The FINANCIAL — Millennium Challenge Corporation (MCC) which has already granted Georgia 395.3 million over 5 years (since 2005), may continue to further support the country with its second compact, depending on the latter’s eligibility for it.
On January 5, 2011 the MCC Board chaired by U.S. Secretary of State Hillary Clinton will discuss how the first compact has been accomplished and after evaluation of the work according to a policy scorecard is done, a decision will be taken about Georgia getting further support.
The MCC Compact in Georgia entered into force in April 2006, formally initiating the 5-year timeline for project implementation. In September 2005, the Millennium Challenge Corporation signed a five-year, 295.3 million USD compact with the Government of Georgia to improve the two main barriers to economic growth: a lack of reliable infrastructure and the slow development of businesses, particularly agribusiness.
In November 2008, MCC and the Government of Georgia signed a compact amendment making up to 100 million USD of additional funds available to complete works in the Roads, Regional Infrastructure Development, and Energy Rehabilitation Activities contemplated by the original Compact.
As George Abdushelishvili, MCG Director told us, the stimulus for the country’s economy with the support that has already been done is enormous and will further grow if Georgia is eligible for the second compact.
“Just take for example the road in Samtskhe Javakheti which has just been completed. Even before the full completion of the road, traffic got congested which nobody expected. During the road’s construction works a new hotel was opened. Agro businesses have sprung up with the very fertile land located around there,” Abdushelishvili told us.
“If the second compact is drafted, it might not be less than 100 million USD and this is most likely to be directed to education improvement in Georgia, especially to higher education development programmes,” he said.
In spite of the prospects of getting additional aid from the U.S. there are still problems with regards to the monitoring of works of some parts of the projects.
Open Society Georgia foundation (OSGF) in cooperation with Economic Policy Research Centre (EPRC) has already, since January 2006, been doing this job with key crucial findings already put out:
• The Samtskhe Javakheti Road Project (initially costing 203.5 million USD) got additional aid of 100 million USD instead of the 60 million USD planned whilst cutting financing for other projects and 22 km of road even reduced.
• Due to significant delays in previous years, only 76.5 percent of the total amount has been spent by the beginning of the third quarter of the fifth compact year. Meaning that the programme must expend 12 percent per quarter during the remaining period. Such an ambitious increase may endanger the quality of the works performed.
• Violation of contracts from Ashtrom Int. in the Javakheti Road Project. And finally the contract terminated only in August 2010. The company was fined to the amount of 8.2 Million USD albeit making a great threat to the timely completion of the project.
• During the monitoring period – ownership rights of three citizens of Georgia were violated. Their residential houses were expropriated.
• Funding of the Georgia Regional Development Fund has decreased by 2.5 million USD (from 32.5 to 30 million USD)
“With the current findings about the completion of the first compact we’ll continue to observe the rest of the projects left during the remaining 4 months,” said Nino Evgenidze, EPRC Project Manager.
“The speed-up in works must not come at the expense of quality. Hence EPRC will ensure that the results of the programme conform to its aims.
In addition we’re going to evaluate the economic impact of the projects completed within the 4 months of the remaining period till the end of it. So we’ll have a clear picture soon,” claims Evgenidze.
As George Abdushelishvili confirmed, there were some problems connected with contractors.
“The contractor (Ashtrom Int) didn’t accomplish what they were required to do. Hence we fined them over 8 million USD,” he said.
“The reason why Ashtrom was chosen was mainly due to the fact that other companies like STRABAG demanded a three times higher budget than the one chosen (Ashtrom Int).
Now we are taking all necessary measures to complete projects within the planned time span. In addition, to increase the effectiveness of the work, we give 10% of the money (for the contractors) only after their projects are completed.
Within a year (after completion of the project) the contractor is also responsible for paying for any damage they might have done during their works, after an evaluation is done,” George Abdushelishvili, MCG Director told The FINANCIAL.
As Jim McNicholas, MCC Resident Country Director told us there is no precedence of a country getting second compact support, excluding one which was granted eligibility for a second compact and even that hasn’t been signed yet.
“As of January 5 in Georgia the MCC Board will meet and discuss eligibility for a second compact that’ll be based on two criteria: the first policy scorecard (available at mcc.gov) and a specific scorecard for Georgia which compares it to countries of similar economic income including good governance, economic freedom, investment, opportunities and education,” he noted.
“The current compact between MCC and the Georgian Government is ending, with just four months left of the 5 year compact. We are optimistically looking at the long term impact of this programme, especially the Samtskhe Javakheti road, and others as well,” McNicholas said to us.
“If Georgia becomes eligible then it will be asked to prepare a further investment programme. That process will include public consultations and economic analysis. The final approval of the programme will take about 18 months (for a second compact),” McNicholas told us.
Keti Khutsishvili, Executive Director of OSGF, notes that monitoring of the second compact will be kept under close watch, if approved.
“In addition to monitoring MCG; we, together with an NGO coalition of transparent foreign aid to Georgia also started monitoring of 4.5 billion aid spending form the U.S. Government. Since November 2008 this project has drafted several publications with some interesting findings too. OSGF will continue support for such projects in the future in order to contribute to more open society conduct,” added Khutsishvili.
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