds, and delegating theirjuridical powers to microproject committees.

Other Key Stakeholders: Key ministry officials were consulted throughout projectpreparation, first through consultative meetings and later through their representation on the GSIFBoard, which approved selection of the management of the GSIF, identified pilot areas, and approvedthe Operational Manual. A bilateral donor and NGO with years of experience also sat on the GSIFBoard to provide guidance and a non-governmental perspective.

Community Role and Participation during Implementation: The active participation ofcommunities during the pilot phase would be standard procedure for the main phase of the project.These include: open community meetings; election of microproject committees; cost sharing bycommunity members; provision of training and technical assistance to communities to make costestimates, prepare microprojects and implement them. Microproject Committees would takeresponsibility for preparing the microproject proposal, collection and delivery of the communitycontribution, preparation of tender packages, evaluation of bids, selection of a daily supervisor,monitoring quality and quality of construction work before contractor is paid, reporting back tocommunity members on progress of construction, and reporting to the GSIF on implementation of theplan, budget and schedule for operation and maintenance of the rehabilitated facility. Beneficiaryassessment would be used as a tool to evaluate the link between these participatory features of theproposed project and project impacts.

F. SUSTAINABILrrY AND RIsKS

1. Sustainabiity

Sustainability of benefits arising from microproject investments is of paramount importance tomeeting the program development objectives. Building on the experience of SIFs in general andespecially the experience in ECA, the design reflects several strategic principles and numerous designfeatures to improve likelihood of sustainability. The institutional arrangements, guiding documents(such as the Operational Manual), and monitoring indicators were designed with these principles verymuch in mind.

Delivering high quality construction works to attract resources from communities for investmentcost-sharing and cost recovery during operation and maintenance. An important underlying assumptionin project design is poor quality work would undermine communities' motivation to ensure benefits aresustained. The connection between quality of work and sustainability would be a subject of the annualbeneficiary assessment.


Rewarding active communities for their motivation leading to a demonstration affect in lessactive communities. A proxy indicator for an active community is self-initiated improvements made inthe community in the last two years.

Responding to communities' demands. Demand would be verified through observation by theGSIF of open community meetings and election of microproject committees as well minutes ofmeetings. Community contributions of a minimum 16% with 3% coming from direct beneficiaries andusers would also be an indicator of collective demand.

Fostering informed decision-making. During microproject preparation and appraisal,communities would be expected to calculate recurrent costs for the rehabilitated facility, assessreliability of sources of funding, and develop a plan for securing requisite resources (financial andtechnical, such as from regional or central governments and user cost recovery), and when appropriateprovide a schedule for preventive maintenance (e.g. clearing of road calverts and preventivemaintenance of water pumps). These prerequisites reinforce the main development objective of theproject, that is investments should be made only when the benefits are likely to be sustained. A by-product is likely to be better informed community members who view the microproject implementationas the first step of a longer process. To aid communities in establishing or strengthening organizationalcapacity needed for operation and maintenance (e.g. new water users associations), GSIF would gatherand disseminate information and encourage communities to seek out organizations with a comparativeadvantage in this area. In addition, the GSIF can use funds from the second component to enter intocontractual agreements with qualified NGOs and individuals to provide TA when it is not available incommunities who show demand and potential.5 Proposals from communities that establish partnershipswould be prioritized for implementation.

Maintaining consistency between investments, government plans and reform programs. TheGSIF has good mechanisms for verifying investments are part of government programs, including: (a)ministry norms and standards would be used; and (b) written guarantees would be required prior toprocurement from concerned ministry or local government that there is no plan to privatize or close thefacility and that key inputs would be provided for operation and maintenance. During the pilot phase,the GSIF demonstrated good capacity to remain consistent with ministerial standards, norms andoperating budgets. As indicated below, the more serious risk arises because sector reforms are in earlystages and most policy, regulatory (including modifications to standards and norms), and financingrelationships are ill-defmed and uncertain. To minimize the risk, the GSIF would monitor developmentsin policies, regulatory frameworks and financing mechanisms in order to adapt its activities. To do this,the GSIF would rely on direct links with key informants in ministries and on guidance from the GSIFBoard. Furthermore, the GSIF would establish links with donor-supported reform programs (i.e.project implementation units) in sectors of GSIF activity, most importantly health, education, culturalheritage, water and local government/municipal reforms.

S The GSIF would seek grant funds from donors to increase the amount of money available to supportcommunities in organizing for operation and maintenance.


2. Critical Risks (reflecting assumptions in the fourth column of Annex 1):

Annex 1, cell "from Outputs to Objective "

Quality of microprojects. Poor quality would undermnine Technical Assistance first 3/4 months withcommunity's commitment to operation and maintenance. emphasis on quality.

Flexibility to contract out microproject designs andspecial studies to specialists.Technical Review twice the first year and annuallythereafter.

Willingness, capacity and experience of communities to M Dynamic communities with proven track recordorganize for operation and maintenance. have higher likelihood of getting GSIF funds.

GSIF acts as referral body for communities tosecure support from NGOs, donors, etc- for O&Morganizational help.GSEF can finance TA from NGOs, firms, orindividuals to support communities withorganization and administration of O&M plans.

Impact of existing and changing govermment norms, S Use of written guarantees from ministriesstandards, policies, plans, regulations, and financing (Education, Health) and local authorities prior tomechanisms on quality and cost-effectiveness of microproject approval.investments. Links with key informants in ministries, local

governments.Guidance from GSIF Board.Links with PIUs.

Access by the poorest and most vulnerable communities to M Apportionment of resources for microprojects wasGSIF resources. There is a risk these communities could weighted to favor poorest districts.be neglected due to inability to meet prerequisites for Promotion efforts to be done in every village.microprojects (including homogeneity to arrive at a Technical assistance and training is available tocollective decision) and unforeseen factors. communities to prepare proposals and participate in

implementation of works.Beneficiary assessment sample would includecommunities that did not put forward proposals tounderstand why they did not propose amicroproject.In exceptional cases, the GSIF may lessen the 16%community contribution for poor communities.

Decentralization process clarifies and increases local N Emphasize in country dialogue and budgetarygovernments' authority and participation in infrastructure support discussions.rehabilitation and O&M.

Public resources for operation and maintenance are M Emphasize in country dialogue and budgetarymaintained or increased. support discussions.Autonomy of GSIF. Interference by line ministries in daily N GSIF Board has broad representation.operations of the GSIF would compromise its autonomy, Public awareness campaign emphasizeseffectiveness and credibility. transparency and special status of GSIFAnnex 1, cell 'from Components to Outputs" M Commitment from MOF was given early on.Delays in delivery of counterpart funds Community contributions could be increasedCapacity of GSIF to appraise and implement an average of H Employees are given one-year renewable contracts,100 microprojects a year. with quarterly performance reviews.

Underperformers can be easily replaced.Flexible budget and procedures enable GSIF to sub-contract for design preparation and technical studiesto free up GSIF staff for other tasks.

Overall Risk Rating M

Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk)


3. Possible Controversial Aspects

No apparent controversial aspects at this time.

G. MAIN LOAN CONDITIoNS

1. Effectiveness Conditions

* Deposit of counterpart financing equivalent to 3 months project activities.* Approval of Operational Manual by GSIF Board* Management Information System satisfactory to IDA* Microprojects fully appraised and ready for tendering (20 microprojects for total

amount of US$800,000 equivalent)

2. Other

* Maintenance of PIU.* Carrying out the project in compliance with the Operational Manual.* Carrying out annual financial, managerial and technical audits.* Mid-Term Review.* Project monitoring according to Project Performance Indicators.* Preparation of an Implementation Completion Report (ICR).* Mitigation plan for microprojects with negative environmental impact.

H. READINESS FOR IMPLEMENTATION

[I The engineering design documients for the first year's activities are complete and ready for the startof project implementation. [XI Not applicable.[ I The procurement documents for the first year's activities are complete and ready for the start ofproject implementation.[X] The Project Implementation Plan has been appraised and found to be realistic and of satisfactoryquality.[ ] The following items are lacking and are discussed under loan conditions (Section G):

I. COMPLIANCE WITH BANK POLICIES

[X] This project complies with all applicable Bank policies.

Task Team Leader: Robert Maurer

Sector Director: Ricardo Halperin

Country Director: Judy O'Connor


ANNEXES


Annex 1Project Design Summary

Georgia: Social Investment Fund Project

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Sector-related CAS Goal: (Goal to Bank Mission)

Poverty Reduction. Protect human State Department of Poverty reduction remains a key

capital by improving access of the Statistics (SDS). objective of the Government of

population to basic social and economic Georgia.

services and foster development of theprivate sector.

Project Development Objective: (Objective to Goal)

Improve access to basic social and Proportion of microproject funds devoted to the 10 poorest and least- Incomes of the poor are

economic infrastructure on a serviced districts of the country. [11% over life of the project] State Department of maintained or increased to

sustainable basis through rehabilitation Statistics (SDS) overcome financial obstacles

of existing infrastructure where social Proportion of microprojects generating benefits 2/3/4 years after Poverty Assessment inhibiting access to basic

returns are highest and where basic investnment, i.e. the measurable improvements in service delivery, quality, Bank Supervision services. Most importantly,

services would otherwise be and coverage as a result of the microproject continue in the following Beneficiary Assessment economic growth continues and

inaccessible to the poor, particularly in years [95% of microprojects generate benefits 2 years after the its effects are equitably

remote mountainous areas. investnent; 90% of microprojects after 3 years; 85% of microprojects distributed, targeting of social

after 4 years] assistance programs is improvedand levels of assistance aremaintained and increased.Reform processes continue andproduce improvements in thelevel and quality of servicesdelivered.


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Outputs: (Outputs to Objective)a. Increased external and domestic a. Level of co-fmancing attracted. [US$100,000 grant for O&M support MIS Microprojects are appraised,resources for infrastructure over life of the project.] Bank Supervision approved and implementedinvestments. a. average size of community contribution. [ I 6%/16%/.18%/20%] Beneficiary Assessment according to the Operational

a. average size of contribution from users directly. [3%/3%1/5%1/5%] Technical Audit Manual.a. proportion of microprojects with community contribution 20% orhigher. [5%I5%/10%/l0%] Non-interference in GSIFa. proportion of microprojects with cofmancing from local/regional operations.government. [500/o50%/60%1/70%]

Achieve good quality of work.b. Proportion of microprojects introducing or increasing user charges and

b. Increased cost recovery for basic other forms of cost recovery. [10%/15%/20%/25%] Norms and standards result inservices. efficiency and high satisfaction.

c. Proportion of microprojects with positive or neutral environmentalc. Protecting the environment, such as consequences. [95%/97%/99%/100%] Decentralization processthrough improvements in drinking c. Proportion of microprojects with environmental action plans. continues, clarifying roles andwater quality. [5%13%/1%10%1 authority of local governments.

d. Proportion of microprojects with 30% labor content or higher. Total public funds for operationd. Greater local economic activity due [70%l73%/76%l80%] and maintenance of smallto demand for local labor, materials, d. Labor content as proportion of total microproject costs. [30%] infrastructure are maintained orcontractors and suppliers. d. Regional distribution of contracts to contractors. increased.

e. Total microproject funds per capita devoted to rural and mountainouse. Redress regional imbalances, areas. [US$5.25]particularly in mountainous areas.

f. Living standards monitoring survey is conducted annually.f. Continuous poverty monitoring.

g. Proportion of contracts for works and services procured competitively.g. Enhanced competition in the private [95%]sector and fostering its development. g. Proportion of microprojects procured through NS or NCB. 1950/O]

g. Proportion of daily supervisors selected from more than 2 candidates.[80%185%o90%o95%]g. Increasing proportion of bids are responsive. [50%/60%1/700/%/80%]

h. Improved procurement and works h. Proportion of MPC members attending training. [50%/60%1/65%/65%]supervision skills of local governments h. Local governments use competitive procurement in non-GSIF workswho will have to cope with the after involvement with GSIF.increased demands arising from thedecentralization process. ___


. .,,, ,, , , ...... .. , , , , , , n BW ' ' '' '"''' ''''''''-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. . .. .. ..... .

Project Components/Sub-components: (see Inputs: (budget for each component) Bank Supervision (Components to Outputs)Annex 2 for project description)* Disbursement Records Counterpart funding is available.a. Microprojects a. US$24.7m Audits

a. Number of microprojects proposals received per year. [160/200/250/160] MIS Community contributions averagea. Number of microprojects appraised (second stage) per year. [100/160/170/180] 16%.a. Number of microprojects completed per year. [80-90/100/110/125]a. Average cost per beneficiary for completed microprojects.[US$30] Timely release of disbursement toa. Proportion of microprojects with satisfactory technical ratings to total completed contractors and suppliers.per year. [90%/92%/94%/96%]a. Number of contracts with IDA and GSIF Board prior review. [not more than Contractors are available locally to6/7/7/6] undertake works.a. Proportion of MPC with woman chairperson. [20%]

Prices remain steady (low inflation).b. Project management b. US$2.1m

b. Proportion of GSIF operating costs to total cost of microprojects per year'. Capacity of GSIF to appraise and[9%/8%8%7%] implement average 100b. Average time between proposal submission and first field visit for appraisal. [14 microprojects/year.days]b. Average time for first and second stage appraisal. [14 days] Good quality TA and training isb. Proportion of payments made within 7 days of receipt of SAW. delivered upon demand to MPC and[950/n/95%/97%/l/97%] contractors.

b. Proportion of contracts with change order exceeding 20% of contract price. [notmorethan 150/o/150/%/10%/e/10%]b. Proportion of contracts suspended before completion. [less than 70/o/5%/o/30/o/3%]b. Proportion of contracts completed on time. [70%/75%/800%/80%]b. Proportion of contracts completed on budget. [600/%/75%/80%/80%]b. Average difference between contract price and final microproject price. [notmore than 150/%/10%/o/10%/10%]

c. Support to contractors and communities c. US$0.4mc. Average number of training workshops conducted per region for contractors(exclusive of pre-tender conferences). [5]c. Average number of workshops conducted per region for MPCs. [5]c. Number of contractors attending training who bid on at least I GSIF contract.[80%]c. Proportion of consultants contracted by GSIF who are women. [20%]

d. Living standards monitoring d. US$0.4mNote: *PPF total cost of US$0.7 million is not included in this Annex.

I Does not include vehicles, computers, and other start-up investment costs.


Annex 2


Project Description

Component I: Rehabilitation of Small-Scale Infrastructure (US$ 24.7 million of which creditUS$17.3 million)

Implementation of approximately 400 microprojects, costing not more than US$150,000,identified and implemented by communities with a minimum of 16% community contribution, usinglocal contractors, suppliers and laborers whenever possible. Such works may include improvementsin water supply, sanitation, solid waste management, and rehabilitation of local clinics, primaryschools and feeder roads.

Emphasis would be placed on financing microprojects that promote community participationin microproject identification and implementation, incorporate cost sharing by communities andregional or local government, and that integrate plans for operation and maintenance. Detailedprocedures are described in the Operational Manual to promote, appraise, prioritize, approve,implement, supervise, and evaluate microprojects. Microprojects would follow a cycle, whichwould include the following stages.

Targeting

GSIF funds are limited while the country's infrastructure rehabilitation needs are great. Inorder to prioritize the use of the limited funds, a geographic targeting strategy would be appliedbased on a study conducted during the pilot phase to rank districts according to proxy indicators ofpoverty and infrastructure need. For the first year, regions with the highest "needs score" would beeligible for investments to avoid over-extension of GSIF capacity and resources. Additional districtswould be eligible the following years as GSIF's capacity and experience grows. The sum equivalentto 15 percent of the total available for microprojects would be set aside for microprojects inAbkhazia and Tskinvali region in the event that it becomes possible for the GSIF to operate there.

Identification and Preparation

a Communities that qualify under the targeting methodology would be encouraged to convenean open community meeting to decide on their priority investment and elect a microprojectcommittee. The microproject committee would be responsible for completing the standard proposalform, ensuring the community contribution is delivered, selecting a daily supervisor (on-site),procuring a contractor jointly with the GSIF to undertake the work, informing the community ofprogress, and approving overall satisfaction of the work. Technical assistance would be provided bythe GSIF (directly or through contractual arrangements) to the community and to the microprojectcommittee. Technical assistance to the community would include preliminary technical feasibilitystudies and cost estimates to ensure the community can make an informed choice with regard to (a)the selection of the infrastructure and (b) level of investment to be made in the infrastructure toproduce cost effective benefits. Technical assistance to the microproject committee would supportfulfillment of tasks related to procurement of a daily supervisor and contractor, payment procedures,and supervision.


Appraisal and Prioritization

All proposals received by GSIF would be screened during the first stage of appraisalaccording to preliminary criteria, including: from a targeted community; microproject cost does notexceed US$150,000; microproject is among the typology of microprojects; proposal package iscomplete (with technical designs or sketches, copies of licenses and permits for proposed work,explanation of how the community participated in identification, willingness to contribute to costs,and a plan and budget for operation and preventive maintenance). The GSIF would conduct asecond stage appraisal of all microprojects that meet the preliminary criteria by ranking themaccording to social, institutional, technical, and financial criteria given in the Operational Manual,The appraisal would include a field visit by a GSIF engineer and community participation specialist.Microprojects that score the highest would be implemented first; a minimum score would berequired for approval.

Community Contribution

A minimum of 16% of the microproject cost would be required from the community.Contributions may be in cash or in-kind. Whenever possible, contributions would be made in cash.Although community contribution could be provided by a sponsor, a minimum of 3 % of themicroproject costs would be required from the community members (users) directly. Contributionsin-kind would be verified and valued by GSIF staff. The amount, type and timing of delivery of thecommunity contribution would be stipulated in a standard framework agreement signed between therequesting community's Microproject Committee and GSIF. Examples of community contributioninclude technical designs for preparation of the microproject; construction materials and equipmentneeded for microproject implementation which can be easily monetized; labor; and equipment andsupplies needed for operation that can be easily monetized (e.g. desks, textbooks).

Sustainabiity

A completed microproject proposal would include a simplified plan, budget and schedule foroperation and preventive maintenance for the proposed microproject prepared by the community.During appraisal, the GSIF engineer would review the budget and plan with the community. Waterand sanitation projects would require cost recovery and other forms of community contribution foroperation and maintenance, and such cost sharing would be encouraged in all microprojects.Another condition for approval is a Memorandum of Understanding signed between the GSIF andthe relevant ministry or local authorities, attesting to the commitment by the ministry/authorities tomaintain and operate the facility.

Approval

The GSIF would consider for approval all microprojects costing $75,000 or less. Allmicroprojects approved by the GSIF and valued above $75,000 would be forwarded to the GSIFBoard for approval and the World Bank for no-objection prior to implementation.

Procurement and Implementation

A framework agreement between the microproject committee and the GSIF would be signedfollowing approval of the microproject, describing the duties and liabilities of all parties, technicalspecifications, budget, procurement method and contracting procedures. GSIF would oversee


procurement of a contractor and a daily supervisor by the microproject committee, in accordancewith the Operational Manual. Payment to the contractor would be in parallel with progress achievedand only after the microproject committee and GSIF engineer verifies the work is satisfactory.

Completion and Handover

Upon completion of the civil works, a completion and hand-over meeting would be held foreach microproject to determine whether the work is completed according to the terms of the originalworks contract. After the retention period, the microproject committee members, contractor andlocal supervisor would receive a certificate attesting to his/her good quality of work.

Component II: Institutional Supportfor GSIF (US$2.1 million of which IDA credit US$1.6 million)

This component would support GSIF through provision of equipment, vehicles, salaries,operating costs, training, technical assistance, and financing for monitoring and evaluation of theimplementing activities. Training and technical assistance would be carefully designed to ensureproper implementation of the project and to support GSIF's quality control of microprojects,financial planning and management capabilities. Support would be provided to the GSIF finance andadministration units through supervision missions. Staff development through technical assistance,study tours and institutional courses would be provided to GSIF staff to continuously upgrade theirtechnical and managerial skills.

Institutional support to GSIF in the form of international and local technical assistance wouldalso be provided under this component to maintain the Management Information System (MIS)designed during the pilot phase. This computerized system would track progression ofmicroprojects through the microproject cycle, provide transparency and accountability of financialflows, monitor civil works progress based on field supervision reports, and flag microprojectsexperiencing unusual delays and cost overruns. MIS-generated output would be integrated into thedaily decision making activities and operations of GSIF and be an integral part of the reportssubmitted by GSIF management to the GSIF Board and of quarterly reports and comprehensiveannual reports submitted to donors. While the MIS would generate information on physical andfinancial progress of works, other monitoring and evaluation devices would be utilized to evaluatethe impact of GSIF financed microprojects on benefiting communities. A beneficiary assessmentwould be undertaken each year to ascertain the impact of GSIF financed microprojects oncommunities. The beneficiary assessment and other aspects of monitoring and evaluation areexplained in greater detail in the Operational Manual.

Component III: Support to Small Contractors and Communities (US$ 0.4 million of which IDAcredit US$0.3 million)

The experience of other social investment funds shows training and technical assistance canimprove project outcomes when it is well targeted and delivered, though it also increases operatingcosts. Experience also shows it is very difficult to distinguish "orientation, "training" and "capacitybuilding" for contractors and communities from other SIF functions, especially promotion,procurement and follow-up activities. The purpose of this component would be to provide the GSIFwith resources in addition to its operating budget to provide technical, managerial andorganizational support to small contractors and communities to enhance their capacity to performtheir functions related to the microproject. The GSIF does not seek to build capacity of privatecontractors in areas unrelated to microproject implementation (e.g. marketing, accounting), nor to


other micro-enterprises (such as carpenters, electricians, traders and transport enterprises)peripherally involved in GSIF activities.2

Because GSIF would rely on small private construction contractors to execute workcontracts, the capacity of contractors to prepare bids using World Bank procurement guidelines andundertake works successfully has important consequences on achievement of project objectives.The pilot phase demonstrated contractors are available and interested in supplying works, even inremote areas, and there is a range of experience and capacity among contractors. The pilot alsoshows the importance of openness and transparency of the bidding process to level the playing fieldamong contractors. Procedures that ensure wide advertisement of tenders, clarity of biddingpackages, justification of winners and explanation to all bidders of disqualified bids inform newlycreated and experienced contractors of opportunities and requirements and help them learn frommistakes. GSIF's adherence to these procedures, which are described in the Operational Manual, isthe first step toward improving capacity of contractors. Another opportunity for contractors to learnwould be pre-tender conferences conducted by the GSIF and the MPC. A pre-tender conferencewould be required for every contract executed under NCB guidelines. Costs associated withdelivering pre-tender conferences are included in this component. During the pilot phase, GSIFstaff also provided training one-on-one to contractors. As the GSIF portfolio grows, it wouldbecome increasingly difficult for this service delivery mechanism to continue. Consequently, whendemand is sufficient in geographic areas, training would be provided to groups of contractorsthrough workshops, most likely prior to announcement of tenders. The pilot experience showstraining should focus on: (a) estimating costs and schedule of works; (b) integrating the conmmunitycontribution, especially in-kind contributions, into the bid and work schedule; and (c) followingcontractual arrangements and technical specifications.3 Costs for training workshops are alsoincluded in this component.

The component would also enable the GSIF to provide training and technical assistance tocommunities in general and microproject comnmrittees in particular. The pilot experience shows there isa range of capacity among communities to prepare sound proposals. Difficulties are most apparent inestimating (a) costs for alternative microprojects/facilities in a given community; (b) level ofinvestment needed (extent of rehabilitation) to improve a given microproject/facility cost-effectively;and (c) operation and maintenance (recurrent) costs for alternative microprojects, after the initialinvestment. Reliable estimates are important so that communities can make informed decisions. Inorder to respond to this need, the GSIF would provide information during promotion to communitieson prices from similar microprojects implemented elsewhere. Standard estimates for taxes andoverhead would also be given. Since most of the microprojects would be rehabilitation, recurrent costswould be available from local authorities in most cases. With experience, GSIF's capacity wouldincrease to advise communities on the type of works to be done to produce improvements that are costeffective and that reduce operating and expensive repair costs in the future. (Winterization of schools,for example, can reduce energy costs.)

2 While there may be a need for support to these actors, the GSIF does not have the institutional capacityto deliver this support. Increased demand for services and products as a result of the GSIF maystrengthen these small businesses, but it is more appropriate to view this outcome a byproduct of theGSIF and not an explicit objective. The GSIF wrl not seek to build the capacity of small businessesother than small private contractors, because the GSIF does not have the mandate or capacity to take onthese objectives.

3 The GSIF will hold a workshop in the Mtshketa-Mtiante region prior to project effectiveness to get anindication of response and effectiveness of group training.

Project Appraisal Document - Page 24

From the pilot microprojects, it is known that MPCs would require training, technicalassistance and supervision at critical junctures to help them fulfill their functions. In particular, to: (a)competitively select a daily supervisor, especially evaluate qualified candidates; (b) prepare tenderpackages with assistance of the GSIF and prepare contracts with daily supervisor and works contractor;(c) analyze bids; (d) supervise daily supervisor; (e) check and approve Statements of AccomplishedWorks (SAWs); and (f) develop and implement sustainability plans. MPCs also need clarity of theirrights to monitor the contractor's work and bring problems to the attention to the GSIF. To delivertraining at these critical junctures, the GSIF would provide training and orientation through (i)workshops with participation from experienced MPCs; and (ii) one-on-one assistance by GSIF staffduring site visits. This component would cover the costs of delivering workshops, which shouldbecome the norm for delivery of training to MPC. One-on-one assistance, which would likelydecrease over time as the GSIF portfolio grows, would be covered under operating costs of the GSIF.

This component would also include costs for the GSIF to finance contracts with qualifiedindividuals, firms or NGOs to provide organizational, managerial, and other technical assistance toMPCs to establish or strengthen users associations. Technical assistance would be provided based ondemand and availability of qualified providers with demonstrated capacity to deliver services inGeorgia.

In the event that recurring gaps emerge in the capabilities of daily supervisors, the GSIF wouldhave resources under this component to respond through training and technical assistance.

This component would also fund regional launch workshops to disseminate information togovernment officials, contractors and communities about the GSIF and its procedures.

Component IV: Supportfor Monitoring of Living Conditions (US$0.4 million of which IDAcredit US$0.3 million)

This component would finance shortfalls in the State Department of Statistics' (SDS) budgetfor conducting the living standards monitoring survey (LSMS) in 1998 and 1999. The survey covers3500 households throughout Georgia. The component would cover technical assistance includingstudy tours, training, transportation, remunerators' salaries and equipment. In the event the SDSwould secure additional resources from the State budget or donors, funds designated for thiscomponent would be extended to LSMS in year 2000 and/or 2001, or be reallocated. The GSIF wouldretain overall responsibility for procurement, disbursements, financial reporting, and auditing ofactivities under this component. Preparation of TOR and specifications, selection of interviewers, andsupervision of the surveys would be done by the SDS. The benefits of this component would beimproved capability to analyze poverty levels and trends and greater understanding of the diversecharacteristics of poverty, with desegregation by gender, age, income and other criteria. The LivingStandards Monitoring Survey findings, supplemented by data from the MIS, would be used by theGSIF in refining its district-by-district targeting map, which is based on "needs" as of summer 1997.The LSMS poverty data would be especially useful to the GSIF during project years 3 and 4 to ensurethat new or remaining pockets of vulnerability are identified.


Annex 3


Estimated Project Costs

Project Preparation Facility 0.7 0.7Monitoring of Living Standards 0.2 0.1 0.3Support to Contractors and Communities 0.3 0.3Institutional Support to GSIF 1.7 1.7GSIF Microprojects 24.7 24.7Total 27.7 0.1 27.8

Total Baseline CostPhysical Contingencies 0.2 X 0.2Price Contingencies 0.3 0.3

Total Project Cost 28.2 0.1 28.3

Note: Total project costs are based on April 1997 prices, revised in October 1997. Due to theevolving nature of the Georgian economy, all estimated costs are based on the US dollar. Physicalcontingencies were estimated at about 7% of total baseline cost. Price contingencies used thefollowing estimated inflation rates to adjust costs during project implementation: 7% for 1998, 6 %for 1999, 6% for 2000, and 6% for 2001. No contingencies have been applied to the microprojectcomponent. Any increase in the average microproject cost, estimated at US$60,000, would bereflected in a reduced number of microprojects financed. Project expenditures other than foreigntechnical assistance will be subject to taxes according to the existing tax legislation.

Project Appraisal Document Page 26Annex 4


Cost-Effectiveness Analysis Summary - Benefits and Risks

A. Benefits

The project, IDA's third intervention in the infrastructure sector in Georgia, would contribute tothe two core objectives of the CAS of poverty reduction by building up the skills of the labor force andfostering development of private sector. The Project would contribute to Georgia's program of economicand social reconstruction by providing rehabilitated infrastructure and services in a number of vital basicsectors. The GSIF project design integrates the Bank-wide lessons from previous experience in theinfrastructure sector and social investment funds.

Quantifying the fiscal impact of the project and expected benefits to the economy is problematicdue to lack of appropriate data and complexity of concepts. The Bank's Georgia Poverty Assessment, tobe completed in 1998, as well as the monitoring of living conditions financed under the project, wouldprovide additional and updated information that may facilitate a future evaluation of the project's impact.More specifically, the main benefits of the project would include: (a) from the government and serviceProvider's point of view, the proposed microprojects would protect vital capital assets needed to develophuman capital and to enable economic growth to continue; (b) from the beneficiary's point of view, GSIFwould enable community members to take decisions about the type and level of investment to be made intheir community, and to hold their elected representatives (Microproject Committee) accountable for theuse of the GSIF grant and contributions from the community; (c) from the regulatory point of view, theproject would strengthen the country's ability to collect and analyze poverty data which underliestargeting of cash benefits and other governmental programs to support the poor.

Component I: Rehabilitation of Small-Scale Infrastructure

Fiscal impact: Based on the pilot phase data, it is estimated that during the life of the project, about 400microprojects benefiting roughly I million people, (approximately 20% of the population of Georgia)would be implemented4 . The component would generate jobs through financing of labor-intensivemicroprojects and creating demand from local suppliers, transporters, etc. As a result, the componentwould have significant economic activity generating impact, especially in remote mountainous regionswhere the current levels of economic activity are low.

Cost recovery: The component would help to increase cost recovery for basic social services providedthrough social and economic infrastructure rehabilitated under the project.

Poverty impact: The microprojects would deliver immediate benefits to families with laborers employedby private contractors. The microprojects would also bring improvements in regularity, quality orcoverage of basic services, such as availability or quality of water supply and improved conditions forchildren enrolled in schools.

This estimate is based on an average size of community in Georgia with approximately 2000 beneficiaries anda estimated number of about 400 microprojects to be implemented under the project.


Non-project scenario: In the absence of the project further deterioration in provision and accessibility ofbasic social and economic infrastructure would be anticipated. In particular, basic services would beinaccessible to the poor, in particular in remote mountainous areas.

Alternatives considered: During project design the Government of Georgia with the assistance of theBank considered and assessed a range of options, including: (a) increasing national contribution to thetotal project costs; (b) including a microcredit scheme into the project design; and (c) no intervention atall. An increase in the national contribution (i.e., Government's and community's contribution) under (a)in the total project costs was evaluated as not feasible due to the present difficulties in mobilizingcounterpart project financing in Georgia and the vulnerable population targeted under the project. Theproposed microcredit scheme under (b) would divert too much energy and effort from the primaryobjective of the GSIF. The project-team also considered the no-intervention scenario, particularly givenalready ongoing humanitarian activities in Georgia. However, the rapidly diminishing level of foreignemergency assistance clearly suggests the need for rapid intervention.

Environmental Analysis: The criteria for microproject selection would include environmental concerns.In particular, microprojects with serious negative environmental impact would be excluded fromfunding, and an appropriate mitigation plan would a requirement for microprojects with an identifiablenegative environmental impact. The environmental assessment methodology and a sample microprojectenvironmental assessment questionnaire are outlined in the GSIF Operational Manual.

Performance Indicators: A monitoring plan was agreed during project appraisal, reviewed during post-appraisal, and includes key development impact indicators (see Annex 1). The GSIF OperationalManual includes a more detailed plan for monitoring and evaluation.

Component II: Institutional Supportfor GSIF

Institutional Capacity: During the first year of the pilot phase, the GSIF developed its capacity as theproject executing agency. At the project appraisal in May 1997, the GSIF was considered fullyfunctional with adequate staffing arrangements. However, there is a need to further strengthen theinstitutional capacity of the GSIF to enable the project executing agency to support a large number ofcommunities in implementing microprojects in various sectors.

Non-project Scenario: At present, institutional weaknesses of local governments, loose legal frameworkfor operations, and the lack of trust between some local governments and their constituents underminetheir capacity to undertake social investment fund-type microprojects on their own.

Alternatives considered: During project design an option including designating a line ministry or apublic agency to administer and implement the social investment fund (SIF) was considered. While suchan institutional arrangement would be more simple than under the proposed project design, the demand-driven nature of the GSIF requires that it is set up as an autonomous social development agency thatmanages funds allocated for addressing community needs in a more participatory manner by involvingcommunities in the identification and management of works, which should provide for increasedsustainability. If successful, the mechanisms to support the participatory approach used by the GSIFcould be transferred to local governments. Such a transfer could be facilitated by the GSIF OperationalManual, Financial and Administrative Procedures, and Implementation Guidelines prepared by the GSIFto operationalize and streamline its innovative approach to microproject identification, appraisal andimplementation with community participation.

Performance Indicators: see Annex 1.


Component m: Support to Small Contractors and Communities

Fiscal Impact: About 400 contracts will be issued that would benefit small private contractors providinga boost to the small contracting industry. The impact of the project on governmental finances wouldinclude incremental taxes (V.A.T. of 20%, and local taxes) and social security payments (approximately31% of wages) by private contractors delivering works, goods and services for about 400 microprojectsto be implemented during the project life at the estimated total cost of about US$24.7 million equivalent.

Povrty Impact: Based on the pilot projects and on other similar activities conducted by NGOs and othergroups in Georgia, it is estimated that families of employed laborers would also benefit from theestimated 494,000 employees labor days generated by the project. This calculation is made underassumption of 30% microproject average labor content, average wage US$ 15/day inclusive of taxes andsocial insurance.

Impact on Contractors' Skills: All contractors would have access to training in procurement to help themparticipate in competitive bidding and undertake works in accordance with work contracts. It is expectedthat economic growth would be sufficiently robust by the end of the project as a result of economicrestructuring, to provide new work opportunities for the small contractors who benefited from thecontracts and the training provided through the GSIF Project.

Impact on Community Participation and Project Sustainability: Community participation inmicroprojects is anticipated to increase local initiatives in the area of social support, and provideincentives to beneficiaries to get involved in the maintenance of the rehabilitated infrastructure. T.A.financed under this component would support communities demonstrating interest in strengtheningorganizational, managerial and technical skills.

Non-project Scenario: In absence of a project the following would be anticipated: (i) privatecontractors, less skilled in competitive procurement and small project management, leading to moreexpensive interventions in infrastructure; and (ii) less local initiatives at the community level, would beanticipated.


Component IV: Supportfor Monitoring of Living Conditions

Institutional capaci: The State Department of Statistics (SDS), as the executing agency for thecomponent, has adequate human resource capital to carry out the Living Standards Monitoring Survey(LSMS) under the project. Moreover, the component builds on institutional strengthening efforts startedand financed under the Structural Adjustment Credit (SAC I). The component would benefit theinstitutional capacity of the SDS by providing computer equipment, TA and training, when necessary, forsampling, questionnaire design and data analysis.

Policy Analysis Impact: The LSMS would provide the Government of Georgia with data for improvedpolicy analysis that would also permit better anticipation of the likely impact of transition policy on thepoor, so that efficient and effective compensation can be designed.

Non-project Scenario: In absence of a project, the following would be anticipated: (i) poor oversight ofpoverty and living standards; (ii) irregular and unreliable policy monitoring and evaluation; (iii) lessskilled managerial and line staff.



B. Risks

Major risks facing the project arise from quality of microprojects in the field which underliescommunities' willingness to contribute to investment and recurrent costs of facilities; willingness,capacity and experience of communities to organize for operation and maintenance and increase thelikelihood of sustaining microproject investments; impact of existing and changing government norms,standards, policies, plans, regulations, and financing mechanisms on quality and cost-effectiveness ofinvestments; possible delays in counterpart funds; and the capacity of the GSIF to maintain goodproductivity to implement an average 100 microprojects a year.

To reduce the frst risk, the GSIF would have access to technical assistance during the firstquarter of the proposed project with emphasis on quality control, a technical review would be conductedtwice during the first year and annually thereafter to monitor quality and flag problems, and technicaldesigns and studies would be sub-contracted to qualified and licensed professionals to ensuremicroprojects are prepared with high technical quality. To increase communities' willingness andcapacity to contribute to operation and maintenance of rehabilitated facilities, such as to establish orstrengthen a water users' association, the GSIF would encourage community participation as outlined inthe Operational Manual and link communities with NGOs or other donor programs to obtainorganizational assistance. Use of written guarantees from ministries (such as Ministry of Education andMinistry of Health) and local authorities responsible for water supply systems, would be required prior tomicroproject approval to increase the likelihood that investments are consistent with government norms,plans, reforms etc. GSIF would also establish direct links with key ministries and with projectimplementation units involved with sector reforms, as well seek guidance from the GSIF Board, to beinformed of changes that could affect GSIF activities. Dialogue with the Ministry of Finance hasinformed them of the GSIF and the importance of meeting the schedule for delivery of counterpart funds.Without counterpart funds, additional community contributions would be required for the GSIF tocontinue financing of microprojects. Performance targets and reviews with an appropriate incentivesstructure would increase the likelihood that the professional staff hired under the GSIF would achievehigh productivity to achieve the targeted number of microprojects per year.


Annex 5


Financial Summary

Years ending December 31(in US$ million - base year 1998)

. .. ........ _

Project Costs

Investment Costs 5.5 6.2 J 7.0 7.5Recurrent Costs 0.6 0.5J 0.5 0.5Total 6.1 6.7 7.5 8.0

Financing Sources (% of total project costs)

IDA 15% 17% 18% 20%Government 5% 5% 6% 6%Community Contribution / 2% 2% 2% 2%

BeneficiariesTotal 22% 24% 26% 28%

Main assumptions:

- The project becomes effective in January 1998.

- GSIF would be able to carry out about 80 microprojects the first year.


Annex 6


Procurement and Disbursement Arrangements

Procurement (Procurement methods- TableAl andA2)

Procurement activities under the project would fall under one of the following areas; (i) works,(ii) goods; (iii) consultants' services; and (iv) operating costs. Detailed procurement arrangements aredescribed in the Procurement Implementation Plan given in the Operational Manual. Procurementarrangements have been designed to: (i) increase microproject sustainability through involvement ofcommunities and local governments in implementation and maintenance of microprojects; (ii) increasecapacity of contractors at the local level; (iii) respond to the need for flexible use of procurementmethods, given the differences and disparities in the institutional capacity of communities, availability ofservices, markets and local contractors, and familiarity of local contractors with competitive bidding indifferent regions; and (iv) be in compliance with the "Guidelines for Procurement under IBRD Loansand IDA Credit" (January 1995, revised January and August 1996). Consulting services to be financedfrom the credit proceeds would be procured in accordance with the "Guidelines- Selection andEmployment of Consultants by World Bank Borrowers", January 1997 ("Consultants Guidelines"). Inorder to achieve the project objectives, competitive bidding procedures have been developed. Theseprocedures are described in detail in the Operational Manual which would be subject to IDA's priorreview and approval. During project mid-term review, the need to continue with such procedures wouldbe reevaluated.

Experience and Tasks of Implementing Agencies

GSIF, an autonomous entity, would be the project implementing agency. GSIF would overseeall procurement activities under the project, and be responsible for coordinating all microprojectactivities in Georgia. GSIF's experience in public procurement was gained in managing a pilot projectadvance from USAID of US$700,000, a project preparation grant from the Government of Japan ofUS$420,000, and a Project Preparation Facility of US$500,000. GSIF would be responsible for ensuringthat all the Microproject Committees (MPC) undertake procurement according to rules stated in theOperational Manual. For each microproject, the GSIF would enter into a framework agreement with aMicroproject Committee (MPC). The MPC would be permitted to procure goods, works and servicesaccording to terms and conditions stated in the framework agreement and consistent with the OperationalManual. The GSIF would pay contractors or suppliers directly when requested by the MPC and afterensuring that requested payment is adequately documented and justified. Procurement of vehicles,equipment and technical assistance for GSIF and the SDS would be conducted by the Procurement Unitof the GSIF.

At the microproject level, the GSIF Procurement Unit would be responsible for ensuring thatprocurement arrangements for microprojects are in compliance with procurement procedures as stated inthe Operational Manual and in the framework agreement, and for assisting MPCs in meetingprocurement requirements as and when required. Procurement training would be provided for GSIFstaff, MPCs and contractors involved in procurement by consultants who are proficient in IDAprocurement guidelines and procedures. The general procurement notice for technical assistance wouldbe provided to the IDA prior to the Board presentation.


The GSIlF PIU would also develop and maintain a database of potential contractors based ontheir institutional capacity, experience, and ability to work in specific regions using labor intensivemethods. A database of qualified consultants and consulting firms to provide technical studiesor special appraisals of microprojects would also be compiled. In addition, as part of the MIS, the GSIFwould maintain a database of unit costs for works, materials and services commonly required for projectimplementation as part of the cost control system. This database would be updated as necessary and beused to review the microproject budget during appraisal. In competitive procurement, the databasewould be used as a means of tracking the efficiency of procurement.

Specific Procurement Arrangements

Civil Works. A large amount of civil works (very small contracts) up to an aggregate amount ofUS$24.7 million (of which IDA Credit US$17.3 million equivalent) and spread over 4 years would beprocured under the proposed project. The size of the civil works would range between US$5,000 toUS$150,000, with an average cost of US$60,000 and would not attract foreign competition. Therefore,National Competitive Bidding (NCB) procedures would be used for contracts greater than US$30,000.For contracts costing US$30,000 or less, three written quotations procedure would be the norm. Underthe three quotation procedure, the contract would be awarded to the bidder with the lowest price,capacity, and means to execute works. In cases where three quotations cannot be obtained and themicroproject does not exceed US$10,000 estimated price, implementation by the MicroprojectCommittee, including contracting labor and purchasing materials, if necessary, would be permitted.Detailed procedures of procurement methods are described in the Operational Manual.

Goods. Procurement of goods (total amount of US$0.3 million of which IDA Credit US$0.2million equivalent) for the GSIF and the State Department of Statistics would include computer andother office equipment, vehicles, office furniture, supplies, etc. and would be procured by the GSIFthrough International Shopping (IS) and National Shopping (NS). The estimated value of these packagesis not likely to exceed US$150,000 each during the four years of project implementation.

Procurement would be in accordance with IDA Guidelines for Procurement (January 1995 and asrevised in January and August 1996), using standardized bidding documents and contract formsacceptable to IDA as outlined in the Operational Manual. Goods would be procured through NationalShopping for contracts of less than US$30,000 and International Shopping for goods costingUS$150,000 and less. National Shopping would be based on at least three quotations; InternationalShopping on three quotations from at least two countries.

Consultants' Services. Consultants' Services under the project would include public awarenesscampaign; financial, managerial and technical audits; beneficiary assessment studies; monitoring andevaluation studies, technical assistance and training to contractors, communities, GSIF PIU staff and theemployees of the State Department of Statistics, and study tours.

In particular:

(i) Quality Cost Based Selection (QCBS) procedures would be used for contracting firms for publicawareness campaign, and audits. The total value of the contracts is estimated to be amount of US$0.3million, of which IDA credit is US$0.2 million equivalent.

(ii) Selection under a Fixed Budget (FBS) procedures would be used for contracting firms for otherstudies (beneficiary assessments, other impact studies, and study tours) , following prior consultationwith the Bank. The total value of the contracts is estimated at US$0.12 million, of which IDA credit isUS$0.1 million equivalent.


(iii) Individual Consultants would be used for technical assistance (TA) assignments and training;because such assignments are likely to be several, of diversified nature, and short in duration. The totalvalue of TA and training contracts is estimated at US$0.3 million, of which IDA Credit is approximatelyUS$0.2 million equivalent. Contracts for individual consultants will be procured according to Bankguidelines and prior consultation with the Bank. The average value of such contracts would be less thanUS$10,000.

GSIF Incremental Operating Costs. The GSIF Incremental Operating Costs include salaries,microproject related travel and subsistence, vehicles insurance, office maintenance, utilities, fuel foroffice heating, communication services fees (phone, fax, electronic mail, radio communication systemwith remote areas), office supplies, postage, bank charges, etc. Equipment, vehicles, supplies will bepurchased under NS procedures. Reimbursement will be made on a basis of annual budgets pre-approved by the Bank.

Prior review thresholds (Table B)

Works:First two NCB contracts and all contracts for microprojects procured under NCB procedures in amountgreater than US$75,000.The first two contracts for microprojects procured under three written quotation procedures in amountless than US$30,000.

Goods:All contracts for good procured costing more than US$30,000.

Consultants' services:All contracts for consulting firms in amount greater than US$50,000.All contracts for individual consultants above US$10,000.

Disbursement

Allocation of loan proceeds (Table C)Microprojects (works, goods and services); Goods (GSIF operations and support to communitiesand contractors), TA and Training; GSIF Operational Costs

Use of statements of expenditure (SOEs):Individual consultants < US$10,000, Consulting Firms < US$50,000 Goods <US$30,000,Works < US$75,000

Special Account:GSIF: Initial (US$0.75 equivalent),Maximum Authorized (US$1.5 million equivalent) when the aggregate amount of withdrawalsfrom Credit Account plus the total amount of all outstanding special commitments are equal orexceed SDR 2 million.


Annex 6

Table A.1: Project Costs by Procurement Arrangements

(in US$ million equivalent)

1. WorksCivil Works for Microprojects 24.7 24.7

(17.3) (17.3)

2. Goods

Vehicles and Equipment 0.3 0.3(0.3) (0.3)

3. ServicesTA and Training, Study Tours 0.7 X _ X 0.7

(0.5) (0.5)GSIF Operating Costs 1.9 1.9

(1.4) (0.4)

Reimburse PPF 0.7 0.7(0.5) (0.5)

Total _ - 28.3 28.3IDA (20.0)* (20.0)*

Note: "*Other" under Civil Works for Microprojects refers to NCB and three written quotations andImplementation through the Microproject Committees (MPCs). A further breakdownis not possible due to the demand-driven nature of the GSIF."* Other" under Vehicles and Equipment refers to International and National Shopping."* Other" under TA and Training refers to Consulting Services, Study Tours and Training.

N.B.F. = Not Bank-financed

Figures in parenthesis are the amounts to be financed by the IDA credit.* Numbers may not add up due to rounding.


Annex 6

Table A.2: Consultant Selection Arrangements (optional)

(in US$ million equivalent)

QCBS QBS SFB LCS CQ Other N.B.F

A. Firms 0.3 0.1 0.4(0.2) (0.1) (0.3)

B. Individuals 0.3 0.3______________ _______ _____ _______ _____ _(0.2) (0.2)

0.3 0.1 0.3 0.7| Total (0.2) (0.1) (0.2) (0.5)

Note: QCBS = Quality- and Cost-Based SelectionQBS = Quality-based SelectionSFB = Selection under a Fixed BudgetLCS = Least-Cost SelectionCQ = Selection Based on Consultants' QualificationsOther = Selection of individual consultants (per Section V of Consultants Guidelines),Commercial Practices, etc.

N.B.F. = Not Bank-financed.

Figures in parenthesis are the amounts to be financed by the Bank loan.


Annex 6

Table B: Thresholds for Procurement Methods and Prior Review

I ~~~~~~~~~~~~~~~~~~~~~~~~~-

US $ thousands US $ millions1. Works >$30,000 NCB First two contracts &

all contracts> US$75,000

<$30,000 Three Quotations 2 first contracts<$10,000 Implementation by

MicroprojectCommittee (MPC)

2. Goods >$30,000 All contracts

3. Services(i) Consulting Firms >$50,000 QCBS, FSB TOR, LOI, Evaluation

Reviews, Contracts(ii) Individuals >$10,000 Selection of TOR, EvaluationE:_________________ =__________________ Individuals Reviews, Contracts


Annex 6Table C: Allocation of Credit Proceeds

Microprojects: goods, works and services 16.3 80%

Goods 0.3 100% foreign expenditure,(GSIF Operations, Support for Monitoring of 100% local expenditure (exLiving Standards, Support To Communities factory)and Contractors) 80% local expenditureTA and Traininig 0.5 100% of total expenditures Incremental Operating Costs 1.4 80% of total expenditures(GSIF Operations, Support for Monitoring ofLiving Standards, Support To Communitiesand Contractors)Refinance PPF 0.5 100%Unallocated 1.0_|TOTAL 20.0*

* Numbers may not add up due to rounding.


Annex 7


Project Processing Budget and Schedule

Lending US$169,500 US$121,700(as of 10/30/97)

Supervision FY1998 US$45,400

Time taken to prepare the project (months)First Bank mission 06/10/1996 06/10/1996(identification)Appraisal mission departure 04/29/1997 04/29/1997Negotiations 09/15/1997 11/4/1997Planned Date of 01/01/1998 01/15/1998Effectiveness

Prepared by: Georgia Social Investment Fund (GSIF)Preparation assistance: PPF - US$0.5 million

PHRD grant - US$0.4 million IUSAID grant - US$0.7 million

Bank staff who worked on the project included:

.. ~ .... ........Robert Maurer Senior Urban Specialist,

Georgia Infrastructure Program Team LeaderMary Beth Schmidt Social Funds SpecialistAnna D. Staszewicz Financial AnalystAnush Bezhanyan Civil Engineer/Social Fund Technical SpecialistLuigi Giovine Institutional SpecialistJagdish Jassal Procurement SpecialistCaroline Makram Milad Team AssistantIrakli Managadze Operations AssistantBetsy McGean Social ScientistEric Peterson Architect/Technical SpecialistSergei Popov Water Engineer/Technical SpecialistManzoor Rehman Civil Engineer/Technical SpecialistShobha Subramanian Team Assistant


Annex 8


Documents in the Project FiIe*

A. Project Implementation Plan (PIP)* PIP - October 1997

B. Bank Staff Assessments* Field Visit Report - Anush Bezhanyan Post Appraisal Mission - October 1997* Appraisal Report - Mary Beth Schmidt - May 1997

C. Other* GSIF Concept Paper - USAID/Save the Children/FDD - October 1996* Operational Manual - October 1997- GSIF Financial and Administrative Procedures Manual - October 1997- GSIF Engineers Field Handbook - October 1997- Analysis of the State of Development of Main Social Infrastructure Branches in the Regions of Georgia -

K. Arabuli, D. Mouravidze, G. Medzemariashvili, K. Shevardnadze and others, August 1997- TA Final Report - Nubar Goudsouzian, GSIF Resident Advisor - October 1997- Microproject Quality Control Report - Tom McAloon, GSIF Technical Assistance Consultant - September

1997- MIS Initial Design Report - ASIF MIS Team, March 1997- Final MIS Design Report - Christian Hurtado, GSIF MIS Consultant, September 1997- Norms and Standards manual to be used by GSIF - Tom McAloon, GSIF Technical Assistance Consultant,

July 1997* Proceedings of the GSIF Concept Workshop - Tbilisi, June 1997* Armenia SIF Study Tour Report - GSIF Delegation, May 1997* Honduras Study Tour Report - GSIF Management Team, June 1997

*Including electronic files.

Project Appraisal Document Page 40Annex 9

Status of Bank Group Operations in GeorgiaIBRD Loans and IDA Credits in the Operations Portfolio

Difference Betweenexpected

original Amount in US$ Millions and actualLoan or Fiecal disbursements a/

Project ID Credit Year Borrower PurposeNo. IBRD IDA Cancellations Undisbursed Orig Frm Rev'd

Number of Closed Loans/credits: 2

Active LoansGE-PE-44797 IDA29830 1998 GOVERNMENT OF GEORGIA SAC II 0.00 60.00 0.00 60.49 0.00 0.00GE-PE-50910 IDA29760 1998 GEORGIA MUNICIPAL DEV. 0.00 20.90 0.00 20.67 0.00 0.00GE-PE-51034 IDA29840 1998 GOVERNMENT OF GEORGIA SATAC II 0.00 5.00 0.00 5.06 0.00 0.00GE-PE-35784 IDA29580 1997 GOVERNMENT OF GEORGIA POWER REHAN. 0.00 52.30 0.00 41.50 42.31 0.00GE-PE-44830 IDA29440 1997 GOVERNMENT OF GEORGIA OIL INSTITUTION BLDG 0.00 1.40 0.00 1.37 1.40 0.00

GE-PE-8415 IDA29410 1997 GOVT. OF GEORGIA AGRICULTURE DEVELOP. 0.00 15.00 0.00 13.77 14.48 0.00GE-PE-39892 IDA28090 1996 GOVERNMENT OF GEORGIA TRANSPORT 0.00 12.00 0.00 5.79 6.50 0.00GE-PE-44388 IDA28480 1996 REPUBLIC OF GEORGIA STRUCT. ADJUST. TA 0.00 4.80 0.00 2.98 3.17 0.00GE-PE-8414 IDA28520 1996 GOVERNMENT OF GEORGIA HEALTH 0.00 14.00 0.00 11.97 12.62 0.00GE-PE-8413 IDA26410 1995 GOVERNMENT OF GEORGIA INSTITUTION BUILDING 0.00 10.10 0.00 .30 -. 33 0.00GE-PE-8417 IDA26580 1995 MINISTRY OF FINANCE MUNICIPAL INFRA. REH 0.00 18.00 0.00 2.41 3.99 0.00

Total 0.00 213.50 0.00 166.31 84.14 0.00

Active Loans Closed Loans TotalTotal Disbursed (IBRD and IDA): 44.94 137.04 181.98

of which has been repaid: 0.00 0.00 0.00

Total now held by IBRD and IDA: 213.50 135.00 348.50Amount sold : 0.00 0.00 0.00

of which repaid :0.00 0.00 0.00

Total Undisbursed 166.31 0.00 166.31

a. Intended disbursements to date minus actual disbursements to date as projected at appraisal.b. Rating of 1-4: see OD 13.05. Annex D2. Preparation of Implementation Summary (Form 590) . Following the FY94 Annual Review of Portfolio performance (ARPP), a

letter based system will be used (MS = highly Satisfactory, S = satisfactory, U = unsatisfactory, hU - highly unsatisfactory): see proposed Improvements inProject and Portfolio Performance Rating Methodology (SecM94-901), August 23, 1994.

Note:Disbursement data is updated at the end of the first week of the month.

Generated by the Operations Information System (OIS)


Annex 10

Georgia at a glanceEumope &

POVERTY and SOCIAL Central Low-Georgia Asia Income Development diamond

Population mid-1996 (millions) 5.4 479 1,125GNP per capita 1996 (US$) 850 2,180 1,750 Life expectancyGNP 1996 (billions US$) 4.6 1,043 1,967

Average annual growth, 1990-96

Poputation (%) -0.2 0.3 1 A GNP .4XLaborforce (%) -0.1 0.5 1.8 per G prosasy

Most recont estimate (latest year available since 1989) capita enrollment

Poverty: headcount index (% of populatIon) 30Urban population (% oftotalpopulatIon) 58 65 56Life expectancy at birth (years) 73 68 87Infant mortality (per 1,000 live bitrhs) 18 26 41 Access to safe waterChild malnutrition (% of children under 5)Access to sale water (% of popula3ion)Illiteracy (% of population age 15+) 1Gross primary enrollment (% of school-age population) 82 97 104 Georoia

Male 82 97 105 Low4ncome groupFemale 81 97 101

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1975 1985 1994 1998 1996 e/

GDP (billons USS) .. .. 1.2 2.9 4.6 Economic rdosGross domestic investmnenttGDP .. 34.3 1.6 4.0 5.0Exports of goods and non-factor se,vices/G .. .. 38.0 16.2 11.8 Openness of economyGross domestic savingslGDP .. 31.1 -32.1 -7.2 -1.5Gross national savingslGDP .. .. -34.3 -10.1 -2.6

Current account balance/GDP -36.7 -14.1 -7.6Interest payments/GDP .. .. 2.6 2.9 1.4 Savings InvestmentTotal debttGDP .. .. 79.1 42.0 29.8Total debt servicelexports at .. .. 0.4 7.4 7.6Present value of debttGDP .. .. 93.8 23.7Present value of debttexports .. .. .. 217.7 .. Indebtedness

1976-85 1986-96 1994 `1995 1998 el 1997-05(average, annual growth) GeorgiaGDP 5,3 -19.0 -11.4 2.4 10.5 6.9 Low-ncomegroupGNP per capita 4.5 -17.2 -13.1 2.0 12.7 6.8Exports of goods and nfs .. .. .. -11.3 20.2 9.1

STRUCTURE of the ECONOMY1975 1985 1994 1995 1996 el

(% ofGDP) hi Growth rates of output and Invsbtment (%)Agricuiture .. 25.5 34.2 35.3 33.5 150Industry .. 39.6 31.9 26.7 25.1

Manufacturing .. 30.2 23.9 20.1 18.9 75./Services .. 34.8 33.9 38.0 41.3 o< =

Private consumption .. 55.8 125.7 100.0 92.8General govemment consumption .. 13.0 6.5 7.2 8.8 GDI - DPImports of goods and non-factor services .. .. 71.7 27.4 18.4

1975684 1985-95 1994 1995 1996 el(average annual growth) Growth rates of exports and Imports %)Agriculture .. -12.4 -58.3 5.5 3.0 30Industry .. -22.0 2.7 1.0 2.0

Manufacturing .. -21.3 -20.5 1.0 2.0 20Services .. -20.5 31.8 54.0 16.3 s/

Private consumption .. -12.2 -7.1 -10.4 2.6 aI0 01I 92 93 94 asGeneral govemment consumption .. -26.1 -35.0 52.7 52.7 -12Gross domestic Investment .. -24.8 -65.2 123.0 43.4 -20 OImports of goods and non-factor servIces .. .. .. -15.5 9.1Gross natIonal product 5.5 -18.5 -13.0 2.4 12.7 Exports --- Imports

The diamonds show four key indicators In the country (in bold) compared wIth Its Income-group average. If data are missing, the diamond wAIIbe Incomplete.

a / Debt service due after rescheduling.bt GDP at factor coste / Estimate


Georgia

PRICES and GOVERNMENT FINANCE1975 1985 1994 1995 1996 eI

Domestic prices Inflation (%)(%/ change) 20.000

Consumerpr'ices . .. 15,606.5 182.7 39.3

Implicit GDP deflator 0.7 -4.5 17,271.5 182.7 40.2

Government finance a/ 1Current revenue (excl. grants) . .. 4.2 5.1 8.1 go 91 92 93 94 90 99

Current budget balance (exci. grants) . .. -19.0 -6.1 -4.3 -GOP def. -O-CPIOverall surplusfdeficit (exci. grants) . .. -20.0 -7.2 -5.5

TRADE

(millions US$) 17 195 19 19 96el Export and import levels (milli. US$1

Total exports (fob) . .. 381 347 400 .0Black Metal . .. 34 38 75Tea13 11 2Manufactures . . 300 265 233

Total imports (cd) . .. 744 688 733Food18 16 18 200Fuel and energy . .. 278 185 184 =l

Capital goods . .. 88 121 127 99 90 91 92 93 94 95 96

Export price index (1987=-100) .

Import price index (1987=100) .. xprt .1pot

Terms of trade (1987=100).. .

BALANCE of PAYMENTS1975 1985 1994 1995 1996 ef

(Millions US$) Current account balance to GDP retio I%)Exports of goods and non-factor services 473 469 541Imports of goods and non-factor services 893 791 841 0

Resource balance -420 -322 -300 89 a 90 91 9

Net factor income . .. -37 -88 -50 LiNet current transfers .. .. 5 00

Current account balance, -30 -

before offictal transfers . .. -448 -408 -350 -4

Financing items (net) . .. 450 448 269Changes in net reserves . .. -2 -40 81

Menlo:__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Reserves including gold (mill. US$) 43 158 158Conversion rate (local=J$) 555412.4 857.5 1263.0

EXTERNAL DEBT and RESOURCE FLOWS__ _______________

1975 1993 1994 1995 1998 el

(millions US$) Composition of total debt, 1996 (mili. US$)Total debt outstanding and disbursed . .. 985 1,212 1,365

IBRD . .. 0 0 0IDA . .. 1 84 185 A e

Total debt service b/ . . 2 35 42 0 165IBRD . .. 0 0 0IDA *. . 0 0 1 c

Composition of net resource flows195Ofricial grants . .. 170 189 141 14.Ofricial creditors . .. 118 173 186 E 1.

Private creditors . 0 0 0 806Foreign direct Investmnent . .. 8 6 20Portfolio equity . .. 0 0 1

World Bank programCommitments . .. 28 75 91 A -IBRD E - BilatermlDisbursemnents . .. 1 83 81 B- IDA 0 - Other multlateral F - PrivatePrincipal repayments . .. 0 0 0 C -IMF G0- Short-termNet flows . .. 1 83 81 ____________________

Interest paymnents . .. 0 0 1Net transfers . .. 1 83 80

International Economics Department

Note: Estimates for economies of the former Soviet Union are subjec to more than tihe usual range of uncerteinty.a. Government finance data exclude grants.b I Debt service due after rescheduling.eI Estimate

IBRD 291954U' 4 4D' A13- A4 5

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