IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA IDA-45120) ON A CREDIT IN THE AMOUNT OF SDR 35.2 MILLION (US$ 55.0 MILLION EQUIVALENT) GEORGIA

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1 Public Disclosure Authorized Document of The World Bank Report No: ICR2343 Public Disclosure Authorized Public Disclosure Authorized IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA IDA-45120) ON A CREDIT IN THE AMOUNT OF SDR 35.2 MILLION (US$ 55.0 MILLION EQUIVALENT) TO GEORGIA FOR A SECOND EAST-WEST HIGHWAY IMPROVEMENT PROJECT December 28, 2012 Public Disclosure Authorized Sustainable Development Department South East Europe Country Unit Europe and Central Asia Region

2 CURRENCY EQUIVALENTS (Exchange Rate Effective October 24, 2012) Currency Unit = GEL 1.00 GEL = USD 0.60 USD 1 = 1.65 GEL FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS AADT Annual Average Daily Traffic ISR Implementation Status Report ADB Asian Development Bank JBIC Japan Bank of International Cooperation AF Additional Financing KF Kuwait Fund AM Aide-Memoire M&E Monitoring and Evaluation CD Country Director MOED Ministry of Economic Development CIS Commonwealth of Independent States MOF Ministry of Finance CPS Country Partnership Strategy MRDI Ministry of Regional Development and Infrastructure CR (Borrower s) Completion Report MS Moderately Satisfactory CY Calendar Year MTR Mid-term Review E60 East-West Highway/European Corridor E60 MU Moderately Unsatisfactory EA Environmental Assessment NPV Net Present Value EBRD European Bank for Reconstruction and OP Operational Policy Development ECA Europe and Central Asia PAP Project Affected People EIRR Economic Internal Rate of Return PAD Project Appraisal Document EMP Environmental Management Plan PDO Project Development Objective EWHIP-4 East-West Highway Improvement Project-4 RAP Resettlement Action Plan EU European Union RDMED/R D Road Department of the Ministry of Economic Development FEWHIP First East-West Highway Improvement RPF Resettlement Policy Framework Project FY Fiscal Year SDR Special Drawing Rights (Currency unit) GEL Georgian Lari (Currency unit) SEWHIP Second East-West Highway Improvement Project GDP Gross Domestic Product SLRP (First) Secondary and Local Roads Project GNI Gross National Income SLRP-II Secondary and Local Roads Project-II GOG Government of Georgia TA Technical Assistance HDM-4 Highway Design and Maintenance model, Version4 TEWHIP Third East-West Highway Improvement Project HR Human Resources TRRC Transport Reform and Rehabilitation Center IA Implementing Agency TTL Task Team Leader ICR Implementation Completion & Results UN United Nations Report IDA International Development Association WB World Bank IFC International Finance Corporation

3 Vice President: Philippe H. Le Houerou Country Director: Henry Kerali Sector Manager: Juan Gaviria Project Team Leader: Jean-Francois Marteau ICR Team Leader: Natalya Stankevich

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5 COUNTRY Project Name CONTENTS Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph 1. Project Context, Development Objectives and Design Key Factors Affecting Implementation and Outcomes Assessment of Outcomes Assessment of Risk to Development Outcome Assessment of Bank and Borrower Performance Lessons Learned Comments on Issues Raised by Borrower/Implementing Agencies/Partners Annex 1. Project Costs and Financing Annex 2. Outputs by Component Annex 3. Economic and Financial Analysis Annex 4. Bank Lending and Implementation Support/Supervision Processes Annex 5. Beneficiary Survey Results Annex 6. Stakeholder Workshop Report and Results Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders Annex 9. List of Supporting Documents MAP

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7 A. Basic Information Country: Georgia Project Name: Second East-West Highway Improvement Project ID: P L/C/TF Number(s): IDA-43730,IDA ICR Date: 12/28/2012 ICR Type: Core ICR Lending Instrument: SIL Borrower: GEORGIA Original Total Commitment: Revised Amount: XDR 34.72M Environmental Category: A Implementing Agencies: Roads Department Cofinanciers and Other External Partners: B. Key Dates XDR 22.40M Disbursed Amount: XDR 34.72M Process Date Process Original Date Revised / Actual Date(s) Concept Review: 03/21/2007 Effectiveness: 03/10/ /10/2008 Appraisal: 10/05/2007 Restructuring(s): 10/01/ /20/2012 Approval: 12/18/2007 Mid-term Review: 12/01/ /13/2009 Closing: 02/29/ /30/2012 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Risk to Development Outcome: Bank Performance: Borrower Performance: Moderately Satisfactory Substantial Moderately Satisfactory Moderately Unsatisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Moderately Quality at Entry: Moderately Satisfactory Government: Unsatisfactory Quality of Supervision: Moderately Satisfactory Implementing Moderately Satisfactory Agency/Agencies: Overall Bank Overall Borrower Moderately Moderately Satisfactory Performance: Performance: Unsatisfactory

8 C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Performance (if any) Potential Problem Project Yes at any time (Yes/No): Problem Project at any time (Yes/No): DO rating before Closing/Inactive status: Yes Moderately Satisfactory Quality at Entry (QEA): Quality of Supervision (QSA): None None Rating D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 2 2 Roads and highways Theme Code (as % of total Bank financing) Infrastructure services for private sector development Other public sector governance Regional integration E. Bank Staff Positions At ICR At Approval Vice President: Philippe H. Le Houerou Shigeo Katsu Country Director: Henry G. R. Kerali D-M Dowsett-Coirolo Sector Manager: Juan Gaviria Motoo Konishi Project Team Leader: Jean-Francois Marteau Olivier P. Le Ber ICR Team Leader: Natalya Stankevich ICR Primary Author: Natalya Stankevich F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The project development objectives are: (i) To contribute to the gradual reduction of road transport costs and improve ease of transit, and safety along the central part of Georgia's East-West corridor, through upgrading a segment of the East-West Highway from Tbilisi to Rikoti; and (ii) To strengthen the capacity of the government agencies (and particularly RDMED) to develop and implement a traffic safety program.

9 Revised Project Development Objectives (as approved by original approving authority) (a) PDO Indicator(s) Indicator Original Target Values (from Baseline Value approval documents) Transit time from Igoeti to Sveneti (Minutes) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Indicator 1 : Value quantitative or Qualitative) Date achieved 10/01/ /29/ /30/2012 Comments (incl. % The target is slightly exceeded achievement) Indicator 2 : Vehicle operating cost from Igoeti to Sveneti (cars in US$/km) Value quantitative or Qualitative) Date achieved 10/01/ /29/ /30/2012 Comments (incl. % Fully met achievement) Indicator 3 : Vehicle operating cost from Igoeti to Sveneti (trucks in US$/km) Value quantitative or Qualitative) Date achieved 10/01/ /29/ /30/2012 Comments (incl. % The target is slightly exceeded achievement) Indicator 4 : National road safety action plan with targets and monitoring indicators devised Value quantitative or Qualitative) No Yes Yes Date achieved 10/01/ /30/ /30/2010 Comments (incl. % Fully met. achievement) Indicator 5 : National road safety action plan with targets and monitoring indicators under implementation Value quantitative or Qualitative) No Yes Yes Date achieved 10/01/ /30/ /30/2012 Comments (incl. % Fully met achievement)

10 (b) Intermediate Outcome Indicator(s) Indicator Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Indicator 1 : Number of km upgraded for Igoeti to Sveneti Value (quantitative or Qualitative) Date achieved 10/01/ /29/ /30/2012 Comments (incl. % Fully met achievement) Indicator 2 : Igoeti-Sveneti built incorporating safety specifications Value (quantitative or Qualitative) No Yes Yes Date achieved 10/01/ /29/ /30/2012 Comments (incl. % Fully met achievement) Indicator 3 : New Accident Data System in place and data available and in use by key agencies to develop safety interventions in each sector Value (quantitative or Qualitative) No Yes No Date achieved 10/01/ /29/ /30/2012 Comments (incl. % achievement) The first stage - development of specifications for improvement of the current system was completed (but not creation of a completely new system). The second stage will be implemented under on-going TEWHIP AF Indicator 4 : Number of fatalities per 10,000 cars Value (quantitative or Qualitative) Date achieved 10/01/ /29/ /29/2011 Comments Indicator was added under AF. Exceeded by 43% for target year of Data (incl. % for 2012 is not available yet. achievement) Indicator 5 : Percentage of vehicle occupants wearing seatbelts in Tbilisi Value (quantitative or Qualitative) 0 Not provided 100% Date achieved 10/01/ /29/ /30/2012 Comments (incl. % achievement) No target value was set at appraisal of the parent project; the indicator was removed under the AF and was not reported in AMs/ISRs. It is reported in the Borrower's Completion Report Indicator 6 : Percentage of vehicle occupants wearing seatbelts on E60

11 Value (quantitative or Qualitative) 60% Not provided 85% 100% Date achieved 10/01/ /29/ /29/ /30/2012 Comments (incl. % Exceeded by 18% achievement) Indicator 7 : RDMED road safety unit strengthened (staff number) Value (quantitative or Qualitative) Date achieved 10/01/ /29/ /29/2011 Comments (incl. % 100% achieved achievement) Indicator 8 : Number of hazardous locations improved per year Value (quantitative or Qualitative) Date achieved 10/01/ /29/ /30/2012 Comments (incl. % Exceeded by 20% achievement) Indicator 9 : High level multi agency coordination body operating Value (quantitative or Qualitative) No Yes Yes Date achieved 10/01/ /29/ /24/2009 Comments (incl. % achievement) This role was given to the existing Transport Commission (TC) but no evidence showing TC performed this role. No Secretariat was created to help TC undertake daily monitoring and assessment of the National Traffic Safety Strategy Indicator 10 : Roads constructed, non-rural Value (quantitative or Qualitative) 0 km 24 km 24 km Date achieved 09/01/ /29/ /30/2012 Comments (incl. % Core Sector Indicator introduced in 2009 achievement) Indicator 11 : Roads rehabilitated, non-rural Value (quantitative or Qualitative) 0 km 24 km 24 km Date achieved 09/01/ /29/ /30/2012 Comments (incl. % Core Sector Indicator introduced in 2009 achievement)

12 Indicator 12 : Roads in good and fair condition as a share of total classified roads Value (quantitative or Qualitative) 76 % 93 % 90 % Date achieved 01/01/ /29/ /30/2012 Comments (incl. % Core Sector Indicator introduced in 2009 achievement) Indicator 13 : Size of the total classified network Value (quantitative or Qualitative) 1495 km 1495 km 1495 km Date achieved 01/01/ /29/ /30/2012 Comments (incl. % Core Sector Indicator introduced in 2009 achievement) G. Ratings of Project Performance in ISRs No. Date ISR Archived DO IP Actual Disbursements (USD millions) 1 04/07/2008 Satisfactory Satisfactory /28/2008 Satisfactory Satisfactory /12/2008 Satisfactory Satisfactory /04/2009 Satisfactory Satisfactory /06/2009 Moderately Satisfactory Moderately Unsatisfactory /26/2010 Moderately Satisfactory Moderately Unsatisfactory /31/2011 Moderately Satisfactory Moderately Unsatisfactory /05/2011 Moderately Satisfactory Moderately Satisfactory /26/2012 Moderately Satisfactory Moderately Unsatisfactory H. Restructuring (if any) Restructuring Date(s) Board Approved PDO Change ISR Ratings at Restructuring DO Amount Disbursed at Restructuring in USD millions 10/01/2008 Y S S IP Reason for Restructuring & Key Changes Made Additional Financing to cover a financing gap which was anticipated during the

13 Restructuring Date(s) Board Approved PDO Change ISR Ratings at Restructuring DO IP Amount Disbursed at Restructuring in USD millions 02/20/2012 MS MS Reason for Restructuring & Key Changes Made preparation of SEWHIP, due to limitations on the amount of IDA funding which Georgia was able to access at that time of the original project approval Extended the closing date by 4 months to complete the remaining civil works and finalize finalize pending land acquisition and resettlement issues If PDO and/or Key Outcome Targets were formally revised (approved by the original approving body) enter ratings below: Outcome Ratings Against Original PDO/Targets Against Formally Revised PDO/Targets Overall (weighted) rating Moderately Satisfactory I. Disbursement Profile

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15 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal Country background. Georgia is a small country with a population of 4.5 million 1 located to the south of the Caucasus mountain range. The peaceful Rose Revolution in late 2003 brought into office a government of reformers. As a result of the Government of Georgia s (GOG) prudent macroeconomic policies and implementation of structural reforms, growth was 9.6% in 2005 and 9.4% in However, the country s GNI per capita of US$1,560 in 2006 was one of lowest among lower middle-income countries and the incidence of poverty remained relatively flat at about 30% during Road sector background. The country is located on the shortest route between Europe and Azerbaijan, Armenia and the Central Asian Republics through its Black Sea ports, and also links Russia and Turkey. Trade with neighboring countries, both transit and bilateral, is thus an important feature of the economy. At the time of Project appraisal it was the second largest sector of the economy, accounting for 13% of GDP and 11% of employment. Transport, storage and communications also substantially increased their contribution to the total output, from 4.6% of GDP in 1996 to 11.5% in Georgia s road network consists of 1,497 km of international roads, 5,446 km of secondary roads, and 13,386 km of local roads. During the preparation of SEWHIP, 70% of international roads were in good or fair condition; 60% of secondary roads were in poor condition and all local roads were, on average, in poor condition 2. The often rough topography, lowcapacity highways (often only 7 m wide without shoulders), inadequate maintenance regime, poor technical standards of vehicles, and other adverse conditions were main reasons for slow traffic flow and high risk of accidents The modernization and improvement of its transport infrastructure became one of the GOG s priorities in order to integrate Georgia with world markets and to sustain high economic growth rates experienced in 2005 and While road conditions improved as a result of dramatic increase in rehabilitation and maintenance funding and substantial support of the international community, road infrastructure remained inadequate to accommodate significant traffic growth. This resulted in longer transit times, despite the relatively shorter distances, and added to transport costs and deterred usage of the Georgian transit route. Development of the East-West Highway (E60), a major international transit corridor, was seen as an opportunity to support growth in exportoriented activities, which would increase employment and broaden asset-ownership, and revive Georgia s tourist industry for the Commonwealth of Independent States (CIS) 1 This number does not include population of South Ossetia and Abkhazia. 2 The PAD of the SLRP, May 28, The road condition statistics given in the PAD of the SEWHIP seemed to be incorrect and was inconsistent with the statistics given in other documents reporting about the same period of time. The PAD of SEWHP reported a bit too high share of international roads in good condition and too low share of secondary roads in poor condition about 92% [of international roads were] in good to fair condition and 28% [of secondary roads] in poor condition. 1

16 market and niche markets in Europe and the Far East. In 2006, the GOG started the East- West Highway rehabilitation and improvement program projected over the next 20 years for an overall estimated cost of approximately US$l.5 to US$2 billion. It used its own budget for the 16 km upgrade from Natakhtari to Agaiani on the E60 to dual carriageway, which was half completed by September This was followed by two sections financed by the International Development Association (IDA) via the First East-West Highway Improvement Project (FEWHIP) and the Second East-West Highway Improvement Project (SEWHIP) At the time of Project appraisal, the GOG and the public started paying more attention to the issue of road traffic safety. The road traffic fatality rate in Georgia was 13 deaths per 10,000 vehicles. That was significantly higher than the rates in Eastern European countries 3, and much higher than the approximately 2 deaths per 10,000 vehicles in the best performing European Union (EU) countries. The GOG began to significantly better equip the Patrol Police, resurface some main roads, enforce drunk driving and seatbelt wearing, install traffic monitoring devices in Tbilisi, and implement other such measures. However, the GOG realized that the traffic safety situation would become worse in the near future, because the country was entering the explosive phase of motorization - at the level of about 90 cars per 1,000 population 4 and effective mitigation measures were needed. The Project intended to use the E60 as a demonstration corridor, and address traffic safety by first improving the road safety engineering capacity at the Roads Department (RD) and assisting the RD to improve traffic safety on the E60 and other roads Rationale for Bank involvement. The main rationale for the Bank assistance was the Bank s in-depth knowledge and broad experience in the road sector in Georgia and world-wide. The Project was designed (i) to continue the Bank support of the Government s priority of improving the E60 which started with the FEWHIP approved by the IDA Board on December 5, 2006; and (ii) to assist the GOG in developing the beginning of a traffic safety program. The Bank was given a leading role among development partners KF, JBIC, ADB and EBRD - to provide a very significant share of the E60 Highway program, while the other partners were planning to contribute in various ways through the financing of short sections of the E60 or feasibility studies of other sections for future investments. 1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The Project Development Objectives (PDOs) were: (i) To contribute to the gradual reduction of road transport costs and improve ease of transit, and safety along the central part of Georgia's East-West corridor, through upgrading a segment of the East-West Highway from Tbilisi to Rikoti; and 3 According to a 2004 unpublished World Bank working paper, fatality rates in other ECA countries were: Bosnia 3/10,000 vehicles, Croatia 5/10,000 vehicles, Russia 12/10,000 vehicles, Serbia 5/10,000 vehicles, Turkey 8/10,000 vehicles. 4 Annex 1 of the PAD stated 115 vehicles per 1,000 inhabitants at the time of project appraisal in

17 (ii) To strengthen the capacity of the government agencies (and particularly the RDMED) to develop and implement a traffic safety program The indicators proposed for the monitoring and evaluation of Project performance included: (A) Project Outcome Indicators Reduction in transit time/vehicle operating cost from Igoeti to Sveneti; and National road safety action plan with targets and monitoring indicators devised and implemented. (B) Intermediate Outcome Indicators: Number of km upgraded (2 lanes); Igoeti-Sveneti road segment built incorporating safety specifications; New accident data system in place and data available and in use by key agencies to develop safety interventions in each sector; Percentage of vehicle occupants wearing seat belts on E60 highway and in Tbilisi; RDMED road safety unit strengthened; Number of hazardous locations improved per year; and High level multi agency coordination body operating. 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The PDOs were not affected by two restructurings, i.e., an Additional Financing (AF) in October 2008 and an extension of the Project closing date in February 2012 (see details in Section 1.7). However, the Results Framework was updated under the AF. Specifically, the target values were provided for three Intermediate Outcome Indicators which were related to the Road Safety Component and awaited the adoption of the National Traffic Safety Strategy by the Government in July The indicators included: (i) a new accident data system in place, and data available and in use by key agencies to develop safety interventions in each sector with the target value of yes by 2009; (ii) the number of fatalities per 10,000 cars with the target value of 12 by 2011; and (iii) the percentage of vehicle occupants wearing seat belts on E60 with the target value of 85% by In addition, the AF incorporated a new indicator of number of fatalities per 10,000 km with a baseline of 14.5 and the target value of 12 by The indicator of percentage of vehicle occupants wearing seatbelts in Tbilisi was removed from the Results Framework of the AF, but the Project Paper did not mention this change. 1.4 Main Beneficiaries The primary target groups, as implied in several sections of the PAD, were expected to include road users and communities either living along the E60 Highway or connected to it through access or local roads. Road users were to benefit from: (i) better road quality and level of serviceability; (ii) avoiding or deferring costly congestion expected on the basis of mid-term traffic projections; (iii) better road safety through new 3

18 alignments and city bypasses avoiding hazardous crossing of urban areas by heavy transit traffic; and (iv) savings derived from shorter travel times. The Project was to directly contribute to economic development by reducing transportation costs and linking communities to Tbilisi a center for employment, and an outlet for agricultural products and commercial goods. Improvement of road safety was to also reduce the huge annual economic losses being sustained from road accidents, and the resultant poverty amongst road accident casualties and their families The secondary group of beneficiaries was expected to include the GOG, including the RD, which would receive assistance in initiating a traffic safety program on the E60 Highway which could be rolled out and expanded and would also benefit from the improved condition of Igoeti-Sveneti section on the E60 Highway, in order to further the Government's priorities of increasing regional trade, developing a transit economy, and encouraging investment in growth sectors. In addition, the RD was to benefit from the Road Safety Component in building its road safety management capacity, and to contribute through improvement of a condition and capacity of a section of the E60 Highway to the growth of tourism, which is an important sector of the Georgian economy. 1.5 Original Components (as approved) Component 1: Upgrade of the Igoeti to Sveneti section of the E60 Highway from two to four lanes including the construction of four bridges at Igoeti bypass (US$70.5 million): This component was to support: (i) civil works for the construction of a new two-lane carriage way along a 24-km section of the E60 Highway from Igoeti to Sveneti between KP55 and KP79, the construction of four bridges to cross over a small and narrow valley and the Lekhura River at the Igoeti Bypass and the rehabilitation of the existing two-lane carriageway; (ii) consultant services for the supervision of the works; and (iii) consultancy services for the design of another section of the E60 Highway to be specified by the GOG at a later date to help prepare a future project. The construction of the new carriageway was expected to be mostly within the right of way already owned by the RDMED. About 9 hectares of land was expected to be acquired for the construction of traffic interchanges in order to connect the Igoeti Bypass to the existing alignment by the Lekhura River. Land acquisition and resettlement costs were to be financed solely by the GOG Component 2: Road Safety (US$2.13 million): This component was to support works, specialized consultancy services, training, and equipment as needed to strengthen the capacity of the RDMED to develop and implement a traffic safety program along the E60 Corridor and other roads. It was expected to rely mostly on training qualified individuals in the RDMED. The road safety component included engineering improvements in the E60 especially between Tbilisi to Rikoti and other roads focusing on low cost safety measures (blackspots removal), supply and installation of guardrails in various locations and features to provide better guidance (marking and signing) for road users. It also included the development of safety management capability and capacity-building in RDMED to deal with blackspots removal as well as developing new standards for road safety (marking, signing, traffic management, etc.). 4

19 1.5.3 Component 3: Project implementation (US$0.72 million): This component was to fund consultant services for the Transport Reform and Rehabilitation Center (TRRC), project audits and incremental operational costs to support implementation of the Project. 1.6 Revised Components There were no changes to the Project components. 1.7 Other significant changes The Project had two level-two restructurings: (i) the first one was approved as an AF with an additional credit in an amount of US$20.0 million equivalent by the Board of Directors on October 30, 2008; and (ii) the second was approved by the Country Director (CD) on February 20, The AF, or first level-two restructuring, was prepared to cover a financing gap that was anticipated during the preparation of the SEWHIP, due to limitations on the amount of IDA funding that Georgia was able to access at that time. The AF was needed during the first quarter of CY2009 to maintain the pace of implementation and achieve seamless disbursements. The original total cost of the Project was estimated at US$80 million, but this had since been revised upward to US$90 million mainly due to the depreciation by 18% of the US Dollar against the Georgian Lari (GEL) The second level-two restructuring extended the closing of the Project by four months from February 29, 2012 to June 30, This extension was requested by Georgia s Ministry of Finance (MOF) to ensure the completion of the remaining Project activities, including remaining civil works, remedial works, rectifying environmental measures, pending land acquisition and resettlement issues. There were some changes to implementation arrangements mid-way through Project implementation with the transfer of monitoring and evaluation (M&E) and procurement responsibilities from the TRRC 5 to the RD this was accomplished without significant problems. This change took place when the Third East-West Highway Project (TEWHIP) was approved by the Bank in September There were no changes to Project design, scope or scale. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry Soundness of the background analysis. The preparation of the SEWHIP was initiated in 2006, and it was the continuation of a Bank commitment to support the GOG in the E60 Highway Improvement Program. The Project preparation and Project design were built on the lessons drawn from the on-going similar Bank-funded road projects in 5 TRRC" which stands for the "Eurasia Transport Corridor Investment Center"/"Transport Reform and Rehabilitation Center" of MOED was established in 2000 to assist in the implementation of transport sector projects. 5

20 the Europe and Central Asia (ECA) region and from the then on-going road projects the FEWHIP and the Secondary and Local Roads Project (SLRP) in Georgia. The two main lessons that were identified and highlighted in the PAD were (i) ensuring the client s ownership of the institutional components to achieve the objectives of the institutional components; and (ii) avoiding design changes and variations in complex construction projects through using a phased approach with each phase to be supported by an interactive process in designing alignment alternatives, assessing technical, environmental and social impacts, and cross-validating design results with engineering firms and other experts. While these two lessons were rightly identified, the second lesson was followed only to the extent possible. A phased approach was indeed undertaken however, the preparation phase of the design of the civil works that took place after the Board approval of the Project lacked an interactive process between the major design firm, its local sub-contractor, the RD, the Ministry of Economic Development (MOED) and the World Bank (WB) Assessment of the Project design. The Project design was simple in terms of components, geographic dispersion, novelty, involved organizations, and safeguard policies involved. There were an adequate number of components (three), which were not burdened by complex contents. Geographically, the Project was not spread across the country, because the civil works were limited to the same highway where the Bank was financing the then on-going FEWHIP and where the Bank subsequently started the preparation of the TEWHIP. The Project supported a couple of innovative technologies for slope stabilizing and greening, which enabled exposure of the RD to new environmental management practices in road projects, and built the necessary capacity in the country during the Project implementation period. The extent of the applicable Bank safeguard policies was similar to the ones contained in the predecessor FEWHIP. The implementing agency had an adequate capacity and relevant experience to manage them The financial arrangements were simple there were no co-financiers or other development partners involved in the Project. The project design took into consideration the spread of the IDA allocation for transport in the Partnership Strategy (CPS) for FY06-09 over two different IDA replenishment periods, which made it impossible to process the SEWHIP in one single credit. To meet the Government's requirement to start the tenders in 2007 and sign the main contracts in early 2008, the Project (then estimated at US$80 million) was designed as a single operation, with the IDA s share of US$35 million and GOG s share of US$25 million under the original SEWHIP and the remaining IDA s share of US$20 million under the AF The same implementation arrangements were suggested for the SEWHIP as had been used by its predecessor the FEWHIP: the RD would be in charge of the overall Project implementation and the TRRC would provide support to the RD in procurement, accounting, disbursement, financial reporting, auditing arrangements, Project M&E, and coordination with the WB and other financiers. That was a cost-effective and logical approach, because both the RD and the TRRC were familiar with WB policies and processes as a result of the implementation of the FEWHIP and the SLRP, and they were expected to continue benefiting from further capacity building under the SEWHIP. 6

21 2.1.5 The PDO while justifying the content of the Project components might be considered to be overly complex, because it is comprised of two sub-objectives. This was noted during the Bank internal quality review processes by the peer reviewers who suggested merging the two sub-objectives into one single PDO. However, the Task Team preferred using the same definition of the PDO that the ECA Quality had suggested for the predecessor FEWHIP. In addition, the consistency of the PDOs for the entire series of East- West Highway Improvement Projects was higher priority for the GOG and the Bank than the level of complexity of the PDO definition. The results framework reflects properly the objectives and content of the Project components (see discussion in Section 2.3) Adequacy of Government s commitment. High level of GOG s commitment to this project was demonstrated through a fast pace of Project preparation and good cooperation between the RD, MOED and the Bank. The Project was prepared and delivered to the Board in less than a year. The GOG cooperated with the Bank in carrying out all necessary public consultations for the preparation of the relevant safeguard documents in compliance with the Bank safeguards policies. In fact, a lot of safeguard documentation preparation and consultations took place during the preparation of the FEWHIP. High commitment was also demonstrated in the continued availability of the GOG s funds to support the E60 Highway Improvement Program. In addition, the GOG s commitment was demonstrated by a prompt development and adopting of its first National Traffic Safety Strategy and Action Plan prior to appraisal of the AF for the Project, which was made within 8 months of the Board approval Assessment of risks. All risks discussed in the Risk table of the PAD were properly identified and mitigation measures were adequately developed. However, there were a couple of risks to which, the Bank and the client should have paid more attention to. Those risks were briefly mentioned in the PAD or Minutes of the Bank s internal review processes. However, they were not elaborated on in the PAD, and no mitigation measures were suggested. Those risks eventually affected the quality and timeliness of Project implementation Specifically, the PAD highlighted the Government s priority for a speedy Project implementation at the time of Project preparation, and assigned a low-to-medium rating to the risk of failure to implement the Project in a timely manner. Unfortunately, the Task Team underestimated that risk and did not link it to the relevant factors such as the RD s inadequate institutional capacity to implement large highway projects, poor technical designs, and poor awareness of environment and social safeguards compliance risks. Eventually, those contributed to poor quality of works, and cost and time overruns of Project implementation. In addition, the risk of a lack of a road safety champion in the implementing agency was well recognized by the WB Team during the Project preparation, because it was evident from the Minutes of the Decision Meeting that preceded the appraisal of the Project. The Bank Team understood the challenge of finding a champion, but this risk was neglected and it was not included in the Risk Table of the PAD, and no activity was considered for inclusion in the Road Safety Component to 7

22 either find a champion or build the capacity of a future road safety multi-agency coordination body as a potential champion With respect to the achievement of the PDOs, the PAD rated the Project Overall Risk as Substantial, and Project Residual Risk as Moderate. There was no Quality at Entry rating by the Bank s Quality Assurance Group for the Project. 2.2 Implementation Implementation was rated satisfactory in the Bank s Implementation Status and Results (ISR) reports from the start of the Project until late After late 2009, it was rated moderately unsatisfactory, except for a moderately satisfactory status in July There were several key factors that either negatively or positively affected Project implementation and achievement of the Project outcomes. They are presented in the order of the chronology and extent of their influence: Political economy. Political economy played the most direct and critical part in implementation of the Project. Due to its high visibility, the Project was under political watch and pressure right from the start of its preparation. The PAD explicitly highlighted the Government s priority for a speedy Project implementation and even rated the risk of failure to implement it in a timely manner as low-to-medium. Due to that political pressure, the designs underwent quick review, procurement of the construction works was too speedy, and some Project road sections were twice opened prematurely to all traffic, which altogether affected the quality and timeliness of the work contracts and the quality of the outputs Design and procurement of both road and bridge contracts took place at a very fast pace, and without proper and thorough review of designs. The timeline set for the preparation of the designs was 6 months, which was unrealistic and ambitious. The budget of 1.5% of the construction cost estimate was low and insufficient for the amount of surveys, geotechnical investigations, design development and checking required for a road project of this scale. The road designs were included in the bidding document in January 2008 within a month after submission without proper review by the RD. The road contract was signed in May 2008: 45 days given for the bid submission, while permitted under WB rules, was insufficient for the bidders to carry out site surveys and prepare informed bids for a contract of this size. Procurement of the bridge works was also carried out quickly; tenders were called in early 2009, and the contract was signed in April The Project road sections were twice prematurely open for traffic in public ceremonies at the request of the GOG once in January 2009 and a second time in November The January 2009 opening resulted in premature failure of the pavement, which had not been recovered by November The November 2009 opening coincided with the opening of several Project road sections to all traffic for more than 72 hours, in spite of strong warnings by the Bank not to do so. Several sections were not given adequate drying/curing time for the concrete pavement and the bridge slabs, and this caused some problems with the pavement that needed to be repaired later. 8

23 2.2.5 When the Project was extended, it took the GOG about 4 months to finally close some sections that needed to be closed in order for the second road contractor to complete the remedial measures and remaining works. But instead of finalizing these works, this contractor was assigned by the GOG to work in priority on other road construction projects that were also critical for the GOG in anticipation of the upcoming election in October Force major event and weather conditions. The conflict with Russia in August 2008 interrupted construction and cut off some sources of materials. The contractor was not able to access the site for more than one week. Earlier and harsh winter condition prevented the second road contractor from executing all remedial works and completing the remaining works including those required by the Environmental Management Plan (EMP) by the December 2011 deadline. These factors contributed to necessitating the 4-month Project extension from February 29 to June 30, Poor quality of technical designs. By 2009, variation orders had been issued for over 12% of the contract value, even though only about 40% of the work was done. Poor quality of the technical designs and significant differences of the actual construction quantities from the design estimates were the main reasons for the cost overruns. The design consultant which was a joint venture of a foreign company and a local company failed to prepare the designs to international standards. Most of the work was done by the local company. The foreign company spent very little time in Georgia carrying out surveys and field investigations, and prepared the design in its home country. The designs had a number of errors in particular, with regard the vertical alignment. The underpasses were incorrectly designed (often too high); the design failed to account for the need to relocate an irrigation channel and high voltage power lines near Igoeti village; detailed drawings of parallel and access roads were missing; the design failed to correctly present the use of fill material. Throughout 2008, the RD requested clarifications and corrections from the design consultant, but no satisfactory revisions were provided. The formal review of the designs was not submitted by the supervision consultant until September 2009.The underpasses had to be re-done; additional designs had to be prepared for parallel and access roads during the construction phase; and variation orders needed to be issued to address the identified deviations for the use of fill material Inadequate performance of the supervision consultant. The performance of the supervision consultant was also poor at the start of the construction works, due to insufficient staffing and to a failing resident engineer, who was eventually replaced by the company after the RD strongly insisted on it. The supervision consultant failed: (i) to undertake a timely review of the designs and specifications; (ii) to advise the RD of actions to be taken; (iii) to submit regular monthly and quarterly progress reports; (iv) to ensure proper site supervision, including attendance at all times during paving and regular walk-over inspections, enforcement of the EMP and RAP, proper redesigning of problem areas and establishment of an effective quality assurance system to check the contractor s work, etc. A number of problems with construction works and performance of contractors were not timely noticed and brought to the attention of the RD and WB, due to a lack of review of designs at the start of the assignment, a lack of regular reporting and opaque 9

24 management of testing results by the consultant. The consultant s poor performance caused the RD to get directly involved in the supervision of the works, i.e. performing most of the consultant s functions. The supervision consultant reviewed the design only after the continued pressure by the WB Team but by then it was too late to have a major impact. By mid-2010, the consultant s team was replaced and strengthened with additional staff and budget that were needed to manage the contract; there was improved regular monitoring of the EA and the EMP and regular reporting; and the consultant assisted the RD in defining the terms and conditions of settlement with the poorly performing first road contractor. The consultant was also willing to acknowledge its own earlier failures. From mid-2010 onwards, the consultant s performance was satisfactory Poor performance of the first road contractor. While the physical progress of the contract execution was good, the quality of the works was unsatisfactory in many instances, requiring completed works to be repaired or replaced. The contractor was aware of errors in the design, but took advantage of the situation instead of informing the RD and supervision consultant. The contractor preferred to build something according to the wrong design and then redo it, because the contractor got another payment along with the variation orders. Despite frequent requests by the RD and the Bank Team, the contractor failed to fully comply with contract provisions relating to construction method statements, quality control plans, reporting of test results, requirements of the EMP especially in the storage and disposal of materials. One of the local employees while performing a pavement test was killed by a speeding car whose driver ignored a road construction warning sign. The contractor refused to pay compensation to the victim s family for about 1.5 years, despite constant reminders by the Bank Team and the RD. The contractor also started civil works without the official completion of land acquisition from an Igoeti resident, and wound up causing damage to this person s house and making improper use of her land. The mid-term review of the Project laid out an action plan, and the communication between the contractor, employer and supervision consultant seemed to improve. Nevertheless, the contractor still failed to carry out remedial works, comply fully with the EMP or improve its overall performance. Eventually the RD allowed the contract to naturally expire and laid out a set of terms and conditions at the settlement of the contract closure. Another contractor was subsequently in June 2011 hired to complete the remaining works and carry out remedial works, including rectifying environmental damages Insufficient capacity of the RD. The GOG has been implementing a massive road construction and rehabilitation program country-wide. All new construction and rehabilitation projects have been handled by the same Deputy Chairman and his team in the RD for the national roads and highways and at the end of the project, that team also handled secondary and local roads. At one point, this team was in charge of six on-going and one new WB supported projects, and several projects funded by other donors and the GOG. While this team has been strengthened over time in environmental and social safeguards, road safety, M&E, and procurement capacities it has had occasional turnover and has overall been thinly stretched Pro-activeness and risk-taking readiness of the RD in a time of crisis. Due to some concerns over Project implementation, the RD was proactive in requesting that the 10

25 WB carry out an earlier than planned mid-term review. The early mid-term 6 review allowed the RD and the WB to identify root problems in a timely manner and immediately find adequate solutions, which prevented further exacerbation of Project implementation issues and possible substantial delays in the completion of civil works contracts. The key issues identified by the mid-term review included poor construction quality, cost changes and overruns, and inadequate project management. The solutions proposed during the mid-term review were: (i) strengthening of construction supervision by the supervision consultant; (ii) re-organization of the contractor in contract execution; (iii) change of the RD s approach toward managing its heavy project pipeline; (iv) enhancing the WB supervision mission; and (v) re-designing the second carriageway. The willingness of the RD to take risks helped it overcome the failure of the first road contractor and minimize further cost overruns of the construction works on the Project segment. Despite the fact that the first road contractor deserved termination of the contract, the RD kept giving it the chance to remedy the problems and complete the contract as per the contract date. However, after the natural expiration of the contract on June 30, 2011, the RD was very firm in setting a long list of terms and conditions to this contractor without giving a contract extension opportunity because of its poor performance and the RD subsequently recruited another contractor to fix the problems and complete the remaining works Professionalism and commitment of the Resettlement Unit of the RD. When the cases of the Igoeti resident and others emerged, the RD was losing its credibility with the WB. However, thanks to a high level of professionalism and commitment on the part of the Resettlement Unit, the RD managed to regain credibility and trust with the WB by addressing and successfully resolving those issues. The Unit worked hard to resolve each case, especially the one involving the Igoeti resident, who used several lawyers for a series of complaints. In the end, the Unit succeeded in all cases, and its estimates of the compensations were found acceptable. The Resettlement Unit was always thorough in bringing to the WB s attention the emerging issues, and ensuring that those issues were raised in the WB s AMs. In this way, the Resettlement Unit was confident that the issues that required the involvement of the RD s top management would receive the attention they required Frequent change of the WB TTLs. The Project experienced a frequent change of the WB TTLs there were a total of 5 TTLs, one of whom was the fourth and the sixth (and final) TTL. In some cases, there were poor transition arrangements made that affected the decision-making process in Project implementation. In other cases, new TTLs brought additional value through analyzing emerging issues and developing new solutions to address them WB s insistence on the importance of adhering and developing full compliance with safeguards policies. The GOG s awareness of environmental safeguards was weak. Thus, implementation of the EMPs was limping along with the contractors who were either ignoring compliance with safeguards or addressing them at a much later stage. The 6 It was carried out 7 months earlier (in May 2009) than originally planned (in December 2009) 11

26 RD has experienced staff in charge of environmental safeguards monitoring. However, the first road contractor and bridge contractor did not find that staff very much empowered and kept ignoring the requests of that environmental specialist. It is only the persistence of the RD s Deputy Chairman, the Bank team, and the Bank CD for the South Caucasus that helped improve implementation of the EMPs. The CD took the environmental concerns together with social concerns to the MOF whose direct involvement finally helped ensure that most of those issues were addressed Mid-term Review. The mid-term review played a crucial role in turning the course of Project implementation for the better. At request of the RD, it was undertaken 7 months earlier than originally planned this helped make it possible to identify and address issues in a timely fashion, and to improve Project implementation. While at the appraisal stage, the major focus of the mid-term review was anticipated to be on the road safety activities. However, the eventual focus was adjusted to rightly serve the purpose of a midterm review tool of addressing the emerging problems in Project implementation, i.e., poor quality of civil works. The recommendations were taken on board by both the Bank and the RD which helped prevent substantial cost overruns and extension of the Project. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization The Results Framework of the PAD consisted of a list of outcome indicators and intermediate results for monitoring progress and outcomes. The design included specific indicators for each component, and covered physical as well as institutional results. There was an indicator regarding a high-level multi-agency coordination body operating to support implementation of the National Traffic Safety Strategy and coordinate road safety work between road safety public entities. However, the project design did not include any activity to support this body. The indicators were simple to collect. Nevertheless, there was no reporting on indicators in the WB Aide-Memoires (AM), except for the last implementation supervision mission AM, and the ISRs reported on a limited number of indicators. In 2009, four Core Sector Indicators were introduced for monitoring as per the Bank management requirements into the ISRs. The Results Framework was updated under the AF in The AF provided the target values, which had not been originally set at appraisal for three Intermediate Outcome Indicators related to the Road Safety Component, pending the adoption of the National Traffic Safety Strategy by the Government M&E was initially carried out by the TRRC. From the mid-way of Project implementation on, it was carried out by the M&E Unit of the RD, with the assistance and guidance of the TRRC, and close supervision by the MOED and later the Ministry of Regional Development and Infrastructure (MRDI) 7. Quarterly and annual reports on implementation progress and monitoring indicators were submitted to the WB. Most of the same indicators are or will be used by the RD in the monitoring of the on-going TEWHIP and the EWHIP-4, which is under preparation. The outcome indicators of 7 During the ministerial reforms in 2009, a new Ministry of Regional Development and Infrastructure (MRDI) was established and the RD was moved from the MOED to the MRDI. 12

27 reduction in transit time, reduction in vehicle operating costs along Bank-funded road segments, and the number of fatalities per 10,000 cars are also used to monitor progress towards achievement of the CPS s Strategic Objective 2: Strengthening Competitiveness for Post-Crisis growth. The RD found the road safety indicator number of fatalities per 10,000 cars to be very useful, because it helped the RD determine whether it was doing enough to improve road safety. 2.4 Safeguard and Fiduciary Compliance Environmental safeguards. This was an Environmental Category A Project, because of the construction of a new 2-lane carriageway along the rehabilitation of the existing 2-lane carriageway. An Environmental Review of baseline information and key environmental sensitivities, and an analysis of alternatives, was carried out for both the FEWHIP and the SEWHIP to assist in planning and scheduling. All environmental safeguards documentation was prepared, consulted upon and disclosed in compliance with environmental regulations, policies and procedures of the GOG and the Bank. No significant environmental receptors were identified. The most sensitive area was determined at Igoeti where the construction of new bypasses and bridges was planned and the presence of archaeological sites, erosion and land stability issues, and natural (terrestrial and aquatic) habitats was envisaged. A Specific EA and EMP were prepared in compliance with Environmental Assessment OP/BP 4.01, Natural Habitats OP/BP 4.04, Pest Management OP 4.09, Physical Cultural Resources OP/BP 4.11, and Forests OP/BP 4.37 to mitigate and manage direct and indirect impacts of the construction. The EA and EMP were disclosed in Georgia on September 14, 2007, and through the InfoShop on September 19, The RD s Division of the Project Analysis, New Technologies, and Environmental protection under the Office of Technical Policy was put in charge of (i) managing the review of the EAs and EMPs for all RD projects; (ii) monitoring the compliance of construction works and associated contractors with approved EAs, EMPs, environmental standards and other environmental commitments including associated consultation and disclosure, liaisons with relevant ministries and agencies; and (iii) supervision of the practical implementation of EMPs. A new environmental specialist had been hired prior to the start of the Project. The RD was developing the environmental capacity of its other three staff through the FEWHIP-funded TA, which provided on-thejob training and capacity-building in environmental and social safeguards management. During most of the Project implementation, there was mainly one young person with insufficient experience who was handling all environmental safeguards related to this and other WB-funded projects There were several serious environmental issues in particular, with the first road contract. The first contractor failed to consistently comply with the requirements of the EMP. The transgressions included: illegal and/or improper dumping of waste materials, delayed rehabilitation of the two large borrow areas adjacent to the road, poor handling of the borrow pits, substantially delayed or improper tree planting, and disposal of concrete waste on the river bank. Because there was no financial penalty for noncompliance with the EMP, the contractor felt no obligation to properly implement it. The authority of the RD s young environmental specialist was not recognized by the 13

28 contractors. It was only the interventions of the RD s Deputy Chairman and the Bank CD for the South Caucasus through the MOF that caused the first road contractor implement some of environmental mitigation measures Ultimately, full compliance with the EMP was only achieved when the contractor was replaced by another one who fixed the above mentioned environmental problems caused by its predecessor. The mountain slope at the km 58 borrow site was properly terraced, and risks of severe erosion and landslides were considerably decreased. Topsoil was spread over the upper terraces and trees were planted. The entire compensatory tree planting program was carried out, a verification survey undertaken, and compliance with the planting contract documented by the RD. Due to late completion of terracing, planting was carried out only on the top terraces. Illegal dumping was cleared on the hill at km 59, and the site was compacted and landscaped with natural regeneration underway. Borrow areas at km 78 and 79 were also terraced and landscaped. The Project restored irrigation and portable water supply pipes that were damaged by the landslide on the eroded slope near Igoeti village. In addition, the Project piloted hydro-seeding on over two hectares of bare steep slopes to the right side of the highway Social safeguards. The Resettlement Policy Framework (RPF) and the Resettlement Action Plan (RAP) were developed in compliance with the Georgian legislation and the WB Social Safeguards Policy OP The RFP was prepared in 2006 as part of the FEWHIP preparation, and covered the FEWHIP and SEWHIP road segments. Public consultations were also carried out during the preparation of the FEWHIP. The RAP for the SEWHIP road segment was prepared, in consultation with the public, and disclosed through the InfoShop on April 1, It was anticipated that the SEWHIP would acquire about 9 ha of land, of which 7 ha belonged to about 95 private owners. No physical relocation was expected, although some parts of residential plots were expected to be acquired, and a handful of kiosks and other commercial entities to be demolished. The original RAP envisioned 167 land plots (91,968 m²) to be affected by the improvement works on the Igoeti-Sveneti section. However, the actual number of land plots that were affected by the Project and located within the right-of-way of the main alignment was 192 (146,914 m²). This difference was mainly due to data inconsistency for the right-of-way assessment and poor coordination between GIS-based cadastral data in the original RAP and the GIS data used in the preliminary technical design. This resulted in significant adjustments that had to be made based on field surveys during demarcation. The RD had to revise the actual scale and scope of the Project impact based on the findings of the in-site survey for each and every affected household and business entity. The signed Demarcation Acts and the documentary evidence were verified to confirm that compensation paid to affected entities was in compliance with OP The construction of the connecting roads (secondary roads) as part of the major road construction contract to ensure easy and safe connectivity of neighboring villages to the rehabilitated and newly-constructed SEWHIP highway segments also required the acquisition of about 4 ha of the private land. A new compensation plan was prepared and attached as an Appendix to the existing RAP which was re-disclosed in the country in

29 2.4.7 Following the World Bank s advice, the RD s Resettlement Unit hired a local consultant to aid its 4 staff members in identifying all land plots that were not anticipated in the original RAP and that were located within the additional right-of-way. The RD s Chairman and Deputy Chairman were directly involved in resolving all resettlement cases. This helped the Resettlement Unit to more effectively handle and resolve each case in a satisfactory way. The land acquisition and resettlement process was completed and all outstanding cases were resolved to satisfaction of the Project-affected people by the end of the Project All compensations were fully paid to the Project-affected people by the end of the project. The total amount of compensation was GEL 1,343,773 (about US$ 0.81 million equivalent). The case of the Igoeti village resident that had been outstanding since 2009 was settled successfully. The resident signed an agreement with the RD on June 25, 2012, accepting the payment of GEL 11,139 (about US$ 6,700) as compensation for the acquisition of 954m² of land and 62 fruit trees. The payment was effective on July 9, This latest payment was in addition to the February 2011 payment of GEL 45,000 (about US$ 27,270) for the damage inflicted to the resident s summer house during the highway construction. The RD presented all the necessary documentation to the Bank in evidence and the Bank reviewed and verified a successful closure of this long pending case While the capacity of the RD in resettlement planning was built during the implementation of the FEWHIP, the SEWHIP made a more significant contribution to strengthening the technical expertise of the RD s Resettlement Unit The Project also produced the unintended benefit of discovering an archaeological find which was handled in an exemplary fashion (see Section 3.5 (c)) Procurement. The procurement of works, goods and consulting services was carried out in accordance with Bank Guidelines. The road and bridge works contracts were procured through international competitive bidding. Procurement took place very fast after the submission of the designs in both road and bridge works instances and this had an implication, especially on the quality of the road contract execution. The first road contract was signed within 10 weeks of bid opening, which while within the Bank requirements was too fast. The bridge contract was awarded within 30 days (four weeks), but there were significantly fewer problems with its execution than with the execution of the first road contract. After dealing with all kinds of problems related to the latter contract, the RD allowed it to expire naturally and re-tendered the contract to complete the remaining works and remedy all problems (see more in section 2.2) Financial Management. There were no major issues in financial management (FM). The FM was handled by the TRRC of the RD. The interim financial reports submitted to and reviewed by the Bank during implementation were found satisfactory, in a format acceptable to the Bank, and with minor or no issues identified. Annual audit reports were received on time and the auditor s opinion was unqualified. 15

30 The total amount of the two IDA credits (IDA and IDA-45120) was US$ 55 million (SDR 35.2 million). As of December 20, 2012, US$ million (SDR million) was disbursed. The IDA Credit in the amount of US$ (SDR 22.4 million) has been fully disbursed. On December 20, 2012, US$ 0.74million (SDR 0.48 million) was cancelled from US$ million (SDR 12.8 million) of IDA Credit, which was closed as of the same date 2.5 Post-completion Operation/Next Phase The newly-constructed and rehabilitated SEWHIP road segment has been contracted out for routine maintenance, like all other improved roads in Georgia. In 2011, at the Government s request, the WB carried out a study that identified four options to ensure funding sustainability of maintenance and development of the road network The WB is currently preparing a new Fourth EWHIP (EWHIP-4) that will: (i) continue supporting the GOG s program to improve the capacity of the E60; (ii) help the RD and the MRDI assess their HR development, systems and procedures in place and support the implementation of some short-term measures to increase the effectiveness and efficiency of both institutions; (iii) continue improving road safety through developing and implementing a new Traffic Safety Strategy, strengthening the institutional capacity and carrying out road safety engineering measures; and (iv) assessing and building the capacity of Georgia s construction industry in many areas. At request of the RD management, the Bank is currently initiating diagnostic reviews of (i) Road Safety Capacity covering all road safety stakeholder agencies (not only the RD and the Transport Commission) with the support of the Global Road Safety Facility, and (ii) Georgia s Construction Industry Capacity to inform the design of the institutional development components under the EWHIP-4. In addition, the WB is in discussion with the ADB, and intends to engage other present donors to coordinate efforts in the above areas. While some capacity has been built for application of hydroseeding and terracing in the country, the RD is encouraged to continue these practices in the upcoming WB-funded highway projects for which the Bank will provide due implementation support and advice The new government that was elected on October 1, 2012 seems to recognize the importance of sustainability of investments and newly-created road assets and it especially emphasizes effectiveness of the sector institutions. It has expressed a strong interest in the EWHIP-4 to take care of these two sector priorities. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation The PDOs, design and implementation of the project remain relevant to the Strategic 10-Point Plan of the Government of Georgia for Modernization and Employment, , and the Bank and the IFC s CPS for Georgia for FY10-FY13. The PDOs are closely aligned with the following objective of the Strategic 10-Point Plan: Improvement of Infrastructure Point (Pillar) of the Strategy, that places an emphasis on developed, high quality and safe road infrastructure [.] to support the inner turnover 16

31 of goods, import-export and transit, as well as for the better accessibility to the resorts and the regions, that will ultimately result in the creation of more jobs, and better industrial and living environment. The PDOs are also aligned with the following objective of the CPS: to support critical infrastructure improvement in order to spur foreign and domestic investment through investment [ ] in the roads sector which is essential for boosting the country s potential as a transit country as well as to provide better connectivity between rural areas and market opportunities The design of the Project was also found relevant because the Project components were consistent with the PDOs. The physical component sought to contribute to the achievement of the first part of the PDOs, while the road safety component was designed to contribute to the second part. Implementation arrangements were appropriately chosen to facilitate effective implementation of the components. The choice of a lending instrument a Specific Investment Loan was appropriate to support investment in the roads sector and implementation of road safety activities. The PDOs, design and implementation of the Project remain important and relevant to the global priorities of improved road safety and prevention of road traffic deaths which are reflected in the UN Decade of Action for Road Safety, and Georgia s current National Traffic Safety Strategy. 3.2 Achievement of Project Development Objectives The achievement of the PDOs is rated as moderately satisfactory, because the first sub-objective was fully achieved, while the second sub-objective was partially achieved (see discussion below). The rating takes into account achievement of the key outcome targets set at appraisal and associated with each of these two sub-objectives: (i) To contribute to the gradual reduction of road transport costs and improve ease of transit, and safety along the central part of Georgia's East-West corridor, through upgrading a segment of the East-West Highway from Tbilisi to Rikoti (fully achieved). This was achieved through reduction in vehicle operating costs for cars and trucks, reduction in transit time, and improvement in road safety on the SEWHIP section. Upgrading from a 2-lane road to a 4-lane motorway on this road segment led to a reduction in transit time from 19 minutes to 11.8 minutes (against the target of 12 minutes) on the Igoeti-Sveneti section, and a reduction of vehicle operating costs from US$0.20 to US$0.18 per km for cars and from US$0.76 to US$0.71 (against the target of US$0.72) per km for trucks. 24 blackspots (up from the planned 20) were removed along the E60. Implementation of such engineering safety measures contributed to overall improvement in road safety from Tbilisi to Rikoti, including the Igoeti-Sveneti segment. Those safety measures included: (i) the installation of New Jersey barriers and guardrails; (ii) the relocation of bus stops from busy E60 sections to safer areas; (iii) the construction of highway accesses; and (iv) the provision of traffic marking and signs There is no segregated road accidents data for the Tbilisi-Rikoti segment of the E60, and thus, it is statistically difficult to confirm improved safety on this segment. However, the countrywide statistics show a substantial decline in road accidents, injury rates and fatality rates over the period of Project implementation during (see the chart below; the data for 2012 is expected to be available in early 2013). The RD has mainstreamed this 17

32 approach of incorporating similar road safety engineering measures on all road construction and rehabilitation projects. Because this has been one of the major contributing factors (in addition to enforcement of seatbelts usage, etc.) to improved road safety country-wide, it can be deduced that implementation of these road safety engineering measures contributed to improved safety from Tbilisi to Rikoti Number of registered vehicles and rates of accidents, injured and killed people per 10,000 vehicles during , , , , , , , , , , , , , , , , , accidents injured dead registered vehicles 0 (ii) To strengthen the capacity of the government agencies (and particularly RDMED) to develop and implement a traffic safety program (partially achieved). This objective can be considered only partially achieved because the capacity of the RD to develop and implement a traffic safety program was found substantially improved, but the capacity strengthening of other government agencies including the Transport Commission that was assigned the role of a road safety multi-agency coordination body was not supported at all through the Project. This objective was achieved through re-enforcing the Road Safety Unit of the RD with additional 3 staff members and building the capacity of the Road Safety Unit s staff through (i) trainings of developing sets of skills to effectively analyze hazardous locations, design and oversee implementation of safety improvements; (ii) translation into Georgian of several roads safety handbooks that are considered good practice in Western European countries and that were found to be of particular use by the Road Safety Unit; and (iii) development of Road Safety Audit Guidelines (Guidelines for Safety Audits of Existing Roads, Guidelines for Safety Audits for New Road Designs, Guidelines for Traffic Management at Road Works and Temporary Diversions, and Guidelines for Road Traffic Signs and Markings). The strengthened capacity of this Unit is demonstrated in carrying out jointly with Traffic Police annual blackspot inspections (identification and analysis) of all roads under the RD s jurisdiction and mainstreaming road safety audits in all road construction or rehabilitation projects. 18

33 3.3 Efficiency Efficiency in achieving the PDOs in terms of the Economic Internal Rate of Return (EIRR) is rated as Moderately Satisfactory because the ex-post EIRR (13%) is lower than the one estimated at appraisal (14.5%) and marginally above the acceptable EIRR level of 12% (Table 1) The ex-post cost-benefit analysis followed the same model, methodology and assumptions applied at appraisal, with the following changes: (i) actual annual traffic growth rate of 6.2% from 2007 to 2011, followed by 6.0% after 2011; (ii) actual project costs (see Table 4 in Annex 3); (iii) actual construction duration; (iv) actual distribution of project costs over time on (see Table 5 in Annex 3); and (v) actual roughness reduction with the Project. The road roughness was reduced from 3.8 to IRI, m/km on the Igoeti-Sveneti section and from 4.8 to 2.19 IRI, m/km on the Igoeti Bypass The ex-post economic evaluation resulted in a marginal overall EIRR of 13%, compared to an ex-ante overall EIRR of 14.5%. The higher costs of the upgrading of the Igoeti-Sveneti section reduced the EIRR of that component from 15.3% to 12.5%. The EIRR of the construction of the Igoeti Bypass increased from 13.3 to 14.5% because the lower construction costs were compensated by the longer construction period. The EIRR of the rehabilitation of the Igoeti local road increased marginally from 12.9 to 13.0%, due to the higher observed traffic growth rate. Detailed analysis is provided in Annex 3. Table 1. Economic Internal Rate of Return, % PAD Actual Ex-Ante EIRR Ex-Post EIRR Igoeti-Sveneti Section 15.3% 12.5% Igoeti Bypass 13.3% 14.5% Igoeti Local Road 12.9% 13.0% Overall 14.5% 13% The efficiency of the Project was negatively affected by the time and cost overruns: the Project closed 4 months later than originally planned, and the civil works component cost 34% higher than estimated. Given the economic slowdown and the conflict with Russian in 2008, the cost overrun was not that bad. In addition, efficiency was positively affected by significant achievements in strengthening the Road Safety Unit s capacity and spreading the effects of these achievements beyond the project s boundary. 19

34 3.4 Justification of Overall Outcome Rating Rating: Moderately Satisfactory The overall outcome is rated moderately satisfactory, because of relevance of the PDOs, Project design and implementation to the Bank s current CPS, national and global priorities, the moderately satisfactory achievement of the PDOs, and the moderately satisfactory efficiency of the project. 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development There was no special attempt to collect relevant data under the Project, but it is believed that the improved condition of this road segment had a positive impact on residents living along this road, road users, road venders, and school children in the following respects: (i) better road quality; (ii) reduced traffic congestion time; (iii) better road safety, through new alignments and city bypasses that avoid hazardous crossing of urban areas by heavy transit traffic; (iv) safer locations for bus stops, rest stops and vending/market places; and (v) savings derived from shorter travel times. The Project also contributed to economic development by reducing transportation costs and opening economic opportunities for communities living along this road through better linking them to Tbilisi, a center for employment and an outlet for agricultural products and commercial goods The residents of the Igoeti village also benefited from restoration and repositioning of the irrigation and portable water supply pipes that were damaged by the landslide on the eroded slope near the village. The new alignment of the pipes was placed in such a way that the risk of damage would be minimized in future. (b) Institutional Change/Strengthening The major institutional impacts on the RD are in the areas of M&E, procurement, road safety engineering improvement, and social safeguards management. The responsibilities for M&E and procurement were transferred from the TRRC to the RD, which allowed streamlining of more project implementation into RD processes. When the transfer was initially made, the RD was overstretched and had many limitations. However, as the Project was implemented, the RD became stronger. In fact, the RD surprised the Bank team with strengths in the project management area that made a significant difference The SEWHIP made a substantial impact on strengthening the capacity of the RD s Road Safety Unit through trainings and development of guidelines (see details in Section 3.2 and Annex 2). This led to mainstreaming the practices of carrying out annual blackspot analyses together with Traffic Police on the existing roads, and carrying out road safety audits on all new construction and rehabilitation projects. Dealing with serious social safeguards issues has also substantially strengthened the capacity of the RD not only through adding more staff to the Resettlement Unit but also through giving on-the-hands experience in handling challenging land acquisition cases. When this ICR was being 20

35 finalized, the RD informed the Bank about its new upcoming institutional reform intended to increase the effectiveness of safeguards management and implementation. The Resettlement Unit and Environmental Unit will be separated from their parent Divisions and will be merged into the Environmental and Resettlement Division next year. (c) Other Unintended Outcomes and Impacts (positive or negative) A major Bronze Age archaeological site was found near Igoeti. The RD handling of the archaeological finds was exemplary, and in compliance with the national legislation. As a result of this experience, the RD has developed a well-defined process of handling archaeological sites and has applied it under the on-going TEWHIP where another archaeological site of a larger scale was found. 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops This is a core ICR, and a beneficiary survey is not required. 4. Assessment of Risk to Development Outcome Rating: Substantial 4.1 The risk that the achieved development outcomes will not be sustained is substantial. On the one hand, the sustainability of road investments, and the effectiveness of sector institutions and road safety improvement activities are most likely to continue receiving attention and support from the new government and from the World Bank under the new project (EWHIP-4). Provision of routine maintenance of the newlyconstructed and rehabilitated road segment under this project was recognized and arranged by the GOG. 4.2 On the other hand, the benefits associated with the first sub-objective which was fully achieved at the time of Project closing may be jeopardized faster than they would have been if the road works had been done well right from the beginning. Moreover, the repair works (e.g., fixing of cracks) and road safety measures (e.g., installation of New Jersey Barriers on the westbound median, see Annex 2) were not fully implemented under the second road contract by the end of the contract date, because the contractor went bankrupt. Due to the current winter conditions and need for rebidding, the implementation of these repair works and road safety measures has to be postponed until spring Thus, the condition of this SEWHIP road segment will continue to deteriorate, and there is a risk that the remaining repair and road safety works may be postponed due to new priorities in the sector by the Borrower. Overall, the life of the Project road segment may be shorter because multiple repairs necessitated by the poor quality of works by the first road contractor had to be done and yet to be done to this segment. The IRIs on the Project sections (see Section 3.3) are already a bit high for newly-rehabilitated and constructed roads. In addition, Georgia s shrinking fiscal space and another possible economic and financial crisis in Europe anticipated by the IMF may also affect the GOG s priorities in the road sector. 21

36 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory The Bank performance in ensuring the quality at entry is rated moderately satisfactory (MS). On the one hand, the Bank Team prepared a project with a simple design that supported the GOG s priorities and met all WB minimum requirements despite a quick Project preparation. However, the Bank with its knowledge and experience was in a position to inform the Government of the future risks associated with speedy Project preparation and implementation. It should have better advised the GOG on a reasonable timetable for the overall Project, as well as sufficient budgets for the designs, supervision consultant and civil works component. The Bank Team should have also included support to a multi-agency road safety coordination body, because the operation of this body was one of the indicators. (b) Quality of Supervision (including of fiduciary and safeguards policies) Rating: Moderately Satisfactory At the start of Project implementation, monitoring of pre-construction activities and the early stages of construction was not effectively done by the Bank. The most critical step was probably in January 2008 when a flawed design was tendered out without sufficient time given for a thorough review. The Bank was in a position to insist that the RD ensure proper reviews during the detailed design and prior to the invitation for bids, and to delay procurement until the design was properly checked. Neither of the WB Aide Memoires or ISRs in the first half of 2008 indicated any risks associated with too quick tendering of designs without proper reviews. Two recommendations related to the road safety component of the mid-term review were not taken on board by the Bank Team: (i) creation of a road safety secretariat to support the Transportation Commission in drafting a coordinated action plan and monitoring progress; and (ii) designation of senior individuals in key ministries to be responsible for their department s contributions to the Road Safety Action Plan, and be held accountable for achievement of targets. Possible reasons included that there were no funds allocated for these activities from the start and the Bank did not identify a Road Safety Champion as had been advised previously in the Decision Meeting to promote either of these activities On the positive side, the Bank Team became very proactive when problems with the road construction works started. The Bank responded to the RD s request to carry out a mid-term review in May 2009 seven months earlier than planned which allowed the RD and the supervision consultant to take constructive actions to improve Project and quality management. After the mid-term review, the WB strengthened technical supervision of the Project through more frequent and intensive missions (sometimes one every other month), and through monitoring the Project via monthly rather than quarterly progress reports. The Bank Team filed a case with the Bank s Integrity Vice 22

37 Presidency (INT) that called for the investigation of alleged collusion. INT eventually dismissed the case because no information related to a sanctionable practice could be found. As the number of projects and additional financings supported by the Bank has increased since 2009, the WB Team has been able to afford more frequent travels. The Bank Team was very cooperative with and helpful to the RD in determining the terms and conditions for settlement of the expired contract with the original road contractor. Regarding the fatal accident on the Project section, the Bank Team was persistent in following up with the RD for a year and half to ensure that compensation was paid to the family of a contractor s local employee who was killed by a speeding car. Both the Bank Project Team and the Management Team remained persistent in ensuring compliance of the road contracts with social and environmental safeguards. After the end of the Project, the Bank Team continued to fulfill its due diligence through monitoring the implementation of the remaining (remedial and road safety) works on the Igoeti-Sveneti section that were not completed by the end of the Project (those works were funded from the GOG s budget). While these works were not part of the design of the Project they are nevertheless associated with the SEWHIP road segment Despite the difficulty in finding a road safety champion in the GOG and despite the Transport Commission not really performing the role of a road safety multi-agency coordinating body, the Bank Team took a risk in leading concerted traffic safety efforts in the country. The Bank took advantage of this and other on-going projects and organized a National Traffic Safety Workshop in February Even the CD took an active role in the road safety dialogue. This allowed the Bank: (i) to maintain its commitment to the UN Decade of Action for Road Safety; (ii) to contribute to the achievement of the safety aspect of the PDOs; and (iii) to ensure that momentum was maintained with the follow-up project. (c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory The MS rating was based on the Bank s MS performance in ensuring quality at entry, and on its MS performance during Project implementation. 5.2 Borrower Performance (a) Government Performance Rating: Moderately Unsatisfactory The moderately unsatisfactory (MU) rating is given to the Borrower for the overall Project period performance. Despite high commitment to the Project, there were instances that indicated high degree of political interference, which affected the quality outputs in a few deliverables and the sustainability of some project benefits. The commitment of the Borrower to the achievement of the PDOs was demonstrated through the adoption of the National Road Safety Strategy prior to the appraisal of the AF and its continuous financial support to the Project throughout its course of implementation despite the financial crisis and economic slowdown that hit Georgia in While implementing reforms in the ministries in particular, establishing the MRDI in 2009 and moving the RD from the MOED to MRDI the GOG made sure that these ministerial reforms did not affect in any 23

38 way Project implementation and the same core Project team remained in place for the duration of the project As indicated above, there were a number of actions from the Borrower s side that affected the decision-making process, the performance of the RD as a frontline implementing agency, and the quality of the Project outputs. These actions included: (i) demanding an overly ambitious schedule for design preparation and civil works procurement activities; (ii) implementing two premature openings of the Project road sections for all traffic and disregarding environmental safeguards, prior to the Bank management s interference; (iii) delaying the order for closure of the Project road sections necessary for the second contractor to complete remaining works and remedial measures; and (iv) re-assigning the contractor to finish a different on-going contract, instead of concentrating on completing the Project s remaining works and remedial measures by the end of the Project. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory The moderately satisfactory (MS) rating is given to the implementing agency (IA) for the following reasons: (i) the RD as the client did not undertake effective monitoring of the earlier stages of the road construction; and (ii) the RD allowed partial compliance with the Project s covenant related to implementation of the EMP and the RAP during half the course of Project implementation. Effective monitoring by the RD in the first year of Project implementation would have alerted the Bank of the seriousness of the situation and earlier intervention could have averted many of the problems, or at least minimized their impacts. The RD should not have: (i) allowed the first road contractor to start the civil works without full compliance with the RAP; (ii) allowed the first contractor to cause damage to an Igoeti resident s property; or (iii) neglected to enforce monitoring of the EMP implementation The reason why the RD was able to avoid an MU rating is because: (i) it came to recognize its shortfalls; (ii) it was proactive in requesting that the Bank carry out an earlier than planned mid-term review and in seeking the Bank s help in identifying the root causes of implementation issues; and (iii) it was ultimately able to resolve all issues and achieve the PDOs to a substantial degree. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Unsatisfactory The overall MU rating is assigned due to the MU performance of the Borrower as described above. 6. Lessons Learned 6.1 Political economy plays a critical and direct role in highly visible projects. The Bank Team that is tasked with preparing highly visible projects in a manner that are attractive for politicians should not ignore the direct role of political economy in the 24

39 quality of project preparation and implementation. It should pay special attention to ensuring that project schedules are realistic and that due diligence is present in all aspects of preparation and implementation in order to minimize the risks of cost and time overruns and poor quality of outputs due to political pressure for speedy project implementation. The Bank should ensure the availability of minimum relevant skills on the Team to provide minimum assurance to the client with respect to the project budget, timeline and design, but without substituting to the necessary control processes of the client. This should be done in such a way that the Bank ensures that responsibility for the content and design rest securely with the client. 6.2 A corridor and framework approach should be applied in preparation and implementation of the same type of road projects.. In this way, a corridor approach will be followed in subsequent projects and thus, the same framework will be applied throughout the entire road corridor. This approach is especially valuable when resources are limited and projects need to be done on a one-by-one basis. When projects are managed in such a unified and integrated way, lessons can be incorporated in on-going projects or projects under preparation without the need to wait for an ICR from which to draw lessons and recommendations. In addition, safeguard-related frameworks developed under one project can provide a sound basis for an upcoming project, and can be regularly updated and improved, and eventually mainstreamed in the IA. This is how the Social Safeguards Framework was developed that is now applied to all donor and government funded new road construction projects managed by the RD. The environmental framework is still gaining its momentum, and it is already being applied to all WB-funded projects. With the WB s continuous presence in the sector and the RD s high commitment to environmental safeguards, it is expected that the environmental framework will have the same destiny as the Social Framework. Lessons in needs for proper design reviews are also currently implemented in ongoing projects on the East-West Highway. 6.3 The Project should allocate sufficient time and budget for the pre-construction activities, including preparation and review of designs. The works designs were submitted with a four-month delay in December 2007, and were immediately tendered out within a month without a proper review. An ambitious timeline and a tight budget for the preparation of designs for such a complex project were major reasons for the poor quality of those designs. A more realistic timeframe would have been 12 months at a cost of about 5% of the construction cost estimate. The Borrower should not have rushed the process; and the RD should have reviewed the designs in detail before starting the bidding process in January Given a massive ongoing investment program, the RD should either consider establishing a new unit in charge of the review of cost estimates and designs or hire an independent design review firm to ensure the quality of designs for complex projects and to prevent problems during the construction phase. 6.4 Both the client and the Bank need to be very diligent in ensuring that reporting requirements from both the contractor and the supervision consultant are enforced in order to ensure that contract management be exercised without putting the client in a weak position with the contractor. In reaction to the poor performance of the first road contractor and the consultant, the RD became directly involved in site visits and in 25

40 instructing the contractor. This did not only create an inconsistency, given the FIDIC requirements, but also opened up the RD to claims from the contractor. 6.5 If establishment or operation of a road safety inter-agency coordinating body is included in the project s results framework, the project should also include support to this body. The role of a road safety multi-agency coordination body assigned to the Transport Commission at the MOED was new. It was challenging for the Commission to understand what responsibilities it should perform and what competencies it should have in place. As a consequence, the Commission did not play an effective role and its impact on road safety was negligible. The Bank should have incorporated support to this Commission in the design of the road safety component. If the Project would have included, for example, development of the TORs for this road safety inter-agency coordinating body and support to some capacity-building for this body, the Transport Commission would have better understood and more effectively carried out its assigned role. 6.6 Traffic safety should be enforced by the employer and supervision consultants on all construction works in Georgia. The fatal accident involving a local employee of the first road contractor indicates that traffic safety during construction works on roads remains a problem, despite overall improved road safety on Georgian roads. There is a traffic safety provision in the Bills of Quantity the employer and supervision consultant should take advantage of that provision. When it has been determined that the contractor has not been compliant with safety requirements, payment should be refused until such time as the contractor has undertaken a remedial action to adequately provide for the safety of construction workers and road users. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies 7.1 The Borrower/IA submitted to the Bank its Completion Report (CR) for the SEWHIP on October 19, The report slightly exceeded 10 pages, and it was decided to enclose the entire main text, excluding the annexes, in Annex 7. The entire CR together with its annexes has been saved in the Project files. 7.2 The Bank and the IA discussed the Bank s draft ICR during the mission in December Following that discussion, the Borrower submitted its comments on December 26, The IA agreed with the factors that affected project implementation and lessons drawn in the draft ICR. It also stressed that an ICR as a document at the completion of the project should focus on the lessons learnt and gained experience rather than on the problems encountered at the implementation stage, so that to consider a number of additional measures in the forthcoming projects. The IA already applies lessons in projects under preparation and on-going projects through: (i) increasing a number of specialists in the supervision companies, (ii) employing individual consultants (resettlement, environmental, procurement, etc.) to strengthen the capacity of the RD managing donor-funded projects, (iii) planning an extended program of trainings and workshops to upgrade the staff qualification ; and (iv) planning implementation of structural changes starting from 2013 to establish 26

41 Environmental and Social Unit in order to have improved coordination, monitoring and management of project related issues. 7.3 The IA stressed that it was the first time in the practice of Roads Department to prepare such [a] report and this is actually the first completed project for the Implementing Agency to perceive [gain] the experiences and skills and to foster their further development. In addition, it also highlighted that the problematic issues arisen due to objective and subjective factors during the project progress were, at the end, fully eliminated as a result of numerous drastic measures and active and efficient actions taken by both the Implementing Agency and the World Bank team. 7.5 Based on all above mentioned, the Borrower/IA suggested that the Bank team preparing the ICR consider a "Satisfactory" rating for both the IA and the Borrower, to recognize the efforts made throughout and the incentive signal that this will provide to staff involved in the projects managed by the IA. The Bank team took this into consideration while finalizing the final ratings and considered that the ratings agreed earlier as MS and MU for an overall rating of MU continued to be adequate. The Bank team recognizes the substantial level of commitment from the Borrower to the Project but the final rating for the Borrower reflects the fact that early openings of the road infrastructure to traffic against the Bank s advice had a detrimental effect on the Project implementation and the sustainability of the Project outcome. On the other hand, the MS rating for the IA reflects its pro-activeness, risk-taking and success in resolving major issues, while also recognizing that it was not able to fully address some pending implementation issues (incomplete remedial works and safety measures) at the time of the ICR submission. (b) Cofinanciers (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society) 27

42 Annex 1. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Components Appraisal Estimate (USD millions) Actual/Latest Estimate (USD millions) Percentage of Appraisal Upgrade of the Igoeti to Sveneti section of the E % Highway Road Safety % Project Implementation % Total Baseline Cost % Physical Contingencies Price Contingencies Total Project Costs % Front-end fee PPF Front-end fee IBRD Total Financing Required % (b) Financing Source of Funds Type of Cofinancing Appraisal Estimate (USD millions) Actual/Latest Estimate Percentage of (USD Appraisal millions) Borrower % International Development Association (IDA) % 28

43 Annex 2. Outputs by Component The Project comprised three components: (i) upgrading of the Igoeti to Sveneti section of the E60 Highway from two to four lanes, including the construction of four bridges at Igoeti bypass, (ii) Road Safety Component, and (iii) Project Implementation Component. The Additional Financing did not affect the design, scope and components. It only contributed additional funds (USD 20 million) as it was already anticipated appraisal of the parent project. The following outputs were produced under each of the components: Component 1: Upgrade of the Igoeti to Sveneti section of the E60 Highway from two to four lanes including the construction of four bridges at Igoeti bypass: This component financed: (i) civil works for (a) the construction of a new two-lane carriage way along a 24-km section of the E60 highway from Igoeti to Sveneti between KP55 and KP79, and the construction of two underpasses (280 m and 90 m length), one field road (880 m) and five local roads (over 1.1 km of total length) linked to the Igoeti-Sveneti section; and (b) the construction of four bridges to allow the crossing of a small and narrow valley and the Lekhura River at Igoeti bypass and the rehabilitation of the existing two-lane carriageway along the same 24-km section of the E60 highway; (ii) (iii) consultant services for the supervision of the works; and consultancy services for the design of another section of the E60 Highway which was eventually taken on by the on-going TEWHIP. This component originally involved two major civil works procurement packages: (i) the construction of the new carriageway, rehabilitation of the existing carriageway, and construction of underpasses and local roads providing access to the Igoeti-Sveneti section and (ii) the construction of the four new bridges. It was planned to be implemented in two stages, with the construction of two additional lanes in the first stage, and the rehabilitation of the existing carriageway from Igoeti to Sveneti and the construction of the second carriageway at the Igoeti bypass. The Igoeti bypass required the construction on four main bridges, two for each carriageway to allow the crossing of a small and narrow valley and the Lekhura River. The construction of the four new bridges was procured as one package because the four bridges were identical for each carriageway and the contractor was able to use the same equipment for their construction. The construction of the bridges was also implemented in two stages, with the construction of the two bridges along the new two-lane carriageway in the first stage and the construction of the twin bridges along the parallel carriageway in the second stage. During the project preparation, it was anticipated that this phasing would allow the opening of the additional two new lanes once they were finished and would allow the transit along the entire section. The final design for road works was tendered in about a month after its submission to the RD by the design consultants in December days, although permitted under WB rules, were given for the bid submission, which was insufficient for the bidders to carry 29

44 out site surveys and prepare informed bids, and the road contract was signed in May Procurement of the bridge works was carried out in late 2008-early 2009 and the bridges contract was signed in April The first road works contract was allowed for natural expiration and was not extended by the Roads Department (RD) in July 2010 due to poor performance by the contractor (e.g., poor quality of works resulting in premature pavement cracks, other defects). A second road civil works contract was subsequently awarded to another contractor in June 2011 to (a) complete the remaining road construction works; (b) carry out remedial repairs; (c) construct access and local roads; (d) construct additional road safety measures; and (e) implement environmental remedial activities. A separate contract was awarded to carry out compensatory tree planting to rectify non-compliance with the EMP by the first contractor. The bridge contract was awarded within 30 days of the bidding announcement. The execution of this contract had significantly fewer and less critical problems. Due to the problems in the execution of the main road contract and subsequent delay in providing access to the bridge, the bridges eventually needed another contractor to provide access. Since then, implementation of the two civil works contracts progressed well until E60 was opened by the GOG to traffic in November Harsh winter conditions also prevented the second road contractor to complete the remaining and remedial works. After extension of the project, the GOG took more than 4 months to finally close the road for the traffic that the contractor could complete the remaining works. By the closure of the project, the contractor only partially completed the remedial works, construction of access and local roads, and implementation of additional road safety measures, because the contractor was instructed to mobilize and complete another major road construction project on another road financed by GOG. The contractor was re-assigned by the GOG to work on another important road project. In August 2012, the contractor returned to that SEWHIP road segment to complete the remaining works financed from GOG s budget. In December, 2012, the Bank was advised that the contractor got bankrupt and some of the remedial works which were financed from GOG budget were still. The remaining remedial works that need to be completed include the repair of cracks, construction of drainages at two interchanges. The RD intends to re-bid the remaining repair and road safety works and have those works completed in April Even if the remaining works are re-tendered out now, they could not be executed due to the current winter condition. The Bank team will take advantage of its upcoming missions associated with the ongoing or new projects in order to continue monitoring the situation with regards to these remaining works and ensure that those works are eventually completed. As part of easing up access to and improving safety on those accesses to the SEWHIP segment, the project also supported the construction of connecting/access roads (secondary roads) and rest areas in order to ease up access from those secondary roads to SEWHIP segment and to improve safety for commercial entities operating along this highway and customers using the services of these entities. Access roads were designed and built at three places where commercial entities were operating: at km , where one restaurant was operating, at km where gas stand was located, and at km 30

45 where there was one gas stand and one restaurant. A pair of rest areas was built at km right after the Igoeti bridge. Table 3 - Civil Works Contracts Costs Contract Actual Contract Contract Contract Contract Contract Cost Cost Sign Start Expected End Actual End (US$ m) (US$ m) Date Date Date Date First Road Contract (SEWHIP/CW/ICB-01) Mar Mar Jul Jul-10 Bridge Contract (SEWHIP/CW/ICB-02) Apr Apr Sep Sep-11 Second Road (Remedial) Contract (SEWHIP/CW/ICB-03) Total Jun Jul Aug Nov Component 2: Road Safety: This component comprised works, specialized consultancy services, training, and equipment as needed to strengthen the capacity of RDMED to develop and implement a traffic safety program along the E60 corridor and other roads. The component supported engineering improvements in the E60, especially between Tbilisi to Rikoti, and other roads focusing on low cost safety measures. It financed the removal of 24 (against the target of 20) blackspots, supply and installation of guardrails at various locations on 24 km of high-risk road sections and provision of edge markings and reflective delineators as advance warnings to drivers and to guide them through intersections and dangerous bends. Other improvements outside "urban" areas included construction of fences where there was danger of animal encroachment onto the road, improved visibility, making provision (designated crosswalks and sidewalks in the underpasses under E60) for pedestrians, creating safe waiting areas at intersections and reducing potential conflicts at petrol stations by rearranging entry and exit points using curbstones. During the design of the new two-lane carriageway and reconstruction of the existing two lane carriageway, it was anticipated to install New Jersey barriers that would separate the two carriageways and prevent drivers from getting into the opposite direction carriageway during the overtaking. The installation of these planned New Jersey barrier was about to start when the GOG decided to install light poles with its own budget to provide lightening along the newly-rehabilitated E-60 highway sections. The lights were provided within a short period of time and without prior notification or consultation with the Bank team on possible road safety risks. During the mission following the installation of light poles, the Bank team immediately recommended the installation of the New Jersey barriers along the both sides of median to protect drivers from crashing into exposed lights and light pole foundations. It was agreed that these works (estimated to cost about US$1.65 million) would be financed from the GOG budget and be completed by the end of the SEWHIP. In December 2012, the Bank was advised that the contractor got bankrupt and not all works were completed. The remaining safety measures that need to be completed include installation of New Jersey barriers in the median of the westbound carriageway and traffic signs and road marking on one of the acceleration 31

46 road and 4 interchanges. These works part of the same contract which was given to the second road contractor to carry out the repair works (see the above discussion). The component also supported the development of safety management capability and capacity building in thenrdmed to deal with blackspots removal as well as developing new standards for road safety (marking, signing, traffic management, etc.) through the following activities: (i) Training for MRDIRD staff to more effectively analyze hazardous locations and to be able to design and oversee implementation of safety improvements; (ii) Translation into Georgian of several roads safety handbooks which are considered good practice in Western European countries and which were found of particular use by the Road Safety Unit of the RD; (iii) Technical Assistance (TA) for Preparation of Road Safety Audit Guidelines, namely: Guidelines for Safety Audits of Existing Roads Guidelines for Safety Audits for New Road Designs Guidelines for Traffic Management at Road Works and Temporary Diversions Guidelines for Road Traffic Signs and Markings (iv) TA for Design, Supply and Installation of a Road Crash Data Base. This TA was eventually broken down into two stages. The first stage was implemented under this project and covered the following: Design a system to reflect the existing situation Options for improvement Design of an improved system The second stage of this TA for Design, Supply and Installation of a Road Crash Data Base is being supported under the Bank-funded TEWHIP and covers: supply and installation of a system testing and validation Component 3: Project implementation: The component financed consultant services for TRRC, project audits and incremental operational costs to support implementation of the project. 32

47 Annex 3. Economic and Financial Analysis A. Economic Analysis The economic analysis done at appraisal covers the main components of the project: the upgrade from two to four lanes of the highway between Igoeti to Sveneti and construction of the Igoeti bypass including the rehabilitation of the local two-lane road through the Igoeti village. The expected impact on the economic evaluation of the project with the AF was not material because the AF did not modify the scope of the project. The ex-post economic evaluation covers the same project components including actual costs and traffic data. Benefit calculations was done using the Highway Development and Management Model (HDM-4) that follows the standard methodology of comparing, over time, the operating performances between the scenario without the investment and that with the investment. The main types of benefits considered are: vehicle operating costs savings, time savings for both passenger and freights transiting on the road section and maintenance costs savings. B. Traffic Forecast Traffic counts on the E60 highway are undertaken by the Roads Department (RD) every year. The 2011 traffic on the Igoeti-Sveneti road section is 11,613 vehicles per day and on the Igoeti bypass 12,015 vehicles per day. Cars along the section are 74 percent of total traffic that represents an increase from the 70 percent recorded in 2007 (Table 1). Table 1 - Traffic Composition (%) Vehicle Type Cars 70% 74% Buses and Pickups 18% 15% Light and Medium Trucks 6% 6% Heavy and Articulated Trucks 6% 5% Table 2 - Igoeti-Sveneti Daily Traffic Year (vehicles/day) , , , , , ,613 At appraisal, for the purpose of determining future road traffic levels, the following assumptions have been made: in the case of the new bypass, only about 10 percent of the traffic passing through the town of Igoeti is local and is expected to remain in the old alignment, and the expected annual traffic growth rate on the project roads is 6.0 percent per year based on GDP projections. The actual observed annual traffic growth rate on the 33

48 project road between 2006 and 2011 is 6.2 percent (Table 2), while the average annual traffic growth rate between 2008 and 2011 on the E60 highway is 5.7 percent. Thus, the actual annual traffic growth rate from 2006 to 2011 is 3% higher than the one estimate at appraisal. C. Project Costs The upgrade to four lanes of the Igoeti-Sveneti section was estimated at appraisal to cost US$41.95 million, and the construction of the Igoeti bypass and the rehabilitation of the Igoeti local road were estimated to cost US$25.70 million and 1.08 million respectively in financial costs, totaling US$68.73 million (see table 4). These civil works were procured with three contracts with total actual costs corresponding to US$92.30 million (Table 3). The first contract (SEWHIP/CW/ICB-01) was for the improvement of E60 Igoeti-Sveneti section between km55-km80 (US$69.2 million), the second contract (SEWHIP/CW/ICB-02) was for the construction of the Igoeti and Lekhura bridges (US$11.1 million), and the third contract (SEWHIP/CW/ICB-03) was for remaining construction and repairing works for the E60 Igoeti-Sveneti section, environmental remediation measures, construction of access roads, and local roads (US$12.0 million). Table 3 - Civil Works Contracts Costs Contract Actual Contract Contract Contract Contract Contract Cost Cost Sign Start Expected End Actual End Number (US$ m) (US$ m) Date Date Date Date SEWHIP/CW/ICB Mar Mar Jul Jul-10 SEWHIP/CW/ICB Apr Apr Sep Sep-11 SEWHIP/CW/ICB Jun Jul Aug Nov Total For the ex-post economic evaluation, an estimate was done of the breakdown of the total actual costs divided between the upgrading the Igoeti-Sveneti section (US$ million), including the rehabilitation of the Igoeti local road, and the Igoeti bypass construction (US$ million). It is estimated that the upgrading of the Igoeti-Sveneti section and the rehabilitation of the Igoeti local road had an actual cost 61 percent higher than the ones estimated at appraisal, while the actual cost of the Igoeti bypass construction is 11 percent lower than the appraisal estimate. The total actual costs are 34 percent higher than the appraisal estimates (Table 4). Table 4 - Civil Works Cost (million US$) Length PAD Actual Ex-Ante/Ex-Post (km) Ex-Ante Cost Ex-Post Cost (%) Igoeti-Sveneti Section* % Igoeti Bypass % Igoeti Local Road* Total % *Actual Igoeti-Sveneti section cost includes rehabilitation of Igoeti local road cost 34

49 The upgrading of the Igoeti-Sveneti section was estimated at appraisal to be done in 2009 and 2010, the construction of the Igoeti bypass in 2008 and 2009, and the rehabilitation of the local Igoeti road in 2008, resulting on a distribution of 17, 37 and 46 percent of the total project costs in 2008, 2009 and 2010 respectively (Table 5). The actual project costs distribution shows that most of the project expenditures were disbursed in 2009 (64 percent) and 5 percent were disbursed in Table 5 - Civil Works Costs Distribution (%) D. Cost Benefit Analysis PAD Estimate Actual Payments Year (million US$) (%) (million US$) (%) % % % % % % % % % % Total % % The ex-post cost-benefit analysis follows the same model, methodology and assumptions applied at appraisal, with the following changes: (i) actual annual traffic growth rate of 6.2 percent from 2007 to 2011, followed by 6.0 percent after 2011; (ii) actual project costs as given on Table 4; (iii) actual construction duration; (iv) actual distribution of project costs over time as given on Table 5; and (v) actual roughness reduction with the project. The road roughness reduced from 3.8 and 4.8 IRI, m/km on the Igoeti-Sveneti section and Igoeti bypass to and 2.19 IRI, m/km respectively. Table 6 - Economic Internal Rate of Return (%) PAD Actual Ex-Ante/Ex-Post Ex-Ante EIRR Ex-Post EIRR (%) Igoeti-Sveneti Section 15.3% 12.5% 82% Igoeti Bypass 13.3% 14.5% 109% Igoeti Local Road 12.9% 13.0% 101% Overall 14.5% 13% 90% The ex-post economic evaluation results in a marginal overall Economic Internal rate of Return (EIRR) of 13 percent, compared to an ex-ante overall EIRR of 14.5 percent. The higher costs of the upgrading of the Igoeti-Sveneti section reduce the EIRR of that component to 12.5 percent from 15.3 percent. The EIRR of the construction of the Igoeti bypass increases from 13.3 to 14.5 percent because the lower construction costs are compensated by the longer construction period. The EIRR of the rehabilitation of the Igoeti local road increases marginally from 12.9 to 13.0 percent due to the higher observed traffic growth rate. 35

50 Annex 4. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Names Title Unit Responsibility/ Specialty Lending Olivier P. Le Ber Lead Transport Specialist MNST R TTL Jacques Bure Sr. Highway Engineer ECSTR Sr. Highway Engineer Mirtha Pokorny Transport Economist LCSTR Transport Economist Tamar Sulukhia Country Sector Coordinator ECSSD Sr. Infrastructure Spec. Satoshi Ishihara Sr. Social Development Sr. Social Development Specialist EASTS Specialist Darejan Sr. Environmental Sr. Environmental Specialist ECSS3 Kapanadze Specialist Karl Skansing Procurement Specialist AFTSP Procurement Specialist Arman Vatyan Sr. Financial Management Sr. Financial ECSO3 Specialist Management Specialist Elizabeth Wang Sr. Financial Officer ECSS5 Sr. Financial Officer Sevara Melibaeva Young Professional AFTTR Transport Economist Coral Daphne Bird Program Assistant ECSSD Program Assistant Remi Cousin Consultant ECSSD Transport Consultant Supervision/ICR Jean-Francois Marteau Petrus Benjamin Gericke Christopher R. Bennett Sr. Transport Specialist Lead Transport Specialist Sr. Transport Specialist ECSTR AFTTR EASNS Elizabeth Wang Sr. Financial Officer ECSTR Olivier Le Ber Lead Transport Specialist MNST R Sr. Transport Specialist, TTL from 01/05/2010 to 05/01/2011, and from 04/18/2012 to 06/30/2012 Lead Transport Specialist, TTL from 05/02/2011 to 04/17/2012 Sr. Transport Specialist, TTL from 09/09/2009 to 01/04/2010 Sr. Financial Officer, TTL from 01/08/2009 to 09/08/2009 Lead Transport Specialist, TTL from 10/11/2005 to 36

51 01/07/2009 Jacques Bure Sr. Highway Engineer ECSTR Sr. Highway Engineer Joseph Melitauri Sr. Operations Officer ECSEG Sr. Operations Officer Tamar Sulukhia Country Sector Coordinator Sr. Infrastructure ECSSD Specialist Natalya ICR TTL and Primary Transport Specialist ECSTR Stankevich Author Darejan ECSSE Sr. Environmental Sr. Environmental Specialist Kapanadze N Specialist Satoshi Ishihara Sr. Social Development Sr. Social Development Specialist EASTS Specialist Vera Dugandzic Operations Officer Social Development ECSSO Specialist Arman Vatyan Sr. Financial Management Sr. Financial ECSO3 Specialist Management Specialist Deepal Fernando Sr. Procurement Specialist Sr. Procurement ECSO2 Specialist Karl Skansing Consultant Procurement Specialist Gibet Camos- Junior Professional Junior Professional Associate ECSTR Daurella Associate Alejandro Lopez Junior Professional Junior Professional Associate ECSS5 Martinez Associate David Silcock Consultant SASDT Road Safety Specialist Asif Faiz Consultant SACPA Highway Engineer Jiangbo Ning Consultant ECSS5 Highway Engineer Jesus Renzoli Consultant Sr. Procurement ECSO2 Specialist Anil Somani Consultant EASNS Environmental Specialist Marie Laygo Program Assistant ECSSD Program Assistant Militsa Khoshtaria Program Assistant ECCGE Program Assistant 37

52 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands No. of staff weeks (including travel and consultant costs) Lending FY FY Total: Supervision/ICR FY FY FY FY FY FY FY Total:

53 Annex 5. Beneficiary Survey Results (if any) 39

54 Annex 6. Stakeholder Workshop Report and Results (if any) 40

55 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR 41

56 42

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65 51