Highlights

World Bank Group engagement in infrastructure was based on rich analytic work that supported highly relevant priorities, such as road management and safety, resilience, financial and environmental sustainability of the energy sector, and rural broadband access.

Upgrading the East-West Highway corridor was central to the government’s strategy, which relied on the World Bank as an anchor for the broader program. Implementation was successful, and the program was impactful because it leveraged other sources of finance.

The Bank Group supported a comprehensive program in secondary and rural roads that introduced innovative elements with a focus on asset management, results-based approaches, and road safety. Flexibility in adjusting to country circumstances and limited implementation capacity contributed to the program’s overall success.

The Bank Group’s support addressed the primary constraints in the energy sector through advisory services, analytics, and reforms to facilitate public and private investment. The Bank Group was responsive to emerging challenges around power purchase agreements and worked with partners to help resolve the issue.

The World Bank support for reforms in telecommunications helped create the conditions for the private sector to provide broad access. Targeted support for rural broadband connectivity, in close cooperation with the European Union, is helping close remaining access gaps.

Analytics by the Bank Group and other development partners identified infrastructure as an obstacle to economic expansion and integration into the global economy and to growth in Georgia’s regions. Issues highlighted by the World Bank diagnostics and strategies included underinvestment in road maintenance, high transport costs because of excessive vehicle operating costs and long journey times, unreliable power transmission in sections of the national grid, and insufficient access to broadband technology, particularly in rural areas.

Transportation

Georgia has the potential to capitalize on its status as a transit country located at the crossroads between Europe and Central Asia, while also strengthening internal connectivity to improve economic opportunities in the regions. The East-West Highway (EWH) is part of the Trans-Caucasus Transit Corridor that connects Baku on the Caspian Sea with Georgia’s Black Sea ports of Batumi and Poti as part of a broader corridor between China and the EU. It forms part of the government’s larger strategy of turning Georgia into an international transportation hub. About half of the country’s population rely on secondary roads as they live in villages and smaller towns where 75 percent of the population derive their livelihoods from agriculture. Georgia had a history of insufficient road maintenance contributing to the depletion of capital stock, leading to large reinvestment needs. At the start of the evaluation period, the country lacked methodologies and systems of estimating and tracking maintenance needs with insufficient budget allocations (IMF 2018), and expenditures on maintenance averaged less than $2,500 per kilometer per year compared with international benchmarks of $4,000 per kilometer.

World Bank work in transport evolved based on a comprehensive set of analytics. The original conception of the EWH was based on trust fund support by the Public-Private Infrastructure Advisory Facility. In 2015, the World Bank issued a sector note that reviewed transportation efficiency and compiled a detailed list of gaps and areas for improvement (Benmaamar et al. 2015). Analytic work in 2017 identified options for contracting tolling, maintenance, and rehabilitation of roads with the private sector. Reports on freight transport and logistics made recommendations for enhancing rail transport and multimodal connections between the Caspian Sea and the Black Sea with a focus on environmental sustainability. In 2023, the government of Georgia approved the 2023–30 National Transport and Logistics Strategy, supported by the East-West Highway Corridor Improvement Project, and the 2023–24 Action Plan aiming to position the country as a regional logistics and transportation hub.

International Transport Connectivity

Upgrading the EWH corridor was central to the government’s strategy, which relied on the World Bank as an anchor for the broader program. The program aimed to transform Georgia’s economy by upgrading the highway to international expressway standards, increase integration with the EU and China (reducing travel times to 15 days), and provide connectivity within the region. It started in 2006 with World Bank financing and subsequently attracted financing from other multilateral development banks. The World Bank’s role was prominent in establishing the original program, coordinating aspects of implementation, and setting standards, with other development partners taking on an increasing share of the financing. Implementation of the Third East-West Highway Improvement Project and the Fourth East-West Highway Improvement Project was ongoing at the start of the evaluation period. The 2015 East-West Highway Corridor Improvement Project and its 2017 additional financing were initially set to mobilize 35 percent of project funding from EIB—a share that increased to 45 percent after EIB approved additional financing. Expenditure to date on the overall program has reached $2.3 billion, with $527 million financed by the World Bank and the balance mobilized from other international financial institutions.1 The Roads Department, as a member of Georgia’s Road Safety Working Group, participated in drafting the Second Road Safety Strategy and Action Plan (2016–20), which was supported under the Fourth East-West Highway Improvement Project.

Implementation of the EWH corridor program was successful. The Third East-West Highway Improvement Project and the Fourth East-West Highway Improvement Project were completed during the evaluation period with infrastructure works and achieved most outcome indicators, such as a reduction in vehicle operating costs, reduction in travel time, and decrease in road fatalities. The rates of return computed for the third and fourth phases have been between 2.4 percent and 4.2 percent higher than the appraisal estimates of 17.5 percent because of lower-than-expected construction costs and greater traffic growth than predicted. Therefore, the achievement of relevant objectives under these projects was rated successful by IEG. IEG identified moderate shortcomings in partner coordination and issues related to complexity that resulted from an excessive number of activities under some components (World Bank 2017c, 2021). Key informant interviews underscored that pursuing a programmatic approach might have helped avoid some of the identified issues.

A 2015 impact assessment of the second phase of the EWH program confirmed its positive cost-benefit proposition. Based on local effects, the EWH was expected to increase the real GDP by 1.5 percent in the medium term and by 4.2 percent in the long term (World Bank 2016a). A 10 percent increase in the length of the EWH was found to predict a 1.1 percent increase in exports transported by roads, generating export revenues of up to $1,466 million (World Bank 2016a). The gravity model used to assess the highway’s impact on Georgia’s competitiveness in international export markets suffered from limitations because it did not consider some other constraints that included the size of the domestic market, limited skills availability, and political instability in the broader region.

Internal Transport Connectivity

The Bank Group supported a comprehensive program with innovative elements that contributed to improved transport connectivity. A roads connectivity project in the Kakheti region was completed during the early years of the evaluation period with satisfactory outcomes. It introduced some novel design elements, such as the use of a design and build contracting model and a simple but effective road asset management system. The World Bank continued the successful implementation of the Secondary and Local Roads Project series, which rehabilitated more than 500 kilometers of local and secondary roads and implemented road safety measures. The projects helped decrease vehicle operating costs, increased traffic speed, and built capacity in the Roads Department to improve road safety. The Third Secondary and Local Roads Project introduced the Safer Roads Investment Plan based on the International Road Assessment Programme.

World Bank support for regional and municipal infrastructure also covered transport aspects. Two regional development projects active during the evaluation period aimed to boost economic potential and financed road construction, in addition to tourism-related infrastructure. The outcomes and Bank performance of both completed regional projects were rated by IEG as moderately satisfactory (World Bank 2018c, 2020b).

In 2016, the World Bank introduced the use of results-based designs and capacity building for road rehabilitation and management. The World Bank designed the Secondary Road Asset Management Project in 2016 to support the Roads Department in improving the condition and safety of about 141 kilometers of road. The introduction of output- and performance-based road contracts (OPRCs)2 was accompanied by improvements in the road asset management system to identify efficiencies in road maintenance and rebalancing the relation between capital expenditures and maintenance cost. The World Bank chose to use a results-based investment project financing with disbursement-linked indicators (DLIs) over a PforR in recognition of the fact that capacity building was required. The project encompassed climate resilience measures and road safety aspects. Disruptions caused by COVID-19 resulted in delays in the OPCR component and forced a change in modality toward input-based contracts for selected priority roads. The project was completed in June 2024, achieving its targets for road rehabilitation.

A recent project combines improved internal connectivity with decreasing bottlenecks in the road connectivity with Azerbaijan. To complement work on international road connectivity and building on earlier work on secondary roads, the World Bank approved a loan in March 2022 for $109 million for the Kakheti Connectivity Improvement Project. According to a 2020 estimate, about 20 percent of Kakheti produce is lost during the postharvest stage because of inadequate roads (World Bank 2022d). The road also serves as an initial phase of an alternative northeast route from Tbilisi to the Azerbaijan border, with the goal of increasing the use of an alternative border crossing point and relieving the congested Red Bridge border facility.

Results

With the progressive upgrading of road transport infrastructure, road transport has assumed a more prominent role in Georgia. Between 2014 and 2019, external trade by road grew at an annualized 6.1 percent compared with an overall growth of 1.9 percent (TBC Capital 2021). Road-based transit trade grew by 14.0 percent annually between 2015 and 2021, and the overall value added from the transport and storage sector nearly doubled from GEL 1.7 billion to GEL 3.3 billion during that period (TBC Capital 2022).

World Bank support helped create capacity and improve road maintenance. The combination of World Bank projects has helped the Roads Department develop a rolling five-year program for the improvement and preservation of the secondary road assets, but more work is needed on climate resilience. Overall, the program helped decrease the rehabilitation backlog and improve road conditions, and the Roads Department monitors road sections vulnerable to natural disasters. The introduction and improvements of the road asset management system facilitated monitoring of road conditions and planning of maintenance, and OPRCs piloted a way of allocating funding and responsibilities to ensure the maintenance of assets. However, capacity-building support for the Ministry of Regional Development and Infrastructure of Georgia and attempts at improving the local contracting industry faced issues. The ministry provided comprehensive training to a small number of staff on a series of relevant issues, but there is no evidence of the effectiveness of this training. Capacity-building components of projects frequently lacked focus in the absence of well-defined success metrics. A shortage of qualified engineers and road contracting firms in Georgia resulted in limited competition for contracts, but a review of the road contracting industry was hampered by pushback from incumbents.

Road safety audits and inspections of existing road assets were mainstreamed in the Roads Department’s implementation practices in line with World Bank recommendations. The mainstreaming of road safety means that all World Bank–financed projects are now subject to best road safety practice. A more holistic approach, combining engineering measures with improved enforcement, better emergency services response, and education campaigns, has contributed to a reduction in the national road accident fatality rate. Despite a 260 percent increase in traffic volumes over the past decade, the national road accident fatality rate dropped from 15.4 fatalities per 100,000 people in 2010 to 12.1 fatalities per 100,000 people in 2020. Further work is needed as death and injury rates remain above those in EU countries.

A focus on monitoring outcomes instead of delivery of infrastructure assets supported the delivery of better results. Since the start of the evaluation period, road quality has improved significantly, and most international roads have been classified as being in good or fair condition based on the International Roughness Index. During the Country Program Evaluation period, the percentage of secondary roads in good or fair condition steadily improved from about 60 percent in 2015 to 66 percent, compared with only 30 percent in 2004 (World Bank 2022d). Over the evaluation period, Georgia’s ranking in the Logistics Performance Index improved from 116 to 79 (figure 4.1). Relevant subrankings of the index followed a similar pattern. The engagement was generally successful and adjusted to disruptions, such as the COVID-19 pandemic, in a way that helped mitigate risks.

Figure 4.1. Georgia Logistics Performance Index Ranking with Ranking of Select Subsectors

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Figure 4.1. Georgia Logistics Performance Index Ranking with Ranking of Select Subsectors

Source: Logistics Performance Index, World Bank, https://lpi.worldbank.org/international/scorecard/radar/C/GEO/2023.

Note: LPI = Logistics Performance Index.

The Bank Group did less to promote logistics and intermodal transport. Based on various analytic pieces prepared during the period, improvements to logistic services, supply chain and cross-border management, and intermodal transport solutions had the potential for significant economic and environmental benefits. Through the East-West Highway Corridor Improvement Project, the World Bank supported a study to support logistic development. Further support for transport could have increased the focus on rail’s potential for transit trade, especially for container freight using the link from the Caspian Sea to the Black Sea. The balance between road and rail could have been improved through an appropriate road pricing policy.

Energy

Just before the evaluation period, Georgia had introduced major reforms to stabilize the sector and decrease technical and nontechnical losses, after decades of unreliable service delivery (World Bank 2019b). Key reforms included unbundling the sector into separate generation, transmission, and distribution companies with an independent market operator and sector regulator. This preceded a steep increase in private generation capacity, with state-owned enterprises in charge of transmission and distribution. Although, in aggregate, Georgia had no supply shortage, the strong reliance on hydropower meant that seasonal supply did not match demand, leading to the need to import power in the winter and export power to neighboring countries in the summer. Georgia’s geographic situation presented the potential for exporting carbon-neutral energy. The government introduced PPAs to incentivize private power generation with initial support from development partners.3 However, increases in the share of generation covered by contracts resulted in excessive contingent liabilities.

Analytic work in the energy sector was responsive to emerging challenges and government priorities. The 2014 policy note series found that the Georgian energy sector was facing two interlinked challenges—the need to ensure a reliable supply of electricity and the need to participate in regional energy trade. Starting with the 2016 power sector policy note, the focus shifted toward fiscal risks resulting from PPAs. The note was followed by the just-in-time ASA Electricity Market Reform Support and the Georgia Power Sector: Maximizing Finance for Development report in 2021 and 2022, respectively. Both products were supported by the Energy Sector Management Assistance Program and provided analysis underpinning the further development of the electricity sector with a view to (i) maximizing private finance, (ii) addressing financial sustainability issues arising from existing PPAs, and (iii) furthering integration with the EU energy market (Kochnakyan et al. 2022). The work was complemented by a feasibility study to examine the viability of an undersea interconnection from Georgia to Romania to export renewable electricity.

Toward the end of the evaluation cycle, the World Bank started to provide analytics with a focus on energy efficiency. The Tbilisi Urban Regeneration and Energy Efficiency Project, completed in 2020, presented a solution and made recommendations for retrofitting residential buildings with energy efficiency measures. The Energy Efficiency and Social Equity Project, completed in 2021, helped prepare an energy efficiency sector note. Both activities received support from the Energy Sector Management Assistance Program.

World Bank financing for the energy sector supported the main constraints. World Bank engagement in Georgia’s power sector during the evaluation period started with support for reforms to increase the potential for private generation. The 2013 Second Competitiveness and Growth DPO contained a prior action to adjust the electricity market rules to allow prioritization of the dispatch of hydro and renewably generated power while introducing auctions for the remaining power produced. The Third Competitiveness and Growth DPO further had a prior action on the adoption of a new transmission grid code. The Green, Resilient, and Inclusive DPO supported the introduction of capacity auctions with contracts for difference to replace PPAs, both to promote the expansion of renewable energy and to address contingent liabilities.

Through investment financing, the World Bank aimed to help expand Georgia’s energy grid to facilitate more private power generation. The 2014 Transmission Grid Strengthening Project helped provide reliable power transmission to the southwestern part of the grid and transmit power from the newly developed Shuakhevi hydropower plant. In July 2016, project savings allowed expanding the scope to include the rehabilitation and upgrade of 102 kilometers of existing lines and improvements to the energy management systems. The 2019 Energy Supply Reliability and Financial Recovery Project is under implementation, and infrastructure consisting of a substation and transmission lines is being constructed. The project has helped improve the Georgian State Electrosystem’s financial viability.

IFC and MIGA focused on supporting hydropower generation. In 2014, IFC committed equity and a loan to support the 184-megawatt Shuakhevi hydropower plant project, which was the largest development in Georgia since the 1980s. The investment received cofinancing from EBRD and ADB, while MIGA provided a guarantee to cover an equity investment by Tata Power International Pte. Ltd. in the project. The facility became fully operational in 2021 after delays caused by a combination of a tunnel collapse that required extensive repairs and opposition from local communities, which led to a grievance case filed with the accountability mechanisms of IFC, EBRD, and ADB. The case was resolved through the project’s dispute resolution mechanism (CAO 2021). In 2022, the plant produced 439.2 gigawatt-hours, of which 116.2 gigawatt-hours were exported, resulting in an estimated emission reduction of 302,940 metric tons of carbon dioxide (ADB 2023). Georgia became a net energy exporter in 2023, exporting 678.5 gigawatt-hours after imports peaked at 1,615.9 gigawatt-hours in 2021 (figure 4.2).

Figure 4.2. Energy Imports, Exports, and Balance

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Figure 4.2. Energy Imports, Exports, and Balance

Source: Monthly Energy Statistics Indicators, National Statistics Office of Georgia, https://www.geostat.ge/en/modules/categories/87/monthly-energy-statistics-indicators.

Note: GWh = gigawatt-hour.

Telecommunication

Providing telecommunication services for areas with lower levels of access and interregional connectivity emerged as a priority during the evaluation period. Georgia followed a private sector–led approach to pursuing universal access to ICT, resulting in mobile telephone coverage of 99 percent of the population by 2015. However, the country had the sixth-lowest rate of broadband access in the region. A 2019 just-in-time policy note, supported by the EU4Digital trust fund, made recommendations for a broadband strategy, which informed an investment project. The note informed policy actions—for example, the introduction of standards for internet access in public facilities, such as schools, in line with the EU proposals. Other actions, such as the adoption of an infrastructure-sharing law to facilitate cost reduction in digital infrastructure deployment, are under implementation. After an initial assessment, technical assistance is ongoing to the realize the potential for interregional digital connectivity between Europe and Asia through Georgia. However, the overall strategic vision for digital economy development in Georgia is still unstated, and there is no institutional mechanism to coordinate these efforts across stakeholders.

Support for ICT initially focused on reforms to facilitate private sector delivery. The Private Sector Competitiveness DPO series supported reforms related to spectrum allocation and pricing, whereas the Economic Management and Competitiveness DPO series included regulatory actions to promote infrastructure sharing to enable the upgrading of mobile and fixed broadband services. It also led to the introduction of legal and regulatory amendments to improve the policy environment and align it with EU practices. Self-evaluations reviewed by IEG rated the outcomes related to these reform areas as substantial.

After initial setbacks with pilot approaches under the GENIE project, the World Bank adjusted its approach to promoting rural broadband internet. The GENIE project (discussed in more detail in the Innovation section in chapter 3) included a pilot to subsidize connection fees for access to broadband internet through a voucher program. The pilot did not achieve its intended results because of a lack of demand due to changes in pricing schemes by internet providers (World Bank 2016b). Log-In Georgia, approved in 2020, promotes increased access to and use of broadband internet in selected areas in rural Georgia. It aims to increase internet access through the government’s Open Net Program by expanding fiber-optic backbone networks to rural settlements, which is receiving additional financial support from EIB. The project is currently under implementation and has so far provided access to 66,000 individuals in rural settlements (World Bank 2023b).

World Bank Group Coordination

Collaboration between IFC and the World Bank focused on the energy sector and involved a series of complementary advisory and investment projects. At the start of the evaluation period, the World Bank focused on higher-level analytic and strategy engagement and policy support, whereas IFC provided advice and investment in hydropower generation. The World Bank’s focus on systemic issues, including transmission, complemented IFC’s work in generation and set the stage for broader mobilization of private funds. The World Bank and IFC collaborated closely to develop a sustainable finance taxonomy adopted by Georgia, with subsequent issuance of green bonds to create a strong demonstration effect on the market. The World Bank’s analytic program in the second half of the evaluation period focused on more specialized aspects, such as the undersea cable and energy efficiency, both topics that have the potential for future collaboration.

External Coordination

The Bank Group’s engagement was well coordinated with other partners, and there is evidence that in various cases, the World Bank’s unique position as a knowledge institution helped catalyze support beyond its own resources. The World Bank was recognized by the government as the partner of choice in the transport sector, and it played an instrumental role in designing the overall sector concept and reduced financing support as other development partners stepped in. As overall annual support by development partners increased over time, the World Bank’s share in support decreased, with ADB and EIB accounting for 86.6 percent of new transport financing during the CPF period. Coordination of support for subnational transport infrastructure was primarily informal, but there was evidence of extensive cooperation at the operational level in encouraging the use of OPRCs and harmonizing standards. Senior officials at several ministries indicated that the World Bank’s strength lay in its diagnostics and the depth of its support. Whereas many international financial institutions rely more on consultants, the World Bank has a strong in-house capability that makes it the “go-to” partner to lead more complex and innovative initiatives. Conversely, its services are more expensive, and it has limited grant funding compared with other partners.

The Bank Group’s support for Georgia’s power and ICT sectors complemented the work of other development partners. During the evaluation period, the Bank Group was the third-largest partner after Germany and EBRD. Germany, through the German development bank KfW, and EBRD had significant involvement in energy policy and grid strengthening with additional support for power generation and domestic gas distribution. The World Bank’s work focused on policy reform and grid expansion to areas with lower levels of access, whereas IFC fostered private investment in generation, jointly with other development partners. The Bank Group collaborated with EIB on the financing of Log-In Georgia.

Findings

The Bank Group program in connectivity infrastructure was well supported by analytics. The engagement in the transport sector was a continuation of prior work, and that work was built on an appropriate analytic foundation, which was updated in response to changing circumstances. Both the energy and ICT programs started with support for reforms and analytics, consistent with the intentions of the Bank Group’s cascade approach. The use of sector notes allowed constructive engagement with the government to facilitate shared ownership of sector programs. In several cases, the government’s desire to align with EU standards proved helpful.

The engagement was highly relevant in that it supported the government strategy by focusing on international and domestic connectivity and improving maintenance, road safety, and resilience. It continued an existing longer-term program in collaboration with other development partners, and improved results can be traced to the Bank Group’s support for the Roads Department and its role in catalyzing additional financing. There was less progress in investment into intermodal logistics hubs identified in a study completed in 2016 and mentioned in the 2018 CPF as part of IFC’s planned investment program.

In all three subsectors, the Bank Group has contributed to the evolution of sector priorities. In the case of the transport sector, the Bank Group’s support emphasized road safety issues that led to significant improvements. The World Bank’s programmatic view allowed for the piloting of OPRCs despite complications imposed by external factors. In the energy sector, the World Bank and IFC focused on complementary aspects (IFC on power generation and World Bank on transmission) with advisory work pursuing relevant emerging priorities, including energy efficiency, Mobilizing Finance for Development, and the Georgia–Romania undersea cable. In ICT, the World Bank, together with the EU, built a program to ensure rural access to broadband, complementing the adequate coverage in urban areas.

Projects completed during the evaluation period had delivered on expected outputs. Targets for most outcomes were substantially achieved, and economic rates of return were satisfactory. The projects were relevant and appropriate, but more attention could have ensured that the capacity-building initiatives were both effective and measurable. Issues regarding land acquisition under the Transmission Grid Strengthening Project could have been identified and addressed during a project restructuring.

Support in the infrastructure sector would benefit from a stronger focus on developing local skills and capacity. The implementation of projects is adversely affected because the local market does not produce enough qualified engineers, and local firms tend to concentrate on working with the private sector where procurement requirements and safeguard requirements are less onerous. Lack of capacity was also a factor in the reduced uptake of the initial GENIE project and may contribute to gaps in logistics capacity. Most of these factors were identified in the 2014 CEM (World Bank 2014b).