Public Disclosure Authorized
Document of
The World Bank
FOR OFFICIAL USE ONLY
Public Disclosure Authorized
Report No: PAD911
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED LOAN
IN THE AMOUNT OF US$60 MILLION
Public Disclosure Authorized
Public Disclosure Authorized
TO
GEORGIA
FOR A
TRANSMISSION GRID STRENGTHENING PROJECT
April 18, 2014
Sustainable Development Department
South Caucasus Country Unit
Europe and Central Asia Region
This document has a restricted distribution and may be used by recipients only in the performance of
their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
CURRENCY EQUIVALENTS
(Exchange Rate Effective April 15, 2014)
Currency Unit = GEL
GEL 1.75 = US$1
FISCAL YEAR
January 1 – December 31
ABBREVIATIONS AND ACRONYMS
ADB
AGL
BSTN
CPAR
CPS
CQS
CSPA
DA
EBRD
ECA
EHS
EIA
EIB
EMP
ENPV
ERR
ESCO
ESIA
FBS
FIRR
FMM
FY
GDP
GSE
GVA
GW
GWh
HPP
IBRD
ICB
IDA
IFC
IFR
Asian Development Bank
Adjaristsqali Georgia Limited Liability Company
Black Sea Transmission Network
Country Procurement Assessment Report
Country Partnership Strategy
Consultant Qualification Selection
Competition and State Procumbent Agency
Designated Account
European Bank for Reconstruction and Development
Europe and Central Asia
Environment Health and Safety Specialist
Environmental Impact Assessment
European Investment Bank
Environmental Management Plan
Economic Net Present Value
Economic Rate of Return
Electricity Sector Commercial Operator
Environmental and Social Impact Assessment
Fixed Budget Selection
Financial Internal Rate of Return
Financial Management Manual
Fiscal Year
Gross Domestic Product
Georgian State Electrosystem
Giga Volt Ampere
Giga Watt
Giga Watt Hour
Hydropower Plant
International Bank for Reconstruction and Development
International Competitive Bidding
International Development Association
International Finance Corporation
Interim Financial Reports
Vice President:
Country Director:
Sector Director:
Sector Manager:
Task Team Leader:
IFRS
IPF
IPSAS
IRR
KfW
kV
LCS
MIGA
MO
MOE
MOU
MW
MWh
NGO
NPV
PDO
POM
PP
PRAM
QCBS
RAP
ROW
RPF
SCADA
SDS
SESA
SS
SSS
TGSP
TL
TOR
USAID
WB
International Financial Reporting Standards
Investment Project Finance
International Public Sector Accoutering Standards
Internal Rate of Return
Kreditanstalt für Wiederaufbau
Kilo Volt
Least Cost Selection
Multilateral Investment Guarantee Agency
Market Operator
Ministry of Energy
Memorandum of Understanding
Mega Watt
Mega Watt Hour
Nongovernment Organization
Net Present Value
Project Development Objective
Project Operations Manual
Procurement Plan
Procurement Risk Assessment and Management
Quality and Cost Based Selection
Resettlement Action Plan
Right of Way
Resettlement Policy Framework
Supervisory Control and Data Acquisition
Social Development Strategy
Strategic Environmental Social Assessment
Substation
Single Source Selection
Transmission Grid Strengthening Project
Transmission Line
Terms of Reference
Unites States Agency for International Development
World Bank
Laura Tuck
Henry G. R. Kerali
Laszlo Lovei
Ranjit J. Lamech
Joseph Melitauri
TABLE OF CONTENTS
Page
I.
STRATEGIC CONTEXT .................................................................................................1
A. Country Context ............................................................................................................ 1
B. Sectoral and Institutional Context................................................................................. 3
C. Higher Level Objectives to which the Project Contributes .......................................... 5
II.
PROJECT DEVELOPMENT OBJECTIVE(S)..............................................................5
A. PDO............................................................................................................................... 5
B. Project Beneficiaries ..................................................................................................... 5
C. PDO Level Results Indicators ....................................................................................... 6
III.
PROJECT DESCRIPTION ..............................................................................................6
A. Project Components ...................................................................................................... 6
B. Project Financing .......................................................................................................... 7
C. Lessons Learned and Reflected in the Project Design .................................................. 7
IV.
IMPLEMENTATION .......................................................................................................8
A. Institutional and Implementation Arrangements .......................................................... 8
B. Results Monitoring and Evaluation .............................................................................. 8
C. Sustainability................................................................................................................. 8
V.
KEY RISKS AND MITIGATION MEASURES ............................................................9
A. Risk Ratings Summary Table ....................................................................................... 9
B. Overall Risk Rating Explanation .................................................................................. 9
VI.
APPRAISAL SUMMARY ................................................................................................9
A. Economic and Financial Analysis ................................................................................. 9
B. Technical ..................................................................................................................... 11
C. Financial Management ................................................................................................ 12
D. Procurement ................................................................................................................ 13
E. Social (including Safeguards) ..................................................................................... 13
F. Environment (including Safeguards) .......................................................................... 14
G. Other Safeguards Policies Triggered .......................................................................... 16
Annex 1: Results Framework and Monitoring .........................................................................20
Annex 2: Detailed Project Description .......................................................................................22
Annex 3: Implementation Arrangements ..................................................................................26
Annex 4: Operational Risk Assessment Framework (ORAF) .................................................40
Annex 5: Implementation Support Plan ....................................................................................48
Annex 6: Economic and Financial Analysis ..............................................................................51
MAP IBRD 40799
.
PAD DATA SHEET
Georgia
Transmission Grid Strengthening Project (P147348)
PROJECT APPRAISAL DOCUMENT
.
EUROPE AND CENTRAL ASIA
Report No.: PAD911
.
Basic Information
Project ID
EA Category
Team Leader
P147348
A - Full Assessment
Joseph Melitauri
Lending Instrument
Fragile and/or Capacity Constraints [ ]
Investment Project Financing
Financial Intermediaries [ ]
Series of Projects [ ]
Project Implementation Start Date
Project Implementation End Date
14-May-2014
01-Jun-2019
Expected Effectiveness Date
Expected Closing Date
13-Sep-2014
31-Mar-2019
Joint IFC
No
Sector Manager
Sector Director
Country Director
Regional Vice President
Ranjit J. Lamech
Laszlo Lovei
Henry G. R. Kerali
Laura Tuck
.
Borrower: Ministry of Finance
Responsible Agency: Ministry of Energy
Contact:
Mariam Valishvili
Title:
Telephone No.:
Deputy Minister
Email: [email protected]
Responsible Agency: Georgian State Electrosystem
Contact:
Sulkhan Zumburidze
Title:
Telephone No.: (995-32) 251-0202
Chairman of the Board
Email: [email protected]
.
Project Financing Data(in USD Million)
[X]
Loan
[ ]
[ ]
Credit [ ]
Grant
[ ]
IDA Grant [ ]
Total Project Cost:
61.88
Financing Gap:
0.00
Guarantee
Other
Total Bank Financing:
.
i
60.00
Financing Source
Amount
Borrower
1.88
International Bank for Reconstruction and
Development
60.00
Total
61.88
.
Expected Disbursements (in USD Million)
Fiscal
Year
2014
2015
2016
2017
2018
2019
0000
0000
0000
Annual
0.00
5.00
10.00
15.00
20.00
10.00
0.00
0.00
0.00
Cumulati 0.00
ve
5.00
15.00
30.00
50.00
60.00
0.00
0.00
0.00
.
Proposed Development Objective(s)
The project development objectives are to provide reliable power transmission to the southwestern part
of the grid, upgrade electricity exchange systems, and provide economically efficient, environmentally
and socially sustainable electricity sector planning.
.
Components
Component Name
Cost (USD Millions)
Component 1. Transmission System Strengthening
52.35
Component 2. Wholesale Power Exchange Systems
6.00
Component 3. Strategic Environmental Social Assessment
1.00
Component 4. Project Management and Transmission
Systems Studies
0.50
.
Institutional Data
Sector Board
Energy and Mining
.
Sectors / Climate Change
Sector (Maximum 5 and total % must equal 100)
Major Sector
Sector
%
Energy and mining
General energy sector
100
Total
Adaptation
Mitigation
Co-benefits % Co-benefits %
100
I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information
applicable to this project.
.
Themes
Theme (Maximum 5 and total % must equal 100)
ii
Major theme
Theme
%
Trade and integration
Export development and competitiveness 100
Total
100
.
Compliance
Policy
Does the project depart from the CAS in content or in other significant Yes [ ]
respects?
No [ X ]
.
Does the project require any waivers of Bank policies?
Yes [ ]
No [ X ]
Have these been approved by Bank management?
Yes [ ]
No [ X ]
Is approval for any policy waiver sought from the Board?
Yes [ ]
No [ X ]
Does the project meet the Regional criteria for readiness for implementation?
Yes [ X ]
No [ ]
.
Safeguard Policies Triggered by the Project
Yes
Environmental Assessment OP/BP 4.01
X
Natural Habitats OP/BP 4.04
X
Forests OP/BP 4.36
X
No
Pest Management OP 4.09
X
Physical Cultural Resources OP/BP 4.11
X
Indigenous Peoples OP/BP 4.10
X
Involuntary Resettlement OP/BP 4.12
X
Safety of Dams OP/BP 4.37
X
Projects on International Waterways OP/BP 7.50
X
Projects in Disputed Areas OP/BP 7.60
X
.
Legal Covenants
Name
Institutional Arrangements
Recurrent
Due Date
Frequency
X
Description of Covenant
The institutional arrangements are in place as set forth under the Section I.A of Schedule 2 to the Loan
Agreement and the Section I.A of the Schedule to the Project Agreement
Name
Subsidiary Agreement
Recurrent
Due Date
Frequency
X
Description of Covenant
Subsidiary agreements are in place as set forth under the Section I.B of Schedule 2 to the Loan
Agreement and the Section I.B of the Schedule to the Project Agreement
Name
Recurrent
iii
Due Date
Frequency
Safeguards
Yearly
X
Description of Covenant
Safeguards provisions are implemented as set forth under the Section I.D of Schedule 2 to the Loan
Agreement and the Section I.C of the Schedule to the Project Agreement
Name
Recurrent
Financial Covenants:
Due Date
Frequency
X
Description of Covenant
Financial Covenants are met as set forth under the Section IV of the Schedule to the Project Agreement
.
Conditions
Source Of Fund
Name
Type
IBRD
Subsidiary Agreement
Effectiveness
Description of Condition
The Subsidiary Agreement has been executed by the Ministry of Finance, Ministry of Environment and
Natural Resources’ Protection and the Ministry of Energy on behalf of the Borrower and the Project
Implementing Entity
Source Of Fund
Name
Type
IBRD
Operational Manual
Effectiveness
Description of Condition
The Project Implementing Entity has submitted to the Bank the Operational Manual in form and
substance satisfactory to the Bank
Team Composition
Bank Staff
Name
Title
Specialization
Unit
Arturo S. Rivera
Lead Energy Specialist
Lead Energy Specialist
ECSEG
Joseph Paul Formoso
Senior Finance Officer
Finance Officer
CTRLA
Deepal Fernando
Senior
Specialist
Darejan Kapanadze
Senior
Environmental Environmental Specialist ECSEN
Specialist
Joseph Melitauri
Senior
Officer
Jasna Mestnik
Finance Officer
Galina Alagardova
Financial
Specialist
Jorge E. Villegas
Senior
Social Social
Development ECSSO
Development Specialist Specialist
Katsuyuki Fukui
Sr Power Engineer
Power Engineer
ECSEG
Sandro Nozadze
Procurement Specialist
Procurement Specialist
ECSO2
Procurement Procurement Specialist
Operations Team Leader
Finance Officer
Management Financial
Specialist
iv
ECSO2
ECSEG
CTRLA
Management ECSO3
Rusudan Mandzhgaladze E T Temporary
E T Temporary
ECCGE
Nino Metreveli
E T Consultant
Social
Development ECSSO
Specialist
Name
Title
Office Phone
Yan Li
Economist/
Specialist
Matthew Mitchell J.
Consultant
Non Bank Staff
Financial
City
Washington, DC
.
Locations
Country
First
Administrative
Division
Location
Planned Actual
Georgia
Ajaria
Shuakhevi
X
Georgia
Ajaria
Bat'umi
X
Georgia
Samtskhe-Javakheti Samtskhe-Javakheti
v
X
Comments
I.
STRATEGIC CONTEXT
A.
Country Context
1. Georgia, a country of 4.5 million people, has a per capita gross domestic product
(GDP) of US$ 3,500 and an extreme poverty rate of 3.7 percent. The country has a total area
of 69,700 square kilometers. It is located south of the Caucasus mountain range, with Russia to
the north, Armenia and Turkey to the south, and Azerbaijan to the east. Georgia is a fairly
mountainous country with elevations ranging from zero to 5,000 meters above sea level. Key
natural resources include hydropower, forests, manganese, iron ore and copper. Poverty and
extreme poverty, measured using absolute 1 poverty lines that are linked to the national relative
poverty and extreme poverty lines, are high in Georgia. In 2012, roughly 14 percent of the
population lived on less than US$1.25 per day and 78 percent lived on less than US$5 per day.
The manufacturing sector (notably mineral products, food processing and beverages) and the
trade sector, accounting for 27 percent and 21 percent of GDP, respectively, have been
responsible for most of the economic growth in recent years. The Government of Georgia has
also been highly successful in promoting tourism, increasing the sector’s revenues by 56 percent
in 2012. 2 Investments to expand and improve electricity and transport infrastructure are key for
the expansion of this sector.
2. While conflict and the global economic crisis dampened the rapid economic growth
that began in 2003, the recent government stimulus programs have restored economic
momentum. Georgia’s economy grew roughly 6 percent during 2004-2013, fueled by a wide
range of reforms and strong inflows of foreign direct investment (FDI). However, the 2008
conflict with Russia and the global financial crisis led to a sharp economic downturn, resulting in
a contraction of GDP by 3.8 percent in 2009. The Government of Georgia (the Government)
responded to the crisis by launching a fiscal stimulus package and public investment programs
that emphasized infrastructure development. This stimulus led to substantial economic recovery,
with economic growth at more than 5 percent during 2010-2013. However, the recovery remains
largely driven by expanded public investment. Although FDI is recovering, by end 2013 it only
amounted to third of what it was during the high point of economic growth in 2007 (roughly
US$600 million). 3
3. In 2013, economic growth slowed due to perceived policy uncertainty, but recent
strong policy initiatives have greatly enhanced growth prospects for 2014. Following
parliamentary elections in late 2012, the new government’s attempts to trim public investment
spending, coupled with a weakening of consumer and investor confidence, exacerbated the
slowdown, resulting in economic growth of only 3.2 percent in 2013. To stimulate growth, the
Government in 2014 formulated a new economic policy, Socioeconomic Development Strategy
2020 (SDS 2020). In addition to the Georgian Energy Development Fund, established in 2010 to
develop small and medium renewable energy projects, the Government has launched the
Partnership Fund, designed to develop large strategic infrastructure projects, such as hydropower
1
An absolute poverty line is used to facilitate comparisons of poverty performance over time in Georgia. The 2012 values were
GEL 91.2 per adult equivalent per month and GEL 52.9 per adult equivalent per month (extreme or food poverty line).
2
3
Georgia Partnership Strategy, Country Snapshot, October 2013.
Ibid. Figure 2, page 2.
1
stations at Khudoni, Nenskra, Namakhvani, and Oni. In parallel with public funding, a privately
financed, co-investment fund was established to finance large infrastructure projects. Based on
these developments, updated projections of the World Bank and the International Monetary Fund
forecast economic growth of five percent for 2014.
4. Despite the economic recovery, Georgia has a high rate of unemployment and one of
the highest poverty rates in the Europe and Central Asia (ECA) region. Strong economic
growth during 2006-2007, resulting primarily from enterprise restructuring in the public sector,
did not generate significant employment. The poverty rate actually rose, from 18 percent in 2006
to 20 percent in 2007, with the lower 40 percent of the income scale growing at only 0.7 percent
per year compared to two percent for the overall population. Following the decline in GDP
growth, the relative poverty rate increased to 21 percent in 2010. However, the post-crisis
stimulus package helped reduce the poverty rate to 17.7 percent in 2011. Between 2010 and
2012, the depth and intensity of poverty declined, respectively, with the poverty gap narrowing
from 6.8 to 4.3 and the squared poverty gap diminishing from 3.2 to 1.8. Nevertheless,
unemployment remains high, at 15 percent (2012), with urban unemployment considerably
higher, at 26 percent. Income inequality has also remained high with the Gini coefficient close to
0.40. The Government views increased spending on infrastructure development as a key factor
for stimulating private investment and creating jobs.
5. There is significant international evidence supporting the critical role of
infrastructure in promoting economic growth through productivity increases. The two
principal drivers of investment for sustained high economic growth and job creation are (a)
international competitiveness for export-led growth; and (b) urbanization, which facilitates
productive economic activity4. These two drivers of investment and economic growth, in turn,
depend crucially on efficient infrastructure. Public investment in infrastructure (including power)
has been identified as having economically and statistically significant impact on long-run
growth. 5
6. Affordable, reliable, clean energy is essential for Georgia’s private sector to compete,
grow and contribute to the job creation necessary for boosting shared prosperity. 6 While
the number of firms reporting electricity as a problem had declined in 2012 relative to 2008, 7
three priorities remain. The first is ensuring that clean electricity supply grows fast enough to
meet the demands of an expanding economy and domestic private sector. The second is
supporting enhanced electricity infrastructure in the southwestern part of Georgia (Ajara region),
which has been particularly vulnerable to blackouts and supply uncertainty. This region is a
critical logistics hub not only for the country but also for the South Caucasus in general. The
third is facilitating regional trade in the medium-to-long term, given Georgia’s high potential
hydropower exports, through investments aimed at ensuring adequate transmission capacity.
4
Dan Biller and Ijaz Nabi, 2013 “Investing in Growth”
Seminal work by Calderon, Moral-Benito and Serven (2011).
6
World Bank 2013 “Georgia Rising.”
7
BEEPS 2013.
5
2
B.
Sectoral and Institutional Context
7. Over the past decade, the Government has made remarkable strides towards
improving power sector performance. Government policies to enforce financial discipline
combined with public investment to repair dilapidated infrastructure have transformed a power
sector on the verge of collapse to one that provides reliable electricity at reasonable cost.
Collections for billed electricity have improved dramatically, from a low of 20 percent to the
current level of nearly 100 percent. The enforcement of collection slowed the growth of
consumption from three percent in 2005 to zero in 2006, followed by a two-percent contraction
in 2007. Investments in power generation facilities increased electricity generation by 7 percent
during the same period. The contraction in consumption resulting from better commercial
management and increased generation capacity have minimized power shortfalls, with imported
electricity sufficient to fill the supply gap, at least temporarily.
8. Although Georgia has no overall shortage of supply, it is highly dependent on
imported power to meet seasonal demand, raising concerns over security of supply.
Georgia’s has a 10 TWh power generation system, 82 percent of which comes from hydropower.
The country’s power consumption peaks in the winter, when hydropower generation is at its
lowest point. In the winter, Georgia must rely substantially on imported electricity or domestic
thermal power generation using imported natural gas. In the winter, power from both sources
amounts to roughly 49 percent of electricity supply, a stark contrast with the summer, when no
imports are required and a surplus is available for export. By increasing the share of hydropower
plants with seasonal storage capability, Georgia will be able to lessen its seasonal dependence on
imported sources of energy, enhancing the security of supply and foreign exchange savings.
9. Without major investments in domestic seasonal generation, the security of power
supply will diminish even further as Georgia’s economy grows. During the past 5 years,
power demand grew in line with the economy, at an average annual rate of about 3.9 percent.
Over the next 10 years, power demand is expected to increase at an average annual rate of 3 to 5
percent. Georgia relies on the export of surplus power during the summer to offset the cost of
imported electricity during the winter. As power demand grows, the power surplus in summer
will shrink, reducing the amount of power available for the offset. Therefore economic growth,
without investments to increase domestic power generation, will undermine the security of
power supply.
10. Even with a major increase in power generation capacity, weak parts of the
transmission grid will impede security of supply. Georgia’s strong 500 kV loop and modern
grid-control systems 8 allow the system to meet a peak load at 1,800 MW with no system-wide
outages. However, there are parts of the grid that have a weak connection with the main loop.
The northern, southwestern, and northwestern branches of the transmission grid do not have
sufficient capacity to transmit power from the new generation facilities in that area. 9 Thus, the
8
A supervisory Controls and Data Acquisition System (SCADA) has been installed under the Bank financed Electricity Market
Support Project in 2003.
9
Hydropower stations under Adjaristsqali Hydropower Project are located in southwestern Georgia. Khudoni, Namakhvani, and
Nenskra Hydropower Stations are located in northwestern Georgia. The new Dariali Hydropower Station is located in northern
Georgia.
3
proposed Transmission Grid Strengthening Project will improve the stability and security of
supply of the transmission grid in southwest Georgia by constructing a new high voltage
transmission line from Akhaltsikhe to Batumi to evacuate power from the newly developed
Adjaristsqali Hydropower Project (see paragraph 11).
11. Although Georgia has large, untapped hydropower resources, most of the capacity
being developed is not sufficient to reduce seasonal import dependency. The country’s
economically viable hydropower potential is approximately 40 TWh. 10 Of this potential, Georgia
has harnessed roughly 8 TWh, with an estimated 2 TWh of new hydropower scheduled to come
on stream by 2017. However, most of hydropower sites being developed are run-of-river
operations, with limited or no seasonal storage capacity. Georgia has actively sought private
investment for the development of hydropower stations with seasonal storage capacity
amounting to approximately 6.4-7.9 TWh of annual electricity generation (1,800-2,000 MW).
However, progress in developing this capacity has been slow. 11 Nonetheless, preparation for
construction of the Adjaristsqali Hydropower Project, the largest hydropower generation under
construction since the 1980’s, has started. The Adjaristsqali Hydropower Project consists of two
hydro schemes: the Shuakhevi scheme with an installed capacity of 185 MW; and the
Koromkheti scheme with an installed capacity of 150 MW. The major financiers of the scheme
are IFC, 12 EBRD and ADB. MIGA may also provide a guarantee. (A detailed description of the
Adjaristsqali Hydropower Project and status of construction is presented in Annex 2).
12. The eventual development of hydropower resources will expand opportunities for
power trade that the existing platform for electricity exchange is insufficient to support.
The development of approximately 8 TWh of hydropower, designed to meet peak demand in the
winter, will result in a power surplus of about 6 TWh 13 during the summer. However, the current
power-exchange system cannot support power trade of this magnitude. In particular, the system
lacks the necessary hardware and software to accommodate increased domestic generation (see
Annex 2). The existing platform for power exchange is inadequate for hourly metering and
balancing necessary for the new generators to exchange summer surplus of power with Turkey.
13. Planned hydropower development has yet to be optimized to increase overall economic
benefits and minimize adverse environmental and social impacts. Georgia has been
developing hydropower sites on a case-by-case basis, focusing on the benefits and costs of each
site, rather than an optimal development framework. Technical, environmental and social
assessments of each site have taken place in isolation.
14. The proposed Transmission Grid Strengthening Project (TGSP) will address the
following key issues: (i) the lack of a hydropower development plan optimized for
enhancing security of supply, realizing the economic benefits of hydropower assets, and
10
The overall hydropower potential has been estimated at 40 TWh but only about 25 percent has been harnessed. HPEP USAID,
and Ministry of Energy Project.
11
Construction of the Khudoni Hydropower Station remains on hold due to outstanding environmental and social issues, and
persisting resistance from civil society groups. The feasibility studies for the development of the Namakhvani and Nenskra
Hydropower Stations have been completed but the lack of a financier has stalled their development.
12
IFC is only financing the Suakhevi scheme.
13
Regional Power Trade in South Caucasus, Stocktaking Study, World Bank, November 2012.
4
minimizing adverse environmental and social impacts; and (ii) inadequate infrastructure14
for a major increase in power trade. To help resolve these issues, TGSP, in collaboration with
the programs of the Government and other development partners, will support: (i) strengthening
and expanding the transmission grid to ensure it provides reliable transmission to consumers and
suppliers of power, (ii) establishing systems for local and regional power exchange; and (iii)
developing an analytical foundation for economically efficient and environmentally/socially
sustainable electricity sector planning.
C.
Higher Level Objectives to which the Project Contributes
15. The Project is aligned with the Government’s medium-term Socioeconomic
Development Strategy (SDS 2020) and the FY14-FY17 Country Partnership Strategy
(CPS). The maximization of transit potential through enhanced infrastructure is the key part of
the Government’s SDS 2020 strategy. The SDS 2020 and CPS address the Bank’s twin
objectives of reducing extreme poverty and boosting shared prosperity. To support these
objectives, the strategies focus on: (i) strengthening public service delivery to promote inclusion
and equity; and (ii) enabling job creation by the private sector by improving (enhancing)
competitiveness. The TGSP will support improved service delivery by providing the
infrastructure to strengthen the availability of reliable, affordable power supply, which will
support competitiveness of businesses, and, in turn, enhance prospects for job creation.
16. The TGSP will support key factors identified in the Doing Business Report as pivotal
to facilitating business development. By expanding power supply and improving its reliability,
reducing the threat of power deficits and higher costs in the winter season, the Project directly
addresses the removal of impediments to business development, operation, and competitiveness.
II.
PROJECT DEVELOPMENT OBJECTIVE(S)
A.
PDO
17. The project development objectives (PDO) are to provide reliable power transmission to
the southwestern part of the grid, upgrade electricity exchange systems, and provide
economically efficient, environmentally and socially sustainable electricity sector planning.
B.
Project Beneficiaries
18. All power consumers of Georgia will benefit either directly or indirectly from adequate,
more reliable electricity supply transmitted from a cleaner source of power. The power
consumers in the Ajara region of southwestern Georgia will be direct beneficiaries of an
improved quality of power supply, particularly Batumi, the region’s main city. The two projects:
TGSP and Adjaristsqali Hydropower Project will indirectly benefit the entire country through
additional inflows of FDI, which should contribute to economic growth. The excess power from
the Adjaristsqali Hydropower Project, which will be exported, will provide an important
additional flow of revenues to Georgia’s economy.
14
Infrastructure involves hardware and software for metering and power exchange
5
C.
PDO Level Results Indicators
19. The achievement of the PDO level results will be monitored through the following core
and custom indicators as follows:
i)
Total electricity evacuated from the newly developed power stations in southwestern part
through the grid.
This is a custom indicator which measures total MWh power delivered to the grid from
newly constructed generation stations in Ajara region.
ii)
Total duration of outrages in Batumi substation.
This is a custom indicator that measures total hours of un-scheduled power outages in the
Batumi substation.
iii)
Power is exchanged (traded) using new exchange platform.
This is a custom indicator demonstrating the establishment and functioning of the new
electricity exchange platform.
iv)
The Government plans hydropower development with consideration to long-term
economic efficiency and environmental and social sustainability.
This is a custom indicator demonstrating that the results of the least cost planning and
strategic environmental assessment have been incorporated into the Government’s
hydropower development plan.
v)
Transmission lines constructed or rehabilitated under the Project.
This is a core indicator that measures total lengths of transmission line constructed under
the Project.
20.
The intermediate outcome indicators measure the progress of the Project's
implementation. There are three such indicators: (i) the progress of transmission line
construction, (ii) preparation and public consultation for the Strategic Environmental and Social
Assessment (SESA), and (iii) upgrade of the wholesale power exchange systems.
III. PROJECT DESCRIPTION
21. The Project will: (i) improve stability and security of supply of the southwestern part of the
transmission grid by providing additional transmission connection and provide transmission of
power from the newly constructed generation stations, (ii) establish a power exchange platform;
and (iii) assess the environmental and social impact of the sector strategy. TGSP’s components
are aligned with the three areas cited above. Annex 2 provides a detailed description of the
Project’s components.
A.
Project Components
22. Component 1: Transmission System Strengthening (US$52.35 million). This component
will support the construction of a high voltage transmission line from Akhaltsikhe to Batumi,
through: (i) the supply and installation of a double-circuit, 220 kV transmission line from
Akhaltsikhe high voltage direct current converter station with back-to-back configuration and
500/400/220 kV substation (Akhaltsikhe station) to Batumi 220 kV substation; and (ii) the
supervision of the supply and installation of the Akhaltsikhe Batumi transmission line.
6
23. Component 2: Wholesale Power Exchange Platform (US$6.00 million). This component
will finance the design, supply and installation of a power exchange platform including: (i) the
provision of hardware and software for metering, balancing, and trading systems; and (ii)
supervision of the supply and installation of said platform through the carrying out of small
works and the provision of goods and consultants’ services.
24. Component 3: Electricity Sector Strategic Environmental and Social Assessment
(US$1.00 million). This component will provide consultants’ services to prepare a strategic
environmental and social assessment for the electricity sector.
25. Component 4: Project Management and Transmission Systems Studies (US$0.50
million). This component will provide consultants’ services to assist the Project Implementing
Entity for the purposes of: (i) effective management and implementation of Project activities;
and (ii) the preparation of: (a) a new transmission-system expansion plan, (b) prospective
transmission line feasibility studies; and (c) preliminary designs for the prospective transmission
lines.
B.
26.
Project Financing
Lending instrument
27. The Project will provide Investment Project Financing (IPF) of US$60 million, on standard
IBRD terms.
Project Cost and Financing
Project Components
Component 1. Transmission System Strengthening
Component 2. Wholesale Power Exchange Platform
Component 3. Strategic Environmental and Social
Assessment
Component 4. Project Management
Total Costs
Total Project Costs
Front-End Fees
Total Financing Required
C.
Project cost (US$
million)
$
52.35
$
7.50
IBRD Financing (US$
million)
$
52.35
$
6.00
% Financing
100%
80%
$
1.25
$
1.00
80%
$
$
0.62
61.72
$
$
0.50
59.85
80 %
$
$
0.15
61.88
$
$
0.15
60.00
100 %
97%
Lessons Learned and Reflected in the Project Design
28. The Project draws extensively upon the lessons learned from similar Bank engagements
worldwide and in Georgia, reflecting three principal lessons. The first, from the Infrastructure
Pre-investment Facility, 15 is the importance of early public consultations and the extensive
support to the Ministry of Environment and Ministry of Energy, in order to develop full
15
Project completed in 2011, total amount US$3.5 million.
7
ownership of the SESA. The second lesson, from the Azerbaijan Power Transmission Project,16
is the need to include the preparation of the design and detailed specifications for the metering,
balancing and trading software, in order to create functioning power exchange platform on time.
The third lesson, from the Kazakhstan Moinak Transmission Project, 17 is to avoid a turn-key,
design-supply-install contract, in favor of a supply-install contract, in order to mitigate the risk of
delay and poor design.
IV. IMPLEMENTATION
A.
Institutional and Implementation Arrangements
29. TGSP will be carried out by the Ministry of Energy, the Ministry of Environment and
Natural Resources Protection, and the Georgian State Electrosystem (GSE). GSE will carry out
components 1, 2, and 4, and the Ministry of Energy and the Ministry of Environment and Natural
Resources will carry out component 3. GSE will also assist the Ministry of Energy and the
Ministry of Environment and Natural Resources Protection in carrying out activities under
component 3. GSE as an implementing agency, has successfully managed three projects that
have received Bank financing and projects with financing from other development partners,
including the Asian Development Bank (ADB), United States Agency for International
Development (USAID), European Bank for Reconstruction and Development (EBRD),
European Investment Bank (EIB), and Kreditanstalt für Wiederaufbau (KfW). The company has
demonstrated good accounting and financial management, evidenced by clean audit reports for
the past few years. GSE is committed to maintaining adequate in-house capacity to ensure
smooth implementation of the TGSP. The company has demonstrated this commitment by hiring
additional staff for environmental, social, and financial management, as necessary. GSE will be
responsible for financial management arrangements, including the flow of funds, budgeting,
accounting, progress reporting, and the submission to the Bank of annual budgets, semi-annual
financial reports, Interim Financial Reports (IFRs), and annual financial statements.
B.
Results Monitoring and Evaluation
30. GSE will monitor the Project’s results according to the framework in Annex 1. The
Ministry of Energy, Ministry of Environment and Natural Resources Protection, and the
Supervision Engineer, hired by GSE, will report progress to the GSE, which will prepare the
Project’s semi-annual progress reports and submit them to the Bank. The Supervision Engineer
will prepare quarterly progress reports and share them with the Bank through GSE. The
responsibility for timely preparation and submission of the abovementioned documents will
remain with GSE.
C.
16
17
Sustainability
Project completed in 2012, total amount US$ 48 million.
Project completed in 2013, total mount US$ 48 million.
8
31. GSE has a good track record of operating transmission system assets and is capable of
sustaining the operation of the new transmission line. Additional revenues arising from the
electricity evacuated from the new hydropower station will provide adequate levels of financing
for the maintenance of the transmission line. Annex 6 discusses the recovery of the operation and
maintenance costs of the transmission line in relation to GSE’s tariffs and the Government
commitment to maintain GSE’s financial viability.
V. KEY RISKS AND MITIGATION MEASURES
A.
Risk Ratings Summary Table
Risk Category
Rating
Stakeholder Risk
Moderate
Implementing Agency Risk
- Capacity
Moderate
- Governance
Low
Project Risk
- Design
Moderate
- Social and Environmental
Substantial
- Program and Donor
Moderate
- Delivery Monitoring and Sustainability
Moderate
Substantial
Overall Implementation Risk
B.
Overall Risk Rating Explanation
32. Although the Project will use well-established technology, the Bank has rated the TGSP’s
overall risk rating as substantial. This rating is appropriate due to the complex environmental,
social, and technical challenges associated with the design, construction, and operation of the
transmission line, as discussed below in Section VI. The rating also reflects the complexity of
aligning the completion of the transmission line with the development of the associated
hydropower project, which has multiple stakeholders. Finally, reputational risks that may emerge
from the implementation of the associated hydropower project are likely to spill over to the
TGSP, as the two are not distinctly separated in the public perception.
VI.
APPRAISAL SUMMARY
A. Economic and Financial Analysis
33. Economic Analysis. A benefit-cost analysis was undertaken to assess the Project’s
economic viability. TGSP’s investments will have three quantifiable benefits: (i) improved
9
reliability of transmission service in the Ajara region; (ii) lower regional cost of supply in the
remaining part of the year; and (iii) lower domestic cost of supply during the winter months. The
costs associated with the Project include upfront investments and the ongoing costs of operating
and maintaining the network constructed.
34. The Project’s investments are expected to generate an economic net present value (ENPV)
of US$3.12 million,18 and yield an economic internal rate of return (EIRR) of 12.7 percent.
Moreover, roughly 81 percent of the estimated benefit from the Project comes from system
reliability improvements and 19 percent from lowering the regional cost of electricity supply
enabling regional power trade. (See Annex 6 for the details of the Project’s economic analysis.)
35. Financial analysis. The Project’s appraisal has considered two options for the construction
of the transmission line: (i) a single-circuit line and (ii) a double-circuit line. The table below
shows that the latter is the preferred option. The financial internal rate-of-return (FIRR) for the
double-circuit transmission line at 13.6 percent, is only slightly higher than that of single-circuit
line (13.1 percent). However, the financial net present value (FNPV) for the double-circuit line is
about 75 percent higher than that of the single-circuit line.
Table 1: Comparative Results of the Project’s Financial Evaluation
Single-Circuit Line
US$35.12 million
US$37.46 million
US$2.31 million
13.1%
Present Value of Costs
Present Value of Benefits
NPV
FIRR
Double-Circuit Line
US$45.01 million
US$49.05 million
US$4.05 million
13.6%
36. Table 2 shows the sensitivity of the FIRR to key variables affecting it, (i) the increased
cost of the transmission line and (ii) the reduction in the volume of power transmitted. The
analysis shows that the FIRR is highly sensitive to the both parameters, falling below 12 percent
if either parameter changes by more than five percent. Moreover, the FIRR falls below the
weighted-average cost of capital with a 20 percent reduction of transmitted power or a 20 percent
cost overrun. Annex 6 provides the detailed assumptions and results of the financial analysis.
Table 2: Results of the Sensitivity Analysis of the FIRR
Cost Overrun (%)
0%
0
10
18
13.60%
11.60%
Change in the Volume of Power Transmitted
-5%
-10 %
-20%
12.60%
10.60%
At an Economic Opportunity Cost of Capital, EOCK, of 12.0 percent.
10
11.70%
9.70%
9.90%
7.90%
9.80%
8.20%
20
30
8.80%
7.20%
7.90%
6.20%
6.10%
4.40%
37. GSE’s financial performance. GSE has been operating under a 15-year bankruptcy
recovery (financial rehabilitation) plan. The recovery plan has enabled GSE to continue
operations while gradually repaying old debts to the Government. Due to an increase in
transmitted power and improved collection rates, GSE’s revenues from core operations rose by
about 40 % between 2008 and 2013, from GEL 46.6 million to GEL 64.9 million. These
developments have improved the overall financial performance of the GSE, which Annex 6
describes in detail. GSE has also number of ongoing litigation cases and claims in courts
however; these cases will not materially and adversely affect GSE’s financial viability.
B. Technical
38. System operation. GSE established a fully-functional supervisory control and data
acquisition (SCADA) system and a communication system through a previous Bank-financed
Electricity Market Support Project. 19 Furthermore, the company has implemented an Emergency
Control System to secure system reliability and stability. As noted earlier, the power system is
characterized by seasonal imbalances, with power imports in the winter to avoid shortfalls, and
power exports in the summer. Table 3 shows import/export data for 2007 to 2013. Between 2007
and 2010, Georgia generated an overall surplus of power, but since 2012, as power demand has
grown, the country has become a net importer of power.
Table 3: Electricity Import/Export Statistics 2007-2013 (GWh)
Import
Export
Balance
2007
433
626
-193
2008
649
680
-31
2009
255
749
-494
2010
222
1524
-1302
2011
471
931
-460
2012
615
528
87
2013
484
450
34
39. Planned generation developments. The Government has signed memoranda of
understanding (MOUs) with private developers for 14 20 ongoing hydropower projects and one
thermal power project. These projects will increase hydropower generation to an additional 0.5
TWh and to 2014, 2.2 TWh GW by 2017. A 500kV transmission line connects Georgia’s power
system to that of Russia, via the Enguri Hydropower Plant (1300 MW) in the northwest to
Zestaponi, from which a 500kV transmission line connects to Gardabani. As a part of the Black
Sea Transmission Network (BSTN) Project, the new 500kV transmission line connects Zestaponi
to Gardabani, via the Akhaltsikhe power substation, for asynchronous operation with Turkey.
This configuration will result in the operation of the 500kV eastern loop.
40. Expansion of the transmission system. GSE’s strategic plan for 2012 to 2020 includes
projects designed to improve transmission availability and reliability. The total interconnection
capacity of the high-voltage lines (>=220kV) will increase from 700 MW asynchronous to about
19
20
Completed in 2010, total amount SDR21.1 million (about US$32.7 million).
As of April 2014.
11
1400 MW by 2020. The proposed 220kV, double-circuit transmission line from the Akhaltsikhe
station to the Batumi substation will consist of two sections: an east section and a west section.
The east section will start from the Akhaltsikhe station and reach the Shuakhevi hydropower
plant (175MW) with a 87 km line. The west section will start from the Shuakhevi hydropower
plant and reach the Batumi substation, via the Koromkheti HPP (150MW), with a 55 km line.
The expected commissioning date of Shuakhevi HPP (Phase 1) is tentatively September 2016
and that of the Koromkheti HPP (Phase 2) is early 2018. The main purpose of the transmission
line is to evacuate power from these two plants in the Adjaristsqali Hydropower Project to
Georgia’s 220kV network. The transmission line will normally evacuate about 110MW to the
Akhaltsikhe station and about 210 MW to the Batumi substation. In addition, the line will
improve the reliability and qualities of supply to the southwest area served by the Batumi
substation, where an important Black Sea port and tourist resort are located.
41. Metering systems for wholesale trade. The Electricity System Commercial Operator
(ESCO) commenced in 2006 with the following functions: (i) registering direct contracts, (ii)
sales and purchase of balancing electricity; and (iii) securing imported electricity. Wholesale
trade in electricity takes place through direct contacts with suppliers or through ESCO, which
registers electricity buyers and sellers with GSE. Some wholesale customers are not fully
metered, and others are not equipped with an hourly-reading metering function, 21 because of
direct or long-term contracting. Therefore, it is difficult to create a real-time, demand-supply
balance for system operation. In addition, not all customers have a backup meter to ensure
continued metering of consumption if the main meter fails. In order to facilitate an active trade
mechanism, such as the Day-Ahead-Market, which performs settlement based on hourly
metering and allows direct sales to the Turkish market, the system must have real-time metering
functions for all wholesale market participants and obtain the system software for managing
trade and balancing of power. In this context, the Project will ensure that meter from all sellers
and buyers are connected and feed information to the metering system. For monitoring meters
and managing the balancing of the market, the Project also will install enterprise system software
and associated hardware at the office of GSE, and GSE’s dispatching center for network
operation, located in Tbilisi.
C.
Financial Management
42. GSE’s and MOE’s arrangements for financial management meet basic World Bank
requirements. The GSE will customize the automated software for financial management to
generate standard reports required by the Bank, such as statements of expenditures (SOEs) and
annual financial statements. The customization also will include a budgeting module. The
system will have adequate security safeguards for reliable reporting and data integrity. The MOE
will utilize Oris Accounting software for project accounting purposes. All financial management
(FM) staff will receive focused training when the Project launches and hands-on training during
implementation. The Project Operational Manual (POM), in the chapter on financial
management (FMM), will describe budgeting, audit arrangements, internal control and
accounting policies and procedures. This section of the POM will also reflect the policies and
procedures applicable for conflict of interest and related party transactions (real and apparent)
21
Georgia has about 1034 settlement were inspected in 2013.
12
and provide safeguards to protect the organization from associated risks. Project funds will flow
from the Bank to separate Designated Account (DAs) held at the commercial banks, by the GSE.
The replenishment of funds will take place according to the World-Bank’s usual disbursement
procedures. Annex 3 provides the details on financial management arrangements.
D.
Procurement
43. Procurement will take place according to the “Guidelines for Procurement of Goods,
Works, and Non-Consulting Services under IBRD Loans and IDA Credits & Grants by World
Bank Recipients,” January 2011; “Guidelines for Selection and Employment of Consultants
under IBRD Loans and IDA Credits & Grants by World Bank Recipients,” January 2011; and
the provisions in the Project’s Loan and Project Agreements. The Bank’s anti-corruption policies
(“Guidelines on Preventing and Combating Corruption in Projects Financed by IBRD Loans and
IDA Credits and Grants”) of October 15, 2006, revised in January 2011, will apply to the Project.
The latest Country Procurement Assessment Report (CPAR) dated April 2009, which includes
recommended priority actions under four pillars, found that all four of OECD-DAC/World Bank
pillars for public procurement required improvement in order to meet international standards and
best practices. However, Georgia is making considerable progress in implementing a three-year
action plan for improving procurement. The most recent and notable procurement reform is the
successful implementation of the electronic procurement system (e-procurement) for all
government contracts in Georgia. The Bank has evaluated this system and agreed with the
Competition and State Procurement Agency (CSPA), on the system’s use, with minor
modifications for Bank-funded projects. The e-procurement system will apply to the
procurement of simple goods, following shopping procedures, below the threshold of US$
100,000. The Bank is currently working with the CSPA and other counterparts to further modify
the e-procurement system for the use with the more complex National Competitive Bidding
(NCB) and International Competitive Bidding (ICB) procurement methods.
44. There is a risk that GSE may not be able to conduct a proper, timely evaluation of bids for
the supply and installation of Akhaltsikhe-Batumi Transmission Line. Therefore, TGSP has
allocated funds to hire an independent consultant, on a competitive basis, to support GSE in
procurement. Also, the Bank’s procurement specialist assigned to the TGSP, together with a
senior procurement specialist, have conducted a training course for GSE staff. The course gave
particular attention to bid-evaluation procedures and the preparation of bidding documents based
on World Bank standard bidding documents. GSE staff will attend regional procurement training
organized by the Bank, to be conducted in April 2014, in Tashkent, Uzbekistan.
45. TGSP’s procurement risk has been rated moderate with the application of the
aforementioned mitigation measures.
E.
Social (including Safeguards)
46. The design of the Project’s transmission-line corridor and the Environmental and Social
Impact Assessment (ESIA) include measures to minimize adverse social impacts. The ESIA has
been subject to a consultation process and it includes a Stakeholder Engagement Plan that
describes all engagement activities to date and actions to ensure ongoing engagement during the
life of the TGSP, including the implementation of a grievance redress mechanism. The Project
13
triggers OP/BP 4.12 on Involuntary Resettlement because it will require permanent acquisition
of land for the erection of towers and imposition of easement for the transmission line’s Rightof-Way (ROW). Impacts from land easements for the ROW will be marginal and temporary as
agricultural activities in the area will be able to continue. The transmission line will require up to
500 towers, resulting in the acquisition of 10 hectares of land. The easement for the ROW will be
approximately 65 meters wide covering a total area of 975 hectares. The Project may also require
the relocation of roughly 60 houses. Total land requirements for access roads are expected to be
minimal. Approximately70 percent of parcels required for the positioning of towers are expected
to be located on state-owned land. During Project appraisal, the details of the transmission line’s
routing were not known. Therefore, GSE prepared a Resettlement Policy Framework (RPF),
which focused on the principles, criteria and procedures for managing resettlement resulting
from Project-related land acquisition. The preparation of site-specific Resettlement Action Plans
(RAPs) will take place once the exact positioning of the line is known.
47. Given that the Project will provide more secure and reliable power supply from a cleaner
source of power to the general population in Batumi and the Ajara region, no gender
differentiated benefits and/or impacts directly associated to power transmission are expected. As
part of the ESIA process gender-disaggregated data was gathered and no gender-specific risks
and impacts were identified. Additional socioeconomic studies will be carried in preparation of
the Resettlement Action Plans (RAPs) which will also include gender differentiated information
to ensure that any project-related adverse impacts are mitigated taking into consideration any
potential gender-based inequalities related to compensation and land rights. Single mother
headed households, and project-affected people with disabilities, elderly or below poverty line
will be given special consideration as part of the RAP implementation. The employment of local
labor will be maximized during the operational phase of the projects (e.g. in providing security,
undertaking vegetation control, etc.). Job trainings will be equally offered to men and women
and the project will provide equal employment opportunities to women within the project skills
requirements.
F. Environment (including Safeguards)
48. Environmental aspects related to the development of hydropower generation facilities in
Georgia have been controversial and remained the focus of civil society attention since 1980.
Public debates over the feasibility of constructing large Hydro Power Pants (HPPs) and
environmental and social costs of such developments heated up a few years ago, once the
abandoned idea of constructing Khudoni HPP appeared on the Government’s agenda along with
an ambitious plan for installing a number of other large and medium HPPs. Several shortfalls in
the national legal and institutional framework for environmental management contribute to lack
of public trust in the soundness and sustainability of decisions being made with regard to
enhancing the country’s power generation infrastructure: (i) national law does not carry
provisions for conducting SESA of sectoral/regional development plans; (ii) national law does
not require environmental screening and scoping of infrastructural projects at the early stage of
their development; therefore an ESIA is carried out once a project financing decision is already
taken and “no-project” scenario is actually ruled out; and (iii) there are no national rules on the
methodology for determining an acceptable minimal water flow (“ecological flow”) that shall
remain in a river after water obstruction in order to sustain aquatic life and down steam
ecosystems. Technical assistance to be provided to the Government under the TGSP includes
14
financing of the SESA of the national policy and strategic plan for the power sector, which is
expected to contribute to the creation of a reliable platform for well-informed and streamlined
Government decision-making on investment decisions in future. Inclusion of this technical
assistance component in the Project, as well as the support that the Bank will support the
Borrower in managing environmental and social aspects of the investment component of this
Project.
49. The Project triggers OP/BP 4.01 Environmental Assessment, it is classified as
Environmental Category A, and requires a full-scale environmental assessment. 22 The ESIA has
provided an environmental and social management matrix for mitigating expected adverse
impacts and monitoring outcomes of mitigation measures. Despite proximity to several protected
areas, historic monuments, an evolving skiing resort, and numerous human settlements, the
transmission line does not adversely affect these areas. To mitigate adverse impacts in the
construction phase, the Project will apply conventional environmental good practices. In
addition, the humid, subtropical climate of the Ajara region provides favorable conditions for a
rapid, natural regeneration of areas impacted by construction.
50. The transmission line is also associated with the construction of the Adjaristsqali
Hydropower Project, owned by the Adjaristsqali Georgia LLC (AGL) and financially supported
by IFC, MIGA, ADB and EBRD. The ESIA report developed for this scheme covers major
environmental, social, and cultural heritage aspects related to the construction and operation of
the Adjaristsqali Hydropower Project. 23 The ESIA report 24 for the hydropower scheme is of high
quality. However, it carries generic guidance on the ongoing adjustments of environmental
mitigation measures to be applied during construction and operation of the HPPs. This feature of
the ESIA report reflects the overall approach of the Adjaristsqali Hydropower Project to the
system of environmental and social management to be applied under it. This system implies
collection of supplemental site-specific information through additional studies and monitoring
work to be undertaken on a rolling basis and to refine the development of concrete and adjusted
mitigation measures as project activities unfold. Knowing that the Ministry of Environment and
Natural Resources Protection of Georgia has already issued an environmental permit for the
construction of the scheme (185 MW Shuakhevi scheme and 150 MW Koromkheti station), and
being aware of the institutional weaknesses of public entities in environmental controls and
enforcement, the Bank team notes that quality control over the site-specific safeguard documents
to be developed at later stages of the project cycle is expected to be weak on behalf of the state
environmental bodies and the GSE. Therefore, the main responsibility for ensuring quality of
future environmental work and adequacy of mitigation measures to be prescribed based on the
outputs of this work will rest with the IFC, ADB, EBRD and (primarily) AGL. AGL has an
Environmental, Health & Safety (EHS) unit that is responsible for managing environmental,
social and health & safety risks and impacts during construction and operations in accordance
22
This also is required by Georgia’s national environmental legislation.
In accordance with IFC’s Access to Information Policy, early drafts of the ESIA of the Adjaristsqali Hydropower Project were
disclosed on IFC's website on May 24, 2013. Updated ESIA documents were disclosed on October 3, 2013 along with an
Environmental and Social Review Summary prepared by IFC.
24
The ESIA prepared for the Adjaristsqali Project included the initial schemes of Shuakhevi 185 MW, Koromkheti 150 MW
scheme, and Khertvisi 65 MW. Detailed assessment identified significant economic and environmental risks of the Khertvisi 65
MW scheme therefore AGL is not pursuing development of the Khertvisi scheme.
23
15
with the Environmental and Social Management Plan commitments. The EHS unit’s role
includes monitoring compliance of construction contractor’s performance with IFC's
Performance Standards. AGL will develop a detailed audit/monitoring schedule, including EHS,
labor and social issues. IFC, ADB and EBRD, in their capacity as lenders, together with MIGA
as a political risk insurance provider, will require periodic, independent external monitoring of
works by an industrial environmental management specialist. The Bank will maintain dialogue
with IFC and MIGA to remain up-to-date on the status of the project’s adherence to the
performance standards and will receive environmental and social audit reports on a regular basis.
Joint supervision of the associated TGSP and Adjaristsqali Hydropower Projects may also be
considered, as appropriate.
51. In terms of social issues, the Adjaristsqali Hydropower Project involves land acquisition
and resettlement which has been addressed as per IFC’s requirements. It must be noted that the
project has faced active opposition from selected local communities, including blockage of
access road, related to demands from communities for compensation and/or resettlement from
their current villages, which are mostly built on unstable landslips, on the basis that the
hydropower construction could trigger landslips and/or impact their water supplies. The AGL is
working with Government to find solutions to the grievances by certain communities, some of
which relate to compensation for historical events and others of which relate to a desire for
guarantees of compensation should any project-related landslide damage occur.
G.
Other Safeguards Policies Triggered
52. The Project triggers OP/BP 4.04 Natural Habitats because, as noted above, a section of the
transmission line will fall within an important, international corridor of bird migration, requiring
measures to minimize adverse impacts on this habitat. Throughout operation, a land strip under
the power cables must be free of high-growing vegetation throughout operation of the
transmission line. Therefore OP/BP 4.36 Forests is triggered. TGSP triggers OP/BP 4.11
Physical Cultural Resources to manage any possible impacts of the Project on the cultural and
historic monuments registered along the ROW, as well as to provide guidance on handling
possible chance finds during earth works. Finally, the Project triggers OP/BP 4.37 Safety of
Dams. Although the TGSP will not finance the construction of any dams, it is associated with the
Adjaristsqali Hydropower Project, which will. Therefore, TGSP’s preparation required review of
the dam quality-assurance arrangements in place under the Adjaristsqali Hydropower Project,
which the Bank has found to be satisfactory. Due diligence throughout the TGSP cycle will
include the tracking of risk-management efforts applied under the Adjaristsqali Hydropower
Project to the construction and operation of dams.
53.
Disclosure of Safeguard Documents
ESIA TOR at scoping stage
Draft final ESIA report
Executive Summary of ESIA report to Board
Final ESIA report
Draft final RPF
Final RPF
16
07/25/2013
12/17/2013
12/17/2013
04/04/2014
03/13/2014
04/04/2014
Annex 1: Results Framework and Monitoring
.
Country: Georgia
Project Name: Transmission Grid Strengthening Project (P147348)
.
.
Project Development Objectives
.
PDO Statement
The project development objectives are to provide reliable power transmission to the southwestern part of the grid, upgrade electricity exchange
systems, and provide economically efficient, environmentally and socially sustainable electricity sector planning.
These results are at
Project Level
.
Project Development Objective Indicators
Data
Source/
Cumulative Target Values
Indicator Name
Core
Unit
Measure
of
Baseline
YR1
YR2
YR3
YR4
End
Target
Responsibility
for
Frequency
Methodolog Data Collection
y
Total electricity
evacuated from
the
newly
developed
power
generation
stations
in
southwestern
Georgia through
the grid
Gigawatthour (GWh)
0.00
0.00
0.00
200.00
400.00
400.00
Annually
GSE
Dispatch
GSE
Total duration
of outages in
Hours
136.00
100.00
100.00
0.50
0.50
0.50
Annually
GSE
GSE
17
Batumi
substation
Power
is
exchanged
(traded) using
new exchange
platform
Yes/No
No
No
No
No
Yes
Yes
Annually
GSE
The results of
the least cost
planning
and
strategic
environmental
assessment have
been
incorporated
into
the
Government’s
hydropower
development
plan
Yes/No
No
No
No
Yes
Yes
Yes
Annually
Ministry of Ministry
Energy
Energy
Transmission
lines constructed
or rehabilitated
under
the
project
Kilometers
0.00
0.00
0.00
52.00
142.00
142.00
Annually
GSE
GSE
Transmission
lines constructed
under
the
project
Kilometers
Sub-Type
Breakdown
0.00
0.00
0.00
52.00
142.00
142.00
Annually
GSE
GSE
Data
Source/
Responsibility
for
GSE
.
Intermediate Results Indicators
Cumulative Target Values
18
of
Indicator Name
Core
Unit
Measure
of
Baseline
YR1
YR2
YR3
YR4
End
Target
Frequency
Methodolog Data Collection
y
Section
from
Shuakhevi
to
Batumi
transmission
line constructed
Kilometers
0.00
0.00
0.00
52.00
52.00
52.00
Once
at
completion
of
the GSE
transmissio
n line
Strategic
Environmental
Impact
Assessment
prepared based
on the feedback
from
all
stakeholders
Yes/No
No
No
No
Yes
Yes
Yes
Once at the
Ministry of Ministry
mid-term of
Energy
Energy
the project
Wholesale
power exchange
systems updated
Yes/No
No
No
No
No
Yes
Yes
Annually
.
19
GSE
GSE
GSE
of
Annex 1: Results Framework and Monitoring
.
Country: Georgia
Project Name: Transmission Grid Strengthening Project (P147348)
.
Results Framework
.
Project Development Objective Indicators
Indicator Name
Description (indicator definition etc.)
Total electricity evacuated from the newly developed Total electricity in GHh delivered to the grid by hydropower stations developed after
power generation stations in southwestern Georgia 2013 in Ajara region
through the grid
Total duration
Total duration of un-scheduled outages of Batumi substation
Power is exchanged (traded) using new exchange GSE uses new power exchanged platform to balance and trade power
platform
The results of the least cost planning and strategic The Ministry of Energy modifies results of least cost plans based on the
environmental assessment have been incorporated into recommendations of the Strategic Environmental Assessment and updates hydropower
the Government’s hydropower development plan
development plan accordingly
Transmission lines constructed or rehabilitated under the This indicator measures the length of the transmission lines constructed or
project
rehabilitated/upgraded under the project.
Transmission lines constructed under the project
No description provided.
.
Intermediate Results Indicators
Indicator Name
Description (indicator definition etc.)
Section from Shuakhevi to Batumi transmission line The section 2 of the transmission line from Shuakhevi to Batumi constructed, tested
constructed
and accepted by GSE.
Strategic Environmental Impact Assessment prepared The Government discloses draft Strategic Environmental Impact Assessment, receives
based on the feedback from all stakeholders
and incorporates feedback from all stakeholders
Wholesale power exchange systems updated
GSE updates wholesale electricity metering, balancing, and trading systems, tests them
and puts them into operation.
20
Annex 1: Results Framework and Monitoring
Country: Georgia
Project Name: Transmission Grid Strengthening Project (P147348)
Results Framework
Project Development Objective Indicators
Indicator Name
Description (indicator definition etc.)
Total electricity evacuated from the newly developed Total electricity in GWh delivered to the grid by new power stations developed after
power stations in the southwestern part, through the grid 2013 in Ajara region
Total duration of outages in the Batumi Substation
Total duration of non-scheduled outage of Batumi substation
Power is exchanged (traded) using new exchange GSE uses new power exchanged platform to balance and trade power
platform
The results of the least cost planning and strategic The Ministry of Energy modifies results of least cost plans based on the
environmental assessment have been incorporated into recommendations of the Strategic Environmental Assessment and updates hydropower
the Government’s hydropower development plan
development plan accordingly
Transmission lines constructed or rehabilitated under the This indicator measures the length of the transmission lines constructed or
project
rehabilitated/upgraded under the project.
Transmission lines constructed under the project
No description provided.
Intermediate Results Indicators
Indicator Name
Description (indicator definition etc.)
Section from Shuakhevi to Batumi transmission line The section 2 of the transmission line from Shuakhevi to Batumi constructed, tested
constructed
and accepted by GSE.
Strategic Environmental Impact Assessment prepared The Government discloses draft Strategic Environmental Impact Assessment, receives
based on the feedback from all stakeholders
and incorporates feedback from all stakeholders
Wholesale trading and metering systems updated
GSE updates wholesale electricity metering, balancing, and trading systems, tests them
and puts them into operation.
Hydropower resources are developed according to the The Ministry of Energy adopts hydropower development scenario according to the
Strategic Environmental Impact Assessment
recommendations of the Strategic Environmental Impact Assessment
21
Annex 2: Detailed Project Description
Country: Georgia
Project Name: Transmission Grid Strengthening Project
54. The Project finances construction of the transmission line which connects the newly
constructed hydropower scheme in Ajara region with the transmission grid through double
circuit high voltage overhead transmission line, wholesale electricity market metering and
trading systems, and preparation of the Strategic Environmental Impact Assessment. The Project
consists of 4 components as follows:
The Project consists of four components;
55. Component 1. Transmission System Strengthening (US $52.35 million). This
component will finance a high voltage transmission line from Akhaltsikhe to Batumi. This
component will have two sub-components;
i) Subcomponent 1a (US $48.15 million,). This sub-component will finance the supply
and installation of a double-circuit, 220 kV transmission line (TL) from Akhaltsikhe high
voltage direct current converter station and 500/400/220 kV substation (Akhaltsikhe
station) to Batumi 220 kV substation. It will connect with the two hydropower plants
(HPPs): 175 MW Shuakhevi HPP and 150 MW Koromkheti HPP. The estimated length
of the TL is 142 km. It is composed of two sections: Section 1 is a 87 km TL from
Suakhevi HPP to Akhaltsikhe station and Section 2 is a 55 km TL from Batumi
substation to Suakhevi HPP via Koromkheti HPP. This subcomponent will also finance
contingency.
ii) Subcomponent 1b (US $4.2 million). This subcomponent will finance supervision
consultant for the supply and installation of Akhaltsikhe Batumi transmission line. This
subcomponent will also finance consulting services for evaluation of bids under this
component.
56. Transmission line. The proposed 220kV double circuit TL from Akhaltsikhe station to
Batumi substation consists of two sections. The East section will start from Akhaltsikhe station
and reach Shuakhevi HPP (175MW) with 87 km length. The western section will start from
Shuakhevi HPP and reach Batumi substation via Koromkheti HPP (150MW) with 55 km length.
The expected commissioning date of Shuakhevi HPP (Phase 1) is September 2016 and
Koromkheti HPP (Phase 2) is early 2018. The main purpose of the TL is to improve the security
and reliability of power supply to the southwestern part of the country. It will also connect
Adjaristsqali Hydropower to the Georgian 220kV network, and will support the evacuation of
excess power from that part to the country. The TL will normally evacuate about 110MW to the
Akhaltsikhe station and about 210 MW to Batumi substation. The estimated cost of the entire
transmission line including phases 1 and 2 is $45.65 million.
57. In addition to hydro power evacuation, this new 220kV TL is expected to improve the
reliability and quality of supply to the southwest area supplied by Batumi Substation where an
important Black Sea port and touristic resort are located. Currently, Batumi Substation is located
at the tail end of southwest network and the main supply route is only one from north side.
However, this TL will provide additional connection of Batumi substation with two lines one
22
from 500/220kV substations of Enguri (Vardnili) and Akhaltsikhe. This will achieve 500kV220kV loop operation of the western part of the grid and will result in the significant reliability
and stability improvements In particular, the short-circuit capacity of Batumi substation will be
increased from an estimated 1.5GVA to an estimated 3.8GVA.
58. Component 2. Wholesale Power Exchange Platform (US $6 million). This component
will finance hardware and software for the power exchange systems. It will comprise two
subcomponents:
i) Subcomponent 2a (US $5.5 million). This subcomponent will finance the supply and
installation of a power exchange platform which includes hardware and software for
metering, balancing, and trading systems. The GSE will be the beneficiary of the power
exchange platform.
ii) Subcomponent 2b (US $0.5 million). This subcomponent will finance the design and
supervision of the above platform.
59. The Electricity System Commercial Operator commenced in 2006. ESCO represents an
important link of the energy system value chain. The ESCO performs some of the functions
normally performed by the Market Operator (MO). The ESCO functions include: (i) sales and
purchase of balancing electricity (on a monthly basis); (ii) trade with guaranteed capacity; (iii)
set-up and operation of a unified database of wholesale traders; (iv) submission of relevant
information to GSE; and (v) wholesale meter inspection. The electricity wholesale trade is
performed through direct contracts or through the ESCO. ESCO also registers all electricity
buyers and sellers.
60. Although there are many wholesale meters in Georgia (1034 settlement meters were
inspected in 2013), some meters are not equipped with a real time metering function because of
direct or long-term contracting and it is difficult to measure hourly demand-supply balance for
system operation. In order to facilitate active trade mechanisms such as the Day-Ahead-Market,
to perform quick settlement, and to export to Turkey, GSE should upgrade its metering system to
correspond to hourly balancing mechanisms.
61. The Project will update the existing metering system to meet requirements of a hourly
balancing system; it will feed information to the balancing trading platforms. The Project
(subcomponent 2a) will finance preparation of design of metering, balancing, and trading
platforms. The subcomponent 2b will finance preparation of the design and supervision of the
above sub-component.
62. Component 3. Strategic Environmental and Social Assessment (US $1.0 million). This
component will finance the preparation of the Strategic Environmental and Social Assessment
report.
63. The Ministry of Energy and the Ministry of Environment and Natural Resources Protection
will jointly carry out this activity. Both ministries will prepare Terms of Reference for the study,
will jointly conduct public consultation meetings and will contribute to the finalization of the
study based on feedback from the public consultations. The outcome of the assessment will then
be considered in the power sector strategy and a revised sector strategy will be developed.
23
64. Component 4. Project Management and Transmission Systems Studies. (US $0.5
million). This component will finance consultants' services to assist the Project Implementing
Entity in effective management and implementation of Project activities, and the preparation of a
number of transmission system studies including: (i) an updated transmission-system expansion
plan; (ii) prospective transmission line feasibility studies; and (iii) preliminary designs for the
prospective transmission lines.
65. The transmission systems studies are important to the achievement of economically
efficient, environmentally and socially sustainable sector planning. As a part of overall sector
planning the Government and GSE are seeking supplemental grant financing for the studies
which will complement the Project financed studies.
66. Associated Adjaristsqali Hydropower Project is the largest hydropower generation
under construction since the 80s. There is strong commitment from the Government to advance
the scheme. The major financiers are IFC, EBRD ADB. In addition, MIGA may provide a
guarantee. The Adjaristsqali Hydropower Project originally consisted of a cascade of 3 run-ofriver schemes (Shuakhevi 185 MW scheme, Koromkheti 150 MW scheme and Khertvisi 65 MW
scheme) with a total installed capacity of 400 MW. After the detailed assessment, the third
Khertvisi 65 MW scheme will not be pursued by AGL, due to a combination of environmental,
social, and economic considerations. IFC, EBRD and ADB are financing the Shuakhevi scheme
(which now consists of Shuakhevi and Skhalta HPPs 175 MW and 6 MW respectively). The
total project cost of the Shuakhevi scheme is estimated at $417 million. The Shuakhevi scheme is
expected to generate 433 GWh of electricity which is about 5 % of Georgia’s total generation.
The Project will supply power to the Georgian market in the three consecutive winter months,
(about 15% of annual generation). The remainder will be exported to the Turkish market. While
the hydropower cascade peaks in summer time, the storage capacity enables it to generate power
in winter months. The reservoir enables the Shuakhevi HPP to store water during winter night
off-peaks and to provide power during evening peaks, which is significant to enhanced security
of supply.
67. The preparatory works for the construction of the Adjaristsqali Hydropower Project has
started, the construction contractor has mobilized and all construction camps have been
constructed. It is expected that the financiers IFC, ADB, EBRD, will reach closure of financing
agreements in May 2014. MIGA is considering providing a political insurance risk guarantee to
the Adjaristsqali Hydropower Project.
68. The Georgian power sector is being financed by multiple bilateral and multilateral
international and national financers and organizations. The key financers of the sector are
USAID, ADB, EBRD, KfW, and IFC. In addition, there are privately owned distribution and
generation companies including ENERGO-PRO, (Czech Republic), RAO UES (Russia),
Anadolu Group (Turkey) owning and operating main distribution companies and generation
stations.
69. The USAID through the Hydropower Investment Promotion Project and the Hydropower
and Energy Planning Project, supported wholesale power market reforms, provided assistance to
24
the Ministry of Energy in sector strategic planning and provided assistance to the National
Energy and Water Regulator, and supported the development of small and medium hydropower
stations. The USAID also financed construction of the high voltage Senaki high voltage
reconstruction. The EBRD and KfW jointly financed the main export transmission line and with
high voltage direct current substation with back-to-back configuration, in Akhaltsikhe.
25
Annex 3: Implementation Arrangements
Country: Georgia
Project Name: Transmission Grid Strengthening Project (P147348)
Project Institutional and Implementation Arrangements
70. TGSP will be carried out by Ministry of Energy, Ministry of Environment and Natural
Resources Protection, and GSE. The Georgian State Electrosystem (GSE) will carry out
Components 1, 2, and 4, the Ministry of Energy and the Ministry of Environment and Natural
Resources will carry out Component 3. GSE will also assist Ministry of Energy and the Ministry
of Environment and Natural in carrying out activities under component 3.
71. Ministry of Energy and Ministry of Environment and Natural Resources Protection will
prepare and approve terms of reference for the preparation of the strategic environmental and
social assessment under Component 3. The Ministries will be responsible for the review and
approval of the strategic environmental and social assessment report.
72. The Project will be implemented by GSE, which is fully state owned Joint Stock Company
which owns and operates high voltage transmission network of Georgia. GSE has successfully
managed three projects that have received Bank financing and projects with financing from other
development partners, including ADB, EBRD, KfW, EIB, and USAID. The existing
International Project’s Unit of the GSE will act as a project implementation unit; however other
departments and units of the GSE will also be involved in the Project implementation.
73. The company has hiring additional staff for environmental, social, and financial
management, for the implementation of specific projects. GSE will be responsible for financialmanagement arrangements, including the flow of funds; budgeting; accounting; progress
reporting; and the submission of annual budgets, semi-annual IFRs, and annual financial
statements to the Bank.
Financial Management, Disbursements and Procurement
74. There will be two implementing agencies involved in the financial management function
under the proposed project. The GSE will implement all components of the Project except for
Component 3. The financial management of the Component 3 will be implemented by the MOE.
Under those components to be implemented by GSE the FM functions of the project will be
handled by GSE. In particular the organization will be responsible for the flow of funds,
accounting, planning and budgeting, financial reporting, internal controls, and auditing. The
organization has the prior experience in implementing the Bank financed projects through the
Project Implementation Units established within the GSE and those Units have been dissolved
upon projects closing.
75. MOE will implement Component 3 and related project management under Component 3.
MOE will be responsible for the financial management arrangements including the flow of
funds, budgeting, accounting, reporting, and auditing under the remaining project components.
26
The GSE will be responsible for the consolidation and submission of the project’s annual
budgets, quarterly IFRs, and annual financial statements to the World Bank
76. It has been agreed that prior to the project implementation the GSE will elaborate the
Financial Management Manual for the project (including the Component 3) to reflect the
activities of the project including procedures for budgeting, accounting, reporting, internal
control and audit. The overall financial management risk for the project was assessed as
Moderate, with Inherent and the Control Risks of the project before and after mitigation
measures also rated as Moderate.
77. There two actions (not a conditions but a capacity building action) agreed during the
assessment relates to: 1) the elaboration of the project’s Financial Management Manual (FMM)
to cover the FM arrangements under the proposed project; and 2) modification of the existing 1
C software to allow automatic generation of the Bank required reports such as statements of
expenditures (SOEs), IFRs and annual financial statements and will include the budgeting
module. The system shall have adequate security safeguards for reliable reporting and data
integrity.
78. GSE will take over the responsibility for the FM function for those components to be
implemented by GSE. GSE will assign its own accounting staff to maintain the project financial
management system. The assigned GSE FM staff will participate in the Fiduciary Training to be
organized in Tbilisi in May 2014. MOE’s Chief Accountant will be responsible for Project
related accounting duties. He will participate in the Fiduciary Training to be organized in Tbilisi
in May 2014. The Chief Accountant will be assisted by the GSE project assigned financial
specialist in elaborating the first two withdrawal applications and SOEs preparation.
79. Overall, GSE has acceptable planning and budgeting capacity in place. MOE will be
assisted by the GSE in the budget preparation for Component 3. The annual consolidated budget
of the Project will be based on the final procurement plan that is to be discussed and agreed with
GSE management, and approved by the World Bank. All changes to the procurement plan will
be reviewed by GSE management and MOE, Minister/Deputy Minister and approved by the
World Bank. The GSE will take overall responsibility for the compilation of the budget, its
approval and entry into the accounting system.
80. The financial and accounting division of the GSE is staffed with 6 financial specialists and
13 accountants. The FM staff has strong private sector accounting background. Particularly, the
board member responsible for financial management has prior work experience in private sector
companies including consulting experience in Big 4 auditing firms. A full time financial
specialist with relevant experience in Bank financed projects and knowledge of Bank FM
policies and procedures will be assigned to assist the GSE in managing project-related financial
management and disbursement work. The board member responsible for financial management
will have primary responsibility for the consolidated un-audited IFRs and will prepare the annual
consolidated financial statements for audit. All FM staff will receive focused training when the
project launches and hands-on training during implementation.
27
81. GSE’s accounting books and records are maintained on an accrual basis and follow local
legislation. MOE’s accounting books and records are maintained following the modified cash
basis International Public Sector Accoutering Standards (IPSAS). The GSE and MOE will use
modified cash basis for accounting purposes and cash basis IPSAS for project reporting
purposes. The risk associated with accounting policies and procedures is assessed as moderate.
Project financial statements, including IFRs, will be presented in US dollars. GSE utilizes the
standard 1C accounting software for its statutory accounting and reporting purposes. The
software will be modified to allow automatic generation of WB required reports such as
statements of expenditures (SOEs), IFRs and annual financial statements and will include the
budgeting module. The system will have adequate security safeguards for reliable reporting and
data integrity. The MOE utilizes Oris Accounting Software for its accounting purposes and it
was found adequate. The accounting software has functionality of exporting data into Excel
(report writing tool). This simplifies further modification of the data formats and production of
user-friendly reports. The MOE will use Oris for the project accounting.
82. For the purposes of the current project, a sound internal control system will be maintained.
At GSE all expenditures will be authorized by the GSE Director (Chairman of the Management
Board) and verified for eligibility and accuracy by the board member responsible for financial
management. At MOE all expenditures will be authorized by the Head of the Administrative
Department and verified for eligibility and accuracy by the Chief Accountant
83. Project related specific internal control activities will be described in the Financial
Management Chapter of the Project Operational Manual (POM) including: expenditure
authorization, invoices approval and payments processing procedures; data backup
arrangements; reconciliation procedures of project records with Client Connection, safeguards of
assets, including cash. This section of the POM also reflects the policies and procedures that
clearly define conflict of interest and related party transactions (real and apparent) and provides
safeguards to protect the organization from associated risks. The bank account reconciliation will
be prepared by the assigned financial specialist and reviewed and approved by the respective
financial staff at MOE and GSE.
84. GSE and MOE will produce separate financial reports for the part of the project that is
implemented by that respective agency. The GSE will consolidate IFRs and produce a full set
of the project consolidated IFRs every six months throughout the life of the project to minimize
the financial reporting risk. The format of IFRs has been confirmed during assessment and
includes: (i) Project Sources and Uses of Funds, (ii) Uses of Funds by Project Activity, (iii)
Designated Account Statements, (iv) A Statement on Financial Position, and (v) SOE
Withdrawal Schedule. These financial reports will be submitted to the Bank within 45 days of
the end of each calendar semester. The first semester IFRs will be submitted after the end of the
first full semester following the initial disbursement.
85. The audit of the proposed project will be conducted (i) by independent private auditors
acceptable to the Bank, on terms of reference (TOR) acceptable to the Bank, and (ii) according to
the International Standards on Auditing issued by the International Auditing and Assurance
Standards Board of the International Federation of Accountants. The GSE’s current auditing
arrangements and findings are satisfactory to the Bank. Particularly, the sample audit TOR
28
agreed with the Bank shall be attached to the FMM, and the annual audited project financial
statements will be provided to the Bank within six months of the end of each fiscal year and also
at the closing of the project. If the period from the date of effectiveness of the loan to the end of
the borrower’s fiscal year is no more than six months, the first audit report may cover financial
statements for the period from effectiveness to the end of the second fiscal year. The Borrower
has agreed to disclose the audit reports for the project within one month of their receipt from the
auditors, by posting the reports on the www.gse.ge website or by publishing them in a national
newspaper. Following the Bank's formal receipt of these reports from the Borrower, the Bank
will make them publicly available according to the World Bank Policy on Access to Information.
The contract for the audit awarded during the first year of project implementation may be
extended from year-to-year with the same auditor, subject to satisfactory performance. The cost
of the audit will be financed from the proceeds of the loan.
Disbursement
86. To implement its components GSE will establish a Designated Account (DA) in a
commercial bank in US dollars and maintain it until project completion. The DA will be drawn
upon to meet payments to contractors, suppliers and consultants under the components. The
Designated Account Statement will be audited in conjunction with the annual audit of the
project. Detailed instructions on withdrawal of IBRD Loan proceeds are provided in the
Disbursement Letter.
87. Project funds for GSE implemented components will flow from (i) the Bank, either: (a) via
the DA to be maintained in the commercial bank, which will be replenished on the basis of SOEs
or full documentation; or (b) on the basis of direct payment withdrawal applications and/or
special commitments, received from GSE; and (ii) the own funds via the commercial bank
through normal budget allocation procedures initiated by the implementing agency in accordance
with the Company’s and Budget execution regulations. Those funds will be used to finance
eligible expenditures under the Project. Withdrawal applications documenting funds utilized
from the DA will be sent to the Bank at least every three months.
88. Project funds for MOE implemented component will flow from (i) the Bank on the basis of
direct payment withdrawal applications and/or special commitments, received from MOE; and
(ii) the own funds via the Treasury through normal budget allocation procedures initiated by the
implementing agency in accordance with the MOE’s and Budget execution regulations. Those
funds will be used to finance eligible expenditures under the Project.
Environmental and Social (including safeguards)
89. The TGSP will support construction of a new Akhaltsikhe-Batumi overhead high voltage
electric transmission line (TL), most of which will pass through Ajara region, and the rest of
which will be located in the Adigeni and Akhaltsikhe provinces of the Samtskhe-Javakheti
region of Georgia. Part of the TL corridor gets pretty close to Georgia's State border with
Turkey. The transmission line will connect the town of Akhaltsikhe - located on the plateau of
semiarid hills with continental climate, to Batumi - a sea port and beach resort on the Back Sea
coast. The line will cross over the Goderdzi mountain pass located 2025 meters over the sea
29
level. The corridor passes through highly diverse types of terrain, ranging from alpine meadows
to subtropical forests and the coastal zone. These areas include populated and cultivated parcels
of land, pastures, as well as remote and minimally transformed forests. Certain sections of the TL
alignment overlap with bird migratory routes. The Project triggers OP/BP 4.01 Environmental
Assessment and according to this Policy, is classified as an Environmental Category A, requiring
a full scale environmental assessment. According to the national legislation as well, the project is
subject to an environmental impact assessment, State Ecological Expertise, and environmental
permitting.
90. The Borrower financed and carried out an Environmental and Social Impact Assessment
(ESIA) of Project, having agreed the TOR of this task with the Bank. This TOR was disclosed to
the Project stakeholders and discussions regarding the scope of the ESIA took place between
September 17-19, 2013 in Tbilisi, as well as in Batumi - the main city of the Autonomous
Republic of Ajara, and administrative centers of Akhaltsikhe, Adigeni, Keda, Khulo, Shuakhevi,
and Khelvachauri districts that are located along the TL corridor. The scoping process considered
discussions with the Ministry of Environment, Ministry of Energy/GSE, regional authorities of
the Autonomous Republic of Ajara and Samtskhe-Javakheti Region, and several NGOs. The
draft ESIA report was cleared for disclosure by the Bank and was posted on the web page of
GSE in Georgian and English languages on November 25, 2013. On December 17 the draft
ESIA report was disclosed through the InfoShop and its executive summary was distributed to
the Board of Directors. The stakeholder consultation process is documented in the minutes of the
conducted meetings, and the feedback is incorporated in the present ESIA report. The major
concerns that were raised during the scoping meetings included: expected impacts on the natural
environment, potential threats to public health coming from the magnetic fields of the TL, land
take needs, and impacts on agriculture. Questions were raised about prospects for local
employment.
91. Consultation meetings on the draft ESIA report were held in Tbilisi on March 20, 2014 and
in Batumi, the main city of the Ajara region, on March 24, 2014, where local stakeholders and
people directly affected by the TL construction were able to participate. No significant problems
were raised in the consultation process and the feedback received does not call for revisions to
the project design and/or the environmental and social mitigation measures suggested in the
ESIA report. The ESIA report includes a Stakeholder Engagement Plan that describes all
engagement activities to date and actions to ensure ongoing engagement during the life of the
TGSP, including implementation of a grievance redress mechanism.
92. The ESIA studied baseline information in the project area, identified sensitive
environmental and social receptors, analyzed potential positive and negative impacts of the
project, and provided an environmental and social management matrix for mitigating the
negative impacts and monitoring outcomes of the application of mitigation measures.
Environmental and social aspects were fully considered during assessment of various alternatives
of the technical solutions, design details, placement of towers, and the alignment of the TL, and
were adequately built into the preferred project design. Despite proximity to several designated
protected areas, historic monuments, an skiing resort, and numerous human settlements, the TL
corridor does not affect these protected areas, does not destroy or fragment significant natural
30
habitats, has the least negative impact on the aesthetic appearance of the landscapes, and
involves limited physical resettlement of population.
93. The selected most optimal alignment of the TL still has a few kilometers of overlap with a
sensitive section of an international migratory corridor of birds, where the only option is to
design the TL towers and conductors applying best practice features to reduce the likelihood of
bird collisions and electrocutions. This will include placing of conductors within the distance
established to avoid electrocutions while perching, and equipping the cables with bird reflectors
to increase their visibility and rescue collisions. Bird monitoring will be ensured at the TL
operation phase to check birds’ mortality rate, verify effectiveness of mitigation, and determine
the need for additional measures. Mitigation of the construction-phase negative impacts will be
possible by applying conventional good environmental practice and strong supervision of works.
In addition to that, the humid subtropical climate of the Autonomous Republic of Ajara provides
favorable conditions for a rapid natural regeneration of a number of construction impacts in most
parts of the project area.
94. OP/BP 4.04 Natural Habitats is triggered because roughly 10 km long lower section of the
TL alignment falls within the important international migratory corridor of birds, out of which
the potential impacts of the TL construction and operation may be significant within 5-6 km
segment, where birds are known to fly closer to the earth surface. The TGSP is expected to have
modest impact on the forest habitats as well.
95. OP 4.09 Pest Management is not triggered, because ESIA confirmed that no herbicides
will be used during construction and operation of the TL with the purpose of clearing and/or
controlling vegetation.
96. The Akhaltsikhe-Batumi TL will pass the area with a number of registered historic
monuments. Although the TL is designed the way to avoid direct impacts on the these cultural
assets, a need for the construction and operation of service roads, construction camps and other
supporting infrastructure carries certain risk of negative impacts. Also, there is a likelihood of
encountering chance finds during earth works required for the construction of towers. OP/BP
4.11 Physical Cultural Resources is triggered to manage any possible impacts of the Project on
the cultural property.
97. Significant part of the transmission line corridor passes through forested areas. Placement
of towers and arrangement of service roads will require tree cutting. Natural forests,
predominantly located on mountain slopes, will therefore be affected. A land strip under the
power cables shall be maintained free of high-growing vegetation throughout operation of the
TL. OP/BP 4.36 Forests is triggered to address risks associated with the expected impacts of the
TGSP on the forest stands.
98. The Bank-financed construction of TL does not include any physical activities on dams
and is not directly dependent on the safe operation of dams, however, the construction of HPPs
associated with the TL entails placement of two large dams with the height of 22m and 39m and
the OP 4.37 Safety of Dams is triggered. The Bank team reviewed arrangements in place for
ensuring dam safety under the IFC-supported Adjaristsqali Hydropower Project and will track
31
how the quality control will actually work at the dams’ design, construction and operation phases
as activities for the arrangement of HPP reservoirs progress.
99. The Bank-financed construction of TL does not trigger OP 7.50 Projects on International
Waterways. Three HPPs to be constructed under the associated Adjaristsqali Hydropower Project
will abstract water from the rivers of Chorokhi river basin that drains into the Black Sea in the
territory of Georgia. Construction of these HPPs will not have any trans-boundary impacts.
Therefore, OP 7.50 is not triggered.
100. The design of the Project’s TL corridor and the Environmental and Social Impact
Assessment (ESIA) include measures to minimize adverse social impacts. The Project triggers
OP/BP 4.12 on Involuntary Resettlement because it will require permanent acquisition of land
for the erection of towers and imposition of easement for the transmission line’s Right-of-Way
(ROW). Impacts from land easements for the ROW will be marginal and temporary as
agricultural activities in the area will be able to continue. The transmission line will require up to
500 towers, resulting in the acquisition of 10 hectares of land. The easement for the ROW will be
approximately 65 meters wide covering a total area of 975 hectares. The Project also may require
the relocation of about 60 houses. Total land requirements for access roads are expected to be
minimal. About 70 percent of parcels required for the positioning of towers are expected to be
located on state-owned land. During Project appraisal, the details of the transmission line’s
routing were not known. Therefore, GSE prepared a Resettlement Policy Framework (RPF),
which focused on the principles, criteria and procedures for managing resettlement resulting
from Project-related land acquisition. The preparation of site-specific Resettlement Action Plans
(RAPs) will take place once the exact positioning of the line is known.
101. Given that the Project will provide more secure and reliable power supply from a cleaner
source of power to the general population in Batumi and the Ajara region, no gender
differentiated benefits and/or impacts directly associated to power transmission are expected. As
part of the ESIA process gender-disaggregated data was gathered and no gender-specific risks
and impacts were identified. Additional socioeconomic studies will be carried in preparation of
the RAPs which will also include gender differentiated information to ensure that any projectrelated adverse impacts are mitigated taking into consideration any potential gender-based
inequalities related to compensation and land rights. Single mother headed households, and
project-affected people with disabilities, elderly or below poverty line will be given special
consideration as part of the RAP implementation. The employment of local labor will be
maximized during the operational phase of the projects (e.g. in providing security, undertaking
vegetation control, etc). Job trainings will be equally offered to men and women and the project
will provide equal employment opportunities to women within the project skills requirements.
102. GSE has undergone an institutional re-arrangement recently, which resulted in the creation
of an Environment and Social Safeguards Unit under the International Projects and Reporting
Department. The unit has one staff unit for an environmental specialist and two for social
specialists. Although the safeguards unit would have been better positioned outside of the
International Projects Department due to general nature of its services, and although more than
one environmental specialist is required to adequately cover entire scope of GSE’s activities, this
new set-up is an improvement as compared to just one safeguards specialist located within the
32
main body of the Department a few months ago. GSE will use services of an international
supervision engineer to ensure quality of works under TGSP, and monitoring of safeguards
application will be an integral part of the consultant’s assignment. Additional consultancy may
be sought to supplement GSE’s in-house capacity of safeguards management as required.
103. The Adjaristsqali Hydropower Project (Associated Facility) is an ongoing activity initiated
for the construction of Shuakhevi scheme consisting of Shuakhevi and Skhalta HPPs – 175 MW
and 6MW respectively in the Ajara region, implemented with financial participation of IFC,
MIGA, ADB and EBRD, which is associated with the construction of the TL. Namely, the TL
will evacuate power generated in the Shuakhevi scheme (under construction) and the
Koromkheti schemed to be developed at a later stage. In accordance with IFC Access to
Information Policy, early drafts of the ESIA of Adjaristsqali Hydropower Project were disclosed
at IFC's website on May 24, 2013. Updated ESIA documents were re-disclosed on October 3,
2013 along with an Environmental and Social Review Summary prepared by IFC. The Bank’s
Task Team preparing the TGSP reviewed the ESIA reports developed for Adjaristsqali
Hydropower Project, and was satisfied to see that all important environmental, social, and
cultural heritage aspects related to the Project are covered in these reports. However, the Bank
noted certain aspects of the ESIA report that lacked clarity or otherwise raised concerns. The
Bank and IFC teams corresponded and held discussion on the Bank’s questions pertaining some
statements and conclusions made in the ESIA report of Adjaristsqali Hydropower Project as well
as to clarify how the system of environmental and social management will function under this
project.
104. The Bank was pleased to receive confirmation that as a result of ESIA findings,
construction of the Khertvisi HPP scheme was dropped from the Adjaristsqali Hydropower
Project mostly due to a need for land take from the Machakhela National Park. IFC project team
explained that based on the public feedback received at an early stage, some additional studies
had been undertaken and a number of smaller changes introduced to the initial project design.
This included thorough research of geomorphology and geological activity in the project area
prompted by local communities’ sensitivity to landslide threats. Furthermore, the original
scheme design included dams and weirs on a number of tributaries of the Adjaristsqali river. As
the ESIA process revealed higher sensitivity and conservation value of the habitats on these
tributaries, the scheme has been modified and the locations of the dams and weirs have been
changed to other locations which are less sensitive.
105. The Bank expressed concern over the ESIA report’s suggestion to set an ecological water
flow of the river at 10% of the annual flow despite acknowledgement of its significant negative
impacts on the river ecosystems and a recommend that re-calculation is made based on research
to be undertaken in the second phase of the project. ESIA report is unclear on why a supposedly
detrimental arrangement with 10% flow is accepted for the first stage, how long may this
arrangement remain in force, and whether the minimum flow requirement may be raised
depending on the research outcome. Clarification received from IFC is that the 10% regulation is
not only a current common practice in Georgia, but is still used by a number of developed
countries worldwide. Nonetheless, prior to commissioning of the Adjaristsqali Hydropower
Project in 4 to 5 years, a scientifically justified decision will be derived on what is an acceptable
minimum flow for Adjaristsqali river and its tributaries and an appropriate mitigation measures,
33
including possible increase of the minimal water flow requirement, will be made as required
prior to any damage is made.
106. Clarifications were received on a number of other issues, including biodiversity offsets,
cumulative impacts within the river basin, and long term positive environmental impacts of the
Adjaristsqali Hydropower Project. Overall outcome of the Bank’s due diligence in examining
environmental and social management system under the Adjaristsqali Hydropower Project is that
the studies undertaken so far are of a high quality and cover all significant aspects of the
project’s activities however guidance provided on the environmental mitigation measures to be
applied during construction and operation of the HPPs is of a generic nature. This system implies
collection of site-specific information through additional studies and monitoring work to be
undertaken on the rolling basis and to inform the development of concrete and adjusted
mitigation measures as the project activities unfold. Knowing that the Ministry of Environment
and Natural Resources Protection of Georgia has already issued an environmental permit for the
construction of HPPs, and being aware of institutional weaknesses of public entities in
environmental controls and enforcement, the Bank team notes that quality control over the sitespecific safeguard documents to be developed at later stages of the project cycle is expected to be
weak on behalf of the State environmental bodies and the GSE. Therefore, the main
responsibility for ensuring quality of future environmental work and adequacy of mitigation
measures to be prescribed based on the outputs of this work will rest with the IFC, ADB, EBRD
and primarily with AGL. AGL has an Environmental, Health & Safety (EHS) unit that is
responsible for managing environmental, social and health & safety risks and impacts during
construction and operations in accordance with the Environmental and Social Management Plan
commitments. The EHS unit’s role includes monitoring compliance of construction contractor’s
performance with IFC's Performance Standards. AGL will develop a detailed audit/monitoring
schedule, including EHS, labor and social issues.
107. IFC, ADB and EBRD, in the capacity of lenders, together with MIGA as a political risk
insurance provider, will require periodic independent external monitoring of works by an
industrial environmental management specialist. The Bank will maintain dialogue with IFC and
MIGA to remain up-to-date on the status of project’s adherence with the Performance Standards
and will receive environmental and social audit reports on regular basis. Joint supervision of the
associated TGS and Adjaristsqali Hydropower Projects may also be considered, as appropriate.
108. In terms of social issues, the Adjaristsqali Hydropower Project involves land acquisition
and resettlement which has been addressed as per IFC’s requirements. It must be noted that the
project has faced active opposition from selected local communities, including blockage of
access road, related to demands from communities for compensation and/or resettlement from
their current villages, which are mostly built on unstable landslips, on the basis that the
hydropower construction could trigger landslips and/or impact their water supplies. The AGL is
working with Government to find solutions to the grievances by certain communities, some of
which relate to compensation for historical events and others of which relate to a desire for
guarantees of compensation should any project-related landslide damage occur.
34
Procurement
109. GSE that will be the implementing agency of the project. The GSE is a 100% state-owned
joint stock company providing transmission and exclusive dispatch services to about 50 eligible
companies in Georgia. GSE was formed in 2002 from the merger of JSC Electrogadatsema and
JSC Electrodispetcherizatsia. These two entities were themselves established in 1999 and 2000
respectively to own the transmission assets of the state utility Sakenergo and to manage the
national dispatch center.
110. GSE has been engaged carrying out procurement under financing of different donors –
ADB, KfW, including World Bank financed Electricity market Support Project estimated at US$
27 Million which included installation of energy meter, System Control And Data Acquisition
(SCADA), and the Energy Management System (EMS) at the National Dispatch Center.
111. Procurement under the proposed Project will be carried out according to the “Guidelines
for procurement of Goods, Works, and Non-consulting services under IBRD Loans and IDA
Credits & Grants by World Bank Recipients” (January 2011), and “Guidelines for Selection and
Employment of Consultants under IBRD Loans and IDA Credits & Grants by World Bank
Recipients” (January 2011) and the provisions in the Loan Agreement.
112. The Bank’s anti-corruption norms (“Guidelines on Preventing and Combating Corruption
in Projects Financed by IBRD Loans and IDA Credits and Grants”) of October 15, 2006 and
revised in January 2011 will be applied.
113. Country and sector level risks: The latest country level risk assessment for public
procurement was carried out during the preparation of the Country Procurement Assessment
Report (CPAR) in 2009. It was conducted on the basis of the OECD-DAC/World Bank four
pillars for public procurement. The conclusion was that all four Pillars needed improvements in
order for the system to meet the international standards and best practices. A three year action
plan was prepared and Georgia is making slow progress towards fulfilling the proposed actions.
One important completed step was the introduction and implementation of an electronic
procurement system of Georgia for all government contracts. The Bank has assessed mentioned
system and the decision has been reached to use the same for the Bank funded projects for
procurement of simple goods following shopping procedures, below threshold of US$ 100,000
with minor modifications to the current system, as agreed with Competition and State
Procurement Agency (CSPA). The Bank is currently working with the CSPA and other
counterparts to further modify the e-procurement system to be used for more complex NCB and
ICB procurement methods.
Procurement risk assessment and mitigation measures
114. Procurement capacity assessment has been conducted. Risks have been identified, and
respective mitigations measures proposed. Procurement Risk Assessment and Management
report (PRAM) was prepared for Project Concept Note stage after Project appraisal. GSE
conducts several other projects in addition to Bank financed ones (from state budget as well as
other IFI-s). Therefore, there is the risk that GSE may not have sufficient staff and time to
35
coordinate the procurement action under new TGSP Project, to this end Head of Procurement
Department will be assigned to TGSP project. The head of International Projects Department
will exercise the oversight and be a key person for all procurement related issues under the
project. In additional in case of excessive workload, support will be provided by procurement
specialist whose qualification has been found to be sufficient.
115. Also Contract management capacity is in place but needs to be strengthened through
assigning dedicated contract management specialist for managing all contracts envisaged to be
financed under the project.
116. There is a risk that GSE without proper support by independent consultant, may not be
able to properly evaluate the bids in a timely manner summited for Supply and Installation of
Akhaltsikhe-Batumi High Voltage Transmission Line. - Funds are allocated under the project to
hire independent consultant on competitive basis to support GSE in evaluation of bids, preparing
bid evaluation report in agreed format and conclude the contract for Supply and Installation of
Akhaltsikhe-Batumi High Voltage Transmission Line.
117. The Bank’s designated procurement specialist assigned to the project together with senior
procurement specialist have conducted two day training course for GSE staff in overall World
Bank procurement procedures and particular in bid evaluation procedures and preparation of
bidding documents based on World Bank Standard Bidding Documents.
118. GSE staff (at least two persons) will attend regional procurement training organized by the
Bank, to be conducted in April 2014, in Tashkent, Uzbekistan.
119. GSE has already invited Expressions of Interest to support in evaluation of bids and
shortlist evaluation report has already been provided to the Bank for its review. GSE has also
undertaken evaluation of expressions of interest submitted for Supervision of Supply and
Installation of Akhaltsikhe-Batumi High Voltage Transmission Line. The Bank has received
Shortlist Evaluation Report and will provide its comments in due course. GSE is expected to
submit for the Bank’s review the draft bidding document for design, supply and installation
Akhaltsikhe-Batumi High Voltage Transmission Line, not later than end of March 2014. The
Project procurement risk is rated “Moderate” after mitigation measures are applied.
120. The procurement department of GSE will be responsible for implementing procurement
under the project. The Procurement Department consists of 7 staff members (1 Head of Division
and 6 procurement specialist). In addition to the regular procurement functions, the head of
procurement division is responsible for overall monitoring and management of the unit. The
procurement staff of GSE is experienced in carrying out procurement under financing of
different donors – ADB, KfW, including World Bank Contract monitoring/management
department is composed of 9 staff members with adequate qualification in state as well as
donor’s procurement procedures.
121. Decision-making process follows the following formal procedure; each decision of the
evaluation group, as well as of the tender commission, is described in minutes of meetings. The
decree which describes each department’s responsibilities is approved by the Board of Directors.
36
122. All written records are in Procurement Department. After contract completion (for Civil
Works after defects liability period is over) the contract as well as all supporting procurement
documents are transferred to Procurement Archive. No special system is in place, but required
documents can be easily obtained manually. Records both in archive as well as in procurement
department are protected from loss or damage, access to archive is granted only to 3 person –
Chairman of Management Board, Head of International Projects Manager and Procurement
Manager.
123. A post review of procurement actions shall be conducted once a year. At least one out of
five procurement packages not subject to Bank prior review will be examined ex-post.
124. The procurement procedures along with the thresholds for Bank review are described
below as well as in the Procurement Plan (PP). The PP will be updated as agreed with the Project
Team annually or as required to reflect the actual project implementation needs.
125. Procurement of goods and non-consulting services. Goods and non-consulting services
estimated to cost US$1 million equivalent and more will be procured through ICB. Goods, and
non-consulting services estimated to cost less than US$1 million may be procured through NCB,
and less than US$100,000 through shopping, using e-procurement platform.
126. Procurement of works: Works contracts estimated to cost more than US$10 million
equivalent will be procured through ICB. Those estimated to cost US$10 million or less may be
procured though NCB, and less than US$200,000 through shopping.
127. Selection of consultants. Consulting services will be procured according to the Bank’s
Consultant Guidelines mentioned above and will include consulting services to the Ministry of
Energy to prepare Electricity Sector Strategic Environmental Impact Assessment and other
sector related studies such as power electricity sector expansion plan, hydro power development
value for money analysis, and other energy sector strategy related studies, as well as consulting
services to supervise supply and installation contract for the Akhaltsikhe Batumi transmission
line, preparation of new transmission system expansion plan, prospective transmission line
feasibility studies, and services of consultants to support implementation of the project. The
Bank’s Standard RFP (revised in October 2011) will be used to select all consulting firms.
Consultant selection methods will include Quality and Cost-Based Selections (QCBS), FixedBudget Selection (FBS), Consultant Qualifications (CQS), Least-Cost Selection (LCS), SingleSource Selection (SSS) and Individual Consultants (IC). The latter will be selected according to
Section V of the Consultant Guidelines. This method will require comparing at least three
qualified and available candidates.
128. Short lists composed entirely of national consultants. Short lists of consultants for services
estimated to cost less than US$300,000 equivalent per contract may be composed entirely of
national consultants, according to the provisions of paragraph 2.7 of the Consultant Guidelines.
129. The Bank has cleared the draft PP dated 25 November 2013. GSE is expected to submit
revised PP to reflect new sub-component. Any further revision in the PP will be discussed
37
between the GSE and the Bank team. The PP will be updated in agreement with the Project
Team annually or as required to reflect the actual project implementation needs.
130. Incremental Operating Costs: The recurrent costs for GSE covering office supplies,
utilities, operating and maintenance expenditures of office equipment and etc. will be financed
by GSE on the basis of annual budgets of GSE.
Prior Review Thresholds
131. For goods and works and services other than consulting services:
Exp Category
1. Goods
-“-“-“2. Works
-“-“-“-
Method
ICB
NCB
SH
DC
ICB
NCB
SH
DC
Prior Review Thresholds
All contracts
As agreed in PP
As agreed in PP
As agreed in PP
All contracts
As agreed in PP
As agreed in PP
As agreed in PP
For consulting services:
Exp Category
Method
3. Cons. Services firms
QCBS
FBS
QBS
LCS
CQS
SSS
IC
4. Cons. Services individuals
Procurement
Method
Thresholds
≤ $300 K
SSS
Prior
Review
Thresholds
All contracts > 100
All contracts > 100
All contracts > 100
All contracts > 100
As agreed in PP
As agreed in PP
As agreed in PP
As agreed in PP
Particular Methods of Procurement of Goods and Works
132. Except as otherwise provided in table below, goods and works shall be procured under
contracts awarded on the basis of International Competitive Bidding (ICB).
133. Other methods: The following table specifies the methods of procurement, other than ICB,
which may be used for goods and works. The Procurement Plan shall specify the circumstances
under which such methods may be used.
38
Procurement Method
(a) National Competitive Bidding, subject to the additional provisions set forth in below:
(i)
“Open competitive procedures” (i.e., “public tender”) shall be the default rule. A single
envelope procedure shall be used for the submission of goods, works, or non-consulting services.
(ii)
Invitations to bid shall be advertised in at least one widely circulated national daily
newspaper allowing a minimum of thirty (30) days for the preparation and submission of bids.
Advertisements published in foreign language newspapers shall be in compliance with such a 30day-minimum in number of days for bids preparation and submission.
(iii) Bidding shall not be restricted to pre-registered firms. If registration is required, it shall not
be denied to eligible bidders for reasons unrelated to their capacity and resources to successfully
perform the contract (e.g., mandatory membership in professional organizations, classification,
etc). Post-qualification shall be conducted to verify that the bidder has the capability and resources
to successfully perform the contract.
(iv) Government-owned enterprises in Georgia shall be eligible to participate in bidding only if
they can establish that they are legally and financially autonomous, operate under commercial law
and are not a dependent agency of the Government. Government-owned enterprises will be subject
to the same bid and performance security requirements as other bidders.
(v)
Procuring entities shall use the appropriate Bank’s sample bidding documents, including
pre-qualification documents, for the procurement of goods, works, or non-consulting services, and
such documents shall contain draft contract and conditions of contract including clauses on fraud
and corruption, audit and publication of award, all acceptable to the Bank.
(vi) Bids shall be opened in public, immediately after the deadline for submission of bids.
Bidder’s representatives shall be permitted to attend the bid opening.
(vii) Extension of bid validity shall be allowed once only for not more than thirty (30) days. No
further extensions should be requested without the prior approval of the Bank.
(viii) Evaluation of bids shall be based on quantifiable criteria expressed in monetary terms as
defined in the bidding documents, no merit point system and no domestic preference shall be used
in the evaluation of bids. Contracts shall be awarded to qualified bidders having submitted the
lowest evaluated substantially responsive bid and no negotiations shall be carried out prior to
contract award.
(ix) Civil works contracts of long duration (e.g., more than eighteen (18) months) shall contain
an appropriate price adjustment clause.
(x)
No bid shall be rejected purely on the basis that the bid price is higher than the estimated
budget for that procurement. All bids shall not be rejected and new bids solicited without the
Bank’s prior concurrence.
(b) Shopping
(c) Direct Contracting
39
Annex 4: Operational Risk Assessment Framework (ORAF)
Georgia: Transmission Grid Strengthening Project (P147348)
.
.
Project Stakeholder Risks
Stakeholder Risk
Rating
Risk Description:
Risk Management:
The Transmission Grid Strengthening Project and the
associated IFC- and MIGA-supported Adjaristsqali
Hydropower Project will affect large number of
stakeholders. This will include residents who are directly
or indirectly affected by the construction of Hydro Power
Plants (HPPs) and the Transmission Line (TL).
There is a risk of opposition to the TL from communities
and NGOs by association to the linked Adjaristsqali
Hydropower Project which has already faced active
opposition, including work stoppages in November 2013
and February and March 2014. Opposition to this
hydropower project relates to demands from communities
for compensation and/or resettlement from their current
villages, which are mostly built on unstable landslips, on
the basis that the hydropower construction could trigger
landslips and/or impact their water supplies.
Moderate
Early consultations with affected people, implementation of a stakeholder engagement
plan, and effective disclosure of and consultation on the Resettlement Policy Framework
(RPF), Environmental and Social Impact Assessment (ESIA) report, engagement with
the developer of the Adjaristsqali Hydropower Project, and ongoing coordination with
IFC and MIGA.
Resp:
Status:
Stage:
Client
In Progress
Both
Recurrent: Due Date:
Frequency:
Risk Management:
Close coordination with the financiers; IFC, EBRD, and ADB
Resp:
Status:
Stage:
Bank
In Progress
Both
There is a risk of conflicting implementation arrangements
and contradicting procedures used for environmental and
social management of TL construction and for
implementation of Adjaristsqali Hydropower Project due
to involvement of multiple financiers (IBRD, IFC, MIGA,
EBRD, and ADB) in these two operations.
40
Recurrent: Due Date:
Frequency:
Implementing Agency (IA) Risks (including Fiduciary Risks)
Capacity
Rating
Risk Description:
Risk Management:
Moderate
A full time financial specialist with relevant experience in Bank-financed projects, and
knowledge of Bank FM policies and procedures will be assigned to assist the GSE in
managing project-related financial management and disbursement work. The 1C utilized
by the GSE for its statutory reporting and accounting purposes will be modified to allow
automatic generation of the Bank-required reports such as statements of expenditures
(SOEs), IFRs and annual financial statements, and will include the budgeting module.
Environmental and social risks of the project may not be
All FM staff will receive focused training when the project launches, and hands-on
properly mitigated during construction as well as training during implementation.
operation of the TL due to lack of staffing in the
Implementing Agency.
The Financial Management chapter (FMM) of the Project Operational Manual (POM)
Delays in project implementation may occur given the
Implementing Agency's lack of experience with Bank
procedures, especially in procurement and financial
management.
will be elaborated and will describe budgeting, audit arrangements, internal control and
accounting policies, and procedures to be followed over the course of the project
implementation.
Resp:
Status:
Client
In Progress
Stage:
Recurrent: Due Date:
Frequency:
CONTINUO
US
Risk Management:
The GSE has one person assigned to handle all environmental and social matters of the
GSE’s routine activities and donor-supported projects. The position is called
International Projects Coordinator for Environmental and Social Issues and this staff
unit is placed within the International Projects and Reporting Department. Although the
position is filled by a well experienced specialist with relevant educational and
employment background, she is stretched thin over multiple tasks, including travel all
over the country and internationally. Implementation of a Category A project with the
Bank financing will require enhancement of the GSE’s capacity to manage
environmental and social safeguards. This may be achieved by adding a staff unit to the
core structure of the GSE, or hiring a term consultants either based in the central office,
or in the Autonomous Republic of Ajara. Generally, it is highly advisable that the GSE
creates a specialized unit for handling environmental and social performance of the
company and has an adequate size team of professionals of each of these fields.
41
Resp:
Status:
Client
In Progress
Governance
Rating
Low
Risk Description:
Risk Management:
Stage:
Recurrent: Due Date:
Given the current composition of the supervisory board Re-assess the overall Governance and capacity of the GSE
and top management of GSE the risk is low however,
Resp:
Status:
Stage:
Recurrent: Due Date:
there is potential upside risk of change of the top
Not Yet Due Implementation
management of GSE which may create a perceived risk of Bank
poor governance.
Frequency:
Frequency:
Risk Management:
Re-assess GSE's performance with respect fraud and corruption
Resp:
Status:
Stage:
Bank
Not Yet Due Implementation
Design
Rating
Moderate
Risk Description:
Risk Management:
Recurrent: Due Date:
Frequency:
Project Risks
Include design review in the ToR for owner' engineer
Complicated geology and topography of the area of the TL
Status:
Stage:
Recurrent: Due Date:
alignment poses challenge to the quality of the design of Resp:
the TL.
Client
In Progress Implementation
15-Jan-2014
Frequency:
Risk Management:
Provide additional qualified staff to GSE to review detailed design
Resp:
Status:
Stage:
Bank
Not Yet Due Implementation
Social and Environmental
Rating
Substantial
Risk Description:
Risk Management:
Recurrent: Due Date:
Frequency:
16-Dec-2013
The Borrower carried out an Environmental and Social Impact Assessment (ESIA) of
42
The project will support construction of a new TL in a
difficult and highly diverse terrain, ranging from alpine
meadows to subtropical forests and the coastal zone.
These areas include populated and cultivated parcels of
land, pastures, as well as parts remote and minimally
transformed forests and rivers. Certain sections of the TL
alignment may overlap with bird migratory routes.
Therefore construction of this line may have a variety of
negative environmental impacts at the construction and
operation phases.
the project investments. ToR of this task was shared with the Bank for comments to
ensure that the ESIA report is in line with the requirements of the Bank’s safeguard
policy and meets quality expectations. This ToR was disclosed to the Project
stakeholders and a discussion was held on the scope of the upcoming ESIA. The draft
ESIA report was shared with the Bank for clearance and disclosed for soliciting public
feedback. Consultation meetings on the draft ESIA report were held in Tbilisi and
Batumi. ESIA report carries environmental mitigation and monitoring plans.
Compliance with the mitigation plan will be mandatory for works contractors and its
implementation will be monitored throughout the Project life. Mitigation measures and
parties responsible for their application are provided for the operation phase of the TL as
well. Construction of the TL may not commence prior to issuance of an environmental
About 10 km long southern section of the TL corridor falls permit by the Ministry of Environment and Natural Resources Protection.
within the important international migratory corridor of
Resp:
Status:
Stage:
Recurrent: Due Date:
Frequency:
birds, out of which the potential impacts of the TL
In Progress Both
CONTINUO
construction and operation may be significant within 5-6 Client
US
km part of the line, where birds are known to fly closer to
the earth surface.
Risk Management:
Significant part of the TL corridor passes through forested
areas. Placement of towers and arrangement of service
roads will require tree cutting. Natural forests,
predominantly located on mountain slopes, will therefore
be affected. A land strip under the power cables shall be
maintained free of high-growing vegetation throughout
operation of the TL.
The selected most optimal alignment of the TL still has a few kilometers overlap with a
sensitive section of an international migratory corridor of birds, where the only option is
to design the TL towers and conductors applying best practice features to reduce the
likelihood of bird collisions and electrocutions. This will include placing of conductors
within the distance established to avoid electrocutions while perching, and equipping the
cables with bird reflectors to increase their visibility and rescue collisions. Bird
monitoring will be ensured at the TL operation phase to check birds’ mortality rate,
verify effectiveness of mitigation, and determine the need for additional measures.
The Akhaltsikhe-Batumi TL will pass the area with a
number of registered historic monuments. Although the
TL is designed the way to avoid direct impacts on the
these cultural assets, a need for the construction and
operation of service roads, construction camps and other
supporting infrastructure carries certain risk of negative
impacts. Also, there is a likelihood of encountering chance
finds during earth works required for the construction of
towers.
Resp:
Status:
Client
Not Yet Due Implementation
Stage:
Recurrent: Due Date:
Frequency:
CONTINUO
US
Risk Management:
Exact locations of towers and alignment of the power cables are yet to be decided by
designers. The detailed design will be undertaken in the way to minimize impact on the
forest stands. During construction, contractor will be required to mark trees that have to
be removed and to formally agree vegetation clearing plan with the technical supervisor
representing the client.
43
Monitoring environmental performance of works for the
construction of the TL will be a major challenge for the
GSE due to complexity of terrain along the TL corridor,
multiple types of mitigation measures to be applied,
distance of the project site from the GSE's office in
Tbilisi, and lack of staff in the GSE mandated for
safeguards management.
Resp:
Status:
Stage:
Client
Not Yet Due Implementation
Recurrent: Due Date:
Frequency:
CONTINUO
US
Risk Management:
Construction contractors will be mandated to formally agree the locations and sketch
drawings of construction camps and designs of access roads with the technical
supervisor representing the client. Locations for this infrastructure will be chosen so as
Adjaristsqali Hydropower Project is an ongoing activity to keep it in a safe distance from the cultural assets in order to prevent their damage as
for the construction of four HPPs in the Autonomous well as temporary or permanent deterioration of their aesthetic value.
Republic of Ajara, implemented with financial
participation of IFC, MIGA, ADB and EBRD, which is Construction contractors will be instructed to take all activities on hold in case of a
associated with the construction of Akhaltsikhe-Batumi chance find. Technical supervisor will immediately contact Ministry of Culture and
TL. Environmental and social impacts of Adjaristsqali Monuments Preservation and works will be authorized to resume once a formal consent
Hydropower Project will have certain influence on the is provided from this Ministry.
public perception of TGSP and on the corporate image of
Resp:
Status:
Stage:
Recurrent: Due Date:
Frequency:
the Bank.
Client
Not Yet Due Implementation
CONTINUO
GSE lacks staff for the successful implementation and
US
monitoring of RPF and RAPs which may lead to delays in
the land acquisition process and potential complaints from Risk Management:
affected people.
GSE hired environmental and social staff and will maintain in-house capacity for
providing general oversight on the safeguards compliance under the Project. Day-to-day
While the overall project is expected to benefit women environmental supervision of works will be carried out by a supervision engineer to be
and men equally, during implementation, land acquisition contracted by GSE to oversee all aspects of the TL construction works, including
could have a differentiated impact on some women, adherence of construction contractor to the Environmental Management Plans. ToR of
particularly impacts on single mother-headed households. the supervision engineer will be agreed with the Bank to ensure that all relevant aspects
of this assignment are included. The GSE will be responsible for ensuring quality of the
supervision engineer's outputs, and for timely and adequately reacting on the
information provided. The GSE will be sharing supervision engineer's reports with the
Bank, so that the Task Team is informed on various aspects of works progress, including
status of environmental performance, and can provide the required implementation
support to the client.
Resp:
Status:
Client
Not Yet Due Implementation
44
Stage:
Recurrent: Due Date:
Frequency:
CONTINUO
US
Risk Management:
The Bank Task Team preparing the TGSP reviewed ESIA report developed for
Adjaristsqali Hydropower Project and found it of a generally good quality. Some unclear
points in the report were discussed and IFC’s interpretation of the ESIA statements were
received request. Overall outcome of the Bank’s due diligence in examining
environmental and social management system under the Adjaristsqali Hydropower
Project is that the studies undertaken so far cover all significant aspects of the project’s
activities however this system implies collection of site-specific information through
additional studies and monitoring work to be undertaken on the rolling basis and to
inform the development of concrete and adjusted mitigation measures as the project
activities unfold. The Bank will maintain dialogue with IFC to remain up-to-date on the
status of project’s adherence with the Performance Standards and will receive
environmental audit reports generated on the Adjaristsqali Hydropower Project on
regular basis. Joint supervision of the associated projects of TGS and Adjaristsqali
Hydropower Project may also be considered, as suggested by IFC.
Resp:
Status:
Stage:
Bank
In Progress
Both
Recurrent: Due Date:
Frequency:
CONTINUO
US
Risk Management:
Improved staffing of the GSE’s safeguards team and continuous supervision and support
from the Bank team.
GSE prepared a sound Resettlement Policy Framework in accordance with OP 4.12 and
with clear guidance to mitigate potential issues associated to land acquisition. GSE has
allocated staff for working on social issues. Their capacity will be improved by thorough
consultations from the Bank team during RAP preparation and implementation process.
During the preparation of site-specific RAPs, additional socio-economic studies will be
conducted to identify potential gender-differentiated impacts and corresponding
mitigation measures. Additionally, GSE and its contractors will be encouraged to
include women in job training efforts and give them equal opportunity to work on the
construction of the TL construction.
45
Resp:
Status:
Stage:
Both
In Progress
Both
Program and Donor
Rating
Moderate
Risk Description:
Risk Management:
Recurrent: Due Date:
Frequency:
Quarterly
Coordination between GSE, AGL, the project team, and Identify key contact persons from each entity responsible for coordination and enforce
hydropower financiers IFC, MIGA, ADB, and EBRD fails regular information exchange between parties
Resp:
Status:
Stage:
Both
In Progress
Both
Delivery Monitoring and Sustainability
Rating
Moderate
Risk Description:
Risk Management:
Recurrent: Due Date:
Frequency:
CONTINUO
US
Select supervision engineer based on Quality Based selection method
Timely delivery of the TL coordinated with the
Status:
Stage:
Recurrent: Due Date:
Frequency:
hydropower station completion date is a complex task Resp:
which carries substantial risks. The TL passes through Client
In Progress Implementation
10-Feb-2014
high altitude plateau (about 2000 m above sea level)
which is characterized by high precipitation and short Risk Management:
construction period
Provide TA assistance to the regulator to review transmission pricing models and overall
tariff system
Conversely if the Adjaristsqali Hydropower Project is not
Status:
Stage:
Recurrent: Due Date:
Frequency:
completed by 2016, there is a risk that benefits of Resp:
improved power supply to Batumi are delayed.
Client
Not Yet Due Preparation
24-Mar-2014
In addition, reluctance of the Government to support Risk Management:
electricity transmission and dispatch tariff increase, poses
The Bank team will coordinate with financiers of the Adjaristsqali Hydropower Project
a risk to sustainability and financial viability of GSE
to closely monitor progress and address implementation issues as they arise, if
necessary. If the Adjaristsqali Hydropower Project is not completed by 2016, the Bank
and GSE can accelerate completion of the section of the Transmission Line from
Suakhevi HPP to Akhaltsikhe station.
Resp:
Status:
Both
Not Yet Due Implementation
46
Stage:
Recurrent: Due Date:
01-Jun-2016
Frequency:
Other (Optional)
Rating
Risk Description:
Risk Management:
Resp:
Status:
Other (Optional)
Rating
Risk Description:
Risk Management:
Resp:
Status:
Rating
Substantial
Stage:
Recurrent: Due Date:
Frequency:
Stage:
Recurrent: Due Date:
Frequency:
Overall Risk
Overall Implementation Risk:
Risk Description:
The substantial rating is appropriate due to the complex environmental, social, and technical challenges associated with construction and operation
of the TL and the associated Adjaristsqali Hydropower Project, which has multiple stakeholders. The reputation risks that may emerge from the
implementation of the associated activity are likely to spill over the Project, especially as the two are not distinctly separated in the public
perception.
47
Annex 5: Implementation Support Plan
COUNTRY: GEORGIA
Transmission Grid Strengthening Project
134. The proposed Project is the first project which lends to the energy sector after 5 years of no
lending activities in that sector. GSE has substantial past experience the implementing World
Bank projects, GSE also implements a number of other projects funded by different financiers.
Bank implementation support is essential to the successful implementation of the project reengagement into the sector and to realize the transformational potential of the project.
Strategy and Approach for Implementation Support
135. The strategy and approach for implementation of the Project stem from the risks associated
with the implementation of the Project and mitigation measures as described in the ORAF. The
following implementation support is proposed which reflect key risks of the Project:
a. Schedule of delivery and implementation. The Bank has engaged with the GSE
and AGL at a very early stage of Project identification. By close coordination
measures the Bank tightly monitored implementation progress of the Project and
its timing with the implementation of the hydropower stations. Advanced site
visits, regular formal and informal meetings, consultations with GSE, IFC, and
AGL preceded Project preparation. Consultations with the Government on the key
issues like, transmission tariffs, safeguard compliance, were undertaken well in
advance of the formal request from the Government for the Project financing. The
similar preemptive approach will be applied to the Project implementation, with
particular attention to the coordination of actions with AGL and IFC.
b. Environmental and social safeguards: The Bank’s environmental and social
specialists will continue providing regular support to the Borrower in tackling
safeguards related issues during the Project implementation and will closely
monitor its compliance with the EMPs and RAPs. Due to the nature of the Project
design, RAPs could not have been prepared by appraisal, and hence their review
and approval will be part of the Project’s implementation support. The locally
based social specialist will be mentored by the senior specialist which is based the
same region in order to provide timely feedback and fast response to social issues.
issues. The Bank’s Task Team will apply an additional effort in the course of
TGSP implementation by reviewing environmental audit reports generated under
the associated Adjaristsqali Hydropower Project, and by participating in the joint
supervision of its implementation along with IFC, EBRD, and ADB. Overall,
tracking and supporting safeguards compliance under the TGSP as well as
following status of Adjaristsqali Hydropower Project’s compliance with IFC’s
Performance Standards will be a challenging task and will require greater
resources than other Environmental Category A investments ongoing in Georgia.
48
c. Technical inputs: An individual consultant will provide assistance to the GSE in
technical review of the transmission line design, the technical specifications of the
contract bid documents for supply of other Project equipment.
d. Procurement: The procurement related implementation support will include
advance consultations on the procurement related issues and will be provided
from the country office based procurement officer. The GSE team will be
supplemented by team of consultants to evaluate bids for supply and installation
of the transmission line, and for selection of the supervision consultants.
e. Financial management: The Bank will conduct risk-based financial management
implementation support and supervision mission within a year from the project
effectiveness, and then at appropriate intervals. In addition, the regular IFRs and
annual project audit reports will be reviewed by the Bank. As required, a Bankaccredited Financial Management Specialist will assist in the implementation
support and supervision process.
f. Operation: The TTL of the project is based in the country office and will conduct
daily supervision of the project and coordinate with the client and other project
team members to provide timely guidance and support to the client.
Table 4: Estimated Resources Required for Project Supervision
Time
First year
Focus
Skills Needed
Technical
Review, Transmission
line
procurement review, bidding engineer
documents
Procurement
RAP Implementation
Social specialist
Senior Social Specialist
Environmental Supervision
Senior Environmental
Specialist
Senior
Financial
Management Specialist
Resource Estimate
3 Staff Weeks
2 Staff Weeks
4 Staff Weeks
2 Staff Weeks
3 Staff Week
2 Staff Weeks
Financial Management 2 Staff Weeks
Specialist
Procurement Specialist
Senior Communication
Specialist
Project Construction
IT/ engineer
Procurement
and
contract management
Environmental and Social Senior Environmental
Monitoring
Specialist
2 Staff Weeks
1 Staff Week
Senior Social Specialist
2 Staff Weeks
Public outreach
2nd-4rd
months
49
4 Staff Weeks
4 Staff Weeks
2 Weeks
Time
Focus
Skills Needed
Resource Estimate
Social Specialist
3 Staff Weeks
Financial
Management, Financial Management 2 Staff Weeks
Disbursement, Report
Specialist
Task Team Leadership
TTL
8 Staff Weeks
Table 5: Skills Mix Required
Skills Needed
TTLs
Senior Environmental specialists
Senior Social Specialist
Social Specialist
Senior Procurement Specialist
Procurement Specialists
Power Engineer
Senior Financial Management
Specialist
Communication Specialist
Number of Staff
Weeks
8 Annually
Number of
Trips
Field trips
as required
2 annually
Field trips
as required
2 Annually
Field trips
as required
4 for the first year 3 Field trips
the second year
as required
1 Annually
Field trips
as required
2 Annually
Field trips
as required
3 for the first year Field trips
then 2 Annually
as required
1 Annually
Field trips
as required
1 Annually
Field trips
as required
Comments
Country office based
Country office based
International
Country office based
International
Country office based
International
International
Country office based
Table 6: List of Partners
Name
IFC
MIGA
Institution/Country
International
Financial Institution
International
Financial Institution
50
Role
Financier
of
Adjaristsqali
Hydropower Project
Provides Political Risk Insurance
to
Adjaristsqali
Hydropower
Project
Annex 6: Economic and Financial Analysis
COUNTRY: GEORGIA
Transmission Grid Strengthening Project
136. Economic Analysis. A benefit-cost analysis (BCA) was carried out to assess the
economic viabilities of the Project. The analysis was carried out over a 20-year period from
2015-2034, discounted at the economic opportunity cost of capital (EOCK) of 12 percent. The
economic benefits and costs were expressed in US dollars and constant 2013 prices net of costs
of transfer, financial charges and price contingencies. Local costs were converted to US dollars
at an exchange rate of GEL 1.75 to US$1.00. Project costs and benefits were estimated on a
without- and with-project basis.
Costs
137. The costs associated with the Project include i) upfront investments of US$45 million for
the construction of the transmission line, and an estimated US$6 million for the metering and
trading system; and ii) ongoing costs of operating and maintaining the network constructed,
assumed at an annual amount of 2 percent of the total capital investment.
Benefits
138. The primary benefit of the Project comes from improved reliability of transmission service
in the Ajara region. In spite of a booming economy with an average annual growth rate of 11.6
percent over the past half a decade, the Ajara region, situated in the southeast end of the country,
is connected through the weakest link of the national grid. The power supply in the region is
highly unstable with frequent outages and below standard voltage levels. A single blackout in
the winter of 2013 lasted nearly 10 days bringing the regional economy into a halt. During the
blackout, manufacturing and port operations dwindled; schools were shut down; hospitals
switched to diesel-based backup generators. The total cost of the blackout to the regional
economy was estimated at around US$14 million, or US$0.56 per kWh. The Project investment
in the transmission line will substantially reduce annual unplanned power outages from an
average of 68 hours to below 0.5 hours.
139. Moreover, the Project investments, i.e., the cross-border transmission line and the metering
and trading system, will enable and facilitate domestic and regional power trade through
evacuating an estimated 483 GWh of lower-cost hydro power from the Shuakhevi HPP annually.
The power supply from the HPP will be exported to Turkey for nine months of the year, and
used to serve domestic market during the three winter months. The benefit of lower cost of
regional power supply is conservatively assumed at US$0.03 per kWh based on the spread
between the lowest wholesale tariff rate in Turkish at US$0.08 per kWh and the proposed PPA
from the HPP at US$0.05. The benefit of lower cost in domestic power supply is conservatively
estimated at US$0.008 per kWh, based on the spread between the average domestic wholesale
tariff during the winter months at US$0.058 and the proposed PPA from the HPP. Since the
51
HPP with an estimated investment of US$356 million is outside the scope of the Project, 25 the
portion of the total benefit from domestic and regional power trade attributed to the Project is
estimated at around 12.5 percent, based on the percentage of the Project investment in the total
investments of the HPP, transmission, and trading infrastructure.
140. Strategically, the Project will serve as a catalyst for the development of large hydropower
facilities in Georgia. The feasibility studies for the new transmission lines, which are part of
GSE’s expansion plan, are expected to address risk of evacuation of power from newly
constructed hydropower facilities.
Results of the Economic Analysis
141. At an EOCK of 12.0 percent, the Project investment is expected to generate an economic
net present value (ENPV) of US$3.12 million, and yield an economic internal rate of return
(EIRR) of 13.4 percent. Moreover, about 81 percent of the estimated benefit from the Project
comes from system reliability improvements and 19 percent from lowering regional cost of
supply through enabling regional power trade.
Table 7: ENPV and EIRR
ENPV, 12%
EOCK 26
(Million US$)
51.00
8.53
54.11
0.41
11.75
3.12
Investments
O&M
Improved Reliability
Lower domestic cost of supply
Lower regional cost of supply
Net Benefit
EIRR
12.7%
Sensitivity Analysis
142. Both NPV and EIRR are sensitive to the unit valuation of the economic impact of
blackouts. It is estimated that every US$0.01 per kWh increase/decrease in the valuation will
increase/decrease the Project ENPV by US$0.9 million as shown in the graphs below.
25
Jointly financed by an A loan of up to US$70 million, a B loan of up to US$180 million and an equity of $110 million. CEI
(owned by Norsk Mineral), Tata Power and IFC will contribute 40%, 40% and 20% of the equity, respectively. Adjaristsqali
Georgia LLC will develop the Project.
26
Economic Opportunity Cost of Capital is commonly abbreviated as EOCK
52
Graphs NPV and EIRR Sensitivity
NPV Sensitivity to
WTP for Load Loss during Blackouts
50.0
EIRR Sensitivity to
WTP for Loadd Loss during Blackouts
30.0%
y = 90.176x - 47.376
y = -0.1086x2 + 0.3311x - 0.0246
20.0%
-
0.20
0.40
0.60
0.80
1.00
10.0%
1.20
0.0%
-
(50.0)
0.20 0.40 0.60 0.80 1.00 1.20
143. GSE’s financial performance. Since 2008, the GSE has been operating under a 15-year
bankruptcy recovery (financial rehabilitation) plan which was approved by Ministry of Finance
on November 20, 2008. Prior to that date, GSE was not able to pay its liabilities due to low
tariffs, low collection rates, accumulated debts due to poor management, as well as tax and salary
arrears. The RP sets out the strategic targets of the Georgian State Electrosystem and the debt repayment
schedule shall be completed by 2023. The total GSE debts under the plan were about $US67,6
million. The overall debt is comprising of 75% of the debt owed to the Government, 22 %
payable to other creditors and 3 % as salary arrears, with the following net amounts respectively
equivalent to approximately: US $51,2 million, tax arrears payable to the Government; US $14,9
million as trade payables; US $1,5 million as salary arrears.
144. Beginning in 2008, GSE revenues from core operations started to increase and grew by
about 40 % from GEL 46.6 million to GEL 64.9 million in 2013. Mostly due to increase of total
transmitted power. The company’s total operating revenues were GEL 69.5 million in 2013
(unaudited) and its long-term assets grew from GEL 158 million in 2008 to GEL 306.7mln as of
December 31, 2013. Operating expenses increased by only 21 percent from 2009 to 2013, when
the amounted to GEL 41.4 million in 2013 (less of depreciation).
145. The increased revenues from operations allow GSE to fully service its debts under
bankruptcy plan. As of April 2014, the total outstanding debt equals US$60,7 million comprising
of US$45,7 million payable to the Government and US$15,0 million as trade payables.
146. Table 9, shows GSE’s operating revenues since 2009. Operating revenues grew along with
operating expenses; however the net operating margin remained negative throughout the entire
period.
Table 8: Operating Margins of GSE in 2009-2013 (US $1 = GEL 1.7)
$ thousand
Operating Revenues
Operating Expenses
Net Operating
Margin
2009
25,219
(35,895)
2010
29,383
(33,883)
2011
32,279
(34,467)
2012
37,669
(43,284)
2013
38,192
(39,795)
(10,677)
(4,500)
(2,188)
(5,615)
(1,603)
53
147. The negative operating margin of the period from 2009-2013 was reflected in the main
financial ratios of the company.
Table 9: Key Financial Ratios
Key Financial Ratios
Current Ratio
Receivables Turnover Ratio
Total Assets Turnover
Operating Profit Margin
Taxable Profit Margin
ROE
Cash Flow from Operations to Revenues
Debt-to-Equity
Debt Service Coverage Ratio
Cash Flow Coverage of Debt Service
2009
193%
5.75
0.21
-42.3%
-28.4%
5.43%
37.6%
61.5%
6.84
1.09
2010
141%
6.07
0.15
-15.3%
-7.1%
-0.66%
47.8%
54.4%
3.16
(1.23)
2011
254%
7.08
0.13
-6.8%
4.2%
1.06%
54.6%
37.7%
6.17
0.97
2012
150%
8.99
0.17
-14.9%
-1.0%
-0.30%
41.1%
35.0%
9.79
2.93
2013
162%
8.19
0.16
-4.2%
-20.5%
-5.04%
49.0%
34.7%
2.05
(1.34)
148. Current Ratio defined as current assets to current liabilities has been used to monitor GSE
financial performance. Starting from 2009 GSE Current Ratio has been substantially above
100%. Not to limit GSEs’ ability to borrow according to the Capital Investment Plan discussed in
the section below, GSE will maintain the current ratio not less than 1.
149. Capital Investment Plan. For the next five years, GSE plans to invest GEL 445 million in
grid development, the company intends to implement five major projects during the period 2014
to 2017, as presented in the table below.
Table 10: Capital Investment Plan
Capital Investment Plan
Name of the Project
Regional transmission improvement
Project
Construction of 220-500kw Substation
and Transmission Lines - Jvari
Rehabilitation and Construction of
220kv line Senaki 1 and Senaki 2
Construction of 220kw Transmission
Line, Akhaltsikhe - Batumi
Construction of 500kv Transmission
Line . Georgia - Russia
Total
2014
Debt Equity
2015
Debt
Equity
Debt
2016
Equity
2017
Debt Equity
16,745
282
34,000
12,287
27,455
10,653
28,928
6,644
53,304
16,882
45,075
13,436
-
5,100
19,125
4,165
30,600
11,142
26,775
10,193
14,875
595
23,800
6,021
20,825
5,284
132,779
40,906
123,105
40,303
20,825
5,284
64,798
16,191
54
150. Current tariffs and projected increases. The implementing the bankruptcy recovery plan
at the same time borrowing for planned transmission grid expansion will undermine current
financial viability of the GSE, unless there is gradual increase of GSE tariffs or reduction of
GSEs debts to the key creditor which is the Government. The Government is financing
expansion of the transmission grid through debt and budget co-financing. It is committed to
keeping GSE a financially viable company. In order to achieve that the Government intends to
apply one or combination of the following three measures; (i) increase transmission tariff, (ii)
restructure of the Government debt, and (iii) write off the Government debts, to ease repayment
burden.
151. GSE is a natural monopoly and its tariffs are regulated by Georgian National Energy
Regulatory Commission. The applied methodology allows recover of all costs of the company.
Currently, GSE receives about 0.4 US cents/kWh (0.65 Tetri) for transmission and dispatch
services. However, the plan to extend the grid through borrowing requires tariff increases in the
medium- to-long term. Projections of tariff increases during 2014-2019 are shown in the table
below.
Table 11: Tariff Projections
Thousand $, US C/kWh, GWh
Operational Costs
Total Required Funds
Total GWh
Break-Even Tariff
Current Tariff
Difference between
2014
41,176
59,825
11,506
0.52
0.38
0.14
2015
72,800
130,058
12,081
0.63
0.38
0.25
2016
76,440
134,042
12,685
0.62
0.38
0.24
2017
81,026
103,884
13,319
0.46
0.38
0.08
2018
85,888
134,282
13,985
0.56
0.38
0.18
2019
90,182
138,791
14,684
0.56
0.38
0.17
152. The implementation of these plans requires an average increase in GSE’s tariff by at least
0.27 Tetri per kWh for the next ten years (break-even tariff). If the tariffs are calculated based on
the assumption that the company’s return on equity should equal its capitalization rate on equity
(10.5 percent), the rate should further increased by 0.06 Tetri per kWh, a total increase of 0.33
Tetri per kWh. This cost-plus methodology and the asset-based tariff methodology yield the
same tariff increase. As the new hydropower generators come online and the overall volume of
power transmitted increases, the need for tariff increase decreases.
55
40°E
42°E
GSDPM
Map Design Unit
44°N
GEORGIA
44°E
This map was produced by the Map Design Unit of The World Bank.
The boundaries, colors, denominations and any other information
shown on this map do not imply, on the part of The World Bank
Group, any judgment on the legal status of any territory, or any
endorsement or acceptance of such boundaries.
44°N
TRANSMISSION GRID
STRENGTHENING PROJECT
PLANNED
R U S S I A N F E D E R AT I O N
EXISTING
500 kV SUBSTATIONS
GEORGIA
220 kV SUBSTATIONS
0K
VS
AL
MAIN HYDROPOWER PLANT (HPP)
(ABOVE 50 MW)
KH
INO
500 kV HIGH VOLTAGE LINES
Bzipi 220
Gagra
400kV HIGH VOLTAGE LINE
500 KV KA
VKASIONI
22
Sokhumi 220
330 kV HIGH VOLTAGE LINES
220 kV HIGH VOLTAGE LINES
MAIN INTERCONNECTIONS
Mestia
NENSKRA
Suhumi
MAIN CITIES AND TOWNS
KHUDONI HPP
Vektori 220
Zugdidi
Tkibuli
Samtredia
Chinvali
D. Kutaisi 220
Khashuri
Ozurgeti
a)
Akhaltsikhe
PARAVANI HPP
KHRAMI-1 HPP
N
IJA
RBA
Mt
kva
ri
Io
NI
ri
(Ku
ra)
Mingechevir
Reservoir
60 Kilometers
40
30
40
50 Miles
ARMENIA
42°E
44°E
Lake
Sevan
AZERBAIJAN
46°E
IBRD 40799
20
ABA
APRIL 2014
40°E
10
AZE
0
20
ARD
0
TsiteliTskaro
Gardabani
KV
T U R K E Y
Iori
Rustavi 220
KV G
Ninocminda
Rustavi
Lagodehi
a
Gurjaani 220
Navtlughi 220
Marneuli 220
Kazreti
Gurjaani
TBILISI
330
KHRAMI-2 HPP
Gldani 220
500
220
Ahalkalaki
Marneuli
220 KV ALAVER
DI
KOROMKHETI HPP
Didube 220
Lisi 220
Akhaltsikhe
Al
Mtskheta
Ksani
(
M
SHUAKEVI HPP
Batumi 220
KV A
JAR
A
ar i
tkv
Telavi
Gori 220
r
Ku
42°N
Akhmeta
Gori
ni
za
Kobuleti
Batumi
ZHINVALI HPP
Fero 220
Khashuri 220
Rioni D. Zestaponi
42°N
i
Sachkhere
DZEVRULA HPP
Ior
Kutaisi
Kazbegi
MENIA
Tskaltubo 220
INTERNATIONAL BOUNDARIES
I
Senaki
Poti
Oni
Ambrolauri
Menji 220
Black Sea
LAJANURI HPP
DARIALI HPP
AZBEG
ri
i
u
Ing
TSAGERI HPP
Ri
on
VARDNILI-1 HPP
Dzvari
NATIONAL CAPITAL
n i s ckali
K
500 KV
Jvari
ENGURI HPP
Ochamchira
Tske
500 KV GEORGIA-AR
Tkvarceli