Report No. PID9490 Project Name Georgia-Energy Transit Institution Building Region Europe and Central Asia Region Sector Oil & Gas Transportation Project ID GEPE72394 Borrower(s) GOVERNMENT OF GEORGIA Implementing Agency Address SRSP PIU,GIOC,GGIC,MINISTRY OF ENVIRONMENT Note: "Borrowing agency" in financing plan above refers to GIOC and GGIC. SRSP PIU, 42, Al. Kazbegi Ave., Tbilisi, 380077, Georgia Contact Person: Alexander Sikharulidze Tel: 995 32 950 865 Fax: 995 32 001 303 Email: A.Sikharulidze@wanex.net Environment Category C Date PID Prepared December 13, 2000 Projected Appraisal Date December 11, 2000 (Actual) Projected Board Date February 6, 2001 1. Country and Sector Background Georgia's geographical location affords it considerable potential for the transit of Caspian oil and gas to market. The country already transits crude oil from Azerbaijan, Kazakhstan and Turkmenistan to international markets, and natural gas from Russia to Armenia. Negotiations are underway for various major pipeline projects including the Baku-Tbilisi-Ceyhan oil pipeline, and transit of gas from Azerbaijan, Russia, Turkmenistan, and Kazakhstan to Turkey and beyond. Realization of Georgia's transit potential has enormous economic and political significance. 2. Objectives The proposed project will increase the capacity of key state agencies to negotiate and implement pipeline transit agreements and other large infrastructure projects on behalf of the Government. Current plans envisage transit pipeline investments of about US$ 1 billion in Georgia, which would be of substantial macroeconomic significance. Net fiscal benefits from such investments will be maximized with assistance from the project, and the social and environmental impact will be more effectively managed. Georgia will establish itself as a reliable host country for similar investments, and public perception of those investments will be enhanced. The target population includes the whole of Georgia. 3. Rationale for Bank's Involvement Value-added derives from the Bank's regional overview of Caspian oil and gas developments, and its international experience in large infrastructure projects (particularly the Bank's evolving experience in social and environmental mitigation of pipeline projects). The Government values the political and commercial neutrality of the Bank in this complex area. 4. Description A. Environmental and Technical Advice for Pipeline Implementation will include consultancy to assist the Government in fulfilling its obligations under oil and gas pipeline transit agreements on a timely basis (Georgia incurs substantial liabilities if there are delays against very short deadlines in the agreements). These services will focus on reviewing environmental/social impact assessments, permitting, compliance monitoring, and public outreach. The component will thus go beyond environmental impact assessment, and will strengthen long-term environmental management capacity. This will involve environmental, social, technical, and public communications consultants (international and local) to address oil and gas transit issues jointly. It will also include technical/environmental advisors for negotiations of transit of gas from (or through) Russia (technical advisors for negotiation of East-West gas transit have been provided by USTDA). B. Legal Advice for Pipeline Implementation will include specialized pipeline lawyers to advise the Government on legal issues arising from implementation of the various transit agreements negotiated, including the revision of Georgian legislation where necessary. Financial or fiscal skills may also be needed to complement legal advisory skills. These advisors will only be needed once existing consultancy contracts (financed by the Structural Reform Support Project, SRS) expire, and precise terms of reference will be elaborated at that time. C. Non-pipeline Oil Spill Prevention and Mitigation Component will address oil spill risks related to marine and rail transportation of oil, through (i) the provision of essential equipment to facilitate spill response, monitoring and enforcement by the Ministry of Environment; (ii) consultant services; and (iii) training. D. Project Implementation will be provided by the Project Implementation Unit currently managing the technical assistance component of the Structural Reform Support Project and the Judicial Reform Project, in conjunction with GIOC, GGIC, the Ministry of Environment and other agencies responsible under the transit agreements. This component will provide for office equipment, annual audit of the project accounts, incremental operating costs and related needs. 5. Financing Total ( US$m) Total Project Cost 12.29 (US$ 2.15 m of which is identifiable taxes and duties) 6. Implementation Procurement, financial management, and general oversight under the project will be handled by the Project Implementation Unit currently implementing the technical assistance component of the Structural Reform Support Project and the Judicial Reform Project (the PIU is attached to the Ministry of Economy, Industry and Trade). This PIU has seven years' experience implementing Bank-financed projects involving multiple agencies, and has a proven track record. Technical implementation of project components for oil pipelines will be handled by GIOC, for gas pipelines by GGIC, and for non-pipeline oil spill issues by the Ministry - 2 - of Environment. However, given the complex nature of transit agreements, these designated core agencies will interact with numerous other agencies in implementation of the project. Some consultancy contracts under the project may be shared by GIOC and GGIC, and a Steering Committee has been established to ensure coordination. The Steering Committee is also intended to serve as a forum for interagency coordination beyond implementation of the proposed project. Project implementation is estimated to last four years. This estimate is based on expectations of the date at which pipeline operations might commence. On current expectations, the assistance planned under the proposed project will be needed from early 2001, and hence the project should not be delayed. However, the evolution of project implementation is subject to considerable uncertainty, given the complex nature of the pipeline investment decisions. A mid-term review early in the project life (June 2002) will assess actual implementation of pipeline investments against this background of uncertainty. Any project component which has not progressed by this time will be subject to restructuring or cancellation. In addition, most contracts under the project will be time-based, which will mitigate the risk that pipeline investments do not progress as anticipated. 7. Sustainability It is critical to the sustainability of project benefits that transit pipelines retain high-level political support in Georgia, but that political objectives do not overwhelm economic, social and environmental considerations in order to ensure broad-based stakeholder ownership. It is important that state agencies with divergent objectives (in particular GIOC and GGIC) manage to coordinate their activities. In addition, the sustainability of project benefits will be enhanced if foreign investors in transit pipelines behave as good corporate citizens. 8. Lessons learned from past operations in the country/sector The main lessons learnt from previous Bank involvement in technical assistance for transit pipelines in Georgia are (i) there is a need for flexibility in project design to reflect considerable uncertainty in pipeline implementation schedules; (ii) events can move very fast, and timely response is essential; and (iii) Bank management involvement is critical. 9. Program of Targeted Intervention (PTI) N 10. Environment Aspects (including any public consultation) Issues Since the project consists of technical assistance services, and scientific equipment related to studies, the project is classified as a Category C. Neither an environmental assessment nor an EMP are required. The project itself has a major environmental management focus by assisting in the review of the environmental reports that will be submitted for construction of pipeline facilities. Under the project, technical assistance to government agencies will be provided to ensure that adequate review of environmental studies is carried out for the major oil and gas transit pipelines, and that compliance with permitting requirements and liability legislation is effectively monitored. Public consultation and outreach form an integral part of that process. For non-pipeline oil spill prevention, a separate project component of technical assistance is included. - 3- 11. Contact Point: Task Manager Jonathan D. Walters The World Bank 1818 H Street, NW Washington D.C. 20433 Telephone: 202-473-2468 Fax: 202-477-8518 12. For information on other project related documents contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http:// www.worldbank.org/infoshop Note: This is information on an evolving project. Certain components may not be necessarily included in the final project. This PID processed by the InfoShop during the week ending December 15, 2000. -4-