Major U.S. Aid to Boost Georgia’s Infrastructure

Georgia and the United States signed a USD 295.3 million, five-year aid deal in frames of the Millennium Challenge Account (MCA) on September 12, which is designed to help develop Georgia’s infrastructure and reduce poverty in the country. An estimated half-million Georgians are expected to directly benefit from this program. 

The signing ceremony of Millennium Challenge Compact was held in New York by Georgian Foreign Minister Salome Zourabichvili and Millennium Challenge Corporation (MCC) Vice President Charles Sethness. The ceremony was attended by Georgian President Mikheil Saakashvili and U.S. Secretary of State Condoleezza Rice.

“I think what strikes me most about this Compact, which is focused on rehabilitating infrastructure and on rural business development, is the breadth of its impact. The programs outlined in this Compact have the potential to reach hundreds of thousands of Georgians,” MCC Vice President Charles Sethness said at the signing ceremony.

The U.S. Secretary of State said in her remarks that signing of this agreement is “a concrete expression of the vibrant partnership that the United States and Georgia are building together as Georgia continues to develop an independent, secure and unified democracy.”

But she also stressed that “our partnership will only continue to grow stronger as Georgia continues to establish the rule of law, a vibrant and civil society, an independent media, a free economy and an accountable, effective institutions of government at all levels.”

President Saakashvili underlined that this assistance is “the most efficient tool of help I’d ever seen – and I’ve seen many assistance programs in my country for the last decade.”

In her remarks, Condoleezza Rice emphasized that as a part of this assistance Georgia will be able to rehabilitate its major gas pipeline system.

“Georgia will use some of its MCC funding to rehabilitate a gas pipeline that generates electric power and provides heat to homes and businesses. Reliable access to gas heat will reduce the environmental, health, and safety risk posed by the burning of wood and kerosene in the home – risks that are borne out disproportionately by women and by children,” the U.S. Secretary of State said.

The Georgian President announced in February, 2005, that talks were underway with the Russian energy giant Gazprom over the privatization of the main gas pipeline network. The United States called on Georgia to exercise caution when making a final decision.

As a result, during the consultations which were held between the Georgian and the U.S. sides to outline MCC assistance priorities, it was decided to allocate USD 49.5 million towards rehabilitating the gas pipeline system.

According to the  Millennium Challenge Compact signed on September 12 the Georgian government has no right to “sell or transfer, or permit to be sold or transferred, the Pipeline” or a controlling interest in the Georgian Gas International Corporation, a state-run company which operates the gas pipeline system, until the expiration of the Compact term, hence until 2010.

Program Details

Regional Infrastructure Rehabilitation and Enterprise Development are two major priorities set forth by the USD 295 million assistance program, with USD 211.7 million and USD 47.5 million respectively being allocated for this purpose. The remaining USD 36 million is envisaged for administrative costs, which include: administration and control (USD 27.6 million) as well as monitoring and evaluation of the entire program (8.4 million).

Regional Infrastructure Rehabilitation

A major part of the funding – USD 102 million – will be spent towards rehabilitating some 245 kilometers of the main road traversing Georgia’s southern region of Samtskhe-Javakheti.

According to the Millennium Challenge Georgia Fund (MCG), which is the U.S. MCC’s Georgian counterpart organization in administering assistance, after the rehabilitation of roads in Samtskhe-Javakheti, travel time from Tbilisi – currently 6.5 hours – will be reduce by almost three hours, which will reduce transportation costs for farmers and for small business owners living along this route.

USD 49.5 million will go towards the rehabilitation of Georgia’s gas pipeline system, known as the North-South Gas Pipeline.

USD 60 million will fund projects to improve regional and municipal infrastructure for water supply, sanitation, irrigation, municipal gasification, roads and solid waste in regions outside of Tbilisi.

Enterprise Development

USD 32.5 million is allocated for an independently-managed investment fund to provide long-term risk capital and technical assistance to small and medium enterprises, primarily in the regions outside of Tbilisi, and will identify legal and policy reforms needed to improve the investment environment.
 
USD 15 million will be used for technical assistance and grants to farmers and agribusinesses that supply agricultural products to domestic market.