PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Public Disclosure Copy Report No.: PIDC813 Project Name Irrigation and Land Market Development Project (P133828) Region EUROPE AND CENTRAL ASIA Country Georgia Sector(s) Irrigation and drainage (89%), General agriculture, fishing and forestry sector (2%), Law and justice (2%), Public administration- A griculture, fishing and forestry (6%), General public administration sector (1%) Theme(s) Rural services and infrastructure (90%), Land administration and management (10%) Lending Instrument Investment Project Financing Project ID P133828 Borrower(s) Ministry of Finance Implementing Agency Ministry of Agriculture Environmental B-Partial Assessment Category Date PID Prepared/ 07-May-2013 Updated Date PID Approved/ 14-Feb-2014 Disclosed Estimated Date of Public Disclosure Copy 14-Feb-2014 Appraisal Completion Estimated Date of 23-May-2014 Board Approval Concept Review Track II - The review did authorize the preparation to continue Decision I. Introduction and Context Country Context 1. Economic Developments 2003-2011: Following the rose revolution, the government implemented wide ranging reforms to tackle corruption and improve the business environment and invested heavily in public infrastructure, resulting in strong growth which averaged 9.3 percent per year during 2004–07. The August 2008 conflict and economic crisis resulted in a sharp downturn in growth which shrank by 3.8 percent in 2009. The government responded with a fiscal stimulus package and economic growth rebounded strongly by 6.7 percent in 2010–11, accompanied by an expansion of bank lending, recovery of exports (including wine and nuts) and high public spending. 2. Economic Challenges: Georgia’s current account deficit is among the highest in the ECA. Going forward, growth must be driven more by domestic savings and tradables. Georgia also faces Page 1 of 7 high external debt repayment obligations. Further fiscal consolidation will be needed. In prioritising public spending, the government will need to balance competing priorities including social expenditure to support an aging population and improve health, as well as infrastructure spending Public Disclosure Copy on roads, water and rural development to catalyze private investment. The new Government has placed a high priority on agricultural development, including irrigation improvement. Sectoral and Institutional Context 3. Agriculture and the Rural Economy: Rural incomes and employment are highly dependent on agriculture and related rural enterprises. The structure of the rural economy and demographics suggest that farming is likely to remain the dominant source of employment and income for the majority of rural citizens in the medium term. It is estimated that in 2011 agricultural production accounted for 45 percent of rural household income , a further 28% coming from social payments and pensions and only 27% from salaried work. Subsistence agriculture accounts for 73 percent of rural employment. 4. Policies and Impact: Between 2006 and2010, critical public services and infrastructure including irrigation, advisory and veterinary services collapsed. This, in combination with the Russian trade embargo and exchange rate appreciation, resulted in a collapse of production in 2006. Between 2010 and 2012, there was an apparent reversal of government policy on the role of the state in agricultural services but the new approach included significant state involvement in private enterprise. Overall, these developments resulted in weak sector performance. Agriculture contracted between 2005 and 2010 (averaging -2.1 percent real growth ) but recovered strongly in 2011(+5.5 percent real growth). Poor sector performance has also been reflected in the widening agricultural trade deficit. 5. New Government Approach: The new Government’s strategy recognises the very poor condition of the sector and includes much greater attention to agriculture, with a particular focus on rebuilding public services to support small farmers and the eventual privatisation of state owned Public Disclosure Copy enterprises. Ensuring effective irrigation and drainage services and securing land titles are seen as two essential foundations for greater private investment in high value irrigated agriculture. A government/ donor strategy working is operational and there is a good understanding of the focus of each of the donors. The Ministry of Agriculture (MOA) envisages that the World Bank will take a lead in cooperation with IFAD in developing the institutional framework and rehabilitating the infrastructure for irrigation and drainage. Other donors are expected to support the provision of inputs, machinery and advice and MOA recognise the importance of bringing these services to areas where irrigation is improved. 6. Irrigation and Drainage: In the west rainfall is significant and drainage is required to prevent water-logging, while in the south and east the rainfall is low and irrigation is required. During the last 25 years the area irrigated area has declined from 386,000 ha in 1988 (made up of 291,000 ha gravity fed and 95,000 ha pumped irrigation) to 105,600 ha in 2004. The MOA reports that approximately 25,000 ha are now irrigated to some extent. In a similar manner the drained area has declined from 114,300 ha in 1988 (84,300 ha gravity, 30,000ha pumped) to some 25,000 ha in 2004. In addition to these systems for which primary and secondary channels are managed by LTD (see below), a small number of systems have independent sources and management. In the Rural Investment Climate Assessment (2012), a survey of 3000 rural households found that 49 percent of households considered a lack of irrigation or drainage a severe or major constraint to rural investment. The Kakheti study found that investment in irrigation would provide one of the Page 2 of 7 foundations for agricultural growth and diversification. 7. In the 2006, the government abolished the Department for Amelioration Scheme Public Disclosure Copy Management (DASM), which was responsible for management of the primary and secondary channels (off-farm system) and established four state-owned limited liability companies (LTDs) to operate tertiary and off-farm systems. Amelioration Service Cooperatives (ASC) were formed in 2001but were poorly governed and government transformed them into Ameliorative Associations (AAs), and amended the Law on Amelioration. 259 AAs were established covering 237,000 ha, of which 43 were targeted for support under the World Bank Funded Irrigation and Drainage Community Development Project. In 2005, the government effectively withdrew support for AAs. While the AAs were technically dissolved, their infrastructure has generally not been legally transferred to other entities. 8. The four LTDs were intended to be financially independent. This required raising water user charges to AAs 12 times to Georgian Lari (GEL) 75 per ha at a time when the system was in poor repair and the LTDs could not guarantee water supply. Farmers have been reluctant to pay for water under such circumstances and relationships between LTDs and AA have deteriorated to a point where in 2008, collection of charges from farmers by the AAs averaged 16 percent of amounts due. The LTD model failed because: (i) LTDs were not able to secure sufficient public or private finance to improve the infrastructure; (ii) customers were highly dissatisfied with the quality of service; (iii) there was not a well organized client base following collapse of the AA; and consequently (iv) cost recovery has bee nextremely low. Attempts to privatise the LTDs did not attract sufficient interest and in March 2012 they were merged into a single LTD (United Amelioration Service Company of Georgia). 9. The Government envisages that the off-farm infrastructure will remain under state ownership in the immediate future. The government is keen to examine long-term legal and institutional options both in terms of national level water governance, management of off-farm Public Disclosure Copy infrastructure and management of on-farm infrastructure. It recogn izes the need for strong participation of water users in designing rehabilitation and developing sound plans for its management, operation and maintenance. 10. Land Market Development: The 1992 land privatization program, which was mainly complete by 1998, transferred 60 percent of the arable land and perennials to about 4 million Georgians. The second phase of land privatization, which involves direct sale to lessees or public auction, started in 2005 and is ongoing. In 2007, the “Agro 100” program started, privatizing target land plots over 50 ha. The National Agency of Public Registry (NAPR) is responsible for land registration and is highly efficient by international standards. All cadastral surveys required for land registration are carried out by the private sector. First registration, a pre-requisite for land transactions, was made free in June 2012. 11. The initial privatization of land in the 1990s involved a high incidence of technical errors in rights identification documents. Land survey fees are high and are a disincentive to resolve the initial mapping errors. Consequently only about 20 percent of privatised land is registered with NAPR. Land owners fall into four categories: (i) those with no certificates but proof of having incurred operating costs for a continuous period; (ii) those with initial privatisation documents such as the Presidential Certificate; (iii) those with land certificates; and (iv) those with land certificates which have been registered in NAPR. Establishing secure land rights is seen as an important Page 3 of 7 foundation for investment in land, including the maintenance of on-farm irrigation and drainage systems. Resources are therefore required for accurate land surveys in strategically important locations (in particular areas where irrigation rehabilitation will take place) and for expansion of Public Disclosure Copy land certification and registration. Relationship to CAS 12. The Project contributes to two areas of the 2010-13 CAS: (i) Results Area 1, Preserve Economic Stability and Create Jobs - Outcome 3: Increased employment through Bank financed projects; and (ii) Results Area 4, Accelerate Business Growth - Outcome3: Improved agriculture production, testing and sales . The Project will contribute by establishing property rights, improving the quality of land information available to investors and ensuring that the institutions and infrastructure for irrigation and drainage delivery are in place. This will contribute to increased productivity and allow diversification into higher value crops, stimulating downstream investment and employment. Given the new government’s priorities it is expected that both land market development and irrigation improvement would feature as in the 2014-17 CAS. II. Proposed Development Objective(s) Proposed Development Objective(s) (From PCN) The Project Development Objective (PDO) is to improve the delivery of irrigation and drainage services in selected areas and to ensure owners of irrigated or drained land in selected areas have registered land titles. Key Results (From PCN) (i) Irrigation and Drainage: Area provided with improved irrigation and drainage services increased. (ii) Irrigation and Drainage: No. female and male water users provided with improved irrigation and drainage services increased. (iii) Irrigation and Drainage: Number of operational water user associations increased. Public Disclosure Copy (iv) Land Market: Land surveys, certification and registration completed in areas where irrigation and drainage rehabilitation take place. III. Preliminary Description Concept Description 15. There will be three Project Components: (i) Component 1 - Irrigation and Drainage Improvement; (ii) Component 2 -Land Market Development; and (iii) Component 3 - Project Management. The Project budget will be US$75 million including US$50 million (IDA/ IBRD), US $15 million (IFAD)(to be confirmed), plus a government contribution which is assumed to be US $10 million (to be confirmed). The allocation of funding is provisionally expected to be as follows: Component 1 - Irrigation and Drainage Improvement (US$70 million); (ii) Component 2 - Land Market Development (US$ 4 million) and (iii) Component 3 Project Management (US$1 million). The Project will be executed by the MOA. A Project Implementation Unit will be established (most likely within MOA) and will be responsible for fiduciary management, monitoring and evaluation. Key partners will be the MOA Amelioration Policy Department and NAPR. 16. Irrigation and Drainage Improvement Component: The Project will establish the infrastructure and institutions for irrigation and drainage provision on approximately 47,000 ha. During preparation the Team will conduct a:(i) Legal Review; (iii) Institutional Review; (iv) Page 4 of 7 Infrastructure Assessment; (v) Client Assessment; (v) Environmental, Social and Other Safeguards Assessments; and a (vi) Financial And Economic Feasibility Study, as the basis for a National Irrigation and Drainage Strategy and a series of plans to be supported under the Project. Public Disclosure Copy 17. Legal Framework and Institution Building: The legal and institutional review will examine arrangements both in terms of (i) national level water regulation; (ii) off-farm water delivery (major structures, primary and secondary canals currently under the LTD); and (iii) on-farm water delivery (previously under AAs). These assessment will provide the basis for a series of plans to be supported under the Project including: (i) legal reform plan; (ii) institutional plan for national water regulation and monitoring; (iii) institutional plan for management of off-farm irrigation and drainage delivery; (iv) institutional plan for on-farm irrigation and drainage delivery; (v) a capacity building plan to build the above institutions, which may include the establishment of a permanent network of advisory services to provide social mobilisation – including proper representation of female water users in AAs - , legal, technical and financial advice to water user organisations. 18. Scope of Rehabilitation: Rehabilitation will include rehabilitation of primary, secondary, tertiary and other level canals as well as any other major structures which are required to rehabilitate or rebuild schemes previously irrigated or drained. No regions have been specifically targeted at this stage. Based on an assumed average cost of US$1500 per ha, (based on the recent IFAD supplementary financing design report) the Irrigation and Drainage Component would be sufficient to rehabilitate approximately 47,000 ha. 19. Selection Of Schemes for Rehabilitation: Scheme selection will be based on selection criteria to be determined but provisionally including: (i) community willingness to participate; (ii) potential to establish viable water user organizations or alternatives; (iii) potential to resolve legal issues relating to on-farm infrastructure; (iv) technical viability of rehabilitation; (iv) willingness to pay for water, financial and economic viability; (v) complementarity between selected schemes in order to minimize off-farm rehabilitation costs per ha; and (vi) complementarity with other sector Public Disclosure Copy developments ongoing in the area; as well as positive environmental, social and safeguards assessments. Selectio nwill be preceded by a public information campaign to ensure widespread participation. 20. Agreements with Water User Organizations: The institutional arrangements for on-farm water management have yet to be determined. However, the Project will ensure strong water user commitment to maintaining the rehabilitated systems through agreements with water user organizations setting out their obligations under the Project. These will include the inclusive, representative governance arrangements and long term development plans to ensure financially viable management, operation and maintenance of rehabilitated schemes. 21. Design and Construction: While the main design institute names “Georgian Water Project”, has sufficient capacity to prepare preliminary designs as a basis for terms of reference for full design, design capacity in Georgia is a constraint and limited to Georgian Water Project and a small number of associated consultants. Consequently, it may be necessary to invite other companies in the region to bid for design contracts. All designs will be assessed and completion of construction accepted by Bureau of Expertise under the Office of the Prime Minister or other government representative agency and by water user organizations. Based on recent IFAD experience, there are likely to an adequate number of bidders from qualified construction companies. The Project will establish teams for supervision of design and construction supervisors. Page 5 of 7 Farm Water Use Efficiency: The Project will identify opportunities to improve the efficiency of water use at the farm level and design a package of public information, demonstrations and farm level advice, to be delivered by government or private advisory services as they emerge, under Public Disclosure Copy contract to the Project. 22. Land Market Development Component: The Project will support: (i) the establishment of land rights based on land surveys and registered titles in areas benefiting under the Irrigation and Drainage Improvement Component - establishing land rights creates the security of tenure needed for water users to be willing to invest in irrigation system maintenance; and (ii) creation of a land information system – to improve the quality of land information available to buyers and sellers and as a basis for improved MOA planning. The NAPR will be the key Project partner for this component. 23. Land surveying, certification and registration: The Project would provide the resources needed to (i) accelerate the certification of land holders who still lack land certificates; (ii) accelerate registration of those holding land certificates but not yet registered; most importantly and (iii) undertake land surveys for those holding land certificates with maps which are inaccurate, as a basis for first registration. This project will also address any specific constraints female headed households securing land rights. The survey work will prioritize areas which are considered to be strategically important and other areas where there is likely to be a strong commercial interest. 24. Land Information System: The Project would support the creation of a computerized land management tool to integrate information about the location, ownership, use, quality and price of land parcels. The system would make it easier for investors to identify owners and to locate land with the characteristics they require. IV. Safeguard Policies that might apply Safeguard Policies Triggered by the Project Yes No TBD Public Disclosure Copy Environmental Assessment OP/BP 4.01 ✖ Natural Habitats OP/BP 4.04 ✖ Forests OP/BP 4.36 ✖ Pest Management OP 4.09 ✖ Physical Cultural Resources OP/BP 4.11 ✖ Indigenous Peoples OP/BP 4.10 ✖ Involuntary Resettlement OP/BP 4.12 ✖ Safety of Dams OP/BP 4.37 ✖ Projects on International Waterways OP/BP 7.50 ✖ Projects in Disputed Areas OP/BP 7.60 ✖ V. Financing (in USD Million) Total Project Cost: 63.30 Total Bank Financing: 50.00 Financing Gap: 0.00 Financing Source Amount BORROWER/RECIPIENT 0.00 Page 6 of 7 International Bank for Reconstruction and Development 0.00 International Development Association (IDA) 50.00 Public Disclosure Copy International Fund for Agriculture Development 13.30 Total 63.30 VI. Contact point World Bank Contact: Peter Goodman Title: Sr Agricultural Spec. Tel: 458-8325 Email: pgoodman@worldbank.org Borrower/Client/Recipient Name: Ministry of Finance Contact: Mr. Alexander Khetaguri Title: Minister Tel: (995-32) 446-447 Email: a.Khetaguri@mof.ge Implementing Agencies Name: Ministry of Agriculture Contact: Title: Public Disclosure Copy Tel: (99532) 996261 Email: VII. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop Page 7 of 7