PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: PIDA2628 Public Disclosure Copy Project Name Irrigation and Land Market Development Project (P133828) Region EUROPE AND CENTRAL ASIA Country Georgia Sector(s) Irrigation and drainage (90%), General agriculture, fishing and forestry sector (3%), Public administration- Agriculture, fishing an d forestry (3%), General public administration sector (4%) Theme(s) Rural services and infrastructure (90%), Land administration and management (10%) Lending Instrument Investment Project Financing Project ID P133828 Borrower(s) GEORGIA Implementing Agency Ministry of Agriculture, Ministry of Justice Environmental Category B-Partial Assessment Date PID Prepared/Updated 06-Feb-2014 Date PID Approved/Disclosed 11-Feb-2014 Estimated Date of Appraisal 12-Feb-2014 Completion Estimated Date of Board 23-May-2014 Public Disclosure Copy Approval Decision I. Project Context Country Context Economic Challenges: 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 averaging 9.3 percent per year during 2004–07. The 2008 conflict followed by the global economic crisis resulted in a sharp contraction in growth by 2.3% in 2008 and 3.8 percent in 2009. The government responded with a fiscal stimulus package and economic growth rebounded strongly to 7 percent in 2011 and 6 percent in 2012. Georgia’s current account deficit is among the highest in Europe and Central Asia Region and faces high external debt repayment obligations. Further fiscal consolidation will be needed. In prioritizing public spending, the government must balance competing priorities including social expenditure to support an aging population and infrastructure spending on roads, water and rural development to catalyze private investment. Recognizing that the rural population has benefited least from economic reforms, the new Government has placed a high priority on agricultural development, including irrigation improvement. Agriculture remains important in Georgia where 50 percent of the Page 1 of 6 population works in agriculture contributes about 25 percent of exports, although the share of agriculture in total GDP has declined significantly (from 25 percent in 1999 to 10 percent in 2012). Public Disclosure Copy Sectoral and institutional Context Agriculture and the Rural Economy: Rural incomes and employment are highly dependent on agriculture and related rural enterprises. 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. Georgia has a diverse range of agro-climatic zones which allow its predominantly small farm sector to produce wine grapes, citrus, non citrus and stone fruits, nuts, and vegetables and livestock as well as cereals. Georgia is strategically well located with access to the Black Sea ports and within close proximity of growing Russian, European, Middle Eastern markets. Historically, Georgia has a reputation of good quality food and unique wines. While Georgia has lost its position on many markets (notably Russia) there is much untapped potential for Georgia to regain its position in both domestic and export markets by raising productivity and quality. Policies and Impact: Between 2006 and 2010, critical public services and infrastructure including irrigation, advisory and veterinary services collapsed. This, in combination with a ban on sales of Georgian wine and mineral waters in Russia and an 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) partly in response to state distribution of seeds, before contracting again by 3.7 percent in 2012. Poor sector performance was also reflected in the widening agricultural trade deficit. Provisional estimates for 2013 indicate 9 percent real growth in the agricultural sector, based on the first three quarters, partly driven by a Public Disclosure Copy stimulus program of vouchers to procure machinery services and inputs and the easing of trade relations with Russia. New Government Approach: The draft Social Development Strategy 2020 recognizes the poor condition of agriculture and focuses strongly on rebuilding services for small farmers, cooperative development and restoring infrastructure. Agricultural spending dramatically increased in 2012 including on the voucher program. The government is committed to a long-term program of improvement of irrigation institutions and infrastructure and to completing the registration of agricultural land nationwide. These are seen as two inter-related foundations for stimulating private investment in agriculture. Land registration is expected to improve security of land tenure, encouraging private investment in irrigated agriculture, including in maintenance of rehabilitated systems. Coordination between donors and the Ministry of Agriculture (MOA) is strong. It is expected that the World Bank will take a lead, iin developing institutional arrangements for irrigation and drainage management and rehabilitating related infrastructure. Other donors are expected to support the development of agricultural service centres, advisory services, food safety institutions and MOA policy formulation capacity. 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 irrigated area has declined from 386,000 ha in 1988 (291,0 00 ha gravity fed and 95,000 Page 2 of 6 ha pumped irrigation) to 105,600 ha in 2004. The MOA reports that only 25,000 ha are now irrigated. Similarly, the drained area has declined from 114,300 ha in 1988 (84,300 ha gravity, 30,000 ha pumped) to 5,584 ha in 2012. The Rural Investment Climate Assessment (2012), a Public Disclosure Copy survey of 3000 rural households, found that 49 percent of households, considered the lack of irrigation or drainage as a severe or major constraint to rural investment. In 2006, the government abolished the Departmentfor Amelioration Scheme Management (DASM), which was responsible for managing primary and secondary channels (off-farm systems) and established four state-owned limited liability companies (LTDs) to operate tertiary and off-farm systems. Amelioration Service Cooperatives (ASC) were formed in 2001 but were poorly governed and the government transformed them into Ameliorative Associations (AAs). 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 (IDCDP). In 2006, the government withdrew funding for AA operations and capacity building, which in combination with deteriorating service provision from LTDs and other shocks to the sector in 2006 led to the collapse of the majority of AAs. The four LTDs were intended to be financially independent. Irrigation charges to AAs were raised by 12 times to GEL 75 per ha at a time when the condition of irrigation infrastructure and water supply were very poor. Farmers were reluctant to pay for water under such circumstances and in 2008 AAs were on average collecting only 16% of fees due from farmers. The LTD model failed because: (i) LTDs were unable to secure sufficient public or private finance to improve infrastructure and services; (ii) customers were dissatisfied with the quality of service; (iii) a well-organized client base did not exist following collapse of the AA; and consequently (iv) cost recovery has been extremely low. Attempts to privatize the LTDs did not attract sufficient interest and in March 2012 they were merged into a single state owned LTD, now the United Amelioration Service Company for Georgia (UASCG). The current Government recognizes the lack of water users’ trust in irrigation institutions and the need to reestablish a basic level of service delivery before water users can be encouraged to participate in on-farm irrigation management. The government has substantially increased the UASCG budget to help achieve this and expects that the off-farm and on-farm infrastructure will be managed by UASCG during a period of transition towards greater Public Disclosure Copy water use involvement in the management of on-farm systems. The government is committed to preparing a national irrigation and drainage strategy in 2014 with support from the Project. Land Registration Improvement for 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. The situation is complicated by events that have taken place on many plots since privatization – both ownership and boundaries have evolved, meaning that original land privatization documents and cadastral descriptions, no longer reflect the situation on the ground today. These events include inheritance, intra-family transfers, informally recorded sales, and encroachment into adjacent state land, not supported by documentary records. In addition, beginning in 2011, holders of land ownership rights have been required to purchase their leased land from government and register their land in NAPR or forego ownership. As a result, some municipalities may have sold private land plots that were not registered in NAPR. The main challenge is now to redefine the policies and procedures for registration that would allow the majority of existing land ownership rights to be registered (regularization). This process is expected to take place over a period 3-5 years. A Page 3 of 6 secondary challenge is that the quality of some land title documents are of poor quality and re- mapping may need to be considered, although this is a far less acute problem. II. Proposed Development Objectives Public Disclosure Copy The project development objective (PDO) is to improve (i) delivery of irrigation and drainage services in selected areas and (ii) policies and procedures for land registration. III. Project Description Component Name Component 1 Irrigation and Drainage Improvement Comments (optional) Component 1 includes three sub components: (i) Irrigation and Drainage (I&D) Rehabilitation and Modernization, (ii) Flood Control, and (iii) Institutional Strengthening of I&D Institutions. Component Name Component 2 Land Market Development Comments (optional) Component 2 involves (i) Policy and Procedural Development, (ii) Pilot Registration, and (iii) Monitoring and Evaluation (M&E). Component Name Component 3 Project Management Comments (optional) Component 3 will finance overall project management, including coordination and technical supervision of the implementation, financial management, procurement, M&E and progress reporting. IV. Financing (in USD Million) Total Project Cost: 63.30 Total Bank Financing: 50.00 Public Disclosure Copy Financing Gap: 0.00 For Loans/Credits/Others Amount BORROWER/RECIPIENT 0.00 International Bank for Reconstruction and Development 0.00 International Development Association (IDA) 50.00 International Fund for Agriculture Development 13.30 Total 63.30 V. Implementation The Project Implementing Agency responsible for Component 1 Irrigation and Drainage Improvement will be the MOA. The Director of the MOA PIU will report to the Minister of Agriculture. MOA has substantial previous experience of managing Bank Projects between 2001 and 2011. Until such time as the MOA PIU is established financial management and procurement functions, including for retroactive financing will be performed by the existing MOA Project Planning and Monitoring Division (PPMD), the staff of which have considerable experience of managing Bank projects. The Project Implementing Agency responsible for Component 2 Land Market Development will be the Ministry of Justice (MOJ). The Director of the NAPR PIU will report to the responsible Deputy Minister of Justice. Both PIUs will be established in the form of Page 4 of 6 Legal Entities of Public Law. The PIUs will be responsible for financial management and procurement for all Project Components. The PIUs will undertake coordination of all work planning and budgeting in cooperation with the Project partner technical agencies. The PIUs will also lead Public Disclosure Copy Project M&E in cooperation with Project technical partners and will be responsible for reporting to the Bank and to the Government. For Component 1 Irrigation and Drainage Improvement, the key technical partner will be the Amelioration Department of the MOA for the Irrigation. The PIU will contract qualified irrigation and drainage engineers for supervision of irrigation rehabilitation construction contracts. UASCG engineers will also participate in design and construction supervision. All designs and completed construction will be accepted by Bureau of Expertise under the Office of the Prime Minister or other representative agency designated by the Government. The MOA Amelioration Department (which is primarily responsible for policy) and the UASCG (which is responsible for service delivery) will both be key technical partners for institutional strengthening activities under this component. The UASCG water user support unit will lead activities for strengthening the organization of water users. For Component 2 Land Market Development NAPR will be the key technical partner. NAPR will be responsible for Policy and Procedural Development and Pilot Registration activities. The IMC will review and approval policy and procedural recommendations from the Project. Adoption of a Project Operations Manual (POM) describing the detailed institutional and implementation arrangements, acceptable to the Bank is a condition for effectiveness. VI. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 ✖ Natural Habitats OP/BP 4.04 ✖ Forests OP/BP 4.36 ✖ Public Disclosure Copy 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 ✖ Comments (optional) 1. Operational Policy (OP)/Bank Policy (BP) 4.01 Environmental Assessment is triggered, and the Project is classified through environmental screening as Category B. 2. OP 4.09 Pest Management is triggered: Irrigation services delivery will improve and agriculture will intensify in the coverage areas, which could entail more intensive usage of pesticides. Hence, OP 4.09 Pest Management is triggered although a PMP is not required. 3. OP/BP 4.12 Involuntary Resettlement is triggered in relation to the Irrigation and Drainage Rehabilitation and Modernisation Component. With regard to the Land Market Development Component, a "Country Systems" approach will be followed for the proposed land registration pilots. The Reform Land Registration Action Plan and Policy and Operations Manual to be evaluated for equivalence and acceptability. 5. OP/BP 7.50 Projects on International Waterways is triggered. The Government will confirm Page 5 of 6 that the Project will not include investments that may increase water intake by any schemes compared to their originally designed intake capacity. Public Disclosure Copy 6. Safety of Dams OP/BP 4.37 is triggered. Since two dams serve two selected schemes in the project area (Sioni Dam serves Kvemo Samgori Scheme and Algeti dam serves Tbisi Kumisi Scheme), the Safety on Dams Policy (OP 4.37) is triggered. VII. Contact point World Bank Contact: Peter Goodman Title: Sr Agricultural Spec. Tel: 458-8325 Email: pgoodman@worldbank.org Borrower/Client/Recipient Name: GEORGIA Contact: Title: Tel: Email: Implementing Agencies Name: Ministry of Agriculture Contact: Title: Tel: (99532) 996261 Email: Name: Ministry of Justice Contact: Public Disclosure Copy Title: Tel: Email: VIII. 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 6 of 6