PUBLIC

DOCUMENT OF THE EUROPEAN BANK

FOR RECONSTRUCTION AND DEVELOPMENT

Approved by the Board of Directors on 11 January 2023 1

GEORGIA

GRCF2 W1 - TBILISI METRO MODERNISATION

[Redacted in line with the EBRD’s Access to Information Policy]

[Information considered confidential has been removed from this

document in accordance with the EBRD’s Access to Information Policy
(AIP). Such removed information is considered confidential because it
falls under one of the provisions of Section III, paragraph 2 of the AIP]

1 As per section 1.4.8 of EBRD’s Directive on Access to Information (2019), the Bank shall disclose
Board reports for State Sector Projects within 30 calendar days of approval of the relevant Project
by the Board of Directors. Confidential information has been removed from the Board report.

For the avoidance of any doubt, the information set out here was accurate as at the date of
preparation of this document, prior to consideration and approval of the project.
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TABLE OF CONTENTS

Page

TABLE OF CONTENTS ...................................................................................... 2

ABBREVIATIONS / CURRENCY CONVERSIONS .......................................... 3
PRESIDENT’S RECOMMENDATION ............................................................... 4
BOARD DECISION SHEET ................................................................................ 5
ADDITIONAL SUMMARY TERMS FACTSHEET ........................................... 5
1. STRATEGIC FIT AND KEY ISSUES......................................................... 8
1.1 STRATEGIC CONTEXT ........................................................................... 8
1.2 TRANS ITION IMPACT ............................................................................ 9
1.3 ADDITIONALITY .................................................................................. 10
1.4 SOUND B ANKING - KEY R IS KS............................................................. 12
2. MEASURING / MONITORING SUCCESS .............................................. 13
3. KEY PARTIES........................................................................................... 15
3.1 BORROWER / C LIENT .......................................................................... 15
3.2 B ENEFICIARIES ................................................................................... 16
4. MARKET CONTEXT................................................................................ 16
5. FINANCIAL / ECONOMIC ANALYSIS .................................................. 17
5.1 SOVEREIGN ASS ESSMENT.................................................................... 17
5.2 ECONOMIC ANALYS IS ......................................................................... 17
5.3 PROJECTED P ROFITABILITY FOR THE B ANK........................................ 17
6. OTHER KEY CONSIDERATIONS .......................................................... 17
6.1 ENVIRONMENT .................................................................................... 17
6.2 INTEGRITY .......................................................................................... 18
6.3 CONCESS IONAL FINANCE .................................................................... 18
ANNEXES TO OPERATION REPORT ............................................................ 19
ANNEX 1 – PROJECT IMPLEMENTATION AND PROCUREMENT PLAN20
ANNEX 2 – GREEN ASSESSMENT SUMMARY............................................. 22
ANNEX 3 – IMPLEMENTATION PROGRESS OF GrCF / GrCF2 ................. 24

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ABBREVIATIONS / CURRENCY CONVERSIONS

CNG Compressed Natural Gas

CO2 Carbon Dioxide
CRO Climate Resilience Output
D&B Design and Build
EBRD European Bank for Reconstruction and Development
EIRR Economic Internal Rate of Return
E&S Environmental and Social
ESAP Environmental and Social Action Plans
ESDD Environmental and Social Due Diligence
EUR Euro
FS Feasibility Study
GCAP Green Cities Action Plan
GCF Green Climate Fund
GDP Gross Domestic Product
GEL Georgian Lari
GET Green Economy Transition
GHG Greenhouse Gas
GrCF EBRD Green Cities
GrCF2 EBRD Green Cities 2
IFI International Financial Institution
IMF International Monetary Fund
NBG National Bank of Georgia
NDC Nationally Determined Contributions
PIA Project Implementation Adviser
PIU Project Implementation Unit
PM Particle Matter
PPR Procurement Policies and Rules
PSC Public Service Contract
SDG Sustainable Development Goals
SSF Shareholder Special Fund
TC Technical Co-operation
ToR Terms of Reference
TUDA Transport and Urban Development Agency
VAT Value Added Tax

CURRENCY CONVERSION
2
EUR / GEL 2019 2020 2021
Annual average 3.1553 3.5519 3.8140

2 Annual average of National Bank of Georgia’s official daily exchange rates.

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PRESIDENT’S RECOMMENDATION
This recommendation and the attached Report concerning an operation in favour of
Georgia (the “Borrower”) are submitted for consideration by the Board of Directors.

The facility will consist of a sovereign loan of up to EUR 50.6 million [REDACTED].
The loan will be on-lent to the City of Tbilisi for the benefit of the Tbilisi Transport
Company. The Bank’s loan will be co-financed by an investment grant of up to EUR 5
million from the Green Climate Fund (“GCF”).

The operation will increase the climate resilience of the metro system by financing the
upgrade and rehabilitation of up to 12 metro stations out of 23 in Tbilisi (the “Project”).
Most of these stations became operational in 1966 and have not been rehabilitated since
then, hence, the Project will address the urgent infrastructure investment needs. The
Project is a follow-on investment and the first climate change adaptation project under
Tbilisi’s Green City Action Plan. The Project addresses the City’s priority
environmental challenges of resilience and air pollution. The Project’s expected
transition impact follows that identified in Green Cities Framework 2, and is to derive
from the Green and Well-Governed qualities by addressing the City’s priority needs
and reducing the impacts of its transport sector by encouraging a shift to public transport
systems, as well as support to develop and introduce improved asset management
practices. The Green Economy Transition (“GET”) share of the Project is 100 per cent.

Technical Cooperation (“TC”) support for the preparation of the Project was financed
by the EBRD Shareholder Special Fund (“SSF”). Post-signing TCs to assist with the
Project implementation support and development of Asset Management Plan are
proposed to be funded by an international donor and/or the SSF.

I am satisfied that the operation is consistent with the Bank’s Strategic and Capital
Framework, the Municipal and Environmental Infrastructure Sector Strategy, the
Country Strategy for Georgia, the Green Economy Transition Approach 2021-2025, the
Strategy for the Promotion of Gender Equality and with the Agreement Establishing
the Bank.

I recommend that the Board approve the proposed loan substantially on the terms of the
attached Report.

Odile Renaud-Basso

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BOARD DECISION SHEET

Georgia - GrCF2 W1 - Tbilisi Metro Modernisation - DTM 52586
Framework: Georgia - Green Cities 2 – Window I - DTM 50440
Transaction / Board Board approval 3 is sought for a sovereign loan of up to EUR 50.6 million,
Decision [REDACTED], in favour of Georgia to finance the upgrade and rehabilitation of
up to 12 metro stations out of 23 stations. The proceeds of the sovereign loan are
to be on-lent to the City of Tbilisi for the benefit of the Tbilisi Transport Company.
[REDACTED].
The proposed investment will address Tbilisi’s priority environmental challenges
as identified by the Green City Action Plan, which was approved by the City in
September 2017. The Project is a follow -on investment proposed under Green
Cities Framework 2 – Window I.
Client Georgia as the Borrower.
Main Elements of the Transition impact:
Proposal  Green – The Project will improve the reliability, safety and efficiency of
public transport by encouraging a modal shift from private to public transport,
and thus, mitigating the impacts of the City's public transport sector on the
environment. It will also improve City’s resilience to climate-related events,
such as flooding.
 Well-governed – The Project will support the development and introduction
of an Asset Management Plan, aimed to improve asset management practices
in the Company.
Additionality:
 The Project will be another step for the City to implement the GCAP and it is
the first investment targeting climate change adaptation.
 The long-term financing necessary to structure the Project is not available in
the country.
 The Bank’s well-established relationships with the authorities will enable it to
extend the policy dialogue on the application of enhanced standards.
 The Bank’s experience, innovation, knowledge and capabilities are material
to the timely realisation of the Project’s objectives.
 The Project will promote higher gender and economic inclusion standards.
Sound banking:
The transaction is a sovereign loan. The Bank’s Standard Terms and Conditions
apply. [REDACTED].
Key Risks  Georgia public debt sustainability is expected to be preserved in the medium
term. The country’s sovereign credit rating stands at BB with Stable outlook
from Fitch, BB with Stable outlook from S&P and Ba2 with Negative outlook
from Moody’s.
 The City and the Company have successfully implemented a number of IFI-
funded projects, including projects financed by the EBRD.
Strategic Fit Summary The Project is consistent with the Bank’s Strategic and Capital Framew ork, the
Municipal and Environmental Infrastructure Sector Strategy, the Country Strategy
for Georgia, the Green Economy Transition Approach 2021-2025, the Strategy for
the Promotion of Gender Equality, Georgia’s updated Nationally Determined
Contributions under the Paris Agreement, EU’s Covenant of Mayors initiative, the
EU Association Agreement signed by Georgia in 2014 and Tbilisi’s GCAP.

ADDITIONAL SUMMARY TERMS FACTSHEET

3 Article 27 of the AEB provides the basis for this decision.

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EBRD Transaction A sovereign loan of up to EUR 50.6 million to Georgia, to be on-lent to the City
of Tbilisi (“Tbilisi” or the “City”) for the benefit of Tbilisi Transport Company
Ltd. (the “Company”, the “Client” or “TTC”), a municipally owned company
which operates buses, the metro system and cable cars in Tbilisi. The loan will
be co-financed by an investment grant of up to EUR 5 million from the GCF.
[REDACTED].
Existing Exposure Sovereign exposure: The total amount of sovereign portfolio stands at EUR
467.0 million [REDACTED]: (DTM numbers: 4304; 36538; 37560; 37801;
39579; 40019; 45181; 45956; 47166; 47582; 48098; 48104; 48365; 49649;
50271; 50842; 51145; 51207; 51392; 51422; 51438; 52565; 52577; 52825).
The City: EUR 240.9 million4 [REDACTED].
Maturity / Exit / Eighteen-year maturity. [REDACTED].
Repayment
Potential AMI eligible None.
financing
Use of Proceeds The proposed EBRD loan will finance the rehabilitation of up to 12 metro
stations in the City. This is part of a broader programme aiming to support the
City in reforming its management of public transport by financing the renewal
of the bus and metro systems and network restructuring.

Monitoring will be performed by reviewing periodic Project progress reports,

Annual Environmental and Social Reports (“AESR”), and other documentary
evidence provided by the Company and consultants, as well as monitoring visits.
Use of proceeds controls and disbursements: all project components will be
procured in accordance with the EBRD Procurement Policies and Rules
(“PP&R”). Direct payments will be made by the Bank to contractors and
consultants upon receipt of signed contracts and documentary evidence
confirming the fulfilment of respective contractual obligations, including the
certification by the supervision engineer as applicable. In addition, the
procurement and related implementation will be supported by international,
independent consultants ensuring overall compliance, assuring high standards
and timely delivery.
Investment Plan [REDACTED]
Financing Plan [REDACTED]
Key Parties Involved  Borrower: Georgia, represented by the Ministry of Finance;
 Beneficiaries: the Company, party to a Project Implementation Agreement
and the City, party to a Project Support Agreement.
Conditions to [REDACTED]
subscription /
disbursement
Key Covenants [REDACTED]

Security / Guarantees Sovereign loan.

Other material  Loan Agreement between the Bank and the Borrower;
agreements  [REDACTED].
Associated Donor Funded A. Technical Cooperation (TC)
TC and co-investment Pre-Signing:
grants/concessional  TC 1: Feasibility study. The cost of the assignment is EUR 460,060,
finance financed by the SSF.

4 T his relates to the sovereign loans to Georgia on-lent to the City: (i) DT M 47166, Tbilisi Bus Project (EUR 27 million); (ii) DTM
47582, GrCF – T bilisi Solid Waste Project (EUR 15 million); (iii) DT M 51207, GrCF2 W2 - T bilisi Bus Extension (EUR 80
million); (iv) DT M 51392, GrCF2 W1 - T bilisi Metro Project (EUR 50 million); (v) DT M 52825, GrCF2 W2 – T bilisi Solid Waste
Extension (EUR 3.03 million); (vi) DT M 52577, T bilisi Municipal Services (EUR 9.6 million); and (vii) DT M 52565, GrCF2 W2
- T bilisi Bus Phase III (EUR 70 million).
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Post-Signing:
 TC 2: Procurement Support to assist the Company to select the Design
Consultant (loan funded) and the Project Implementation Support consultant
(TC3). The estimated cost of the assignment is up to EUR 74,900 proposed
to be financed by an international donor and/or the SSF.
 TC 3: Project Implementation Support to assist the Company to review
design and tender documents, review of the tender evaluation report,
contract finalisation and signature, as well as overall Project implementation
and supervision. The total estimated cost of the assignment is up to EUR
2,300,000, [REDACTED].
 TC 4: Development of the Asset Management Plan to assist the Company
to improve the asset management practices, analysis of options for
generating non-fare revenues, and develop and monitor certain Key
Performance Indicators. The estimated cost of the assignment is up to
EUR 450,000, proposed to be financed by an international donor and/or the
SSF. [REDACTED].

B. Co-investment grants / Concessional Finance (Non-TC)

The Project will be co-financed by an investment grant of up to EUR 5 million
from the GCF.
[REDACTED]

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INVESTMENT PROPOSAL SUMMARY

1. STRATEGIC FIT AND KEY ISSUES

1.1 STRATEGIC CONTEXT

The proposed investment will address Tbilisi’s priority needs, as identified by the Green
City Action Plan (“GCAP”) approved by the City in September 2017. The Project is a
follow-on investment, proposed under the Green Cities 2 (“GrCF2”) – Window I
[REDACTED]. Tbilisi’s GCAP identified a range of priority environmental challenges,
as well as the investment and policy actions across multiple sectors, including transport,
required to address these challenges. The City is actively working on the implementation
of more than 89 per cent of GCAP measures. The Project’s objective is to improve the
resilience, reliability, safety and efficiency of public transport, making it compatible
with the GET Approach and consistent with the ambitions of the GrCF2.

Tbilisi’s GCAP identifies climate related flood risk as a priority environment al

challenge and a main area of concern for the City. Tbilisi is particularly susceptible to
flooding, both from the Mtkvari river and from surface water flowing down from the
nearby hills during heavy rain. In 2015, it suffered from sudden and destructive flash
floods following heavy rainfall over the Vere river. The flooding displaced families,
resulted in casualties and a World Bank and UNDP 5 study estimated USD 24.3 million
in physical damage with the transportation sector receiving the most damage and
financial losses. The same study estimated a total need of USD 118 million for a full
recovery, with the transportation sector being responsible for 28 per cent (i.e. USD
33.5 million). Tbilisi aims to improve its resilience to flooding and other climate risks
through investment in its infrastructure including the metro system.

In addition, Tbilisi’s GCAP also indicated that air pollution is one of the biggest
environmental concerns with data on Particle Matter2.5 (“PM”) and PM10 levels well
above international benchmarks. It is assumed that ninety per cent of air pollution in the
City comes from transport, with diesel-powered vehicles being a major contributor. The
Project addresses Tbilisi’s priority environmental challenges and helps improve the
quality of transport and air quality. Following the GCAP’s identified need to improve
public transport through an expanded low-emission public transport system, the EBRD
has assisted Tbilisi in various initiatives in the public transport sector. This includes
reforming its public transport system by financing the bus fleet renewal, the
rehabilitation of the metro system, including new metro cars and refurbishing metro
stations, rehabilitation of bus and metro depots and the optimisation of public transport
network.

The Project is expected to substantially improve resilience and quality of public

transport for the City’s growing population. By providing the needed rehabilitation of
the metro stations, the Project is expected to promote growth in ridership, and reduce
downtime due to climate-related flood events, while creating a minimum impact on the
current services during construction, i.e. through carrying out the works during non-
service hours and using modern engineering techniques to avoid full-scale shutdown to
the extent possible. This will foster the reduction of Green House Gases (“GHG”) and

5 https://www.gfdrr.org/sites/default/files/publication/pda-2015-tbilisi.pdf
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air pollutant emissions from transport as well as reduce noise pollution. It will thus
enable the provision of safe, reliable and environment friendly transportation for
Tbilisi’s population. Please refer to Annex 2 for the Green Assessment Summary.

Moreover, the Project is in line with the City’s vision for the transport sector, as
improving the public transport uptake is an integral policy pillar.

The Project is consistent with the Municipal and Environmental Infrastructure Sector
Strategy, which states that one of the key strategic directions is “driving the
environmental, economic, and social sustainability of the sector through capacity
building and improved corporate governance … This will be targeted by the Bank
through support for (i) GCAP planning, (ii) procurement and implementation, (iii)
client capacity building, fostering of improved social and environmental practices,
corporatisation, decentralisation, integrated stakeholder engagement, introduction of
contractual clarity in the PSC (improving government effectiveness and
accountability)”. The Bank’s Country Strategy for Georgia notes that “the Bank will
engage in promoting energy efficiency and sustainability in the municipal sector”.

In wider terms, the Project is aligned with the requirements of the Covenant of Mayors,
which Tbilisi joined in 2010, given the anticipated environmental gains from this
investment, and the EU Association Agreement signed by Georgia in 2014. This Project
is also consistent with Georgia’s updated Nationally Determined Contributions
(“NDCs”) under the Paris Agreement. In its updated NDCs, Georgia is fully committed
to an unconditional limiting target of 35 per cent below the 1990 level of its domestic
total greenhouse gas emissions by 2030. The updated NDCs of Georgia set the
2030 Climate Change Strategy and 2020-2023 Action Plan for the determination of
mitigation measures contributing to the achievement of unconditional and conditiona l
commitments and mitigation targets. It also intends to facilitate measures to support the
reduction of losses and damages caused by extreme weather events under the country’s
adaptation targets and the Project serves this purpose. Specifically, this Project is
consistent with Objective 2.3 of Goal 2 (transport sector), which is to promote non-
motorized means of mobility and public transport. Under this objective, the Georgian
NDCs and the Action Plan envisage an increase in public transport upgrade. This
Project also contributes to a host of UN Sustainable Development Goals (“SDG”),
namely: SDG 3. Good Health and Well-being, SDG 5: Gender Equality, SDG 9.
Industry, Innovation and Infrastructure, SDG 11. Sustainable Cities and Communities;
and SDG 17. Partnerships for the SDGs.

1.2 TRANS ITION IMPACT

The GrCF2 represents a strategic and multi-project approach seeking to help identify
and address environmental challenges in selected large cities in our countries of
operation. The primary goal is to achieve significant environmental improvements and
to promote the Green transition quality within the relevant cities. In addition to the
environmental objective, the GrCF2 also promotes sustainable cities through inclusive,
resilient, well-governed and smart urban development. Depending on which area can
generate the strongest and most relevant transition impact, either Well-governed,
Inclusive, Resilient or Competitive will be pursued and presented as the secondary
transition quality for each sub-Project under the framework. These transition objectives
are supported by the development and implementation of a city-specific GCAP aimed
at to identifying environmental challenges, facilitate better coordination and buy-in
among stakeholders and help prioritise and develop the best ways to address the
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environmental challenges through targeted investments, services and policy

instruments.

Tbilisi was one of the first three cities to join the EBRD Green Cities and one of the
first to complete its GCAP. To date 89 per cent of the actions identified under its GCAP
are ‘under implementation’. This Project will be the City’s eighth follow-on investment
and the first adaptation project, making Tbilisi the Green City with the highest number
of follow-on investments to date. Please refer to Annex 3 for an overview of EBRD
Green Cities.
The Project will primarily help to promote the Green transition quality by encouraging
a modal shift to public transport systems and thus, mitigating the impacts of the City's
transport sector on the environment by reducing air pollution and GHG emissions. The
investment will also lead to energy efficiency improvements in the stations following
rehabilitation of electro mechanic systems such as ventilation, drainage and lighting, as
well as escalators. Through the improvement of the drainage system, the Project will
reduce exposure to climate risks especially river and pluvial as well as enhance climate
resilience of the metro network. The Project will deliver both mitigation and adaptation
finance. The Project will also support the Well-governed objective through
establishing and implementing improved asset management practices.
Delivery risks to transition impact [REDACTED] are mitigated by the following
factors: (a) the GCAP was approved by the City and is currently under implementation;
(b) the City remains committed to support green development (combating air pollut ion
and promoting sustainable urban transport development in the City remains high on the
political agenda); (c) the loan covenants and TC support for the Project.

1.3 ADDITIONALITY

Identified triggers Description

A subsequent/consecutive transaction with the same The Project is a repeat sovereign transaction with
client/group either with the same use of proceeds or in the Georgia and Tbilisi. This is a follow-on investment
same country (repeat transaction). under Tbilisi’s GCAP and forms part of a broader
programme aiming to assist the City in its
implementation, and provides support to one of the
key priority directions to reduce transport related
environmental impacts and promote a modal shift to
public transport systems.

Additionality sources Evidence of additionality sources

Financing structure - There is a very limited market for long-term
EBRD offers financing that is not available in the market municipal borrowing for local authorities in Georgia.
from commercial sources on reasonable terms and Local banks cannot offer loans matching the
conditions, e.g. a longer grace period than the market economic life of infrastructure assets. [REDACTED].
average, restricted foreign currency financing etc. Such
financing is necessary to structure the Project.
EBRD offers a tenor, which is longer than available to the
client in the market on reasonable terms and conditions.
EBRD investment is needed to close the funding gap. At the
same time, EBRD does not crowd out other sources, such as
from IFIs, government, commercial banks and/or
complements them.
Risk mitigation – The Project will achieve reductions in Carbon
EBRD helps the client to mitigate carbon transition risks Dioxide (“CO2”) emissions [REDACTED], as well as
and take climate action, such as to move along a low carbon PM [REDACTED] and NOx [REDACTED].
transition pathway. The metro system is exposed to the physical transition
risks due to outdated pumping equipment. Replacing
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EBRD helps the client to mitigate physical transition risks [REDACTED] old pumps and rehabilitating drainage
and take climate action, such as to identify and manage system will help cope with flooding events. The
physical climate risks and build resilience to them. drainage system together with the pumps will be
reliable, energy efficient and uninterrupted. It will
also guarantee the protection of the metro from
groundwater, mitigating potential physical risks , as
well as reducing potential downtime of the metro.
Standard-setting: helping Projects and clients achieve EBRD transition impact, environmental and social
higher standards – related conditionalities go far beyond what
Client seeks/makes use of EBRD expertise on higher commercial funding sources would require, including
environmental standards, above ‘business as usual’. procurement procedures, reform component
Client seeks/makes use of EBRD expertise on best (adoption of the Asset Management Plan) and a clear
international procurement standards. link to the green economy. The Project will leverage
Client seeks/makes use of EBRD expertise on higher the results achieved through EBRD’s previous
inclusion and gender standards and/or equal projects in the urban transport sector in Tbilisi.
opportunities action plans. The Project will build on the fruitful cooperation
between TTC and EBRD to promote equal
opportunity in terms of access for women to
traditionally male dominated jobs, and access for all
to safe public transportation. As part of the
development of the Asset Management Plan for the
Company, the Bank will introduce training to TTC’s
employees on gender-responsive and inclusive
procurement practices, will also ensure that inclusive
HR practices inform the potential development of
new asset management activities (including the
potential creation of Asset Management Department),
and women’s participation will be promoted in new
capacity building
programme training [REDACTED].
Knowledge, innovation and capacity building - EBRD The EBRD has extensive urban transport sector
provides expertise, innovation, knowledge and/or knowledge and a long-standing relationship
capabilities that are material to the timely realisation of the (including policy dialogue) and GCAP
Project’s objectives, including support to strengthen the implementation with the counterparts, which will
capacity of the client. contribute to successful implementation of the
Project.

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1.4 SOUND B ANKING - KEY RIS KS

Risks Probability/ Comments

Effect
Project specific risks
Georgia’s Medium/ [REDACTED]
Creditworthin High
ess as
Borrower
Implementati High/High The City and the Company have successfully implemented a number of IFI-funded
on Risk projects, including with the EBRD. [REDACTED] the Bank’s assessment of the
implementation risk is “Moderate-High”. The Company will be supported by
experienced international consultants [REDACTED]. The detailed analysis of the
Project’s implementation risk assessment is provided in Annex 1.
External risks
Exchange Medium/ [REDACTED]. Under the floating exchange rate regime, the National Bank of
Rate Risk Medium Georgia (“NBG”) intervenes in the foreign exchange market only to smoothen out
excessive currency volatility. The risk is partly mitigated by the strong policy
framework and effective institutions with a track record of solid macroeconomic
management and large share of medium- and long-term government borrowings,
mitigating the refinancing risks.
Macroecono Medium/Me Adverse political developments in regional countries may impact Georgia’s
mic Risk dium economic development. The risk is partly mitigated by Georgia’s track record to
manage such risks. In June 2022, to mitigate uncertainties brought by the war on
Ukraine, the authorities secured USD 280 million precautionary IMF Stand-By
Agreement. The approval of IMF funds would help Georgia maintain and further
enhance macroeconomic and financial stability amidst back-to-back shocks and
achieve stronger and more inclusive growth.

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2. MEASURING / MONITORING SUCCESS

Overall objectives of project Monitoring benchmarks Implementation timing
- Good operational performance - Development and [REDACTED]
implementation of an Asset
Management Plan
- On-time project implementation - Completion according to the
timeline and within the
budget

The TI objectives and the relevance for this sub-project are detailed in the table below.
The transition qualities will be monitored at the Framework level aggregating data on
each transition benchmark in the table below for all sub-projects.

Primary quality: Green

Correspondi
Baseline Target
FW ng Sub- Details for Due TC-
Ob (Sub- (Sub-
Monitoring Project Details (FW) Specific Sub- date related
j. Project Project
Indicator Monitoring Project (FW) ?
No. ) )
Indicator
1.1 Number of Recommende New Green City Tbilisi’s [REDA [REDA [REDA [REDA
recommended d policy or Action Plans: GCAP CTED] CTED] CTED] CTED]
policy or strategy [REDACTED] new approved by
strategy agreed by GCAPs finalised and the City in
agreed by relevant submitted for approval September
relevant stakeholder(s)
by relevant authorities, 2017,
stakeholder(s) and includes priority including an
actions and a implementatio
monitoring strategy in n and
each participating City. monitoring
Baseline target of the strategy.
GrCF and GrCF2
combined is
[REDACTED]
GCAPs.
1.2 Performance Performance Strong follow-on The Project is [REDA [REDA [REDA [REDA
or action plan or action plan support: 50 per cent the City’s CTED] CTED] CTED] CTED]
implemented implemented of transactions (under eighth
by the client by the client GrCF2 and future follow-on
extensions) are follow- investment
on investment from the
addressing priority GCAP, which
environmental addresses the
challenges identified in priority
the GCAPs. challenge of
air pollution
and climate
change
adaptation
through
encouraging a
shift to public
transport
systems and
improving the
resilience to
flood risks
respectively.
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1.3 Performance Performance Multiple green The Project [REDA [REDA [REDA [REDA
or action or action plan investment: meets the CTED] CTED] CTED] CTED]
plan implemented Each participating city eligibility
implemented by the client makes criteria for
by the client [REDACTED]investm both
ents (with or without mitigation and
EBRD financing) that adaptation
address priority investments
environmental under GrCF2.
challenges identified The Project
by the GCAP, where will achieve
all EBRD financed reductions of
projects will meet the [REDACTED
extended Framework’s ]CO2
eligibility criteria for [REDACTED
investments. ]. The Project
also has a
Climate
Resilience
Benefit ratio
[REDACTED
].
1.4 Performance Performance
Effective GCAP The Project [REDA [REDA [REDA [REDA
or action or action plan
implementation: addresses the CTED] CTED] CTED] CTED]
plan implemented
The Framework GCAP target
implemented by the client
achieves at least 50 per of mitigating
by the client cent of all verifiable the impacts of
targets, set in the the City's
GCAP, [REDACTED] transport
(including both sector on the
investment and well- environment.
defined policy
measures).
1.5 Improved Improved Environmental While the [REDA [REDA [REDA [REDA
environment environmental impact: Project CTED] CTED] CTED] CTED]
al standards standards The Framework addresses the
achieves significant City’s
environmental priority needs
improvements for at of reducing
least one priority the
environmental environmental
challenge, i.e. the impacts of the
promotion or City’s
protection of certain transport
performance levels sector, as well
(colour codes) for as improving
priority environmental the resilience
challenges as specified of the
in the GCAPs, for infrastructure,
more than 50 per cent the relevant
of the Green Cities. environmental
improvements
within the
respective
cities will not
be monitored
at sub-project
level.

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Secondary quality: Well-governed

Correspondi
Target Due
FW ng Sub- Details for Baseline TC-
Ob Further Details Sub- (Sub- date
Monitoring Project Specific Sub- (Sub- related
j. Project level Project (Sub-
Indicator Monitoring Project Project) ?
No. ) Project)
Indicator
2.1 Number of Corporate Develop and Asset [REDA [REDA [REDA [REDA
corporate governance implement a well- Management CTED] CTED] CTED] CTED]
governance improved: defined Corporate Plan to be
improvements:Commitment Governance Action developed and
Commitment to Corporate Plan that addresses implemented
to Corporate Governance most of the corporate for the
Governance governance issues Company to
identified in the improve its
company. asset
management
practices.

Additional Indicators
Baselin Due TC-
FW level Indicator Target
e (Sub- date related?
Object aggregate (sub- Details (sub project) (Sub-
Project (Sub-
ive indicator Project) Project)
) Project)
Gender Number of Practices of Training to be introduced to the [REDA [REDA [REDA [REDA
SMAR stakeholders the relevant Company’s employees on gender- CTED] CTED] CTED] CTED]
T with practices stakeholder responsive and inclusive
improved improved procurement practices and inclusive
3.1 (inclusive HR (skills HR practices to inform the potential
policies and development) development of new asset
practices, management activities (including
inclusive the potential creation of Asset
procurement Management Department).
practices) Women’s participation to be
promoted in new capacity building
programme training [REDACTED].
Project Monitoring Indicators
Indicator Projected Impact Implementation Timing
Green
Total Population benefitting from improved public [REDACTED] [REDACTED]
transport services (individuals)
Annual reduction in tonnes of CO2 equivalent savings [REDACTED] [REDACTED]
(tonnes CO2 eq / yr)

3. KEY PARTIES
3.1 B ORROWER / CLIENT

The Borrower is Georgia, represented by the Ministry of Finance. In August 2022, Fitch
retained Georgia’s Long-Term Foreign-Currency Issuer Default Rating at ‘BB’ with
stable outlook. In July 2022, Moody’s maintained Georgia’s rating at ‘Ba2 Negative’,
[REDACTED]. In August 2022, Standard & Poor’s affirmed its long-term foreign
currency sovereign credit ratings of Georgia at ‘BB’ and a stable outlook.
[REDACTED]. Favourable institutional arrangements and business environment
indicators compared with peers, a track record of macroeconomic resilience against

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regional shocks, robust growth rates and consistent and credible policy framework are
considered as credit strengths for Georgia.

3.2 B ENEFICIARIES

The City: Historically, most of the financing for the City came from the central
government. The provision of targeted state support in the form of subsidies is common
practice for earmarked activities and selected municipal services, such as road
rehabilitation, regular maintenance of municipal infrastructure and other priority
investment projects. In 2019, to make municipalities more self-resilient, the
Government changed its approach on the distribution of taxes to municipalities. Based
on the new regulations, 19 per cent of VAT receipts are distributed to municipalit ies ,
out of which 50 per cent is allocated to Tbilisi, due to its size and importance in the
overall economy. Generally, the City’s revenue consists of taxes, state (central
government) transfers and own (non-tax) revenues from rent, privatisation, licenses,
etc. [REDACTED]. In 2021, total revenue was GEL 1,146.9 million (EUR 327.3
million equivalent), which was a 32 per cent increase year-on-year (“yoy”).
[REDACTED].

The Company: The Company’s main sources of revenue are from passenger
transportation, namely: (i) buses; (ii) metro; and (iii) cableway. [REDACTED].

The Project is sovereign, thus, the risk is based on the sovereign assessment. Please
refer to Section 5.1 for further details.

4. MARKET CONTEXT
Tbilisi has a population of 1.2 million, which is one third of the total population of
Georgia. It produces more than 50 per cent of the country’s GDP. It is the economic,
cultural and political centre of the country. The City’s metro and bus network is
operated by the Company, which is wholly owned by the City. The Company (formerly
Tbilisi Metro Ltd.) was founded in 1966, when the first line of the Tbilisi metro was
opened. In 2009 municipal buses and all related property were transferred to the
Company, and subsequently the newly constructed Rike-Narikala cable way.

The organisation of public transport, including traffic management and supervision of

public transport including minibuses, is the responsibility of the Transport and Urban
Development Agency (“TUDA”). The relations between the Company and TUDA are
governed by the local legislation, as well as the Company’s charter and Public Service
Contract, signed in 2021 with the Bank’s support. The metro and bus fares are approved
and regulated by the City Council, while minibus fares are set by the private operators
with an advance notification to the City.

As a result of the Bank’s funded technical support, the City introduced an integrated
tariff system for the public transport network. In February 2022, the City announced
changes in its fare policy and structure by introducing daily, weekly, monthly and
annual passes integrated, including buses, metro and minibuses. Before that, the fare
for bus and metro was GEL 0.5 (EUR 0.2 equivalent) and for minibuses GEL 0.8 (EUR
0.3 equivalent) per ride. In addition, a discounted fare was effective for certain social
groups, including students, elderly, etc. Importantly, regardless of the change in fare
policy, the users with discounted fare categories maintained the same benefits as before.

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The metro is the backbone of Tbilisi’s urban transport system. In spite of the continued
efforts of the Company to keep maintenance activities on track, components of the
metro systems are worn out due to decades of under-investment. With the proposed
investment, the attractiveness and reliability of the metro will be enhanced, which in
turn will encourage passengers to continue use of the public transport, preventing a shift
to minibuses and cars, and the safety of the metro operations will improve.

5. FINANCIAL / ECONOMIC ANALYSIS

5.1 SOVEREIGN AS S ESSMENT
[REDACTED]

5.2 ECONOMIC ANALYS IS

[REDACTED]

5.3 PROJECTED PROFITABILITY FOR THE B ANK

[REDACTED]

6. OTHER KEY CONSIDERATIONS

6.1 ENVIRONMENT

The Project has been Categorised B under the Environmental and Social Policy
(2019). Risks and impacts associated with the Project have been confirmed to be site
specific, readily identifiable and can be addressed by adoption of appropriate mitigation
measures. Environmental and Social Due Diligence (“ESDD”) has been undertaken as
part of the Feasibility Study (“FS”) and has identified risks and impacts that may be
associated with the programme of modernisation and rehabilitation works. However, as
the FS presents a preliminary design of works only at this stage, further refinement of
the Environmental and Social (“E&S”) assessment and associated mitigation measures
will be required to be developed in line with the Project cycle.

Construction is related to the risks and impacts associated with the work of construction
contractor such as noise, dust, vibration, hazardous materials (including asbestos) and
worker occupational safety and the interface with the public. This will require careful
management through the development of an Environmental and Social Management
System and associated E&S Management Plans, particularly the Contractor
Management Plan and a comprehensive Stakeholder Engagement Plan. There is also
the potential for temporary business disruption to small scale metro station vendors
located in areas that will be subject to rehabilitation works. It is expected that these
impacts can be managed through appropriate consultation and mitigation measures that
are included in the ESAP. At the same time, the ESAP also requires these impacts to be
further assessed during detailed design and, if deemed necessary, a Livelihood
Restoration Plan to be developed in line with the EBRD’s requirements during the
subsequent phases of the Project, prior to implementation. For three stations, further
assessment of vibration will be required to verify that there will be no damage to the
integrity of the nearby buildings.

The ESAP has been developed and includes the requirements to fully quantify any
residual risks, develop and implement all required management plans as mitigation
measures. A Project Implementation Unit (“PIU”) will be established for the
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programme of works and the ESAP requires the PIU to develop a comprehensive set of
plans and adequately supervise the construction works and contractor(s) prior to any
impacts occurring. Such safeguards have been included in the design phase documents
and the Bank will closely monitor the adoption of the ESAP by the PIU and the
subsequent phases of the Project throughout.

6.2 INTEGRITY

In conjunction with OCCO, an updated integrity due diligence was undertaken on

Tbilisi City Administration, the Company, senior management and other relevant
parties. The review did not identify any material integrity issues. [REDACTED]. It was
therefore concluded that this Project does not pose an unacceptable reputational risk to
the Bank. The City and the Company are existing clients of the Bank and the experience
to date has been positive.

All actions required by applicable EBRD procedures relevant to the prevention of

money laundering, terrorist financing and other integrity issues have been taken with
respect to the Project, and the Project files contain the integrity checklists and other
required documentation, which have been properly and accurately completed to
proceed with the Project.

6.3 CONCES SIONAL FINANCE

The investment will be co-financed by a GCF adaptation investment grant of

EUR 5 million. This will finance the work that will increase metro’s resilience to
climate change related flood risk. This climate resilience related work includes: (i)
rehabilitation works regarding structural, tunnelling and drainage components of
stations; (ii) station building refurbishment works (mainly waterproofing and piping);
and (iii) drainage rehabilitation works. It will help to close the funding gap that was
caused due to increased costs amid inclusion of the above adaptation measures.
[REDACTED].

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ANNEXES TO OPERATION REPORT

ANNEX 1 Project Implementation and Procurement Plan

ANNEX 2 Green Assessment Summary

ANNEX 3 Implementation Progress on GrCF / GrCF2

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ANNEX 1 – PROJECT IMPLEMENTATION AND

PROCUREMENT PLAN

Procurement classification – Public [sovereign]

[REDACTED]. The Company and the City have experience of implement ing
infrastructure projects financed by IFIs. In particular the Company has recent
experience in implementing EBRD financed Tbilisi Bus Extension and Tbilisi Metro
projects. There are dedicated procurement and engineering units that will work jointly
with the supporting consultants to prepare the employer’s requirements, technical
documents and managing the tender process.

The Company is committed to keep the current composition of the PIU, which is
currently implementing ongoing EBRD projects. [REDACTED]. The Project consists
of a single capex contract for rehabilitation of 12 metro stations under the Design &
Build approach using FIDIC Yellow Book as a basis. [REDACTED].

Project implementation arrangements:

Considering the complexity of the Project, the following implementation arrangements

are proposed:

Step 1 – Project preparation:

A dedicated design consultant (under Conceptual design and procurement support TC)
will be hired who will review the current feasibility study and will develop a conceptual
design and tender documents to rehabilitate the 12 metro stations included in the
Project. The same consultant will be responsible to support the Client to procure the
contractor through an open, two-stage tender. The design consultant will be best placed
to conduct the tender as it will have all the technical knowledge in-house and will be
able to conduct meaningful market consultations and clarification meetings with the
participants during the tender process. [REDACTED].

In parallel, a dedicated PIU Support and Construction Supervision consultant will be

hired to support the Client in Project management, implementation of PIU duties
(review of concept designs, review and approval of tender documents, tender evaluation
reports etc.) and will act as “the Engineer” under the FIDIC Yellow Book for civil
works. In addition, this consultant will be tasked to provide capacity building for the
Client and on-the-job training during the supervision process, to ensure that contract
management skills are transferred to the PIU team.

Step 2 – Project implementation:

A single Design and Build (“D&B”) contractor will be hired under the Project using
the FIDIC Yellow Book contract, through an open, two stage tender. The contractor’s
scope will include rehabilitation of 12 metro stations, including replacement and/or
rehabilitation of escalators in several stations. [REDACTED].

Step 3 – Soft components:

The Project also includes a consultancy assignment to support the Client to develop the
Asset Management Plan and an analysis for options to develop non-fare revenues.

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To support the Client [REDACTED], a Bank-hired procurement support consultant will

also be appointed to help the Client in selection of the Conceptual design and
procurement support consultant, as well as PIU Support and Construction Supervision
consultant.

Procurement arrangements:
All goods, works and services financed from the Bank’s loan will be procured following
an open tendering procedure in accordance with the requirements of the Bank’s
Procurement Policies and Rules 2022 (“PPR”) for public sector operations.

All procurement will be conducted through ECEPP, thus, warranting that the Client
shall use only the latest templates and standard tender documents and contract forms.
In addition, ECEPP reduces several other procurement process related risks, such as the
ones emerging during the tender closing, tender opening, submission of the late tenders
etc.

All contracts included in the Project will be subject to the prior review by the Bank.

No exceptions or derogations from the PPR are requested or envisaged.

Additional information:
N/A. [REDACTED].

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ANNEX 2 – GREEN ASSESSMENT SUMMARY

Introduction
The Project will rehabilitate up to 12 metro stations of the Tbilisi metro network (out
of a total of 23 stations) through energy efficiency and physical risk mitigating
measures.
 The Project is assessed as aligned with the goals of the Paris Agreement.
 The Project qualifies for 100 per cent GET mitigation, adaptation and
environment finance.
 The Project is eligible for EBRD Green Cities as it meets the criteria for both
mitigation and adaptation projects. The Project is also eligible for adaptation
grants under GCF Green Cities facility (non-reimbursable funds) as it meets the
criteria.

Paris alignment assessment

Alignment with the mitigation goals of the Paris Agreement
 The project/economic activity is included in the 'aligned list'.
 Regarding project/economic activity, there are no activities included in the 'non-
aligned list'.
 Applicable additional or specific conditions associated with the ‘aligned’
project/economic activity have been met.

Conclusion: The Project is assessed as aligned with the mitigation goals of the Paris
Agreement (BB1 aligned).

Alignment with the adaptation goals of the Paris Agreement

 The Bank has identified flooding as high risk for the Project site. A climate risk
and vulnerability assessment was undertaken as part of the technical due diligence
and flood and mass movement are identified as risks. The increase in average
and extreme temperature were also identified, but with lower impact on the
stations.
 Materiality checks have been undertaken for all identified physical climate
hazards and, where necessary, mitigation measures have been incorporated into
the Project to ensure the resilience of the assets.
o Flooding is identified as the risk with the highest impact on the metro
stations should an event occur. Both structural and non-structural
measures have been identified, that will reduce the impact of flooding
events on the stations and on the overall operation of the metro system
of Tbilisi.
o As for the mass movement risk, the Project will comply with anti-
seismic regulations and best practices, including to mitigate landslide
risk to which Tbilisi is exposed (to this regard, it is worth recalling the
2015 Tbilisi flood and landslide, which caused 19 casualties; the UNDP
and World Bank estimated financial requirements for recovery at USD
118 million6).

6 https://documents1.worldbank.org/curated/en/929561510329276686/pdf/121242-WP-P155421-PUBLIC-32p-
DRFIGeorgiaDiagnosticWeb.pdf

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o While an extreme heat event risk is not seen material by the consultants,
the measures related to the ventilation system will mitigate potential
disruption due to heat wave events and increase passengers comfort.
o As a result, the alignment of the Project with the adaptation goals of the
Paris Agreement has been confirmed, and the physical climate risk is
considered to be sufficiently mitigated.
 The Project is unlikely to undermine climate resilience of the system in which it
operates.
Conclusion: The Project is assessed as aligned with the adaptation goals of the Paris
Agreement (BB2 aligned).

GET attribution
 [REDACTED]
 The main GET impact expected from the investment is the improvement of:
i. Increased resilience of the metro stations to flooding events (GET
Adaptation) [REDACTED].
ii. Increased energy efficiency of the metro stations (GET Mitigation) : The
Project is expected to deliver primary energy savings [REDACTED] due to
the installation of energy efficient lighting, ventilation and drainage
systems, as well as the replacement escalators (either complete replacement
with new escalators; or partial, with the replacement of only the electrical
drivers). [REDACTED].
iii. Reduced CO2e emissions (GET Mitigation) : Total CO2e savings are
[REDACTED] delivered both by reduced energy consumption
[REDACTED] and by reduced emissions from passenger cars and buses as
a result of increased passenger traffic in the metro system which is
responsible for the majority of the total emissions [REDACTED].
iv. Reduced air pollutants (GET Environment): The Project is expected to
deliver annual reduction of NOx [REDACTED]; PM [REDACTED]; and
VOC [REDACTED], reduced by reduced emissions from passenger cars
and buses as a result of increased passenger traffic in the metro system.
v. Water savings (GET Environment): Due to degraded structural conditions,
the metro tunnels are heavily affected by groundwater ingress which is
subsequently pumped out by the drainage system. Once the waterproofing
and drainage rehabilitation measures are implemented, it is expected that
groundwater ingress will be reduced [REDACTED], which will preserve
and avoid the contamination of [REDACTED] groundwater annually.

Conclusion: The Project is 100 per cent GET.

Green Finance Project Monitoring Plan

The green finance project monitoring plan is aligned with the TI benchmarks. The Bank
will monitor indicators including an increase in passenger km/year deriving from the
modal shift, primary energy consumption (GJ/y); the occurrence of flood events and
impacts on the metro stations via the ESAP.

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ANNEX 3 – IMPLEMENTATION PROGRESS OF GrCF / GrCF2

From 2016, the GrCF and GrCF2 have mobilised nearly EUR 5 billion in EBRD and
donor funding. The GrCF, approved by the Board in November 2016, set an ambitious
agenda for the Bank’s municipal business, with the over-arching aim being ‘to serve as
a sector-wide catalyst for addressing environmental challenges at the City level‘.
[REDACTED] [I]n October 2018 a new Framework was approved by the Board,
GrCF2 [REDACTED].

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