PROJECT BRIEF
1. IDENTIFIERS:
PROJECT NUMBER:
PROJECT NAME:
Georgia - Agricultural Development Project II
DURATION:
4 years
IMPLEMENTING AGENCY:
World Bank
EXECUTING AGENCY:
Ministry of Agriculture
REQUESTING COUNTRY OR
COUNTRIES:
Republic of Georgia
ELIGIBILITY:
Ratified UNFCCC on July 29, 1994
GEF FOCAL AREA:
International Waters and Climate Change
GEF PROGRAMMING FRAMEWORK:
Water Based Operational Program (OP 8)
Promoting the Adoption of Renewable Energy by
Removing Barriers and Reducing Implementation
Costs (OP 6)
2. SUMMARY:
The overall development objective of the Project is to increase agricultural production
sustainably, while reducing pollution of natural resources. It represents the first phase of a ten-
year Program, to be implemented in three phases, for the reform of on-farm agricultural and
environmental practices. Under phase one, the Project, GEF would support the costs of
implementing measures aimed at: (a) improving on-farm environmental practices, such as storage
and management of manure water quality monitoring, which over the long term would reduce
nutrients from entering the Black Sea; and (b) reducing greenhouse gases by promoting the use of
biogas energy among rural household through technology demonstration and removal of
institutional, capacity related, marketing and financial barriers to its more widespread use. GEF
support for phases two and three of the Program is also envisaged, with the scope to be
determined following the mid-term review of the Project.
3. COSTS AND FINANCING (US$ MILLION):
GEF
US$ 2.50 million
Subtotal GEF
US$ 2.50 million
Co-financing:
IDA
US$ 4.65 million
Government/Beneficiaries
US$ 1.10 million
Total:
US$ 8.25 million
4. ASSOCIATED FINANCING (US$ MILLION):
N/A
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5. OPERATIONAL FOCAL POINT ENDORSEMENT:
Name: Merab Sharabidze
Title: Deputy Minister
Organization: Ministry of Environment
Date: March 1, 1999
of Georgia
6. IA CONTACT:
Mahesh Sharma, Sr. Regional Coordinator
Eastern Europe and Central Asia, Tel: (202) 473-2296
Fax: (202) 522-3256, E-Mail: Msharma1@worldbank.org
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A: Project Development Objective
1. Project development objective and key performance indicators (see Annex 1):
Project Development Objectives. The overall development objective of the Project is to increase
agricultural production sustainably, while reducing pollution of natural resources. In support of
this objective, the Project would assist the Government of Georgia (the Government) in
developing and implementing efficient and cost-effective agricultural knowledge and information
systems and in demonstrating, disseminating and promoting the adoption of modern technologies
and agricultural practices that are economic and environmentally sustainable. The latter would
cover, low input tillage systems, crop rotations, and better management of crop protection
chemicals and livestock production systems in terms of storage, handling and use of animal
manure. These technologies and agricultural practices, in addition to raising rural incomes and
reducing poverty through increased productivity and profitability of the small Georgian farmers,
will reduce soil erosion and discharge of organic matter and yield substantial benefits in terms of
improved quality of Georgian surface and ground waters and the Black Sea, a critical regional
resource.
Project Global Enviromental Objectives. The Project will initiate measures aimed at improving
on-farm environmental practices, which over the long term would reduce nutrients entering the
Black Sea. The Project activities especially those relating to managing better the storage and
application of manure are directly linked to "The Black Sea Strategic Action Plan" formulated
with the assistance of GEF. It was the first to develop a systematic approach to policy
development through the application of a Transboundary Diagnostic Analysis. Results of the
pollution source inventory conducted during the preparatory work shows that non-point sources
of agricultural pollution is the most serious problem facing the Black Sea. In addressing this
problem, through support for relatively low costs investments, policy adjustments, changes in
consumers practices and employing alternative technologies, the Project would also complement
the Danube Delta Environmental Program and assist the Government in meeting its international
commitments under the Bucharest Convention.
Appropriate storage is critical for the improving the management of manure. Stored manure
generates methane - a greenhouse gas - which unless used, would be emitted in into the
atmosphere. Therefore, an ancillary global environmental objective of the Project is to reduce
greenhouse gas emissions by promoting the use of biogas energy among rural farmers.
Specifically, it would focus on the identification and removal of technological and institutional
barriers through technology demonstration, capacity building, training and reduction of
implementation costs. This will form the first phase of the Project which may be followed by a
larger-scale, commercial adoption in the second phase. The appropriate scale, financing modality
and GEF involvement for the second phase of the project will be decided at a later stage and
submitted to GEF as a separate Project. Performance indicators for the climate change
component would relate to the technical performance of the equipment, local capacity to run and
maintain the systems, and market transformation indicators such as familiarity with the
technology. See Annex 1 for details.
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B: Strategic Context
1.(a) Sector-related Country Assistance Strategy (CAS) goal supported by the project (see Annex
1):
CAS document number: 1700-GE Date of latest CAS discussion: September 12, 1997
The Project fully supports the CAS objectives, including: (i) deepening and diversifying the
sources of growth; (ii) reducing poverty; and (iii) protecting the environment through sustainable
natural resource management.
The thrust of the Project is on providing services to private farmers in technology dissemination
and adaptation so that they are better prepared to respond to the emerging market conditions and
global environmental needs. As Georgia has one of the least distorted agricultural sectors, a
strengthened research, extension and training system and the adoption of environmentally
sustainable agricultural practices would assist farmers in realizing more fully their potential for
food and fiber production. In line with the Government policy, the provision of more productive
technologies and improved access to information would also support more efficient production
for traditional export markets as well as the development of new products. Higher farm-level
output would raise rural incomes and reduce poverty
(b) GEF Operational Strategy/Program Objective Addressed by the Project: The Strategic Action
Plan for the Black Sea, supported by GEF, provides a sound basis for the Project. It would also
complement the initiatives under the Danube Delta Environmental Program. The Project's
objective of reducing non-point sources of pollution from agriculture is consistent with GEF
Operational Program Number 8, "Waterbody Based Operational Program", which focuses
"mainly on seriously threatened water-bodies and the most important transboundary threats to
their ecosystems". Under the Program, priority is accorded to projects that are aimed at
"changing sectoral policies and activities responsible for the most serious root causes or needed
to solve the top priority transboundary environmental concerns".
As for the objective of promoting the use of biogas, this is consistent with GEF Operational
Program Number 6, "Promoting the Adoption of Renewable Energy by Removing Barriers and
Reducing Implementation Costs". The Program is designed to promote widespread use of
renewable energy technologies, such as biodigesters, because they "offer some of the best
prospects for achieving deep reductions in greenhouse gas emissions at the global level".
The Project will provide an opportunity for the GEF to be a catalyst for actions to bring about
the successful integration of land and water resource management practices. GEF support will
reduce costs and barriers to farmers in adopting improved sustainable agricultural practices
(including the use of bio-digesters). It will also help develop mechanisms to move from
demonstration level activities to operational projects that reduce non-point source pollution from
agriculture to the Black Sea and reduction in carbon emissions to the atmosphere. The Project
builds on the Poland ­ Rural Environment Project and is expected to serve as "model" for
initiatives to be launched in the other littoral states and for which a strategic partnership between
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the GEF and Bank is envisaged. UNDP, UNEP and the Bank are jointly preparing a Black Sea
Environmental Program proposal for Council's consideration, possibly in September 1999. The
strategic partnership would be an integral component of the Program.
2. Main sector issues and Government strategy:
Agriculture is the mainstay of the Georgian economy, accounting in 1997 for about 28% of GDP
and about 55% of employment. Agricultural production was seriously disrupted during the civil
conflict that followed independence in 1991. Since 1994, however, agricultural output has started
to recover and significant progress has been made in areas of land reform and farm restructuring.
Distribution of land has essentially created a smallholder, or subsistence sector and a commercial
sector. Smallholders, estimated to number 1.02 million, on average have about 1.1 ha of garden
and farmland in rural areas. Also, they can lease small amount of land not yet distributed. Of the
total land area, only about 26.4% is privately owned; the rest is still owned by the Government,
including a large area of rangelands as well as land that is leased to smallholder and commercial
farmers. In terms of land under arable crops and perennial trees, about 58% is in private hands
and a further 25%-30% is leased, implying that approximately 85% of the total arable land is
farmed privately. As for the commercial sector, it comprises 41,000 individuals and 5,500
enterprises, with farm size ranging from 5 ha to more than 100 ha, excluding leased land.
As the Government was been unable to lease all arable land during the 1998 cropping season,
substantial areas were left uncultivated. The land market is developing albeit slowly, but its pace
is expected to accelerate once owners are allowed to sell or lease their lands, starting this year.
The first Agricultural Development Project (ADP1) is assisting with land mapping and
registration, for which procedures and methodologies are being developed under two pilot
schemes.
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Main Sector Issues: In addition to those arising from the transition to a market economy and the
distribution of land to smallholders with minimal farming experience, the main issues facing the
sector are:
cash constraints and limited access to credit;
shortage of inputs, particularly good seeds, and inappropriate seed legislation;
obsolete agricultural machinery and shortage of spare parts, equipment and service
facilities;
outmoded research, extension and training services ill suited to meet the needs of the
emerging market economy;
inadequate marketing systems and infrastructure; and
degradation of surface and ground water resources and of the Black Sea, caused mostly by
non-point sources of agricultural pollution.
Government Strategy: The Government's strategy for the sector, prepared by the Ministry of
Agriculture and Food, issued as a Presidential Decree on April 7, 1997, is outlined in a report
entitled `Concept of Agrarian Policy of Georgia'. The thrust of the strategy is on developing
more fully the country's agro-industrial potential to meet internal demand and increase exports
earnings. It is underpinned by policies aimed at land reform and establishing competitive input
and output markets and an enabling legal and regulatory environment conducive to attracting
private investment. Under the strategy, only assets of strategic importance will remain in the
state sector over the short to medium term.
The Bank is supporting the Government in implementing the strategy through ADP1, which is
co-financed by IFAD. Its key components include: loans to private enterprises engaged in
economic activities in rural areas; a credit scheme for small farmers and micro-enterprises;
promoting the development of land markets; and preparation of an agricultural sector investment
program. Under its Regional Initiative, the Bank has started work on issues relating to reform of
the agricultural research complex. Also, with the support of ISNAR (IFAD), the status of the
agricultural knowledge and information systems has been reviewed and a Country Profile report
has been issued.
Georgia has entered a new phase of environmental activism, with the transition to a
parliamentary democracy. The Ministry of Environment responsible for coordinating government
efforts to protect and conserve the country's environment, has made important progress in
strengthening the legal and regulatory instruments for improved management of Georgia's
environment through enactment of major environmental legislation. These include the
"Environment Protection Law", (1996), the "Law on Environmental Permits" and the "Law on
State Ecological Expertise". A National Environmental Action Plan (NEAP) is under
consideration for formal adoption by the Government. Georgia has also ratified the Bucharest
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Convention for the Protection of the Black Sea Against Pollution (1992), the Odessa Ministerial
Declaration (1993) and is a participating in the preparation of the Strategic Action Plan for the
Rehabilitation and Protection of the Black Sea (1996).3. Sector issues to be addressed by the
project and strategic choices:
3.Sector issues to be addressed by the project and strategic choices:
Sector issues to be addressed: The Project will build on the initiatives currently being
implemented under ADP1 and extend and deepen the reform of the sector through measures
aimed at addressing the following key issues:
developing the capacity of private smallholder and commercial farmers through
introduction, validation and dissemination of improved technologies at the farm level,
covering production, post harvest, operations, inputs, marketing and natural resource
management;
making research, extension and training more responsive to the needs of farmers and
relevant to the emerging market conditions;
fully integrating environmental concerns into agricultural practices to make them more
sustainable, including the better management of nutrient and chemical loads; and
as part of the overall management of nutrient load, demonstrating environmentally
friendly biodigestors and removing barriers to their more widespread use.
Strategic Choices. Three strategic choices were made before proceeding with the preparation of
the Project. First was whether investments in Georgia's agricultural knowledge and information
systems were justified at this juncture. In this regard, the fact that land reform, an initiative fully
supported by the Bank, had resulted in ownership of farmland being vested in individuals with
minimal experience with farming was critical. Without providing the smallholders and commercial
farmers with access to information of agricultural practices and technology, it was highly unlikely
that the reform would yield anticipated benefits. That existing institutions would be able to
provide such information in an efficient and cost-effective also was equally unlikely, given that
they were not designed to meet the needs of the sector as it has evolved. On that basis, the timing
of the operation was deemed appropriate.
Second was whether to reform the exiting institutions or build new ones. The latter was rejected
on the grounds that this would not only be divisive but also protracted and, hence, not in the
interest of the country. The reforms envisaged are designed to meet three requirements:
transparency through greater stakeholder participation; accountability; and greater efficiency and
cost-effectiveness. For this, the project would support a Competitive Grants Scheme (CGS) ­ a
key innovation of the Project. Details of the CGS are discussed under the implementation
arrangements section.
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Third was with respect to the scope of the Project. The Black Sea plays a crucial role in the
welfare of Georgia's population. Sustainability of Georgia's economic growth will depend, in
part, on the Government's ability to integrate development of the many productive sectors of the
Black Sea coast, including agriculture and forestry. Over the past decade, uncontrolled pollution
from point and non-point sources, coastal erosion, intensified by human intervention and off-
shore dumping in the region has devastated the Black Sea and its littoral zone. Lost revenues
from these traditional sectors and the cost of mitigating future environmental impacts from non-
point source of agricultural pollution could have serious adverse impacts on the budget and places
of strategic and economic importance. On this basis the scope of the project was expanded to
included a component aimed at protecting the water quality of the Black Sea from non-sources of
agricultural pollution.
C: Project Description Summary
1. Project components (see Annex 1):
The Project, representing the first phase of a ten-year Program, would be implemented over a
period of four years (1999/00 ­2000/03). It comprise the following three components: adaptive
research and extension; agricultural research, extension and training system reform; and on-farm
environment management. Details relating to these are summarized below.
Adaptive Research, Extension and Training would support the introduction and validation of
known modern technologies and practices at the farm level - covering production, post-harvest
operations, inputs, marketing and natural resource management - and their dissemination. It
would also support studies aimed at identifying policy and regulatory reforms impeding the
development of the sector and the measures required to address them. In addition, with the view
to promoting public/private sector partnership and to ensure that technologies/practices to be
introduced are fully responsive to the needs of the smallholders and commercial farmers, their full
participating in developing the agenda for this component is planned, along with that of the
agricultural research complex, the development community at large including universities,
Georgian farmers associations and NGOs. The agenda for the first year of implementation is
currently being planned and is expected to be completed by end-April 1999.
Agricultural Research, Extension and Training System Reform provides for technical
assistance for the preparation of a comprehensive framework for rationalizing and streamlining
the institutional infrastructure for agricultural research, extension and training. The Georgian
Academy of Agrarian Sciences, State Agrarian University and Ministry of Agriculture would be
involved in developing the framework as would be the other relevant institutions and
stakeholders.
On-farm Environmental Management would support in selected representative villages the
preparation of farm management plans that explicitly incorporate environmental implications of
agricultural practices and on-farm trails and demonstrations of sustainable agricultural practices,
including reduced tillage, better storage, management and application of manure and fertilizers,
terracing, contour farming and buffer strips for improving water quality. In addition, it would also
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finance investments in establishing a water quality monitoring program and in manure storage
facilities, buffer strips, constructed wetlands, etc.
As stored manure can be used to generate methane for household use, this component also
provides support for a pilot scheme to demonstrate bio-digester technology and technical
assistance for removing the barriers to its more widespread use, including the dissemination of
information about the technology, training to build local capacity for construction and operations
and management, market development and mechanisms for financing the capital costs.
Project Implementation Unit. A small Project Implementation Unit (PIU) ­ comprising Head
of PIU, an accountant and a secretary - would be established within the World Bank Projects'
PCU. The unit will draw on existing procurement, accounting and finance staff within the PCU
for administering the project funds.
Support would be provided to the PIU in the form technical assistance and equipment and
materials required to manage and monitor the implementation of the day-to-day Project activities.
The total cost of the ten-year project is estimated at about US$23.0 million, excluding GEF
contribution for phases two and three, which are to be firmed up following the mid-term review
in consultation with the GEF. As summarized in Annex 2, tentative estimates, excluding GEF
contribution, for phases two and three are US$8.85 million and 5.85 million. Details of the cost
estimates of the Project, covering the first phase, are presented on the next page.
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Component
Category
Indicative
% of
Bank-
% of
GEF Financing
% of GEF
Costs
Total
financin
Bank-
(US$M)
Financing
a/(US$M)
g
financin
(US$M)
g

1. Adaptive Resarch, Extension
Institution
and Training. Through the CGS,
Building/
promote the introduction,
Technology
validation and adoption of modern
Development
technologies for covering
production, post harvest
operations, inputs and marketing
Value of competitive
3.00
36.4%
2.55
54.8%
grants to be awarded a/
Cost of Secretariat for four
0.75
9.1%
0.75
16.2%
years
3.75
45.5%
3.30
71.1%
Total CGS
2. Reform of the Agricultural
Technical
Research System. Technical
Assistance &
assistance and training to
Capacity
1.15
13.9%
1.15
24.6%
accompany a reform program.
Building
Develop priority setting capacities
and AKIS reform strategy.
3. Improved Environmental
Natural
2.8
34.0%


2.15
86.0%
Practices. To be funded by GEF
Resource
through the CGS for
Management
environmentally sound practices
and biodigesters
4. Project Implementation Unit ­
Project
14.0
small unit using administrative
Management
0.55
6.6%
0.20
4.3%
0.35
resources of existing PCU.
Total
8.25
100%
4.65
100.0%
2.50
100.0%
a/ Three tranches of about 20 sub-projects averaging the equivalent of US$50,000. Assumes that
organizations carrying out sub-projects contribute about 15% of costs, primarily in kind.
b/ To be determined in conjunction with GEF.
2. Key policy and institutional reforms to be sought:
The project would support the Government in improving the efficiency and cost effectiveness of
agricultural research, extension and training to meet the needs of the private farming sector and
honor its commitments under the Bucharest Convention to protect and rehabilitate the Black Sea
through inter alia the adoption of environmentally sustainable agricultural practices. An initial
review of the organization of agricultural research, extension and training activities, undertaken
with the assistance of ISNAR, underscores the need for making these more cost-effective and
efficient and equally importantly, responsive to the emerging needs of the smallholder and
commercial farmers. The CGS would launch the reforms needed to foster the achievement of
theses objectives. Specifically, it would promote decentralized project implementation, introduce
greater transparency and accountability through broader stakeholder participation in priority
setting and reduce costs and efficiency by encouraging partnerships between researchers, farmers,
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extensions workers and NGOs.
3. Benefits and target population:
Private farmers and agro-processors will be the main beneficiaries of the Project. Introduction of
improved technologies would result in higher productivity and lower costs of production and, in
turn, in increased profitability and improved living standards in rural areas - the incentives
needed to invest further in farms and businesses. Higher productivity and better animal nutrition,
management and health will bring about improvements in product quality to meet specific market
needs, including those of export markets. The types of farms benefiting will range from
smallholders (around 1 ha land and part-time farmers) with small crop or livestock surpluses to
sell from time to time, to larger farms with land ranging in size from 5 ha to about 50 ha.
Investments in applied agricultural research (coupled with effective technology transfer) generally
yield relatively high returns, especially when starting from a low technological base. The
involvement of a broad range of stakeholders, especially farmers, in adaptive agricultural research
will increase its practical relevance, a related benefit of the Project. The establishment of CGS
along with capacity building and training will help build a sustainable system capable of
generating improved technologies responsive to the needs of end-users.
The country, the public at large and the global community would also benefit from the adoption
of environmentally sustainable activities to be implemented under the Project. Specifically,
reducing the discharge of nutrient load into the Black Sea will promote the maintenance of
productive ecosystems and critical natural habitats in the freshwater, estuarine and nearshore
waters along the Black Sea Coast. Broad-based stakeholder participation will increased public
awareness and demand-driven approaches for protecting the Black Sea.
4. Institutional and implementation arrangements:
Project Co-ordination: The Project would be implemented under the aegis of the Ministry of
Agriculture and Food (MAF), with specific responsibility for overall co-ordination assigned to a
Project Co-ordinator to be designated by the line Minister.
To provide oversight at the highest level, the Inter-Ministerial Commission, established by
Presidential Decree #357 of May 28, 1998, will have purview over the reform of the Agricultural
Research, Education and Extension System. The Inter-Ministerial Commission would be
responsible for the resolution of policy and project implementation issues.
The World Bank Projects' Coordination Unit (PCU) would be responsible for all procurement
related activities and for accounting and financial aspects of the Project, including the allocation
and disbursement of Project funds. A small Project Implementation Unit (PIU) ­ comprising
Head of PIU, accountant and secretary ­ would be established within the PCU.
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Implementation arrangement: Activities associated with the research, extension and training
reform component would be implemented by a small unit, housed in the Georgian Academy of
Agrarian Sciences, and reporting directly to the Inter-Ministerial Commission.
Activities covered under the Research, Extension and Training and On-farm Environmental
Management components will be implemented through the CGS, to be managed by a
Competitive Grants Board and Secretariat. The members of the Competitive Grants Board were
appointed in December 1998 and comprise a Chairman and twelve members representing all
relevant stakeholders, including smallholder and commercial farmers, farmers associations and
NGOs. The Chairman and over one-half of the members have no affiliations with either the
Government or the research, extension and training complex. The Secretariat would comprise
four technical specialists covering crop, livestock, economics and environmental disciplines plus
administrative staff. The economist would head the unit and would also be a member of the
Board. Functionally the Secretariat would be responsible to the Competitive Grants Board, but
administratively to the PIU.
Procedurally, a menu of activities relating to on-farm validation and dissemination of known
technologies, initially covering those directed at immediate improvements in productivity and on-
farm environmental management, including for storage and use of manure, would be identified and
agreed upon by the stakeholders. The range of activities deemed eligible would be expand, once
the process of reform in well underway. A process of selecting potentially eligible activities to be
implemented initially is underway, based on the priorities identified by farmers and agro-
processors, and is expected to be completed by end-April 1999.
Following agreement on the menu of activities to be implemented, proposals would be solicited
publicly by the Competitive Grants Board. The Secretariat will evaluate the proposals with the
assistance of local and international peer reviewers, against predetermined criteria such as,
relevance to the farming community, contribution to national priorities, technical quality and
scientific merit, qualifications and experience of the sponsor, plans for transfer of technology and
environmental impacts. Approved proposals would be funded and supervised by the PIU with
the assistance consultants. Such funds could cover laboratory equipment, vehicles, materials,
office equipment, travel costs, short-term training, field labor, fuel and supplies. Large items of
equipment would not be financed under the Project. Initial payment, as a mobilization advance
would amount to 25% of the total value of the contract. The balance would be paid on the basis
of progress against specific milestones.
The Project would also cover technical assistance for CGS and the operating costs of the
Secretariat.
In order to mainstream CGS, the working group charged with the preparation of the Project is
exploring with the Department of Science and Technology and Ministry of Economy how best to
link the proposed CGS with others for the allocation of 15% of Research and Development
Funds (all sectors).
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Accounting, financial reporting and auditing arrangements. The PCU will maintain project
accounts in line with International Accounting Standards covering all transactions related to
project activities and will prepare annual statements of receipts and expenditure. The pre-
appraisal mission will assess the financial management, internal controls and accounting system
of the project agency to ensure it is capable of managing the project. Project accounts and the
Special Account would be audited in accordance with the International Standards on Auditing and
World Bank's guidelines. The project will be in compliance with the Bank's LACI initiative.
Monitoring and Evaluation arrangements: Project monitoring and evaluation would be the
responsibility of the PCU. Simple management information system for M&E, reporting formats
for each component, including targeted annual performance objectives and monitoring indicators,
using Annex 1 details as the basis, would be developed during preparation. A mid-term review
will be carried out to assess overall progress. Lessons learned from the CGS and progress with
the reform of the research complex would be used in restructuring the Project, in the event
needed.
D: Project Rationale
1. Project alternatives considered and reasons for rejection:
Alternatives considered were: (a) to make direct investments in the existing knowledge and
information systems institutions (universities, research institutes etc.) once a complete
implementation plan for restructuring the agricultural research system had been agreed; or (b) to
attach a small field trials and demonstration component to the irrigation project. With regard to
(a), it was concluded that the work already done in collaboration with ISNAR demonstrated the
readiness of the Government and agricultural research complex to tackle reform of the system.
Accordingly it would be desirable to proceed in a step-wise process with the Project providing
technical assistance and capacity building. Furthermore, farmers and agro-processors were
urgently in need of technical and business information and its provision should not be delayed
Also, the task of promoting environmentally sustainable agricultural practices could have been
left to the Ministry of Environment or NGOs. However, it was decided that to ensure the
participation of all relevant stakeholders, a firm commitment for promoting sustainable
agricultural practices and to build national capacity for improving and protecting the waters of
the Black Sea, the best route would be to adopt the Competitive Grant Scheme System.2.
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2. Major related projects financed by the Bank, GEF and/or other development agencies (completed,
ongoing and planned):
Sector issue
Project
Latest PSR Ratings
(Bank-financed projects only)
Implementatio Development
n Progress
Objective
(IP)
(DO)
Bank-financed
Land reform, agro-processing,
Agricultural Development
S
S
agricultural credit
Project




Environmentally Sustainable
Agricultural Practices and Protection
of the Black Sea
Municipal Infrastructure
S
S
Rehabilitation--MIRP
National Environment
N/A
N/A
Action Plan (IDF/Bank)
Forestry Biodiversity
N/A
N/A
Project
Cultural Heritage Project
S
S
Biodiversity Strategy and
N/A
N/A
Action Plan (GEF/Bank)
Integrated Coastal
N/A
N/A
Management Project
Other development agencies
Credit for grain production and
TACIS ­ RARP1
In progress
support to creation grain market

Establishment of rural information
TACIS
In progress
centers
Development of agro-business
TACIS ­ ABC
In progress
consultancy centers
Agro-business development,
Know How Fund
In progress
preparation of business plans
Seed privatization
FAO
Proposals
made but no
agreement
Supply of agricultural machinery
Japan grant
In progress
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Development of private sector
GTZ
In progress
agriculture
Small farmer extension
CARE
In progress
Development of Maize, Wheat,
USAID
In progress
Potato and Sunflower seed
production in private sector
IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly
Unsatisfactory)
3. Lessons learned and reflected in proposed project design:
Key lessons learned form agricultural and environmental projects in the region include:
The need for long-term commitment to address agriculture and environment issues
through phased programs of interventions and broad-based participation;
The need to work directly with farmers to encourage ownership of the initiatives;
The high capacity of local and national Government officials for innovation and effective
management;
The importance of calculating and disseminating the benefits of improved environmental
management in rural areas;
The importance of adequate counterpart training and specialized support for project
related activities, especially procurement, disbursement and supervision; and
The benefits of catalyzing support from within for policy and environmental reforms.
In Macedonia, a system for competitive grant funding of adaptive research has been successfully
applied over three years. Use of the CGS has shifted the focus to on-farm work addressing
farmers' immediate needs and demonstrated the importance of linking technology adaptation to
dissemination as one adaptive research proposal. The project also confirms the pre-project effort
needed to train potential grant applicants' in the preparation of proposals. Initially the majority
of the successful proposals came from the existing research and education structure and special
provisions are needed to encourage private sector submissions. Under the proposed project PPF
funds will be used for pre-project training and will include provisions for encouraging greater
private sector participation.
4. Indications of borrower commitment and ownership:
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In reaffirming its commitment to the Project, the Government established an Inter-Ministerial
Commission in May 1998 to oversee the reform of the agricultural research, extension and
training complex. Also, a working group was established to work on initial data collection and
analysis with the assistance of ISNAR. The information collected by the working group formed
the basis of a workshop held on September 15 and 16, 1998, which was chaired by the Minister
of Agriculture and attended by representatives of research organizations, development agencies,
civil society, farmers associations and NGOs. A good dialogue was established and a number of
institutional issues were clarified, both during the workshop and the Identification Mission with
which it coincided.
Following the Identification Mission, the Georgian counterparts prepared a draft of the
"Guidelines for the Organization and Operation of Competitive Grants Scheme for Agriculture"
based on the "Practitioners Guide to CGS" (ECSSD, August 1998). In December 1998, the
Minister of Agriculture nominated the Chairman and members of the Competitive Grants Board.
At its first meeting, held on December 10, the designated head of the Secretariat presented to the
Board, an overview of the CGS's objectives and organizational arrangements. Work has started
on the selection of priority topics for the first round of grant proposals to be submitted to the
Competitive Grants Board for approval in February 1999.
Arrangements for handling the reform of the Agricultural Research, Education and Extension
system have been agreed with the President of the Georgian Academy for Agricultural Sciences
(GAAS) and the Rector of the Agrarian University (GAU). Initially, a two-person Working
Group (one from each institution) would be set up to review the organizational structure of the
Georgian agricultural research, education and extension system, for use by the Inter-Ministerial
Commission. This work will be done in collaboration with and technical support of ISNAR. The
initial review is expected to be completed by end-June, 1999.
The Minister of Agriculture, in principle, has endorsed the institutional arrangements for
managing the CGS as well as the reform of the Agricultural Research, Education and Extension
system and the on-farm environmental management program. The legal processes for establishing
the CGS, the Competitive Grants Board and its functional relationship with the Secretariat have
also been agreed and MAF has confirmed that the necessary steps would be completed by
Negotiations.
5. Value added of Bank and GEF support in this project:
Assistance from other donors in research and advisory services has rightly focused to date on
tackling credit and input issues as well as establishing some fledgling farmer information services.
Now there is a need for critical technological and information backstopping to support the
Government's efforts to improve the performance of the agricultural sector. Bank experience in
other countries would help map the transitional steps and create and maintain ownership for such
transition on the basis of demand-driven investments. The Bank's value added derives from its
experience worldwide in reforming agricultural research, extension and training services.
14

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The principal value added of GEF support for the Project comes from providing additional funds
to promote renewable energy and to address the priority transboundary water problems of the
Black Sea. The GEF has already added value by supporting the Poland ­ Rural Environmental
Project, which underpins the Project.
GEF funds will specifically help reduce the barriers to farmers' adoption of environmentally
sensitive practices and will allow the Government to consider expanding early pilot operations
into a larger program. Without GEF support to coordinate these activities, Georgia might
undertake a series of small activities in different parts of the country to address these issues. It
would lack a mechanism to coordinate the financing, approaches and geographical targeting of
activities. Without support from the GEF, the project would lack sufficient resources to
accelerate the program, to demonstrate measures on a wide range of farm types and to undertake
a public outreach program. The GEF is thus leveraging funds from other donors and stimulating a
program to coordinate activities, increase coverage and generate larger impact.
Because of their international scope, the World Bank and GEF can provide funds and finance the
incremental costs for replicating such activities both within Georgia and in other countries in the
region. This is particularly important, as agricultural pollution is a major local and transboundary
problem in most countries in the ECA region, particularly those in the Baltic, Danube and Black
Sea drainage basins. Some level of financial support from the public sector and the international
community will continue to be necessary, particularly in lower income countries, because these
activities address externalities, affect transboundary pollution and involve an element of public
good.
E: Issues Requiring Special Attention
1. Economic
[ ] Summarize issues below (e.g., fiscal impact, pricing distortions)
[ ] To be defined (indicate how issues will be identified)
[x] None
Economic evaluation methodology:
[X] Cost benefit
[ ] Cost effectiveness
[ X] Other: Incremental Cost Analysis
Cost benefit analysis to be carried out following pre-appraisal.
Incremental Cost Analysis: The preliminary incremental cost analysis for the Project is presented
in Annex 3. The analysis assumes a baseline under which the prevailing agricultural practices are
only partially corrected, resulting in continued discharge of nutrients into the Black Sea and
emissions of methane. Continued reliance on fossil fuels and unsustainably harvested fuelwood,
the source of energy in rural areas, further increases greenhouse gas emissions. The Project would
introduce and demonstrate more sustainable and environmentally benign technologies and
practices at an estimated incremental cost of US$2.5 million. This analysis will be refined and
discussed with the Government in the course of Project preparation.
15

---

2. Financial
[x ]Summarize issues below (e.g., cost recovery, tariff policies, financial controls and
accountability)
[ ] To be defined (indicate how issues will be identified)
[ ] None
The recipients of funds under the CGS would be expected to contribute either in cash or kind
about 10% to 15% of the cost of any individual research project and about 20% to 25% of the
cost of equipment for environmental management. This provision would encourage institutes,
individuals and other agencies submitting requests, to confirm up front the priority they give to
the proposal. However the difficulty of meeting this contribution under present budgets would
be mitigated by including the salary costs of research staff assigned to the proposal as well as a
value for existing building and machinery assets to be used. Funds from the Bank credit will
support the purchase of research equipment, machinery and materials, training of researchers and
incremental operating costs. Given the low level of salaries within the research institutes, it
would be necessary to include a project allowance for staff working on each sub-project.
The overall financial controls and management by the PCU/PIU to enable close monitoring of the
project finances and its expenditures will be addressed during the pre-appraisal mission.
The CGS should not be seen as a replacement either for core funding of the research complex or
for meeting the future costs of equipment needed for sustainable on-farm environmental
management. Agreement will reached with the Government on the amount of annual budget to be
allocated to the Agricultural Research, Education and Extension system. As for the on-farm
environmental management component, a financing modalities would be assessed on how to cover
first costs.
3. Technical
[x ] Summarize issues below (e.g., appropriate technology, costing)
[ ] To be defined (indicate how issues will be identified)
[ ] None
Based on available information, the majority of Georgian farmers would benefit from advice and
technology for: (a) farm planning and management; (b) crop agronomy and integrated cropping
systems; (c) new crops to diversify systems, (d) livestock management, (e) good quality seeds
and planting material, and (f) for sustainable on-farm environmental management. During
preparation farm surveys have been reviewed and additional information sought to better define
priorities ­ and thus the categories for which CGS proposals will be requested and evaluation
criteria. In addition, an inventory will be carried out of "on the shelf technology" to identify
relevant farm and environmental technologies that are fully developed and have been adopted in
certain areas, but not yet promoted across the country. The technologies for reducing water
pollution are known; however, these have to be validated and demonstrated under Georgian
conditions. Bio-digester technology will require fine-tuning and adaptation to Georgian
conditions.
16

---

4. Institutional
[x] Summarize issues below (e.g., project management, M&E capacity, administrative
regulations)
[ ] To be defined (indicate how issues will be identified)
[ ] None
Other schemes: Link with competitive scheme managed by the Department of Science and
Technology, Ministry of Economy. The links between project activities and those of the
Department will be worked out by the preparation group prior to pre-appraisal.
Potential conflict of interest on the Competitive grants Board: There is a potential conflict of
interest on the Competitive Grants Board with members representing a diversity of organizations
that could benefit from competitive grant funding. This risk will be mitigated by (i) setting clear
criteria against which submissions under each technology adaptation and dissemination category
would be evaluated; (ii) the process of evaluation using local and international specialists to do
the technical evaluation of proposals and (iii) inclusion of farmer and private sector
representatives on the Board.
Lack of competition for grants: Initially, there is a risk that there will be little competition for
grants due to the run-down status of the research, education and extension structures and the loss
of younger research staff from the main institutes. Also, considerable time will be required to
explain the concept and procedures for the CGS. The Competitive Grants Board and its
Secretariat will (a) run a publicity campaign to explain the CGS opportunities and procedures to
the agricultural research and development community, and (b) hold training workshops prior to
project effectiveness to facilitate an early uptake once funds become available.
5. Social
[ ] Summarize issues below (e.g., significant social risks, ability to target low income and other
vulnerable groups)
[x] To be defined (indicate how issues will be identified)
[ ] None
Sociological studies conducted as part of the preparation of the Irrigation and Drainage
Rehabilitation Component (IDRC) have identified the different target groups within the areas to
be rehabilitated. While three recent farm-level studies (including a rural Poverty Study by IFAD)
describe the existing farm structure in specific regions. These results of these studies are being
used in the priority setting process to define topics for support by the CGS that would provide
smallholders on-farm demonstrations of appropriate agricultural and environmental management
technologies.
A Social Assessment will be done.
6. Environmental
a. Environmental issues:
[ ] Summarize issues below (distinguish between major issues and less important ones)
[ ] To be defined (indicate how issues will be identified)
[ ] None
17

---

Major: None
Other: No adverse environmental impact is expected from this component. Proposals requested
under the CGS will explicitly exclude technologies that might damage the environment and
promote those that are environmentally sustainable. Furthermore the proposed GEF component
would support measures to reduce environmental pollution.
b. Environmental category:
[ ]
A
[ ]
B
[x]
C
c. Justification/Rationale for category rating:
18

---

d. Status of Category A assessment:
EA start-up date:
Date of first EA draft:
Current status:
e. Proposed actions:
f. Status of any other environmental studies:
g. Local groups and NGOs consulted: (List names): To be completed. The NGOs are
represented on the Competitive Grants Board.
h. Resettlement
[ ] Summarize issues below (e.g., resettlement planning, compensation)
[ ] To be defined (indicate how issues will be identified)
[x] None

i. Borrower permission to release EA: [ ] Yes [ ] No
[ ] N/A
j. Other remarks:
7. Participatory Approach:
a. Primary beneficiaries and other affected groups:
[x] Name and describe groups, how involved, and what they have influenced.
[ ] Not applicable (describe why participatory approach not applicable with these groups)
The primary beneficiaries of this project are private farmers, i.e. individual producers that
produce a surplus for sale, members of family associations and formal associations, agro-
processors, and contractors for CGS projects. During preparation, private farmers, agro-
processors, and members of the development community will be consulted to ensure that
adequate mechanisms are built into the project design. This was extended to more formal
diagnostic surveys in selected areas as the project proceeds. Two of the members of the
Competitive Grants Board are private farmers and two other members represent farmers'
organizations.
b. Other key stakeholders:
[x] Name and describe groups, how involved, and what they have influenced.
[ ] Not applicable (describe why p articipatory approach not applicable with these groups)
All stakeholders (including MAF, GAS, GAAS, Department of Science and Technology, Framers
Union, NGOs, Private Farmers) involved in policy setting and implementation of Agricultural
Research, Education and Extension systems.
19

---

8. Checklist of Bank Policies
a. This project involves (check applicable items):
[ ]
Indigenous peoples (OD 4.20)
[ ]
Riparian water rights
(OP 7.50) (BP 7.50)
(GP 7.50)
[ ]
Cultural property (OPN 11.03)
[x]
Financial management (OP 10.02)
(BP 10.02)
[x]
Environmental impacts
[x]
Financing of recurrent costs
(OMS 1.21)
(OP 4.01)
(BP 4.01)
(GP 4.01)
[x]
Natural habitats
[x]
Local cost sharing
(OP 4.01)
(BP 4.01)
(GP 4.01)
(OP 6.30)
(BP 6.30)
(GP 6.30)
[ ]
Gender issues (OP 4.20)
[ ]
Cost-sharing above country three-year average
(GP 6.30)
(OP 6.30)
(BP 6.30)
[ ]
Involuntary resettlement (OD 4.30)
[ ]
Retroactive financing above normal limit
(OP 12.10)
[x]
NGO involvement (GP 14.70)
[ ]
Disputed territory
(OP 7.60)
(BP 7.60)
(GP 7.60)
[ ]
Other (provide necessary details)

b. Describe issue(s) involved, not already discussed above:
F: Sustainability and Risks
1. Sustainability:
The objective is to build a cost-effective and efficient institutional infrastructure for research,
extension and training services and promote to promote environmentally sustainable agricultural
practices, with the participation of all stakeholders. The result should be technology adaptation
and transfer programs responsive to the needs of the end-users and in which they will share the
costs. The parallel reform and restructuring of the agricultural research complex will result in a
slimmer, more efficient public sector structure. The first phase of the project, through education,
familiarization and demonstration of environmentally-friendly practices, hopes to increase the
acceptability of these practices by larger number of farmers, leading to commercialization of
manure management and bio-digester services.
20

---

2. Critical Risks (reflecting assumptions in the fourth column of Annex 1):
Risk
Risk Rating
Risk Minimization Measure
Annex 1, cell "from Outputs to Objective"
Research does not develop appropriate new
L
Encourage development of
technologies to raise productivity and conserve
strategic alliances with
the environment.
international partners and
finance specific, well-defined
projects with agreed
performance indicators.
Domestic and Export markets unable to absorb
L
Promote crop diversification
increased production.
and market planning, and
move into agro-processing.
Farmers don't have access to credit, machinery
M
Work initially in areas where
and inputs, as well as land.
credit schemes already
operating.
Farmers not sufficiently organized to develop
M
Provide training schemes for
partnerships with other farmers and the
farmers and groups..
development community.
Annex 1, cell "from Components to Outputs"
Ministry of Finance unable to maintain core
M
Agreements to be reached with
funding for the agricultural research complex and
the Ministry of Finance at
research salaries remain very low.
credit negotiations.
Process dominated by current research structure.
L
Ensure participation of all
stakeholders in priority setting
process.
Number of grant applications insufficient to
L
Provide up-front training for
apply stringent evaluation criteria.
potential applicants.
CGS is not sustainable.
M
Ensure that reform of
agricultural research complex
proceeds in parallel and seek
other sources of funding to
create Endowment fund.
Current technology in bio-digesters does not work
M
Use experiences with
in Georgia
biodigester technology from
similar climatic conditions in
other countries
Farmers are less willing to accept improved,
Similar work has been done in
environmentally-friendly agricultural practices
Poland and project will learn
from experiences in Poland
New private sources of funding don't come
N
Ensure their participation in
forward.
project design.
Overall Risk Rating
M
Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk)
21

---

3. Possible Controversial Aspects (Project Alert System):
Risk
Type of Risk Rating Risk Minimization Measure
Risk








Type of Risk ­ S (Social), E (Ecological), P (Pollution), G (Governance), M (Management
capacity), O (Other)
Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk)
G: Project Preparation and Processing
1. Has a project preparation plan been agreed with the borrower (see Annex 2 to this form):
[x] Yes, date submitted: 12/14/98
[ ] No, date expected: MM/DD/YY
2. Advice/consultation outside country department:
[x] Within the Bank: GEF
[x] Other development agencies: ISNAR
3. Composition of Task Team (see Annex 2)
Messrs. Iain Shuker, Program Team Leader, Jitendra Srivastava, Agricultural Research
Specialist; Naushad Khan, Procurement Specialist, TBD, Financial Specialist
4. Quality Assurance Arrangements (Annex 2)

5. Management Decisions:
Issue
Action/Decision
Responsibility















Total Preparation Budget: US$650,000 Bank Budget: US$650,000 Trust Fund: (US$000)
Cost to Date: US$485,000
GO [ ]
NO GO [ ]
Further Review [Expected Date]
[signature]
Team Leader:
[signature]
Sector Director:
[signature]
Country Director:
22

---

Annex 1
Page 1 of 5
Project Design Summary
Georgia: ADP2 ­ Agricultural Research, Extension and Training Component
Narrative Summary
Key Performance Indicators
Monitoring and
Critical Assumptions
Evaluation
Sector-related CAS Goal:
(Goal to Bank Mission)
Economic growth, poverty alleviation
Rural household incomes.
Agricultural statistics
Government and Bank policies do
not change adversely.
and environmental
Capacity to address environmental
Policy and economic environment
degradation of the Black Sea
National reports
encourages use of new technology.
Improved agricultural practices
contribute to national economy and
welfare of the population
The costs of inaction outweigh
investments in environmental
planning and management.
Project Development Objectives:
(Objective to Goal)
To increase sustainable agricultural
ˇ Crop and livestock production data.
Technologies respond to farmers'
needs.
production, productivity and rural
ˇ Crop yields.
Agricultural statistics.
incomes while reducing natural
ˇ Value of agricultural exports.
Markets and prices provide sufficient
resource pollution.
ˇ Increased area of adoption of
Social Assessment
incentives to producers and
production and resource conservation
processors.
To develop sustainable Agricultural
technologies.
Economic and Financial
Continuing government commitment
Knowledge and Information Systems
ˇ Monitoring of water quality
Assessment
with full participation of all
indicators for major water resource
Continuing political stability
stakeholders.
bodies.
Project M/E unit
ˇ Private funding of agricultural research
Global Environmental Objective
and extension increases.
PIU progress reports

---

Annex 1
Page 2 of 5
To develop effective mechanisms to
ˇ Increased awareness of environmental Annual regional and
improve the quality of the surface,
issues related to agriculture among
national reports
underground and Black Sea waters by
farmers.
reducing non-point sources of
ˇ High satisfaction rate among
Interviews with farmer
pollution from agricultural and
participating farmers.
groups and local
promote the use biogas energy in rural
ˇ High percentage of participating
government
area through demonstration and
farmers implementing the farm
reduction of barriers to its more
management plans, including use of
widespread use.
biogas units.
ˇ Specialists trained in design and
maintenance of biogas units,
environmental monitoring and
education.
ˇ Educational materials developed and
disseminated on improved,
environmentally sustainable practices.
ˇ Increased awareness of financial
benefits of adopting environmentally
sustainable agricultural practices.
ˇ
Outputs:
(Outputs to Objective)
1. An effective system for
1. Technology Development,
Monitoring system to be
Research can develop appropriate
agricultural technology
Acquisition and Adaptation:
established by CGS
new technologies to increase
development, acquisition and
ˇ Competitive Grant Scheme
secretariat.
productivity and conserve the
adaptation established.
established and receiving high quality
environment.

proposals fully meeting criteria.
Project monitoring and
evaluation unit.
Export and domestic markets

ˇ Satisfactory implementation of
develop to absorb increased
successful proposals.

---

Annex 1
Page 3 of 5

successful proposals.
production.

ˇ Strategic international alliances
International research programs

developed.
Agricultural statistics and
continue to supply basic strategic

Special surveys
research to support new technology

1. Development of Appropriate
development.
2. Responsive production, post-
Technology:
CGS monitoring system
Farmers have access to credit,
harvest and natural resource
ˇ Number of technologies responding to
machinery and inputs, as well as land.
management technologies
producer and processors needs
developed and transferred.
released.
Farmers are sufficiently organized to

ˇ Adoption rates by producers and
develop partnerships with other
CGS monitoring system
farmers and the development

processors.
community.
3. Effective linkages between the
ˇ Reduced pollution.
Project monitoring and
agricultural research complex and
ˇ Demonstrated production increases.
evaluation unit
GAAS remains committed to reform
other public and private sector
of the system.
development agencies created.
1. Effective Research/Extension
Participating farmers implement

Linkages:
Project Monitoring and
sustainable agricultural practices and

ˇ Joint proposals received from GAAS Evaluation Unit.
continue to do so after completion of

and development agencies (NGOs,
Bank/GEF investments--technical
and financial.
4. Strategy for reform of the
Farmers Associations etc.).
agricultural research complex
ˇ Expanded network of information and Project Monitoring and
Support from local and national
agreed and reform program
extension centers.
Evaluation Unit.
government continues.
proceeding.
2. Reform of agricultural research
Resource tracking system.

complex:

ˇ Reform strategy adopted.
5. Improved capacity created for
ˇ Reforms underway with rigorous and
research. planning and priority
participatory priority setting adopted
setting.
for research programs.

3. Training and capacity building

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Annex 1
Page 4 of 5

ˇ Quality of proposals.
6. Adoption of improved, sustainable ˇ Number of staff trained.
agricultural practices to reduce
ˇ Younger staff entering research.
environmental pollution
4. Environmental Pollution
ˇ Percentage of farms in target areas
with improved farm management
practices, manure storage facilities and
motivated to install biogas units.
ˇ
Project Components/Sub-
Inputs: (budget for each component)
(Components to Outputs)
components:
1.CGS ­ US$ 3.75 million
Project Monitoring and
Ministry of Finance initially
Evaluation Unit
maintains and then increases core
1. Competitive Grant Scheme
funding, and does not reduce core

funding when CGS introduced.


The CGS is made sustainable.

The reform of the agricultural

2. Reform of Agricultural Research
research and training complex
2. Reform of agricultural research
Complex ­ US$1.15 million
proceeds and achieves cost savings
complex
(salaries) which are reinvested in the
system.


NGOs continue to support the system

3. Improved Environmental Practices ­
and new private sources of funding
3. Improved Agricultural Practices to US$2.5 million a/
come forward.
reduce Environmental Pollution
Farmers and other end-users are able

to contribute to cost sharing.

4. PIU ­ US$0.35 million
4. Project Implementation Unit
Project incentives are sufficient to
motivate farmers to participate in
the project.

---

Annex 1
Page 5 of 5
a/ Exact amount to be determined with GEF

---

Annex 1
Page 5 of 5
GEORGIA ADP II
Support for Agricultural Research, Extension and Training
Preliminary Cost Estimate--million US$
Component
Phase 1
Phase 2
Phase 3
Total
1999/2003
2003/2006 2006/2009
1.
Competitive
Grants
Scheme
Grants a/
3.00
3.00
3.00
9.00
Secretariat
0.75
0.70
0.70
2.15
Sub-total
3.75
3.70
3.70
11.15
CGS
2. Suport for
Reform of the
system
Preparatory
1.15
1.15
studies
Investments
5.00
2.00
7.00
in
restructuring
sub-total
1.15
5.00
2.00
8.15
Reform
program
3. Global
2.80
TBD
TBD
TBD
Environment
Facility
4. Project
0.55
0.15
0.15
0.50
Implementati
on Unit
Total Project
8.25
8.85
5.85
22.95
Cost
Note: Phase 1 is four years and phases 2 & 3 three years each.

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Annex 1
Page 5 of 5
a/ Three tranches of about 20 sub-projects averaging US$50,000
b/ To be determined

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ANNEX 2
PAGE 1 OF 13
GEF Incremental Cost Analysis
GEORGIA
Agricultural Development Project -- II
Component 3: Improved Agricultural Practices to Reduce Environmental Pollution
Overview
1.
The general objectives of the GEF Alternative are to protect the quality of water of the
Black Sea by reducing point and non-point sources of pollution and promote biogas as an
alternative source of energy. The project development objectives for the GEF component are to:
(i) take steps to protect the quality of water of the Black Sea from non-point sources of pollution
by promoting improved agricultural practices, such as the use of reduced tillage, crop
diversification and rotation, manure and chemical fertilizer and pesticide management systems,
terracing, contour farming and buffer strips; and (ii) promote the use of bio-digesters as an
alternate source of energy, thus reducing the venting of methane (CH4) to the atmosphere from
the anaerobic decomposition of animal waste and substituting this renewable energy for fossil
fuels such as LPG and non-sustainable fuelwood. GEF funding will help remove institutional,
financial and knowledge barriers, which currently act as disincentives to the adoption of
environmentally sustainable agricultural practices and clean energy sources by farmers and the
rural population, respectively. The GEF Alternative intends to achieve this at a total incremental
cost of about US$2.50 million. In addition an estimated US$ 0.65 will be financed by the
Government of Georgia and/or by the individual beneficiaries.
Context and Development Goals
2.
Georgia is a mountainous country, with diversity in climate, soils, crop and livestock
production systems. According to 1997 statistics, the total land area of Georgia is 6.97 million
hectares of which about 3 million hectares are agricultural land. In addition, a little more than 3
million hectares are under forest and woodland. Georgia is divided into two main watersheds --
western and eastern -- with almost all major rivers originating in the central mountain ridge, an
area marked by glaciers and numerous small mountain lakes. The average annual rainfall varies
from 2000 to 4000 mm in the western watershed and 400 to 500 mm in the eastern watershed.
The western watershed, covering an area of nearly 3.27 million hectares results in average runoff
of about 41 billion cubic meters which drains into Black Sea. The eastern watershed covering an
area of nearly 3.73 million ha results in an average runoff of about 12.7 billion cubic meters which
drains into Azerbaijan and then eventually into Caspian Sea.

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ANNEX 2
PAGE 2 OF 13
3.
Agriculture is the main sector of Georgian economy, accounting for 28% of GDP and as
much as 55% of employment in 1997. During Soviet times, agriculture and livestock
production systems were highly intensified in Georgia to meet the food and fiber needs of the
Soviet republics. Agricultural production systems were unsustainable ­ absence of conservation
tillage and crop rotation and diversification, excessive use of and improper storage of mineral
fertilizers and pesticides, etc. Such farming practices caused soil erosion and the movement of
fertilizers and pesticides to rivers that resulted in increased Black Sea pollution. Also, animal
production systems, especially swine and poultry, were highly industrialized (i.e. too many pigs
and poultry at one concentrated location) resulting in large amounts of manure draining into major
water bodies that fed into the Black Sea.
4.
Since independence in 1991, the broad development goals of Georgia focus on public sector
restructuring; private sector development; social protection and poverty reduction; and
environmental protection. The Government's overall development agenda attempts to focus on
these issues consolidating the stabilization recently achieved, strengthening the current economic
recovery while protecting the environment. The Government of Georgia has taken important
steps toward improved environmental management in recent years, including the "Environment
Protection Law", the "Law on Environmental Permits", and the "Law on State Ecological
Expertise". A National Environment Action Plan (NEAP) is under consideration for formal
adoption by the Government. Recognizing the importance of protecting the waters of the Black
Sea, Georgia signed and ratified the Bucharest Convention for the Protection of the Black Sea
Against Pollution (1992) and signed the Odessa Ministerial Declaration (1993). Further, the
government of Georgia collaborated with other Black Sea coastal countries, and developed the
Black Sea Strategic Action Plan. Under this plan, Georgia agrees to reduce nutrient loads into the
Black Sea by adopting environmentally friendly agricultural practices and thus preserve the
country's rich biological diversity and natural resource base for future generations.
5.
In addition, Georgia ratified the Framework Convention on Climate Change in July 1994.
Its National Communication under the UN Framework Convention on Climate Change is
currently being prepared. The document will analyze the potential measures to reduce GHG
emissions and to adapt to climate change. Georgia is currently preparing an inventory of GHG
emissions and is making vulnerability assessments for the Black Sea coastal zone. Preliminary
investigations into the agriculture sector reveal the use of fertilizer as an activity of serious
concern, and recommends improved land cultivation technologies, including irrigation.
Baseline Scenario
6.
The baseline scenario includes various activities under this project, but without GEF support.
Currently large amounts of manure and slurry are not stored or used and find their way into surface
and groundwater sources. This may result in non-point source pollution from increased agricultural
activity in Georgia, contributing significant and excessive loads of nutrients into the Black Sea that
may lead to widespread eutrophication with the ecological damage and economic losses associated
with this process. The long-term implication will be continued degradation of a globally significant

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ANNEX 2
PAGE 3 OF 13
element of international waters and its associated bio-diversity in the shared coastal and marine
environment of the Black Sea. As an alternative, more effective storage systems and treatments
could be introduced. This should result in a significant reduction of water pollution and the increase
in agricultural productivity through the application of organic fertilizers.

7.
At present, the rural population uses a mixture of wood, fossil fuels or electricity derived from
fossil fuels to meet their energy needs. All the fossil fuel energy and some of the fuelwood are from
non-renewable sources. Thus they are adding to greenhouse gas accumulation and in the case of
excessive fuelwood use, contributing to deforestation. The cost of this energy ranges from US$ 590
per tonne for LPG to US$ 22 per tonne for purchased fuelwood. Annual energy expenditure per
farming family varies from about US$ 250 to US$ 400. In addition another US$ 50 is saved by
burning self-collected wood and other biomass.

8.
Since transition, forest clearing has accelerated to provide more farmland and to meet the
needs for building, farming operations and domestic energy purposes. This has led to the
accompanying consequences of excessive carbon emissions, deforestation, and loss of natural
habitat, to name a few. The Baseline Scenario does not include an effective mechanism to address
this issue. Biogas could be a cost-effective and environmentally friendly addition to the current
fuel mix. However, its widespread use is hampered by a number of barriers, including behavioral
adjustments (inadequate manure handling), technological risks ((performance of digesters in cold
weather), lack of familiarity, lack of capacity for service and maintenance and lack of investment
capital.
9.
Costs. Total expenditures under the Baseline Scenario are estimated at US$ 5.55 million,
including US$ 0.65 from the Government of Georgia and participating farmers.
Global Environmental Objective
10.
The global environmental objective of the project is to demonstrate the application of on-
farm agricultural practices to reduce nutrient loads entering the Black Sea and help decrease GHG
emissions over time. The dissemination and outreach features of the project will contribute to its
replicability. The role of GEF in this project is to reduce farmers' perceived risks in adopting
environmentally friendly on-farm agriculture practices and remove barriers for their adoption. It
would demonstrate that farmers, who adopt these measures, are able to get the most beneficial
use out of their lands and minimize negative impacts on the environment while improving the
health of the Black Sea ecosystem. Finally, activities promoted under the GEF Alternative will
facilitate the sharing of experiences in the search for feasible and affordable solutions to deal with
non-point source pollution from agriculture to international water bodies.
11.
Scope. The GEF Alternative would provide the means (above and beyond the Baseline
Scenario) for meeting the proposed project's goals. Specifically, it will: (i) install and promote
manure storage and handling tanks in villages for efficient manure management; (ii) provide
manure spreaders/applicators for efficient and cost-effective use of manure and biogas slurry on

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ANNEX 2
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croplands; (iii) promote use of bio-digesters in the villages to reduce methane emissions into the
atmosphere and to provide biogas for cooking and other domestic use; (iv) conduct on-farm
trials and demonstrations to promote the use of improved sustainable agricultural practices,
including reduced tillage, better chemical management systems, terracing, contour farming and
buffer strips for water quality benefits; and (v) establish a water quality monitoring program.
12.
Costs. The total cost of the GEF Alternative is estimated at US$ 8.05 million detailed as
follows: (i) Component 1: Competitive Grant Schemes -- US$ 3.75 million (same as baseline); (ii)
Component 2: Support for Reform of Agricultural Research, Extension and Training; ­ US$ 1.15
million (same as baseline); (iii) Component 3: Improved Agricultural Practices to Reduce
Environmental Pollution ­ US$ 2.80 million (GEF financing ­ US$ 2.35 million) and (iv) Project
Implementation Unit ­ US$ 0.35 million (GEF financing ­ US$ 0.15 million).
Benefits
13. Domestic and International Benefits. The GEF Alternative would go beyond the Baseline
Scenario by allowing the project to promote environmentally friendly agricultural and rural
practices that will reduce non-point sources of pollution to the Black Sea as well as lessen carbon
emissions into the atmosphere; these have strong implications for global climate and human
health. Given the country's precarious budgetary situation, the government can ill-afford to
spend scarce funds as financial incentives to farmers to reduce nutrient loads into the Black Sea
for regional and global gains, nor invest in promoting biogas as an alternative source of clean
energy for global gains. GEF funds will allow additional investments in sustainable farm
management practices in selected project areas that have an impact on the Black Sea and provide
willing farmers with an alternate source of renewable energy. Under the GEF Alternative, the
promotion of improved sustainable agricultural practices will provide greater environmental
benefits and augment the demonstration potential of the exercise. It will promote a public
awareness program to effectively explain the benefits of improved environmental practices at
farm level. It will also allow the development of a strategy for replication of the project within
Georgia and internationally.
14.
Currently, it has been estimated that there are about 100,000 farms in Georgia for which
biogas could be potentially attractive. These digesters would supply an alternative renewable
energy, while at the same time prevent the venting of methane and other greenhouse gases to the
atmosphere. The proposed project should bring the technology to a point where a large-scale
commercial demonstration is feasible. Assuming project success such a demonstration could be
included under phase II of the ADP2 program possibly and if necessary with GEF support.
(The details of such a follow-up project, including the appropriate GEF contribution and
financing modality would be presented to GEF as a separate project).
15.
The adoption of the biogas technology would result in two kinds of GHG saving. The first
would be the prevention of methane being vented to the atmosphere. At full production, each
digester would prevent nearly 600 kg of methane being vented each year. This is equal to 12.34

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ANNEX 2
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tonnes of carbon dioxide equivalent. Over the 20-year lifetime of the digester, about 250 tonnes
of CO2 equivalent would be saved from being venting, (Appendix 1). If production dropped by
50% during the six cool months of the year, then the savings over the 20-year lifetime would be
about 190 t. of CO2 equivalent.
16.
The second GHG saving would be the substitution of a GHG neutral fuel (biogas) for a
fossil fuel and/or non-renewable fuelwood. If it is assumed that half the biogas would replace
LPG for cooking and half would replace wood, both for cooking and heating etc., then every year,
the biogas from each digester would replace about 300 kg of LPG and 1,420 kg of wood. Most of
this wood is renewable. However, an estimated 10% is obtained by reducing the tree capital.
Thus, at full production, by substituting biogas, the yearly prevention of GHG emissions is an
estimated 1,070 kg CO2 equivalent per digester, or a saving of 21.4 t. of CO2 over the 20-year
lifetime of the digester, (Appendix 2). Again, if biogas production dropped by 50% for half of
the year, then the savings would be reduced to an estimated 16 t. of CO2 equivalent over the 20-
year lifetime of the digester.
17.
The farmers are interested in saving money from adopting this new technology. Only if
they are using fossil fuels and/or electricity to cook with will it be profitable for them to switch
to biogas digesters, although from a global environmental perspective it should be advantageous
even if fuelwood is the principal household fuel. If biogas substitutes for 50% LPG and 50%
wood, then at full production, the net annual savings, including depreciation on capital, should
range from US$ 70 to 100 per household. At full production, the net discount revenue (NDR) at
12% discount rate should be between US$ 388 and 688 over the lifetime of the digester. If
output drops by 50% during the six "winter" months, then the NDR will range from US$ - 14 to
286, (Appendix 3). The above calculations assume that a 3.5 m3 digester will cost from US$ 500
to 800, with an annual maintenance cost of US$ 52. To achieve large-scale adoption, it may be
necessary to have a loan program.
18.
Assuming that some 50% (50,000) of the potential farming households adopt the new
technology after phase II, this could result in the annual saving of 617,000 t. CO2 equivalent at
full production from not venting methane, or 12.34 million t. CO2 equivalent over the 20-year
lifetime of digesters. The savings of GHG emissions from substituting biogas for cooking and
heating fuels will vary according to the type and mix of fuels. If it is assumed that half the biogas
is substituted for LPG, kerosene or electricity (generated from heavy oil) and half is substituted
for wood, of which 10% is non-sustainable, then the annual saving of CO2 emissions for 50,000
units at full production will range from 53,500 tonnes (LPG/wood mixture), through 127,500
tonnes (kerosene/wood), to 151,500 tonnes (electricity/wood mixture). If biogas is substituted
for wood alone (90% sustainable), then the annual saving of CO2 emissions will only be an
estimated 34,500 tonnes, (Appendix 4). At full production, the estimated yearly saving of fuel
per digester by substituting biogas will be 303 kg of LPG or 909 liters of kerosene or 3.54 MWhr
of electricity plus 1.42 tonnes of wood. If wood is the only fuel then the savings will be about
4.40 t. of wood, but only an estimated 10% of this total is non-sustainable (Appendix 2).

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ANNEX 2
PAGE 6 OF 13
19.
The greatest global savings from reducing GHG emissions come from preventing the
venting of methane, with the substitution of renewable biogas for non-renewable fuels playing a
modest role. If wood is the only fuel to be substituted by biogas, then the saving over the 20
year lifetime is an estimated 13.0 million tonnes of CO2 equivalent, for the 50,000 digesters, of
which 95% are from preventing methane venting. If biogas is substituted for an electricity/wood
mix, then the saving is 15.4 million tonnes of CO2 equivalent, of which 80% are from preventing
methane venting. This points to the importance of capturing the methane and using it for energy
once it has been captured (Appendix 4).
Incremental Costs
20.
The difference between the cost of the Baseline Scenario US$ 5.55 million and the cost of
the GEF Alternative US$ 8.05 million is estimated at US$ 2.50 million and will be financed by
GEF. This sum represents the incremental cost of achieving the global environmental benefits of
reduced degradation of international waters and carbon emissions into the atmosphere. It is
difficult to directly value the benefits derived from improving the quality of the international
waters, but a rough estimate can be made of the benefits from capturing and using methane.
21.
The proposed incremental cost of the biogas digester initiative is US$ 0.85 million.
Demonstration units will be built to test the practicability of biogas production in conditions
with wide ranging variations in temperature. Insulated and non-insulated, heated and non-heated
digesters may be tested to determine the most appropriate and cost effective models. Surveys
will have to be undertaken to determine potential farmers; masons will have to be trained, as will
the prospective digester owners. An organization should be established to undertake survey
work, promotion, management, training and extension. Such an organization must monitor the
quality of the units, undertake research and development and provide institutional support.
Some of this should come in phase II if the preliminary trials are successful.
22.
However, from a farmer's viewpoint each biogas unit should not be more than US$ 800 if it
is to be a worthwhile investment. With R & D it may be possible to reduce the cost of an
average digester to about US$ 500. It is proposed to build up to 150 demonstration units during
this first phase for an estimated cost of US$ 120,000. Without the digester, the farmer would
spend on average about US$ 194 per year for LPG and wood and with the digester, the annual
net savings will be about US$ 83, including depreciation. Thus over the 20-year digester's
lifetime, the total savings on 150 units will be about US$ 0.25 million: this is taken as the baseline
cost.
23.
Over the 20-year lifetime, the 150 demonstration digesters should save the equivalent of
between 30,000 and 40,000 tonnes of CO2 equivalent, depending on the efficiency of production
under variable temperatures. Thus, the cost per tonne of CO2 saved ranges from US$ 3 to 4
based on the cost of the digesters alone, to US$ 21 to 28 based on the total incremental costs. If
successful, this could lead to a GHG saving of between 11 to 14 million tonnes of CO2 for 50,000

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ANNEX 2
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units with a net saving for the farmer of between US$ 8 and 28 million. Table 1 gives the
incremental cost matrix for this component as well as all the proposed GEF interventions.

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Table 1. Georgia: Agricultural Development Project-II. Incremental Cost Matrix
Component
Cost
US$
Domestic
Global Benefits
Category
Millio
Benefit
n
International
Climate
Water
Change
1.
Baseline
3.75
Improved local
Reduced nutrient
Competitive
capacity and
loads into the
Grant Scheme
knowledge to
Black Sea by
respond to the
making available
demands of
environmentally
emerging private
sustainable
farmers for
agricultural
technology
technologies.
innovation.
With GEF
3.75
Same as above.
Same as above.
Incremental
0.00
2. Reform of
Baseline
1.15
Strengthened
Reduced nutrient
the Agri-
policy and
loads by improving
cultural
structural
extension and
Research,
framework for
research services.
Education and
agricultural
Extension
research,
System
education and
extension.
With GEF
1.15
Same as above.
Same as above.
Incremental
0.00
3.a Improve
Baseline a
0.20
Agricultural
Practices to
Reduce
Pollution -
On-farm
Trials and
Demonstratio
n of
sustainable
agricultural
practices, such
as reduced
tillage,
manure
handling
systems, etc.

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ANNEX 2
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With GEF
1.35
Improved land-
Reduction of
Increased carbon
(IW).
use practices and
nutrient loads into
sequestration,
water quality.
the Black Sea to
(above and below
Reduced soil
guard against
ground).
erosion.
eutrophication and
Increased
protect natural
financial
habitat.
profitability of
Enhanced
agriculture
possibilities for
production.
technology
Increased rural
transfer between
incomes.
riparian countries.
Incremental
1.15
3.b Improve
Baselineb,c
0.25
Energy provided
Increased nutrient
GHG emissions
Agricultural
by wood and
loads into the
of about 500 t.
Practices to
imported LPG
Black Sea
C/yr.
Reduce
etc.
Pollution ­
Biogas Units.
With GEF
1.10
Improved
Reduction of
Reduction of
(CC).
nutrient
nutrient loads in
GHG agricultural
management and
the Black Sea.
emissions and
protection of the
Enhanced
substituting
environment.
possibilities for
biogas for fossil
Reduced pressure
technology
fuels with a
on forest
transfer between
saving of 500 t.
Reduced reliance
riparian countries.
C/yr. Potential
on imported fossil
of 50,000 units
fuels.
with a saving of
Reduced rural
167,000 t. C/yr.
health hazards.
Incremental
0.85
3.c Improve
Baseline
0.00
GHG emissions.
Agricultural
Practices to
Reduce
Pollution -
Water Quality
Monitoring.
With GEFd
0.35
Improved
Enhanced
Decrease venting
(IW).
national and
credibility of
of methane, thus
regional
riparian countries
reduce GHG
monitoring
on environmental
emissions.
capabilities.
benefits of
agricultural
practices to reduce
nutrient loads.
Incremental
0.35

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ANNEX 2
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4. Project
Baseline
0.20
Increased
Implementati
capacity for
on Unit.
project
management and
project
successfully
implemented.
With GEF
0.55
Same as above.
Enhanced GHG
GHG mitigation.
mitigation
Incremental
0.35
Total.
Baseline
5.75
Without project;
very slow
improvements in
nutrient control
and reduction of
GHG emissions.
With GEF
8.25
With project;
Above benefits.
Above benefits.
rapid
improvement in
nutrient control
and reduction of
GHG emissions.
Incremental
2.50
Notes:
a. Participant farmers in trial demonstration schemes will contribute about 15 percent of the
investment cost (in kind contribution) in the on-farm sustainable agricultural practice trials.
b. The option to be adopted without the project consists in continuing methane venting, using
fossil fuels and deforestation.
c. Participant farmers will contribute about 23 percent of the investment and maintenance costs
of the biogas plants.
d. The project will cover 100 percent of the investment cost in establishing a water quality
monitoring system.

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ANNEX 2
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Attachment 1.
Saving of GHG from the Non-Venting of Methane.
The proposed GEF biogas initiative will collect methane produced when manure and other
biomass decomposes anaerobically. Biogas digesters of about 8 m3 capacity of which 2 m3 are
for gas collection will be built to determine the practicability of collecting the methane from the
decomposition of manure etc. in the absence of air. The daily input of fresh manure is an
estimated 60 kg from 10 large animals mixed with about 40 kg of water. The estimated retention
time for this mixture is 60 days. At full production the daily production of the digester will be
3.5 m3 of biogas containing 60% methane, with an energy value of 23 MJ per m3. This is
equivalent to 1.61 kg of methane, (energy value 50 MJ/kg). Therefore, the yearly production is
equal to 558 kg of CH4. If production is halved during the 6-month "winter" period, then the
estimated output will be about 440 kg of CH4, (75% rated capacity).
If methane is vented to the atmosphere, it has a GHG forcing effect 21 times greater than
carbon dioxide over a 100-year time period. Thus, if the methane from the digester was vented to
the atmosphere, it is equivalent to an annual production of 12.34 tonnes of CO2 at full
production or 9.26 t. CO2 at 75% rated capacity.
The anticipated lifetime of a digester is 20 years. If the methane from the digester is
captured and flared, then the saving of GHG emissions over the 20-year period would be about
247 t. of CO2 equivalent at full capacity and 185 t. CO2 equivalent at 75% rated capacity. There
will be a further saving of GHG emissions if the biogas is used for energy in place of fossil fuels
or non-renewable biomass energy.
The potential for biogas digesters has been estimated to be 100,000 units. If half the
potential can be achieved, then the estimated saving of GHG from not venting methane to the
atmosphere is 12.34 million tonnes of CO2 equivalent over a 20-year period at full production, or
9.26 million tonnes CO2 equivalent at 75% rated capacity.

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ANNEX 2
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Attachment 2.
Estimated Saving of GHG from Substituting Biogas for Fossil Fuels & Wood.
The daily consumption of biogas for cooking for a family of four to five is estimated to be
between 1.7 and 2.1 m3. It is reported that many rural households use fossil fuels or electricity
for cooking together with wood for heating purposes and some wood for cooking. Therefore, it is
assumed that half of the daily 3.5 m3 output from the average digester will substitute for fossil
fuels or electricity and half will substitute for fuelwood. It is further assumed that 2.1 m3 of
biogas are used for cooking and that the remaining 1.4 m3 are used for heating purposes and
substitutes only for wood. The following end-use efficiencies and energy values are assumed.
Efficiency for Cooking. Biogas, 65%; Wood, 20%; Kerosene, 35%; LPG, 70%; Electricity, 75%.
Efficiency for Heating. Biogas, 90%; Wood, 80%.
Energy values. Biogas, 23 MJ/m3; Wood, 16 MJ/kg; Kerosene, 35 MJ/liter; LPG 45 MJ/kg;
Electricity, 3.6 MJ/kWhr.
The price of the various fuels in US$ is as follows:
Purchase price. Kerosene, $ 185/m3; LPG, $ 593/tonne; Electricity; $ 45/MWhr; Wood, $
22/tonne. However, only an estimated 45% of wood is purchased in rural areas, the rest being
self-collected: thus, the average price is $ 10/tonne consumed. Most of this wood is renewable,
but it is assumed that 10% is from non-renewable sources
Annual substitution of biogas per digester for the various fuels with their cost.
Operation
Biogas
Kerosene
LPG
Electricity
Wood
m3
liter ($)
kg. ($)
kWhr. ($)
kg. ($)
Cooking
639
909 (168)
303 (180)
3,540 (159)
2,984 ( 30)
Wood (kg.)
Cooking
128
599
599
599
599
Heating
511
825
825
825
825
Sub-total
639
1,424 ( 14)
1,424 ( 14)
1,424 ( 14)
1,424 ( 14)
Note.Annual production of biogas per digester is 1,278 m3. It is assumed that half of the biogas
production is substituted for a cooking fuel and the other half for wood. This half is used for
heating, warming water and a little cooking.
Emission of CO2 for specific fuels,
CO2 emissions, (kg CO2 per unit of fuel). Wood, 1.56/kg; Kerosene, 2.57/liter; LPG, 2.81/kg;
Electricity from fossil fuel, 0.792/kWhr.
Annual GHG emissions of substitute fuels per 1,278 m3 of biogas.
Operation
Biogas
Kero./wood
LPG/wood
Elec./wood
Wood
units: kilogram of CO2 equivalent.
Cooking fuel
0
2,333
850
2,805
465
Cook/heat (wood)
0
220
220
220
220
GHG emissions for combination of fuels
Annual total (kg)
0
2,553
1,070
3,025
685
20-year total (t.)
0
51.06
21.40
60.50
13.70

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ANNEX 2
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Source. The World Bank Environment Dept. 1998. Greenhouse Gas Assessment Handbook,
Paper No. 064. The World Bank Washington. The World Bank Georgia Office 1998.
Woodfuel in Georgian Households. The World Bank Georgia.

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ANNEX 2
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Attachment 3.
Costs and Benefits of a Biogas Plant.
Biogas Plant. Daily production - 3.5 m3.
Capital cost.
US$ 500 to 800.
Annual capital depreciation.
US$ 45 to 72.
Annual operation and maintenance cost. US$ 52.
Annual savings on specific fuel mixes.
US$
Wood &
Kerosene. LPG. Electricity. Wood.
At full capacity (1278 m3 biogas/yr.)
182
194 173
44
Net annual savings (digester $ 500).
85
97 76
- 53
Net annual savings (digester $ 800).
58
70 49
- 80
At 75% rated capacity (958 m3/yr.)
137
146 130
33
Net annual savings (digester $ 500).
40
49 33
- 64
Net annual savings (digester $ 800).
13
22 6
- 91
Net Discounted Revenue.
units US$ (discounted at 12% for 20 years)
Kerosene/wood LPG/wood
Electricity/woo
Wood
d
Discounted
500 800
500 800
500 800
500 800
expenditure
Full capacity (1,278 m3 biogas per year)
Discounted income
1088
1188
1012
- 67
Net
discounted 588 288
688 388
512 212
- 567 - 867
revenue
At 75% rated capacity (958 m3 biogas per year)
Discounted income
711
786
653
- 159
Net
discounted 211 - 89
286 - 14
153 - 147
- 659 - 959
revenue
Note.12% discount factor for 20 years is 8.366 (year 0 = 1, years 1 to 19 = 7.366).
Only annual O & M cost of US$ 52 included, annual depreciation excluded.

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ANNEX 2
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Attachment 4.
Saving of GHG Emissions by Substituting Biogas for Various Fuels.
Saving of GHG by not venting methane.
Full capacity
75% rated capacity
(t. CO2 equivalent)
Annual saving per digester,
12.34
9.26
Lifetime saving (20 years)
247
185
Annual saving for 50,000 units.
617,000
462,750
Lifetime saving for 50,000 units.
12,340,000
9,260,000
Saving of GHG by substituting biogas for various fuels.
units. t. CO2 equivalent.
Kero./wood
LPG/wood
Elec./wood
Wood
At full capacity
Annual saving
2.55
1.07
3.03
0.69
Lifetime saving
51.06
21.40
60.50
13.70
Annual saving; 50,000 units 127,500
53,500
151,500
34.500
Lifetime saving; 50,000 2,553,000
1,070,000
3,025,000
685,000
units
Lifetime
saving 14,893,000
13,410,000
15,365,000
13,025,000
including not venting
methane
At 75% rated capacity
Annual saving
1.91
0.80
2.27
0.52
Lifetime saving
38.25
16.05
45.45
10.35
Annual saving; 50,000 units 95,500
40,000
113,500
26,000
Lifetime saving; 50,000 1,912,500
802,500
2,272,500
517,500
units
Lifetime
saving 11,172,500
10,062,500
11,532,500
9,777,500
including not venting
methane

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ANNEX 3
PAGE 1 OF 10

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ANNEX 3
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ANNEX 3
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Ashok Gadgil, OP6- R.A. Kenchington (International Waters)

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ANNEX 3
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ANNEX 3
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TECHNICAL REVIEW
GEORGIA ADP2 (OP 8)
PROJECT PROPOSAL TO GEF
The project is scientifically sound. It is based on the application of principles which have been
well developed in other and comparable environments and should now be developed to apply to
the agricultural practices in Georgia catchments draining into the Black Sea.
The project brings together the benefits of increased agricultural productivity and links these to
methods which reduce the pollution burdens to the atmosphere and to water courses. The
project is technically sound but in its development and implementation it will be important to
link the economic and environmental benefits and issues as part of a combined double package. If
this is not done there is a risk that the projects submitted under the Competitive Grant Scheme
will be overwhelmingly focussed on the aspects of increased productivity and will attach much
less importance to the environmental aspects.
There are clear global and environmental benefits in the project if it is completed successfully. It
relates to managing and reducing land based sources of marine pollution and this is particularly
important in the context of the Black Sea. There would however be drawbacks if the increased
agricultural productivity components are funded without an equal or greater take-up of the
broader environmental and pollution reduction elements of the project.
The project fits in with the broad range of goals of the global environment facility. In particular,
the water quality elements relate to international waters through the drainage from the catchments
of Georgia into the Black Sea. It relates to the global programs on land-based sources of marine
pollution. It has clear linkages to programs relation to biological diversity and broader
conservation issues.
The regional context is particularly significant, since the project relates to catchments draining
into the Black Sea which is surrounded by countries in critical stages of economic development
and with consequent risks of high and increasing levels of pollution to the vulnerable inland sea.
The project has a high potential for replicability. It is itself, a form of replication of earlier
projects relating to similar situations in Poland and Macedonia. The issues of introduction of low
tillage, low sediment loss, agriculture and consequent significant reductions of pollution of water
courses and receiving marine waters have a general applicability to the agricultural coastlines of
much of the developing world.
The project concerns the introduction of practices and technologies which should provide
economic and ecological benefits which will thus be valued and sustained by the communities
which adopt them. There is consequently, a high likelihood of sustainability.

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The research elements of the project are important in the context of improving global
knowledge and understanding of concepts of holistic management of catchments and water
quality. The linked elements which will be needed for the success of this project relate to the
means of translating the research information about the science and the technologies of cleaner
agricultural practice into extension and education programs which speak directly and easily to the
farmers who will be the front line in the application of these technologies.
I do not have sufficient knowledge of the range of programs and action plans in the relevant
regional and sub-regional areas.
The issue of beneficial or damaging environmental effects has been covered in my comments on
the scientific and technical aspects of the project.
The degree of involvement of stakeholders in the project is a core element of the project designed
and the basic design appears to me to make solid provision for stakeholdersí involvement.
In a similar way, the development of capacity and expertise for the practitioners or stakeholders
is a core element of the project.
The project is innovative in the context of Georgia and the development of Georgian agriculture
but as mentioned above, it represents the intelligent application of lessons learned from
precedents in Poland and Macedonia.
In relation to the risks of the project, the table on page 22 provides a reasonable coverage. The
risk of farmers being less willing to accept improved environmental friendly agricultural practices
has not been rated in the table. I would assign S for substantial to this risk. My experience
suggests that the natural conservatism of farmers who are struggling economically is likely to
make them willing to accept practices which improve their productivity and economic issue and
to be less inclined to apply effort to adopt economy neutral practices which are nevertheless
highly beneficial in environmental terms. I believe the project has the capacity to address this
risk. I think it needs to be expressed very directly and the development of the design needs to
develop clear practices to ensure that the extension to the agricultural community is well designed
and well resourced.
An element which the designers may care to consider is to build in a sub- regional award scheme
so that the farmers who do take up the measures can gain a degree of social or community
recognition for good performance in activities which improve the qualities of land and water.

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ANNEX 3
PAGE 7 OF 10
SUMMARY
I consider that the project is valuable and addresses a particularly important combination of
economic and ecological matters, which have to be addressed together if the issues of land based
marine pollution originating from agriculture are to be addressed effectively.
In finalising the design and implementation, I would advocate to the team that there be a more
obvious linkage of the ecological to the economic and productivity elements of the research and
technology development, so that the intended combination of good economic and good ecological
practices is emphasised and forms a basis of continuing practice. It is particularly important that
a culturally appropriate extension and farmer education scheme is very specifically incorporated
into the design and operation of this project.
Subject to those concerns, I reiterate that the project is important in addressing an important
combination of issues for a global region which is particularly vulnerable to the effects of land
sourced marine pollution and I would advocate its support.
Ashok Gadgil, OP6- R.A. Kenchington (International Waters)

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ANNEX 3
PAGE 8 OF 10
Agricultural Development Project - II
Response to STAP Reviewers Comments
Comment on the International Waters Component
According to the STAP reviewer "the project is valuable and addresses a particularly important
combination of economic and ecologically matters, which have to be addressed together if the
issues of land based marine pollution originating from agriculture are be addressed". The STAP
also has endorsed the Project subject to the following:
(a)
development of the design needs to develop clear practices to ensure that the extension to
the agricultural community is well designed and well resourced.
Response: The Project is designed to foster broad-based stakeholder participation, which will
ensure that schemes developed are demand-driven and fully responsive to the needs of the end-
users, namely the smaller and commercial farmers. The Project, as presently designed, also allows
sufficient flexibility in the allocation of resources. The needs of each component would be
reassessed during the mid-term review and resources reallocated, if justified.
(b) team develop the more obvious linkage of the ecological to the economic and productivity
elements of the research and technology development, so that the intended combination of good
economic and good ecological practices is emphasized and forms the basis of continuing practice.
Response: The components aimed at reducing non-point sources of pollution from agriculture and
promoting the use of biogas were added to the Project with the specific intent of underscoring the
need for an inter-sectoral approach to natural resource and environmental management. This
together with the broad-based stakeholder participation is expected to lead to economic and
ecological concerns being addressed in a holistic fashion.
Comments of the biogas component:
While acknowledging that the Project proposal "offers a comprehensive approach to support
such reform institutionally, with strengthened knowledge systems, and appropriate information
dissemination and technology demonstration, the STAP reviewer has raised the following issues:
(a)
It is not clear from the project documents what (if any) is the present collection method
and the efficiency of cattle and pig dung on Georgian farms.
Response: A study carried out under the auspices of GTZ has estimated that the potential market
for biodigestors in Georgia is in the neighborhood of about 100,000, implying that the collection

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ANNEX 3
PAGE 9 OF 10
method and efficiency is generally satisfactory for biogas use. However, during preparation, the
findings of the study would be further validated through visits to selected sites.
(b)
The present disposal method for cattle and pig dung is not described ---- relevant for
understanding how the current methods contribute to pollution of water resources.
Response: According to the Black Sea Strategic Action Plan, non-point sources of pollution from
agriculture, particularly the discharge of nutrients, is the key issue facing the Black Sea.
(c ) while biogas digesters can be justified as a development of a renewable energy source, its
link to reduced pollution of the water resources requires stronger justification.
Response: The link between promoting biodigesters and reducing pollution of water resources is
indirect. In order to reduce pollution of water resources, manure would need to be better stored
and applied. Stored manure, unless used, releases methane ­ a greenhouse gas. The use of
biodigester is being promoted to reduce the emissions of this gas.
(d)
credit is taken for preventing venting of methane when biogas digesters are used to produce
biogas as fuel for cooking and heating.
Response: See response immediately above.
(e)
the cook stove efficiencies appear to be a bit high for wood.
Response: The efficiency estimates are based on a study prepared for the Bank "Woodfuel in
Georgian Households". Also, if wood stoves in Georgia are similar to those in Albania, where
rural households use cast iron stoves with chimney, the efficiency is likely to higher than the
presently estimated 20%. The estimates will be validated during preparation. In addition, the
estimates used in the Incremental Cost Analysis are conservative; using other estimates would
only improve the results.

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ANNEX 3
PAGE 10 OF 10
GEORGIA
Agricultural Development Project - II
Response to STAP Reviewers Comments
Comment on the International Waters Component
According to the STAP reviewer "the project is valuable and addresses a particularly important
combination of economic and ecologically matters, which have to be addressed together if the
issues of land based marine pollution originating from agriculture are be addressed". The STAP
also has endorsed the Project subject to the following:
(a)
development of the design needs to develop clear practices to ensure that the extension to
the agricultural community is well designed and well resourced.
Response: The Project is designed to foster broad-based stakeholder participation, which will
ensure that schemes developed are demand-driven and fully responsive to the needs of the end-
users, namely the smaller and commercial farmers. The Project, as presently designed, also allows
sufficient flexibility in the allocation of resources. The needs of each component would be
reassessed during the mid-term review and resources reallocated, if justified.
(b) team develop the more obvious linkage of the ecological to the economic and productivity
elements of the research and technology development, so that the intended combination of good
economic and good ecological practices is emphasized and forms the basis of continuing practice.
Response: The components aimed at reducing non-point sources of pollution from agriculture and
promoting the use of biogas were added to the Project with the specific intent of underscoring the
need for an inter-sectoral approach to natural resource and environmental management. This
together with the broad-based stakeholder participation is expected to lead to economic and
ecological concerns being addressed in a holistic fashion.
Comments of the biogas component:
While acknowledging that the Project proposal "offers a comprehensive approach to support
such reform institutionally, with strengthened knowledge systems, and appropriate information
dissemination and technology demonstration, the STAP reviewer has raised the following issues:
(a)
It is not clear from the project documents what (if any) is the present collection method
and the efficiency of cattle and pig dung on Georgian farms.

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ANNEX 3
PAGE 11 OF 10
Response: A study carried out under the auspices of GTZ has estimated that the potential
market for biodigestors in Georgia is in the neighborhood of about 100,000, implying that the
collection method and efficiency is generally satisfactory for biogas use. However, during
preparation, the findings of the study would be further validated through visits to selected sites.
(b)
The present disposal method for cattle and pig dung is not described ---- relevant for
understanding how the current methods contribute to pollution of water resources.
Response: According to the Black Sea Strategic Action Plan, non-point sources of pollution from
agriculture, particularly the discharge of nutrients, is the key issue facing the Black Sea.
(c)
while biogas digesters can be justified as a development of a renewable energy source, its
link to reduced pollution of the water resources requires stronger justification.
Response: The link between promoting biodigesters and reducing pollution of water resources is
indirect. In order to reduce pollution of water resources, manure would need to be better stored
and applied. Stored manure, unless used, releases methane ­ a greenhouse gas. The use of
biodigester is being promoted to reduce the emissions of this gas.
(d)
credit is taken for preventing venting of methane when biogas digesters are used to produce
biogas as fuel for cooking and heating.
Response: See response immediately above.
(e)
the cook stove efficiencies appear to be a bit high for wood.
Response: The efficiency estimates are based on a study prepared for the Bank "Woodfuel in
Georgian Households". Also, if wood stoves in Georgia are similar to those in Albania, where
rural households use cast iron stoves with chimney, the efficiency is likely to higher than the
presently estimated 20%. The estimates will be validated during preparation. In addition, the
estimates used in the Incremental Cost Analysis are conservative; using other estimates would
only improve the results.

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