Document of The World Bank Report No: 25544 IMPLEMENTATION COMPLETION REPORT (IDA-31290) ON A CREDIT IN THE AMOUNT OF SDR 1.8 MILLION TO GEORGIA FOR A RESTRUCTURING OF THE MINISTRY OF TRANSPORT September 9, 2003 Infrastructure and Energy Services Department South Caucasus Country Unit Europe and Central Asia Region CURRENCY EQUIVALENTS (Exchange Rate Effective October 17, 2002) Currency Unit = Lari Lari 1 = US$ 0.56 US$ 1 = Lari 1.80 SDR 1= US$1.80 FISCAL YEAR January 1- December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy IDA International Development Association MOT Ministry of Transport MOTC Ministry of Transport and Communications PIU Project Implementation Unit PRM Poverty Reduction and Economic Management Network SDRG State Department of Roads of Georgia TRRC Transport Reform and Rehabilitation Center Vice President: Shigeo Katsu, ECAVP Country Director: Donna Dowsett-Coirolo, ECCU3 Sector Director: Hossein Razavi, ECSIE Transport Sector Manager: Eva Molnar, ECSIE Task Team Leader: Antti Talvitie, ECSIE GEORGIA Restructuring of the Ministry of Transport CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 4 5. Major Factors Affecting Implementation and Outcome 7 6. Sustainability 8 7. Bank and Borrower Performance 9 8. Lessons Learned 10 9. Partner Comments 11 10. Additional Information 14 Annex 1. Key Performance Indicators/Log Frame Matrix 15 Annex 2. Project Costs and Financing 16 Annex 3. Economic Costs and Benefits 18 Annex 4. Bank Inputs 19 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 20 Annex 6. Ratings of Bank and Borrower Performance 21 Annex 7. List of Supporting Documents 22 Project ID: P056514 Project Name: Transport Ministry Restructuring Team Leader: Antti P. Talvitie TL Unit: ECSIE ICR Type: Core ICR Report Date: September 9, 2003 1. Project Data Name: Transport Ministry Restructuring L/C/TF Number: IDA-31290 Country/Department: GEORGIA Region: Europe and Central Asia Region Sector/subsector: Central government administration (100%) Theme: Administrative and civil service reform (P); Legal institutions for a market economy (P); State enterprise/bank restructuring and privatization (S) KEY DATES Original Revised/Actual PCD: 12/12/1997 Effective: 11/15/1998 01/28/1999 Appraisal: 03/15/1998 MTR: 03/31/1999 Approval: 09/03/1998 Closing: 12/31/2000 06/30/2003 Borrower/Implementing Agency: GEORGIA/MINISTRY OF TRANSPORT Other Partners: None STAFF Current At Appraisal Vice President: Shigeo Katsu Johannes F. Linn Country Director: D-M Dowsett-Coirolo Judy M. O'Connor Sector Manager: Eva Molnar Eva Molnar Team Leader at ICR: Antti P. Talvitie Pedro Taborga ICR Primary Author: Robert H. Nooter 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome:S Sustainability:L Institutional Development Impact:SU Bank Performance:S Borrower Performance:S QAG (if available) ICR Quality at Entry: Project at Risk at Any Time: No 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: The original objectives of the Restructuring Project were to: (a) transform a traditional Soviet style ministerial structure into the transport sector's policy formulation and deregulation entity needed in a market economy; and (b) define and contribute to the achievement of operational autonomy and accountability of the Transport Agencies (State Departments). The main actions to be undertaken under the project were to: (i) finalize definition of the specific transport-related functions of government; (ii) specify how these functions could best be fulfilled in Georgian circumstances; (iii) identify and implement an appropriate organizational set-up; and (iv) build the requisite staff capacity, by appropriate staff selection and training, in MOT and the other relevant organizations of the transport sector. The project was thus expected to result in the separation from the Government structure of all operational functions via commercialization, privatization and divestiture of assets. The functions related to policy formulation and regulation would be retained. The project was processed under the newly created Learning and Innovation Loans and Credits mechanism, as it was expected to provide a significant learning potential by emphasizing new ministerial functions and a corresponding diminution of policy-making functions of the supra ministerial entities and modal agencies. This model was expected to be applicable elsewhere in the public service. The lessons learned from making transport agencies operationally independent, selecting staff in an objective and transparent way, and training ministerial staff and retaining them within the Government through an appropriate salary structure, was expected to prove useful as a model for a wider scale Public Sector Reform. The objectives were clearly articulated and were consistent with the work program that was prepared for achieving them. The vision of a policy-oriented Ministry of Transport that had oversight but not operational control of the transport agencies was ambitious in light of the country's background during the Soviet period, but was consistent with the CAS objectives and goals. As stated in the CAS, these goals were: (a) downsizing the public sector; (b) reorienting public outlays to focus on basic expenditure needs and withdrawal from commercial activities; and (c) increasing productivity and removing infrastructure bottlenecks by achieving full cost recovery for public investment, and by promoting competition, private sector participation and privatization. The project provided for: (i) reducing the number of staff in the Ministry of Transport to less than 100 people, compared to the approximately 430 staff employed in the Ministry at the time of appraisal; and (ii) introducing a market oriented regulatory framework designed to give means to the Ministry of Transport to efficiently and actively address the policy changes necessary to implement a strategy of privatization of commercial operations and outsourcing of the non-core civil service activities; and increasing productivity and removing infrastructure bottlenecks as the private sector took part in transport operations and the provision of infrastructure, which was expected to result from the use of standard competitive bidding procedures, commercialization of infrastructure management, and increased cost recovery through user charges. Thus, the project was directly supportive of the CAS goals. 3.2 Revised Objective: The objectives remained unchanged during the life of the project. 3.3 Original Components: The original project components were: - 2 - (a) Restructuring of the MOT and Establishing the Independence of the Transport State Agencies (US$820,000): This component covered technical services to: (i) reorganize the MOT and its staff around the new functions needed in a market economy; (ii) review and redraft, as required, the statutes of the MOT in light of the functional review and draft new statutes for Transport State Agencies guaranteeing their independent and commercial operations and increasing their accountability; (iii) determine proper information flows within the transport sector; and (iv) institutionalize merit-based recruitment and promotion procedures in the MOT in consultation with the Bureau of Public Service established under the Law on Civil Service. (b) Information Technology for the Ministry of Transport (US$570,000): This component provided office technology (hardware, software, and relevant training) to support the new MOT organization for a period of five years. (c) Refurbishment of the MOT Building (US$350,000): This component covered part of the MOT building restructuring costs. (d) Training of MOT staff and Georgian decision-makers (US$760,000): This component would consist of (i) training newly recruited staff, to be defined and confirmed in detail during the implementation period; (ii) establishing an information center on worldwide transport publications; and (iii) offering study tours for higher level ministry officials. A detailed list of proposed training courses and seminars was prepared during project preparation. The project components were directly related to the achievement of the transformation of the Ministry of Transport, and the provision for revised statutes for the transport administrations (state agencies) were supportive of the second objective. The new Transport Law and the statutes after court challenges and subsequent adjustments in them established the four Transport Administrations as independent agencies able to administer and regulate policies the Ministry or the Parliament promulgate. The changes that have taken place went as far as possible toward this objective, and represented an improvement in the operational status at the time of preparation. The inclusion of information technology and refurbishment of the Ministry building were supportive of the need to modernize the Ministry's operations, and the detailed training program designed during project preparation was a good model of a well prepared and appropriate program. 3.4 Revised Components: The Government made a decision to combine the Ministry of Transport with the Ministry of Communications into the Ministry of Transport and Communications (MOTC) after the project was approved. The project components remained the same as originally conceived, but their content was modified and expanded to cover the combined ministries at no change in project cost. 3.5 Quality at Entry: The ICR finds the quality at entry to be satisfactory, although not completely perceptive of the substantial uncertainties that exist regarding institutional changes in Georgia. The objectives of the project were consistent with the CAS and Government priorities. The project design was ambitious, but in retrospect achievable. The nature of the project did not bring into play any of the Bank's safeguard policies. The project risks were considerable, considering the need for several Parliamentary actions and difficult Government downsizing actions, but in the event these were overcome. The Bank's worldwide experience - 3 - was brought into play during project preparation, especially as the principal task team leaders were familiar with similar public sector issues in other countries. There was no Quality Assurance Group assessment of this project. 4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: The objective of transforming a traditional Soviet style ministerial structure into the transport sector's policy formulation and regulation entity needed in a market economy was achieved. The Ministry of Transport and Communications was reorganized in line with a new organizational structure, new statutes were passed with Government approval with revised authorities and functions as envisioned during project preparation, staff levels were substantially reduced and the staffs of the Ministry and the oversight administrations were selected on the basis of qualifications, and an extensive training program prepared the staff to fulfill its new functions. The second objective of defining and contributing to the achievement of operational autonomy and accountability of the Transport Agencies (State Departments) was also achieved. The motor transport companies have been completely privatized and now operate as commercial companies. Maritime, Aviation, Motor Transport, and Communications oversight agencies, referred to as the Transport Administrations, have been established for regulating these functions, and a Railway Administration with similar functions will be created shortly. The railway and seaport authorities have continued to operate independently, with separate boards of directors and with considerable autonomy. While the relationship between these entities and MOTC provides sufficient autonomy for their operation, the present arrangements limit the Ministry's ability to exercise sufficient authority and to provide policy guidance effectively to them. An inter-ministerial Transport Safety Commission was created, headed by the State Minister and membership from the Ministries of Finance, Transport and Communications, Internal Affairs, Environmental Protection, Education, Health, State Security, State Property Management, the Road Administration (SDRG) and the other transport agencies and administrations, and the State TV and Radio Companies. The creation of a Transport Safety Agency with a small Secretariat within the MOTC, as recommended by the consultants, was recently implemented, which will function as the Executive Secretariat of the Commission. 4.2 Outputs by components: The outputs by component were also generally achieved as planned during preparation, as follows: (a) Restructuring of the MOT and Establishing the Independence of the Transport State Agencies: As mentioned above, the Ministry of Transport was reorganized along the lines recommended by the consultants who were made available under the project. The reorganization was designed to clarify the duties and responsibilities, which were not well defined previously, of each part of the Ministry. After the project was approved, the Government decided to amalgamate the Ministries of Transport and Communications, and so the new Ministry includes both sectors in a combined Ministry of Transport and Communications. The organization chart for the new Ministry is included in Annex 10. New statutes were drafted with the assistance of the consultant and were passed in the Parliament establishing new relationships between the Ministry and the Transport State Agencies. An appropriate information system was established within the transport sector. - 4 - Even more important than the changed organizational structure was the change in the role of the Ministry and the quality of its operations. The restructuring included the introduction of the concept that the Ministry was responsible for transport policies rather than operations. Thus operational matters, including the operations of the transport agencies as well as the regulatory administrations, were delegated to those organizations. This was a significant and drastic revision of the approach that existed previously. In addition, the Ministry was substantially downsized, functions of the Ministry were clearly defined and enumerated in the Transport Law that established the Ministry, functions of the departments in the Ministry were spelled out in operational manuals, selection of staff was made on a merit basis, and provisions were made for substantial salary increases for the staff who were selected. The concept and practice of regulatory fees was introduced, whereby the regulatory agencies charge for the services that they render to the private organizations within their jurisdiction. Consequently the new arrangements led to a substantial reduction (approximately 750,000 Laris per year) in the cost to the central budget of the Ministry's operations, making the Ministry largely self-supporting. The staff size of the core Ministry now consists of 88 persons (twenty-four of whom comprise a Department of Communications, which was not included in the original project). There are also 44 staff for the Aviation Administration compared to 89 at appraisal, 32 staff for the Maritime Administration compared to 50 at appraisal, and 55 staff for the Motor Transport Administration compared to 68 at appraisal. Thus the total staff for the Ministry and the regulatory agencies is 219 compared to 430 for the total employment level of the Ministry of Transport at the time of appraisal when the Communications function was a separate Ministry. This falls short of the target set at project preparation of less than 100 persons for the Ministry of Transport and the regulatory agencies (without the Ministry of Communications), but nevertheless is a significant reduction in personnel. The Minister of Transport and Communications said that the present staffing levels represent an initial downsizing of the Ministry, and the intention is to make additional reductions in staff to reach a total number of employees of approximately 150 to 160 persons by the end of this year. This compares favorably with the staff levels of other countries of comparable size and with similar functions (for example, Armenia's Ministry of Transport and Communications has 50 persons and no regulatory functions; Finland has approximately 250 persons in its Ministry of Transport with no regulatory functions). Regulatory fees were established and put into practice, which was an essential factor in providing the funds to pay the improved salary schedule for the Ministry personnel on a budget-neutral basis. These fees, initially authorized by the Parliament, but with levels set by administrative decree, were challenged in the Constitutional Court and found invalid. The Government then sought and obtained an amendment to the Transport Law that validates these fees. (b) Information Technology for the Ministry of Transport: Information technology equipment was selected with the assistance of the consultant, and its procurement and installation were financed under the project. The concept of the Information Center was revised in light of the development of the internet, and a new, internet-based concept was proposed by the training consultant and implemented by the Transport Rehabilitation and Research Center (TRRC is also the PIU for the project). (c) Refurbishment of the MOT Building: The renovation of the Ministry's building was completed satisfactorily, including the installation of air conditioners, and now provides more adequate working space for the Ministry's operations. (d) Training of MOT staff and Georgian decision-makers: A more extensive training program was - 5 - carried out than envisaged in the original project preparation. Most training was carried out in Tbilisi--some Maritime training courses were given in Batumi--with a combination of foreign and local staff, under a consultancy contract with NEA (The Netherlands), and PTRC Ltd. (UK). Virtually all of the staff of the Ministry of Transport and Communications, including the administrative agencies, participated, along with a substantial number of persons from the transport sector at large, for a total of 301 persons trained. Training included ten management courses and seventeen technical courses, each from four to five days long. All but one were presented two times. Course titles in the management series included Management Principles and Practices; Business and Financial Planning; Transport and Communications Policy Development; Planning and Economic Assessment; Safety Management in the Transport Sector; Environmental Impacts of Transport; Methods of Transport Sector Regulation; International Transport and Customs; Procurement; and Public Consultation Methods. For the technical courses, titles included Management of Concessions and Leases; Legal Implications of International Transport Rules; Air traffic Control and Management; Air Traffic Safety Licensing; Port Information Systems; Handling Dangerous Cargoes; Disaster Management; Landlord Port Concept; Multi-modal Transport and Integrated Transport Chains; Railway Privatization, Economics, Pricing and Operations; Vehicle Safety and Standards; Transport Enterprise Management; Environmental Aspects of Land Transport; Privatization of Postal Services; Spectrum Management; Sector Management Using Policies and Objectives; and Management of Airports. The first round of courses was presented in English with translation, and the second round was presented in Georgian by the local trainers. Participants rated the courses for presentation and relevance at slightly over 90 percent. The study tours for the newly selected management personnel of the Ministry were carried out as planned. There were four study tours of ten days to two weeks each, with a total of nineteen participants. The countries they visited were: Poland, Latvia, Sweden, Norway, Holland, Switzerland, and the Czech Republic. 4.3 Net Present Value/Economic rate of return: Given the nature of the project, which is largely a provision of technical assistance, it is not feasible to calculate a Net Present Value or Economic Rate of Return. The economic savings expected at appraisal included reduced costs of transport services through the transfer of public operations to the private sector, increased competition for carrying out infrastructure maintenance, and lower vehicle operating costs through the improved condition of the roads. These savings are difficult to measure in the context of this project; however, there is no doubt that such benefits have been created and will be sustained. 4.4 Financial rate of return: A Financial Rate of Return is also infeasible for a project of this type. However, the staff reductions have reduced personnel costs of the Ministry, which were offset to some extent by increases in the salary structure. The increases in salaries are mainly being financed through increased collection of regulatory fees. As the collections have exceeded the salary cost increases, this has already resulted in increased income to the Government and savings to the state budget at a rate of US$350,000 per year. 4.5 Institutional development impact: As described above, the institutional impact was significant. Specifically, the project resulted in the following accomplishments: (a) The Ministry was established as a policy and regulation-making entity with oversight functions - 6 - over the Transportation Administrations, which enforce and exercise operational control over the policies and regulations, and the Transport Safety Agency, which is an executive secretariat to the inter-ministerial Transport Safety Commission. This structure is consistent with the needs of a market economy. (b) Staffing levels were reduced to the level needed for carrying out the Ministry's new functions. (c) Staff to be retained were selected on the basis of qualifications, and a system installed to put future selection and promotions on a merit basis. (d) Staff salaries were established on the basis of a living wage rather than at the sub-standard level of the general civil service. (e) A functional IT system was put into operation for the Ministry. (f) The staff was trained in the skills necessary to carry out the Ministry's and the Transportation Administration's new responsibilities. (g) Previously state-owned motor transport companies, both freight and passenger, were privatized. It is evident from the above results that the functions of the Ministries of Transport and Communications were transformed in a constructive way. While the project design was ambitious in terms of what it proposed to accomplish, these goals were in fact realized. The goal of creating a ministry structure that could serve as an example for changes in other parts of the Government was also realized. Government and Parliamentary officials now refer to this case as one worth emulating, and do in fact consider it to be a model. The restructuring of the Ministry might also be viewed in the context of a planned restructuring of the entire public sector, as envisioned by the Country Operations Department of the World Bank. There was in fact very little direct interface between this broader effort and this project, which met its objectives as planned, while the broader program has languished. 5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: There were important steps in the implementation process that required Parliamentary action, which was not directly subject to the control of the Ministry of Transport. However, the numerous necessary Parliamentary approvals were in fact achieved, with good cooperation from the relevant Parliamentary committees playing a constructive role in the process. 5.2 Factors generally subject to government control: There were two main factors within the Government's control that affected the rate at which implementation went forward: (a) The Government decided to merge the Ministry of Transport and the Ministry of Communications into a single Ministry of Transport and Communications. This was a constructive decision offering some savings in administrative costs, and IDA had no objection to it. It was also logical to carry out the reorganization of the combined Ministries as part of the project. As this had not been contemplated at the time of project preparation, it was not included in the original implementation schedule and consequently slowed down the implementation schedule by about one year. The reorganization was carried out for both Ministries, however, at the same cost as estimated for the original project. - 7 - (b) The issue of downsizing staff and the introduction of an improved pay scale for the remaining staff were specific objectives of the project design and were supported by the relevant ministries during appraisal and negotiations. It was apparent to the Ministry of Transport and to IDA that the project objective of creating an effective Ministry was contingent on both of these issues. During implementation, the Ministry of Finance, with support from the Poverty Reduction and Economic Management Network (PRM) in the Bank, opposed the change in pay scales, because they thought that the same pay scales would be too costly to be applied to other parts of the Government and implementation of higher pay scales only at MOTC would be bad governance. On the same grounds, the Ministry of Finance and PRM also opposed financing the Transportation Administrations' salaries and other costs from the regulatory fees. As events unfolded, the Parliament supported the need for an improved pay scale if it could be achieved on a "budget neutral" basis, meaning that it would not add to the Government's overall cost of operations. Ultimately, the Ministry of Finance accepted this concept on an ad hoc basis, but the process of consultation and negotiation took some time to work out. (c) During the implementation period, the Government decided that IDA projects would no longer be subject to exemption from VAT and other taxes and levies. This led to increases in the amount of co-financing needed for the project, which sometimes led to delays in payment to contractors and suppliers when the provision of the counterpart was late. As the affect of this decision was neutral for the budget, with increases in budget income offset by increases in counterpart requirements, it is questionable whether this change was efficacious. The addition of taxes led to increases in the proportion of Government financing for the project compared to the original estimates, as seen in Annex 2. 5.3 Factors generally subject to implementing agency control: Procurement processes were not always carried out in strict accordance with the World Bank Procurement Guidelines in the first instance, with the result that evaluations had to be redone and sometimes re-tendering was required. In the end, there were no deviations from the Procurement Guidelines and good results ensued, but the process led to delays. These delays did affect the training program, which had to be implemented in a very tight time schedule in order to complete the project before the final Closing Date. 5.4 Costs and financing: Actual project costs were within the original estimates, and no additional financing or reallocations were required. 6. Sustainability 6.1 Rationale for sustainability rating: Sustainability for this project is likely since the reorganized Ministry is firmly established through appropriate legislation and is already operating successfully in accordance with the new concepts. Changes to the new concepts, set in legislation, require two-thirds majority and are unlikely. The selection of staff on the basis of competence and the extensive training program that has prepared them to carry out their new responsibilities also bodes well for the sustainability of the restructured Ministry and its revised functions. Thus there is a good basis for believing that the project objectives will be sustained for the foreseeable future. 6.2 Transition arrangement to regular operations: There is no issue regarding transition, since the new Ministry has put the new operating principles into - 8 - practice during the project implementation period. There is, however, some additional downsizing that remains to be carried out after project closing, as outlined in para. 4.2 (a) above. 7. Bank and Borrower Performance Bank 7.1 Lending: The Bank staff was quick to take advantage of the new Learning and Innovation Loan/Credit procedures to produce an innovative project with important institutional implications for the Georgian civil service. The project was able to generate support for an improved salary scale for a portion of the Georgian civil service combined with staff reductions. The Government is now examining ways to provide a similar pay scale for the rest of the Government, which is an essential element of any lasting civil service reform that could lead to improvements in efficiency and reductions in corruption. Processing was carried out in less than twelve months from conception to Board presentation. The cost of preparation, US$33,711, was well below the Bank's average. The Bank's performance for project identification, preparation and appraisal of the project is rated as satisfactory. 7.2 Supervision: The original Bank task manager was transferred to other responsibilities during the early stages of project implementation. Two interim task managers were responsible for supervision for short periods before a permanent task manager was assigned. This led to some loss of momentum in the early stages of implementation, but the new task manager quickly took charge, and progress resumed with little adverse affect on the project. Total staff cost devoted to supervision to date is US$239,413, in line with the Bank average when viewed on a project basis. Given the complexity of the project and the difficult institutional issues, this level of expenditure was necessary to provide an adequate level of supervision, both at headquarters and in the field. The Bank should recognize, however, that the administrative cost per SDR is very high for a project of this kind. The Bank staff had a good working relationship with the Ministry of Transport officials and the PIU, which permitted a full and frank exchange of ideas between the Ministry personnel, the consultant, and the Bank staff as to how the Ministry should be restructured. The Bank staff played an unusual role in meeting with Parliamentary committees when asked to do so by the Government, which helped to create an understanding of the objectives of the project and probably helped to secure the excellent cooperation of the Parliament. The Bank supervision is rated as satisfactory in spite of the succession of four task managers in a relatively short interval, as this did not keep the Bank from carrying out its responsibilities effectively. 7.3 Overall Bank performance: The overall performance of the Bank staff is rated as satisfactory for the reasons outlined above. Borrower 7.4 Preparation: Much of the impetus for the restructuring, reduction in staff levels and upward revision in salaries came from the Bank staff, but the Ministry of Transport was supportive of the changes and worked closely with the Bank staff to formulate the program. The Ministry of Finance and other central parts of the Government were also supportive during the preparation phase, and the project was therefore able to be prepared in a timely manner. On the whole, the borrower's role in the preparation process was satisfactory. - 9 - 7.5 Government implementation performance: The overall Government role in the implementation phase was mixed. Specifically, the Ministry of Finance, under a different leadership than in the preparation phase, was strongly opposed to creating a special salary structure for one Ministry that the Government could not afford for the entire Government even if it was meant to be a pilot in their public administration reforms. It was mainly due to the support of the Parliament for what they saw as a model for future reform for the Government as a whole that this important aspect of the project was able to go forward. Even now, the challenge to the regulatory fees raised by some of the private companies in Georgia makes the implementation of the new salary structure uncertain, as the higher salaries can only go forward if "budget neutral", something that would not be possible without the regulatory fees. The amount of counterpart financing was minimal, and therefore was not a major problem for this project. The Government's decision to combine the Ministry of Communications with the Ministry of Transport led to a delay in project implementation of one year, and the need for Parliamentary action to authorize the restructuring led to another year's delay. A final delay due to procurement difficulties (see below) led to a total extension of the original closing date by two and one-half years. 7.6 Implementing Agency: The Ministry of Transport was supportive of the project throughout its life. Fortunately, the same Minister of Transport was in office during the entire project cycle, and carried out the difficult task of reducing staff and selecting new staff on the basis of their qualifications. Also, the experienced and competent Project Implementation Unit mediated in many important issues and was indispensable in working with the consultant in a new environment to make the consultant's work genuinely relevant to the Government. The TRRC was helpful in assuring that the Bank Procurement Guidelines were implemented correctly, something in which the Ministry of Transport had only limited experience. This lack of experience led to some delays in project implementation and the need for an extension of the closing date by an extra six months, but ultimately the project was implemented in accordance with the Procurement Guidelines. The rating for the implementing agencies is rated as satisfactory. The TRRC also played an important substantive role in helping to devise an organizational structure that was appropriate for Georgia, and in securing support from the Government, including the Parliament, for the recommended changes. 7.7 Overall Borrower performance: While the project delays were considerable, this is not unexpected in a project that requires difficult personnel decisions, Parliamentary action, and - above all - change in the concept of administration and governance in the minds and practices of country's politicians and professionals. Overall, the borrower carried out the project as agreed, and the performance is rated as satisfactory. 8. Lessons Learned It is well known in the World Bank that restructuring of Government agencies, especially when accompanied by the downsizing of personnel, is a difficult undertaking, and the difficulties in doing so can not be considered as a new "lesson learned". However, there were a few aspects that emerged from this project that deserve special mention, including: (a) The selection of an appropriate consultant is critical for the successful implementation of a restructuring project. The consultant must be skilled at getting agreement on the new organizational structures and staffing levels, the drafting of legislation and assisting in getting it accepted, and in assisting - 10 - the implementing agency in defining staff positions and in selecting the staff to fill them. However, the consultant must not only have the technical skills to accomplish these tasks, but must also have the skill to communicate and persuade the various Government instances, professionals and staff to accept the new concepts. The consultant must also work very closely with the Project Implementation Unit as well as with the implementing agency to assure that all relevant suggestions are taken into account and conflicting ideas discussed and resolved at an early stage. (b) Restructuring projects must be designed with considerable flexibility. While it is necessary to have agreement among all relevant agencies of government as to what is to be accomplished, the details must be malleable as the process moves forward since it is virtually impossible to anticipate all of the contingencies that will arise during implementation. This should include flexibility in the content of the TOR, phasing and sequencing of actions and decisions, and of the time frame for implementation as getting agreements from a number of Government agencies and predicting Parliamentary actions are difficult to schedule with any precision. (c) Restructuring of institutions requires a different type of consulting concept (process consulting) from that used in most World Bank projects. It is one thing to develop information, recommendations and indicators, and another thing to bring about change in the "world". Process consultation is a way to manage change. It is employed for diagnosing and intervening when an organization's extant culture or goals are not well understood, or when the concepts of governance are fundamentally different from the desired concepts in order to avoid interventions that are not fitting to the organization's culture or which the client cannot understand. The consultant's expertise must include an ability to structure the relationship with the client such that the help provided is genuinely relevant to the client's needs. In Georgia, as in many other countries, problems in government organizations are so complex, and the information relevant to their diagnosis is so concealed, that meaningful changes can only be achieved if the client is fully involved in the diagnosis and study processes. (d) There are advantages to proceeding with public sector reform for only a limited part of the Government. While the implementation of the restructuring of the Ministry of Transport and Communications had to overcome many obstacles, it nevertheless met less resistance than would be the case for a reform designed to overhaul the entire governmental structure. In Georgia, there was a program of overall government public sector reform that was prepared by consultants, but it has not yet been implemented. There are some disadvantages to piecemeal restructuring, of course, in that the various parts of the Government might be restructured based on different and incompatible models. To some extent, in some sectors, this has happened in Georgia, according to the Deputy State Minister, where different development agencies have introduced reforms in different ministries. Nevertheless, if the supervisors of change management--the task team--are cognizant of the possible biasing effects of their own backgrounds, but are able to be genuinely relevant to the client, meaningful restructuring of a single ministry (or entity) can be achieved. In Georgia this was achieved through this project. 9. Partner Comments (a) Borrower/implementing agency: Comments of Minister Merab Adeishvili, Ministry of Transport and Communications: Implementation of the project entitled Restructuring of the Ministry of Transport (Credit # 3129-GE), a Learning and Innovation Credit, started in 1998. The general objectives of the market reform-based restructuring of the Transport Ministry and the transport sector was determined in the framework of the - 11 - consulting services provided through the Transport Rehabilitation Project supported by an IDA Credit, implemented in 1996-1998. The Ministry of Transport was established at the same time (1997) and therefore its restructuring did not meet with resistance from the existing bureaucratic system. However, at that time the whole structure of the executive power in the country, its staffing and financial arrangement, functions, rights and duties, management style and culture were a "good " reiteration of the old imperfect Soviet centralized command management system. The Ministry mechanically continued to interfere in the management of enterprises, applying the Soviet centralized, vertical command management system. It was a period when transport policy and legislation were very weak, and the economy of the whole country was largely destroyed because of regional conflicts and military operations. At the same time a broad-based, chaotic privatization process caused deterioration and destruction of the transport infrastructure, mobile means of transport were damaged and road safety was poor. Spontaneously unregulated private transport services started to respond to market demands, and unfair competition occurred. The law was often broken. Under these trying conditions we undertook to reform the transport sector and the Ministry of Transport. It was doubtful that we would be able to achieve our goals - creation of a successful leading sector of economy of the country; creation of a western type, policy making, executive government body; and independent, self-financing transport Regulatory Administrations - without broad market reforms and deregulation of transport and communication's activities. It can definitely be stated that without the IDA Learning and Innovation Credit for the Restructuring of the Ministry of Transport Project, we would not have been able to make much progress toward achieving these goals. We would like to emphasize that this was not only a pilot project, but was also a true generator of reforms. According to results of the year 2002, the transport and communications sectors provide almost 20 percent of the tax income part of the budget income of the country. Over 200 thousand people are employed in these sectors, and salaries in the sectors exceed the minimum wages of the country almost 10 times. At the same time these sectors are achieving high and sustainable economic growth rates, essential downsizing of the shadow economic activities is occurring, modernization of the regulatory framework and its harmonization with its western counterparts is taking place, and there is a significant improvement in the management culture. The restructuring process certainly was accompanied by number of mistakes. Analysis of these mistakes helped us to gain experience, first of all the experience of teamwork with the consulting consortium. In the beginning of the project there were incomplete execution of recommendations of the consultant and misunderstandings caused by poor understanding of the western principles of public service. Later close cooperation with the consultants produced more effective results. Important was that the recipient of the consulting services, the "Client", presented not only its readiness for reforms, but made its own comments and assessments of the suggested reforms. The consultant's recommendations frequently were based exclusively on western experience and because of poor knowledge of the local legal framework were not realistic. A decisive role in this situation was the teamwork of the consultant on the one hand and the World Bank and the Project Implementation Unit on the other. The consultant flagged a specific goal to the recipient, not only to restructure the Ministry and State Regulatory Administrations, but also to adjust the civil service system and legislation. During project implementation a new model of the Ministry (western type, policy making, executive governmental body) and independent, self-financing Transport Regulatory Administrations with a budget neutral market level scale of wages to motivate labor productivity was created; new legislation and regulations were originated; and the law in force was amended. These results were obtained by means of very serious work of the professional team, the work not restricted by association of client and consultant, as implementation of these large-scale reforms were not possible in this frame. In our opinion, the World Bank Restructuring of the Ministry of Transport Project was implemented - 12 - successfully, and as intended, has had a useful pilot character. The project is recognized as successful and its results are widely used in ongoing public service reforms in Georgia. It should be mentioned that during implementation of the project, while there were numerous innovations (namely: functional reorganization of the Ministry, forming and perfection of new relationships with enterprises, improvement of the state regulations and introduction of new, modern principles of civil services), we were not secured against mistakes, and improvement of some mistakes required improvement of the legal framework. In this regard the project launched the restructuring process, but ensured its sustainable development, that, in our view is extremely important. We would like to point out that success of the project was determined by implementation of various components (procurement of goods and IT technologies, construction works, training of personnel, etc.). The outcome of the building rehabilitation of the restructured Ministry and Regulatory Administrations, training of the staff (26 various modal courses), provision of equipment for the offices with IT technology and furniture, and the adjustment of the pay scale of the personnel is excellent. Comments of Mr. George Tsagareli, Director, Transport Reform and Rehabilitation Unit: The Transport Reform and Rehabilitation Center (TRRC), which is the Project Implementation Unit (PIU), managed the World Bank Learning and Innovation Loan-financed Restructuring of the Ministry of Transport Project according to goals and objectives described in the Project Appraisal Document and in compliance with the Credit Development Agreement provisions. At the same time activities of the PIU were specified in the Credit Implementation Agreements signed between the PIU and the Ministry of Transport and the PIU and the Ministry of Finance of Georgia. In spite of this arrangement the PIU faced numerous difficulties and obstacles during implementation of the Project. First of all, we would like to point out that the PIU accumulated significant experience while working with the consulting service component. Recommendations on restructuring of the Ministry were worked out by the consulting consortium. Multiplicity of the consulting works created the necessity of a complex contract with the consortium. Another difficulty was that restructuring/reforming of the Ministry at different stages required various types of consultants. Namely, content experts and process consultants in the initial phases A and B and process consultant and "doctor" consultant in the conclusive phase C, where implementation of the recommendations worked out in the phases A and B was foreseen. Furthermore, the PIU had a special role of so-called "coordinator" between governmental, nongovernmental and even private sectors, as well as the mass media. While working on implementation of each stage of the Project the PIU accumulated very special and valuable experience, since it worked as part of a heterogeneous team: the Ministry, the consultant and the World Bank project management. During Project implementation the PIU had intimate contact with governmental organizations of Georgia, the committees of the Parliament and members of the Parliament, with other governmental and nongovernmental organizations involved in the reforming process, and with representatives of the western countries. Aforesaid indicates the versatility and intensity of work of the PIU during implementation of the project. We would like to express our view on the project implementation progress: all goals and objectives given in the Project Appraisal Document were fulfilled and from this standpoint we can say that the project was successfully implemented. - 13 - (b) Cofinanciers: n.a. (c) Other partners (NGOs/private sector): n.a. 10. Additional Information Structure of the MOTC (December 2002) Minister Consultative Board Advisors First Deputy Minister Minister's apparatus Deputy Minister Deputy Minister Deputy Deputy Minister- Deputy Minister Secretary for Minister Parliament Department of Department of Safety and Accountancy Department of Department Communica- economic policy, relations with legal public relations of foreign tion and Post reforms and parliament and supervision and relations Administration intersectoral legislation inspection information coordination related technology activities - 14 - Annex 1. Key Performance Indicators/Log Frame Matrix Outcome / Impact Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate New Statutes for Transport Sector Prepared 100% 100% and Adopted Staff Selected for New MOT Structure 100% 100% Reform Implementation 80% 90% Level of Staff Remuneration vs. Market Not projected 50% Benchmark Output Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate MOT Functions Identified 100% 100% Information System Set Up 100% 100% MOT Building Rehabilitated 100% 100% 1End of project June 30, 2003 - 15 - Annex 2. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Component US$ million US$ million Civil Works 0.30 0.35 1.17 Goods 0.50 0.53 1.06 Consultant Services 1.40 1.41 1.01 Total Baseline Cost 2.20 2.29 Physical Contingencies 0.16 0.00 Price Contingencies 0.14 0.00 Total Project Costs 2.50 2.29 Total Financing Required 2.50 2.29 Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB NCB 2 N.B.F. Total Cost Other 1. Works 0.00 0.28 0.00 0.00 0.28 (0.00) (0.22) (0.00) (0.00) (0.22) 2. Goods 0.00 0.00 0.68 0.00 0.68 (0.00) (0.00) (0.64) (0.00) (0.64) 3. Services 0.00 0.00 1.44 0.10 1.54 (0.00) (0.00) (1.44) (0.00) (1.44) 4. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 5. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 6. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) Total 0.00 0.28 2.12 0.10 2.50 (0.00) (0.22) (2.08) (0.00) (2.30) - 16 - Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB NCB 2 N.B.F. Total Cost Other 1. Works 0.35 0.00 0.00 0.00 0.35 (0.26) (0.00) (0.00) (0.00) (0.26) 2. Goods 0.52 0.00 0.01 0.00 0.53 (0.42) (0.00) (0.01) (0.00) (0.43) 3. Services 0.00 0.00 1.41 0.00 1.41 (0.00) (0.00) (1.11) (0.00) (1.11) 4. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 5. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 6. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) Total 0.87 0.00 1.42 0.00 2.29 (0.68) (0.00) (1.12) (0.00) (1.80) 1/Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies. 2/Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units. Project Financing by Component (in US$ million equivalent) Percentage of Appraisal Component Appraisal Estimate Actual/Latest Estimate Bank Govt. CoF. Bank Govt. CoF. Bank Govt. CoF. Civil Works 0.22 0.06 0.00 0.26 0.09 0.00 118.2 150.0 0.0 Goods 0.63 0.05 0.00 0.43 0.10 0.00 68.3 200.0 0.0 Consultant Services 1.44 0.00 0.10 1.11 0.30 0.00 77.1 0.0 0.0 - 17 - Annex 3. Economic Costs and Benefits Not applicable. - 18 - Annex 4. Bank Inputs (a) Missions: Stage of Project Cycle No. of Persons and Specialty Performance Rating (e.g. 2 Economists, 1 FMS, etc.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation September 1997 1 Task Team Leader Appraisal/Negotiation March 1998 3 Task Team Leader, Transport Economist, Organization Specialist May 1998 3 Task Team Leader, Transport Economist, Lawyer Supervision March 1999 1 Task Team Leader S S February 2000 2 Task Team Leader, Economist S S September 2000 2 Task Team Leader, Economist S S January 2001 2 Task Team Leader, Economist S S May 2001 3 Task Team Leader, Economist, S S Procurement Specialist February 2002 3 Task Team Leader, Economist, S S Procurement Specialist June 2002 3 Task Team Leader, Economist, S S Procurement Specialist ICR December 2002 3 Task Team Leader, S S Economist, Railway Engineer (b) Staff: Stage of Project Cycle Actual/Latest Estimate No. Staff weeks US$ ('000) Identification/Preparation 33.7 Appraisal/Negotiation Included above Supervision 239.4 ICR 8.3 Total 281.4 - 19 - Annex 5. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA - 20 - Annex 6. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU 6.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU - 21 - Annex 7. List of Supporting Documents 1. Project Appraisal Document for the Proposed Learning and Innovation Credit to Georgia for a Restructuring of the Ministry of Transport- September 2, 1998. 2. Inception Report for the Restructuring of the Ministry of Transport-Georgia, June 19, 2000: Dornier SystemConsult. 3. Technical Report (1) MOTC Organization, Functions, Staffing Plan and Job Descriptions, October 29, 2001- Dornier SystemConsult. 4. Technical Report (II) Statutes, July 17, 2001- Dornier SystemConsult. 5. Technical Report (III) Retrenchment and Payscale Reform, October 29, 2001- Dornier SystemConsult. 6. Technical Report (IV) Information System Design, October 29, 2001- Dornier SystemConsult. 7. Technical Report (V) Training, October 29, 2001- Dornier SystemConsult 8. Training Program Inception Report- NEA, The Netherlands and PTRC, Ltd., UK 9. Training Program Final Report- NEA, The Netherlands and PTRC, Ltd., UK - 22 - - 23 -