The World Bank Regional Development Project (P126033) REPORT NO.: RES29418 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF REGIONAL DEVELOPMENT PROJECT APPROVED ON MARCH 20, 2012 TO GOVERNMENT OF GEORGIA, MINISTRY OF FINANCE SOCIAL, URBAN, RURAL AND RESILIENCE GLOBAL PRACTICE EUROPE AND CENTRAL ASIA Regional Vice President: Cyril E. Muller Country Director: Mercy Miyang Tembon Senior Global Practice Director: Ede Jorge Ijjasz-Vasquez Practice Manager/Manager: David N. Sislen Task Team Leader: Rosanna Nitti, Vica Rosario Bogaerts The World Bank Regional Development Project (P126033) ABBREVIATIONS AND ACRONYMS The World Bank Regional Development Project (P126033) Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. BASIC DATA Product Information Project ID Financing Instrument P126033 Investment Project Financing Original EA Category Current EA Category Financial Intermediary Assessment (F) Financial Intermediary Assessment (F) Approval Date Current Closing Date 20-Mar-2012 31-Dec-2017 Organizations Borrower Responsible Agency Ministry of Finance Georgia Municipal Development Fund Project Development Objective (PDO) Original PDO The Project Development Objective is to improve infrastructure services and institutional capacity to support the development of tourism-based economy and cultural heritage circuits in the Kakheti region OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-81480 20-Mar-2012 28-Mar-2012 31-May-2012 31-Dec-2017 60.00 59.40 .60 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Regional Development Project (P126033) Note to Task Teams: End of system generated content, document is editable from here. I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project Status 1. According to the latest ISR, the PDO rating has been Satisfactory since December 2016. 2. The Overall Implementation Progress is Satisfactory (S), Overall Safeguards Rating is S, Overall Risk is Moderate (M), Financial Management, Project Management, Counterpart Funding, Procurement and Monitoring and Evaluation are all rated as S. Disbursement is at 99 percent (including IBRD and TF). There are no outstanding or overdue audit reports. The FY16 audit report was submitted on time and was found to be acceptable by the Bank. 3. The project was restructured in 2016 to extend the project closing date by 12 months from December 2016 to December 2017. The project is in Georgia’s Eastern Region of Kakheti, including in mountainous areas, and experienced significant implementation delays due to the following: (1) repeatedly extreme weather conditions and subsequent limited access to the project sites in the mountainous sub-region of Tusheti, limiting the construction season to less than 5 months a year; (2) low quality of the detailed designs developed by the project counterpart agencies, requiring modifications and upgrades, resulting in variation orders and delays in construction. B. Rational for Restructuring 1. This restructuring seeks changes in two elements: (a) Reallocation between disbursement categories to increase the allocation for Consultancy Services. The main reason for the reallocation is the extension of consultancy contracts for supervision services, which was granted in late 2015 to ensure sustained quality of works financed by the project during the project extension. The reallocation was not made at the time of restructuring because the PIU was considering a different supervision model which wouldn’t have entailed a substantial increase in spending under the consulting category. The final decision was to maintain the original supervision model, which has proven beneficial for the project and was essential to the improvement of quality of works delivered. (b) Targeted changes in the Results Framework. The proposed changes aim to address identified design weaknesses affecting selected indicators in the original Results Framework, leading to imprecise evaluation of results and mismatch between targets set for the project and the nature of interventions that the project supported per the original plans. As a result of the completion of the specialized M&E consultancy for the project, issues had been identified affecting proper and accurate evaluation of the indicators. Therefore, to benefit from experts’ advice for the validation and/or improvement of the design and methodology for measurement of the Project indicators, the proposed changes will support more accurate and precise evaluation of project outputs and outcomes and achievement of the PDO at project closing. The World Bank Regional Development Project (P126033) II. DESCRIPTION OF PROPOSED CHANGES A. Proposed changes 1. This restructuring seeks: (a) Reallocation between disbursement categories. Due to the time extension of 12 months and increased costs for supervision and other extended consulting services, the Government proposed an increase to the Consulting Services category from the allocated $2,945,000 to $4,125,000 (est. 72%), and a corresponding reduction to the “civil works and goods” category in which some savings were available due to currency exchange changes over the course of the project. (b) Revision of the results framework to improve the realism of indicators and targets. This proposal is based on the current implementation and delivered outputs. The following indicators and targets are proposed for revision: (i) PDO Indicators: i. Current: Increased weighted average number of hours per day of piped water services in project areas. Baseline: 8; Target: 24. Proposed: Delete the indicator. Justification: The observable increase in the number of hours of water supply as measured by the original indicator would require improvements to all components of the water supply system. However, the project did not invest in full water system rehabilitation with all hydraulic components such as a drainage basin, a raw water collection point, purification facilities, water storage facilities, pumping stations and a pipe network for distribution, and connections to the sewers. Nor was it intended to, due to its nature and PDO. For this reason, the original indicator was not a good fit for measuring the PDO. Additionally, the target value was unrealistic, as weighted average indicators almost never reach maximum possible value (24 hours a day). Given that improving water access is not a part of the project PDO, but rather a means to achieving the PDO, it was decided that removal of this indicator will not diminish the suitability of the M&E framework for overall assessment of the achievement of the PDO. A water access indicator will remain among intermediate project indicators. The World Bank Regional Development Project (P126033) ii. Current: Increase volume of private sector investments; Baseline: 0; Target: 50 Proposed: Increased (direct and indirect) volume of private sector investment; Baseline: 0; Target: 50 Justification: Revised wording will better reflect the methodology used for estimating the value of the indicator, will remove the possibility of different interpretations and will allow the full scope of the economic impact of the project to be measured. (ii) Intermediate Results Indicators: i. Current: Piped household water connections that are benefiting from rehabilitation works undertaken by the project. Baseline: 0, Target: 5000 Proposed: Piped household water connections that are benefiting from rehabilitation works undertaken by the project. Baseline: 0; Target: 500. Justification: The target value for the indicator stated in the PAD at project initiation is 500. The value 5000 was entered in the system by mistake and is being corrected. ii. Current: Number of people in urban areas provided with access to all-season roads within a 500-meter range under the project. Baseline:0, Target: 50,000. Proposed: Roads Constructed and rehabilitated. Baseline: 0 Km, Target: 20 Km. Justification: The previously used indicator is suitable for access road projects, where improved connectivity of the local population is closely linked to the PDO. This project’s PDO however focuses on delivering infrastructure improvements that support development of the tourism industry, which implies that road construction is mostly geared to improving accessibility of touristic attractions, and first of all benefiting visitors and local businesses. For this reason, the previously used indicator does not offer a good representation of the project success. Additionally, the target set for the indicator is unrealistic (if the methodology of evaluation is used correctly) given the scale of road interventions planned for the project. As per the census of 2014 (after project implementation), the entire population of the Kakheti region is 320,000 people, with a population density of 28 people/km2, which means that the extent of road construction required to reach 50,000 people within a 500-meter radius was far beyond the scope of the project. The proposed indicator represents a much simpler and clearer way of evaluating the output of the roads rehabilitation element of the project. The proposed revised indicator is also a Corporate Results Indicator for the transport sector. iii. Current: Number of established and operating destination management offices. Baseline: 0; Target: 3. Proposed: Number of established and operating destination management offices. Baseline: 0; Target: 1. Justification: The Georgian National Tourist Administration (GNTA) has introduced a strategic policy to establish one Destination Management Office per region, which means that, as a part of the project and in line with the policy of the Government of Georgia (GoG), only one DMO will be set up in Kakheti. Per the new strategy of GNTA one DMO will be set up in each of the regions, they will be granted a high level of autonomy and will have the option of setting up branches throughout the region, to ensure better coverage. In line with the strategy of the GoG, the task team confirms that one DMO would ensure better coordination of tourism development activities in the region and enjoy benefits of scale. One DMO will also be sufficient for the region based on the international best practice. Thus, the proposed change in the target indicator doesn’t reflect a change in the ambition of the project, rather it corrects the earlier set objectives based on deeper understanding on the Client needs and strategies without changing the principle objective of strengthening the institutions responsible for development of tourism in Kakheti region. The World Bank Regional Development Project (P126033) III. SUMMARY OF CHANGES Changed Not Changed Change in Results Framework ✔ Reallocation between Disbursement Categories ✔ Change in Implementing Agency ✔ Change in DDO Status ✔ Change in Project's Development Objectives ✔ Change in Components and Cost ✔ Change in Loan Closing Date(s) ✔ Cancellations Proposed ✔ Change in Disbursements Arrangements ✔ Change in Disbursement Estimates ✔ Change in Systematic Operations Risk-Rating Tool ✔ (SORT) Change in Safeguard Policies Triggered ✔ Change of EA category ✔ Change in Legal Covenants ✔ Change in Institutional Arrangements ✔ Change in Financial Management ✔ Change in Procurement ✔ Change in Implementation Schedule ✔ Other Change(s) ✔ Change in Economic and Financial Analysis ✔ Change in Technical Analysis ✔ Change in Social Analysis ✔ Change in Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_RESULTS_TABLE The World Bank Regional Development Project (P126033) RESULTS FRAMEWORK Project Development Objective Indicators PDO_IND_TABLE Piped household water connections that are benefiting from rehabilitation works undertaken by the project Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 8.00 24.00 24.00 Marked for Deletion Date 30-May-2012 13-Jun-2017 31-Dec-2017 Reduce weighted average vehicle operating cost due to improved urban roads Unit of Measure: Percentage Indicator Type: Custom Baseline Actual (Current) End Target Action Value 100.00 71.00 75.00 No Change Date 30-May-2012 13-Jun-2017 31-Dec-2017 Increased (direct and indirect) volume of private sector investment Unit of Measure: Amount(USD) Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 61000000.00 50000000.00 Revised Date 30-May-2012 13-Jun-2017 31-Dec-2017 Increase number of hotel beds in circuit route areas Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 1610.00 3016.00 1932.00 No Change Date 30-May-2012 13-Jun-2017 31-Dec-2017 Increase points of sales (tickets, souvenirs shops, restaurants, hotels, guesthouse and family houses) in renovated culture heritage sites and cities Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action The World Bank Regional Development Project (P126033) Value 248.00 337.00 323.00 No Change Date 30-May-2012 13-Jun-2017 31-Dec-2017 Intermediate Indicators IO_IND_TABLE Piped household water connections that are benefiting from rehabilitation works undertaken by the project Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 907.00 500.00 Revised Date 30-May-2012 13-Jun-2017 31-Dec-2017 Roads constructed and rehabilitated Unit of Measure: Kilometers Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 26.30 20.00 Revised Date 30-May-2012 12-Sep-2017 31-Dec-2017 Number of private investment proposals approved Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 11.00 10.00 No Change Date 30-May-2012 13-Jun-2017 31-Dec-2017 Number of redeveloped culture heritage sites along the the tourist circuit Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 11.00 11.00 No Change Date 30-May-2012 13-Jun-2017 31-Dec-2017 Production/Distribution of new maps based on geotourism database Unit of Measure: Number Indicator Type: Custom The World Bank Regional Development Project (P126033) Baseline Actual (Current) End Target Action Value 0.00 19449.00 10000.00 No Change Date 30-May-2012 13-Jun-2017 31-Dec-2017 Number of established and operating of destination management offices Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 0.00 1.00 Revised Date 30-May-2012 13-Jun-2017 31-Dec-2017 Number of buildings restored in Telavi, Kvareli and Dartlo Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 217.00 150.00 No Change Date 30-May-2012 13-Jun-2017 31-Dec-2017 Direct project beneficiaries Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 87800.00 30800.00 No Change Date 30-May-2012 13-Jun-2017 31-Dec-2017 Female beneficiaries Unit of Measure: Percentage Indicator Type: Custom Supplement Baseline Actual (Current) End Target Action Value 0.00 45770.00 16140.00 No Change OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES The World Bank Regional Development Project (P126033) Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed Note to Task Teams: End of system generated content, document is editable from here.