The Messenger, Georgia
April 28 2006
Millennium Challenge Georgia Fund hits the ground running
By Nino Kopaleishvili
The Samtskhe-Javakheti Road Rehabilitation Project, which calls for
the of a 245 kilometer stretch of the region’s main road, as well as
the of some of Georgia’s most remote areas with the rest of the
country, will commence in the spring of 2007.
Millennium Challenge Georgia Fund (MCG) started preliminary work on
the road in the autumn of 2005 within the framework of the USD 4.1
million “pre-compact” grant allocated by the Millennium Challenge
Corporation (MCC).
Since the compact itself entered into force this April, the total
budget for the road rehabilitation scheme shot up to USD 102.2
million. The German consulting firm The German consulting firm Kocks
Consult GmbH has been conducting a feasibility study, environmental
impact assessment and created the final design for the road since
winter 2006.
The project will focus on improving the network of roads in Georgia’s
long neglected southern region which is adjacent to the neighboring
state of Armenia with the ultimate goal of connecting a number of the
area’s attractions and historic sights – ranging from Teleti,
Manglisi, and Tsalka to Akhalkalaki, Ninotsminda, and Vardzia – to
the rest of the country.
As the Millennium Challenge Georgia Compact officially entered into
force in April of this year, the Millennium Challenge Georgia Fund
took the opportunity this week to sum up the preliminary activities
that it has been carrying out over the past two years.
On April 9 Georgia’s Prime Minister Zurab Noghaideli and CEO of the
Millennium Challenge Corporation Ambassador John Danilovich announced
the “Entry into Force” of the Millennium Challenge Georgia Compact.
The duration of the USD 295.3 million Millennium Challenge Account
(MCA) Compact is five years.
The organization’s activities are overseen by a supervisory council
chaired by the prime minister. Currently, the organization is
focusing on two projects – Regional Infrastructure Rehabilitation and
Enterprise Development.
The Regional Infrastructure Rehabilitation Project is divided into
three primary activities: the rehabilitation of the
Samtskhe-Javakheti Road – for which USD 102.2 million has been
allotted; the rehabilitation of Georgia’s North- South gas pipeline,
which has a budget of USD 49.5 million; and the USD 60 million
Regional Infrastructure Development plan that encourages regional,
local, and self-governance units to propose projects in the fields of
water supply, sanitation, irrigation, municipal gasification and
overall water processing infrastructure.
“The majority of the projects are in the field of water and
irrigation” said MCG’s Public Outreach Director Eka Zguladze, who
believes that this is an area of particular need as a number of
cities in the country – Poti, Rustavi, Kutaisi – have no potable
drinking water. “Compared to this, other projects seem to have less
importance,” she said.
Explaining why the regional infrastructure projects can be undertaken
solely by state structures Zguladze said, “We want to ensure
sustainability of the investment. It might be that the idea belongs
to a non-governmental organization, but the project proposal must be
submitted by the governmental agency actually owning or operating the
specific infrastructure.”
MCG has identified two Municipality Development Fund projects this
year – the Sioni and the Algeti irrigation schemes – and another four
projects are currently under discussion and are expected to be
implemented with the help of cofinancers such as EBRD.
MCG’s total 2006 budget for Municipality Development Fund projects is
USD 27 million, and the same amount will be provided the next year.
The two year long gas pipeline rehabilitation project is expected to
play a pivotal role in the development of Georgia’s energy security.
Zguladze explained that initially MCG had been planning to work on
hydroelectric power stations, however after the Georgian government
changed course and put hydroelectric power on the privatization list,
“there has been no alternative to the gas pipeline project,” she
said.
Project executives expect that the allotted sum of USD 49.5 million
for the pipeline still is not enough to carry out the total necessary
rehabilitation, however, according to Project Director of the Energy
Rehabilitation Project Activity Ilia Eloshvili the most vulnerable
spots will be repaired and the consequent reduction in carbon
emissions will enable Georgia to amass and hopefully sell USD 26
million worth “carbon credit” by the end of the Compact period.
“Carbon credit” is the prevention of the emmission of one metric ton
of carbon produced by the burning of fossil fuels. Credits can be
traded for or developed into financial instruments such as bonds or
credit lines. The strategy was put forth to curb the emission of
greenhouse gasses by creating an international market in emissions
credits. The idea was proposed at the third session of the Conference
of the Parties (COP) to the UN Framework Convention on Climate Change
in Kyoto, Japan December 1997. The Kyoto Protocol commits developed
countries to reduce their emissions of six greenhouse gasses by at
least five percent of 1990 levels by 2012. The country that fails to
meet its target can buy carbon emission permit from other country
that is under target. The Kyoto agreement became legally binding on
February 16, 2005 when 132 signatory countries agreed to decrease
carbon dioxide emissions.
The pipeline rehabilitation is expected to decrease Georgia’s losses
by three percent, or approximately 300 million cubic meters, a
reduction which should equal USD 30 million.
Preparatory work on the pipeline started in 2005 and at this stage
the work is focused on the Pasanauri- Saguramo and Saguramo-Red
Bridge sections of the structure.
The Enterprise Development Project at present is concentrating on two
activities: the Georgian Regional Development Fund Activity (GRDF),
which is funded by an earmarked USD 32.5 million and the Agribusiness
Development Activity for which USD 15 million has been allotted.
The GRDF is a 10 year lifetime investment fund that offers financing
to regional small and medium sized enterprises (SME) predominantly in
the fields of agriculture and tourism. The fund, which will be
created as a separate legal entity from MCG, will be run by a
managing company which will assist the funded companies on technical
and managerial levels. The managing company will be named within a
month.
The SMEs that will participate in the project should have more than
10 but less than 250 full-time employees and their total turnover
should not be greater than USD 5 million.
The Agribusiness Development Activity will provide grants to three
directions for farmers and farm enterprises, service providers and
enterprises that focus on processing, packaging and market
acquisitions.