On September 12 in 2005 American and Georgian governments concluded an agreement “Millennium Challenge Compact” ratified by the Parliament of Georgia on October 28, 2005. Millennium Challenge Georgia Program was launched on April 7, 2006 and it implied 295,3 mln USD financial aid to Georgia. End date of the compact is April 7, 2011. Following the August war there were made changes to the compact pursuant to which 100 mln USD were added to the program. Therefore, in total financial aid allotted to Georgia within the framework of the Millennium Challenge Program was raised up to 395,3 mln USD. But for all that, terms of the compact were not altered accordingly.
List of the projects financed by the Millennium Challenge Program by December 1, 2010 is as follows:
1. Samtskhe-Javakheti Road Rehabilitation Project – 212, 615 mln. USD;
2. Rehabilitation of the energy infrastructure – 45, 900 mln USD;
3. Development of regional infrastructure – 54, 735 mln USD;
4. Regional Development Fund of Georgia – 32 mln USD;
5. Development of Agribusiness – 20,530.800 mln USD.
Deriving from the fact that “Millennium Challenge Program” endowed to Georgia by the American government is a very important financial source for economic development of the country, Economic Policy Research Center and Open Society Georgia Foundation within the framework of Coalition “Transparent Foreign Aid to Georgia” decided to monitor activities planned to be carried out by the MCG. During 2006-2009 within the framework of the project EPRC elaborated and published four monitoring reports.
The report of the fifth stage monitoring was prepared backing upon the information obtained in 2009-2010. Report was presented to the public by Economic Policy Research Center and Open Society Georgia Foundation on December 14 at “Radisson Iveria Hotel”. It covers program implementation period from December 1, 2009 – till December 1, 2010 and April 7, 2006 – December 1, 2009, i.e. achieved results and evoked problems during the 4,5 year period of program implementation.
Representatives of MCG management, international donor organizations, Chamber of Control, NGOs and political parties attended the presentation. Representative of Economic Policy Research Center Ms. Nino Evgenidze made a detailed presentation of monitoring results followed by “question-answer” discussion. Director of the MCG Program Mr. Giorgi Abdushelishvili responded to all the asked by the auditorium questions, which were concerned about the Samtskhe-Javakheti Rehabilitation Project, perceives as the most problematic one.
Monitoring Results:
Transparency – during the monitoring 5th stage EPRC faced a problem in regard with obtaining information. In particular, EPRC managed to obtain the protocol № 48 of the MCG Fund Steering Committee August 5th meeting and resolution only in October 2010 after a number of requests. Besides, the MCG Fund didn’t provide us with protocol № 47 of the meeting held on July 6, 2010. According to the explanation of MCG Fund PR Manager this protocol and resolution are not signed by the chairperson of the steering committee yet.
Main findings
- During the monitoring, tendency of changing the main design of the project still has place to be. The tendency shows that every financial resources emerged in the project were mobilized basically to eliminate problems arose in the Samtskhe-Javakheti Rehabilitation project. After the August war in 2008 amount of 100 mln USD allotted additionally was completely expended for Samtskhe-Javakheti Rehabilitation project. Besides, extra 10 mln USD from another projects is entitled for this project as well. When this process should have been additionally financed only with 60% of additional funds.
- Samtskhe-Javakheti Rehabilitation project is still one of the most problematic. During monitoring period its cost raised again: from 203 515 mln USD up to 212 615 mln USD, i.e. approximately by 9 mln USD. Though, the length of the road to be rehabilitated, in comparison with the start date of the reporting period, increased only by 3,52 km and length of the road to be rehabilitated was 222,72 km for December 1, 2010. Eventually, instead of 102 mln USD envisaged in the initial version of the compact rehabilitation of the road for the end of reporting period came to 110,6 mln USD. And length of the road to be rehabilitated is decreased by about 22 km (245 km) compared to the initial measurements stipulated by compact.
- Samtskhe-Javakheti Rehabilitation project was implemented in a force majeure regime again. In spite of the fact that problems related to an inappropriate work process led by “Ashtrom International” were identified even in the beginning of the reporting period, force majeure situation was not evade for this time again.
- A contract with Company “Ashtrom International” was finally invalidated only in August 2010. MCG Fund disbursed to the Company 37938632 mln USD; Company was fined with 8,2 mln USD in total.
- During the monitoring period, the project on Rehabilitation of Energy Infrastructure proves to be the most successful one of the MCG. For December 1, 2010 the budget of Energy Infrastructure Rehabilitation project is 45,900 mln USD (its funds are decreased from the initial amount by 2,6 mln USD and forms 45,9 mln USD).
Within the scope of the existing financing 3 phases of the slated rehabilitation have been completed for the moment and financed an additional segment of the project – works of planning study of the gas storage. Some finances of the project were saved. Last year there was discussed a possibility of financing the 4th phase of rehabilitation with saved funds, but finally a complete fulfillment of this phase was rejected (spending of funds was lingered in order to redirect a spared amount in case of necessity for Samtskhe-Javakheti Road Rehabilitation project). As a result so called 4th phase was completed partially.
- Fulfillment of the project in the negotiated terms is under threat. For the development of regional infrastructure at the moment of signing a compact it was envisaged to allot 60 mln USD. Resultant to a number of modifications made, for November 2010 54,735 mln USD is allocated for this activity. Likewise, a quantity of the projects to be financed within the program is decreased compared to its initial design. Although, a quantity of works to be completed within the 5 project is increased then. During the monitoring period December 1, 2009 – December 1, 2010 financing of in-house projects that are part of Regional Infrastructure Rehabilitation project was amended several times – MCG cut down its portion in financing of these projects. But, dynamic of funds to be utilized demonstrates that completion of all the Regional Infrastructure Rehabilitation projects in 2010 as it is scheduled by work plans is unrealistic.
- During the monitoring period Regional Development Fund demonstrated a slowdown in its activity. A mainstream for distributing finances was defined in this period – it was regional education programs. Though, in spite of the fact that Millennium Challenge Corporation requests to speed up this process, rules and forms for allocation of funds are not formulated even so far.
- Contract terms were met in Agribusiness Development Project. Main activity of the project was completed in the first two months of monitoring. Rest of time was used for monitoring the projects and final works of the project. Funding portion of Agribusiness Development Fund was raised by 5 mln USD compared to the initial calculations of the compact (from 15 mln USD to 20530800 mln USD). Within the scope of the project 286 projects were funded. According to the data of October 31, 2010 93% of funds allocated within the compact were utilized by then. According to information obtained by Economic Policy Research Center amount of 19, 320 USD was drawn only from one project for non-fulfillment of commitments.
· Still on the agenda is a matter of speeding up spending of funds. In order to compensate a backlog in the previous years by the third quarter of the 5th program year is spent only circa 76.5% of the MCG Program’s whole budget. This means that averagely ≈ 12% is supposed to be spent during the time left what possibly could call quality of the completed works in question.
- The index of correlating adequacy of factual expenses with financial plan improved on. In previous years the amount of fully utilized funds didn’t exceed 50% of the planned spending. In the forthcoming quarter there will be spent 80% of the planned spending what is a good indicator against a backdrop of the previous experience of the program.
The 5-year MCG Program is in its final phase. The issue of concluding a new compact is under review. MC Corporation has already announced two lists of potential country-beneficiaries in 2011: countries with low revenues and countries with average low revenues. Under the announced criteria Georgia has a good opportunity to become one of the financed by Millennium Challenge Program countries again. Although, there is no precedent of authorizing the second compact for a country so far.
Report 1
Report 2