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					Project name

Spreadsheet version
Date
Amount of MCC funds


Project description


Benefit streams included in ERR

Costs included in ERR (other than costs borne
by MCC)
Estimated ERR and time horizon




Worksheets in this file
                                                                                                  Last updated: 7/7/2005




                           Georgia: Samtskhe-Javakheti Road


                                 Regional Infrastructure Rehabilitation Project
                                  Samtskhe-Javakheti Road Rehabilitation Activity
Investment memo, final
7/7/2005
$102.2 million
The objective of the Road Rehabilitation Activity is improved transportation for regional trade. The Activity will
rehabilitate or construct approximately 245 km of the main road that traverses the Samtskhe-Javakehti region
and provide technical assistance for development of a road master plan, maintenance planning and contracting.
Reduced vehicle operating costs for road users
Increased agricultural value added

None

20% over 24 years

Activity Description
One should read this sheet first, as it offers a summary of the activity, a list of components, and states the
economic rationale for the project.

ERR
Shows the annual costs and benefits of the road and computes the resulting ERR over a 24-year time period.
                                                                                          Last updated: 7/7/2005


Georgia: Samtskhe-Javakheti Road

Activity Description
Summary




Components
MCC funding will be used to:
  1. Rehabilitate or construct, as applicable, the necessary road sections, as well as:
     a. Rehabilitate and improve existing bridges along the Project Road alignment.
     b. Improve existing drainage facilities along the road alignment.
     c. Provide road safety features.
     d. Provide local access and ancillary structures.




Economic Rationale




   1. Increasing exports of agricultural products from the region.
You can find more information on HDM-IV and download the program here.

                                                                         Last updated: 7/7/2005
                                                                                                  Last updated: 7/7/2005


Georgia: Samtskhe-Javakheti Road

Activity Description
Summary
   The objective of the Road Rehabilitation Activity is improved transportation for regional trade. The Activity will
rehabilitate or construct approximately 245 km of the main road that traverses the Samtskhe-Javakehti (S-J)
region and provide technical assistance for development of a road master plan, maintenance planning and
contracting.
Components
MCC funding will be used to:
   1. Rehabilitate or construct, as applicable, the necessary road sections, as well as:
      a. Rehabilitate and improve existing bridges along the Project Road alignment.
      b. Improve existing drainage facilities along the road alignment.
      c. Provide road safety features.
      d. Provide local access and ancillary structures.
   2. Provide technical assistance to the Road Department of the Ministry of Economic Development
(“RDMED”) for the
       formulation of a road master plan to prioritize investments in the road sector and for maintenance planning

Economic Rationale
    The Samtskhe-Javakheti region is one of the poorest regions of Georgia, with a per capita income significantly
below the national average and a high dependency on subsistence agriculture. In southern Georgia, deterioration
of the roads has cut the region of Samtskhe-Javakheti off from the rest of the country. With high costs to
transport produce out of the region, regional farmers are unable to compete with farmers from other regions.
Moreover, the poor road infrastructure also creates significant obstacles to importing high quality agricultural
inputs and other goods. Rehabilitation of roads in the Samtskhe-Javakheti area is expected to foster economic
    1. Increasing exports of agricultural products from the region.
    2. Increasing social, political and economic integration of the local population in Samtskhe-Javakheti,
including ethnic
    3. Expanding international trade, by providing a more direct transport link from Tbilisi and eastern and
southern
    4. Developing the tourism potential of Vardzia, a World Heritage site; and (v) complementing other road
development
    The principal economic contribution of the S-J Road derives from opening up the region to commerce that
would otherwise be unprofitable as a result of high transportation costs. Economic analysis includes not only the
standard savings to vehicle operating costs but also the projected impact of the road on agricultural output.
Unquantifiable benefits that are not included in the estimates include gains to tourism and other non-agricultural
industries that result from better transit as well as social and educational gains resulting from better access to
    In order to quantify the benefits of reduced vehicle operating costs, MCC consultants applied the World Bank’s
HDM-4 model1. To estimate surplus agricultural production from improved transport, it was assumed that
agricultural output across all sectors would increase 10 percent in 2010 and, through 2020, rise to the levels
experienced during the Soviet era. This analysis generates an economic rate of return (ERR) of 20.4%.
    Sensitivity analysis conducted by MCC economists confirmed that predicted economic returns from the road
rehabilitation are robust to changes in the cost and benefit assumptions.
1
  The Highway Development Management (HDM-4) model was originally developed by the World Bank and is
now widely used in highway planning. HDM estimates the total costs for different scenarios in road construction,
maintenance and use so that users can determine the best strategy for road projects. Because HDM-4 is a
proprietary model, only the output of the analysis is included in these spreadsheets, rather than all inputs and
calculations.
You can find more information on HDM-IV and download the program here.

                                                                                              Last updated: 7/7/2005
(Data from Consulting Firm Final Report, August 2005)
                                                          Traffic    Agricultural Total
                Year
                                                          Surplus    Surplus      Surplus
                2005                       0
                2006                   -12.95              -12.95                  -12.95
                2007                   -19.12              -19.12                  -19.12
                2008                   -18.82              -18.82                  -18.82
                2009                   -12.07              -12.07                  -12.07
                2010                      2.8      2.36      5.16        9.01       14.17
                2011                     2.96      2.48      5.44        9.65       15.09
                2012                     3.13       2.6      5.73       10.34       16.07
                2013                      3.3      2.73      6.03       11.09       17.12
                2014                     3.49      2.87      6.36       11.88       18.24
                2015                     3.69      3.01       6.7       12.74       19.43
                2016                   -11.45      3.16     -8.29       13.65        5.36
                2017                     4.17      3.32      7.49       14.63       22.12
                2018                     4.37      3.49      7.85       15.68       23.53
                2019                     4.59      3.66      8.25       16.81       25.05
                2020                     4.85      3.84      8.69       18.01        26.7
                2021                     5.17      4.04      9.21       18.01       27.22
                2022                      5.6      4.24      9.84       18.01       27.85
                2023                    -9.25      4.45      -4.8       18.01       13.21
                2024                     6.35      4.67     11.03       18.01       29.04
                2025                     6.57      4.91     11.48       18.01       29.49
                2026                     6.79      5.15     11.95       18.01       29.96
                2027                     7.03      5.41     12.44       18.01       30.45
                2028                     7.27      5.68     12.95       18.01       30.96
                2029                    14.01      5.96     19.97       18.01       37.98

                                                ERR          7.01%                  20.44%

Scenario                                ERR
Baseline                               20.4%
Cost overrun of 25%                    17.3%
Traffic benefits 67%                   18.9%
Traffic benefits 150%                  22.7%
Agricultural surplus 67%               16.8%
Agricultural surplus 150%              25.1%
Cost         Traffic     Traffic     Agricultur Agricultur
overrun of   benefits    benefits    al surplus al surplus
25%          67%         150%        67%        150%

 -16.1875       -12.95      -12.95      -12.95      -12.95
     -23.9      -19.12      -19.12      -19.12      -19.12
  -23.525       -18.82      -18.82      -18.82      -18.82
 -15.0875       -12.07      -12.07      -12.07      -12.07
    14.17      12.4672       16.75     11.1967      18.675
    15.09      13.2948       17.81     11.9055      19.915
    16.07      14.1791      18.935     12.6578       21.24
    17.12      15.1301      20.135     13.4603      22.665
    18.24      16.1412       21.42     14.3196       24.18
    19.43       17.229       22.79     15.2358       25.81
      5.36      8.0957       1.215      0.8555      12.185
    22.12      19.6483      25.865     17.2921      29.435
    23.53      20.9395      27.455     18.3556       31.37
    25.05      22.3375      29.185     19.5127      33.465
      26.7     23.8323      31.045     20.7567      35.705
    27.22      24.1807      31.825     21.2767      36.225
    27.85      24.6028       32.77     21.9067      36.855
    13.21       14.794       10.81      7.2667      22.215
    29.04      25.4001      34.555     23.0967      38.045
    29.49      25.7016       35.23     23.5467      38.495
    29.96      26.0165      35.935     24.0167      38.965
    30.45      26.3448       36.67     24.5067      39.455
    30.96      26.6865      37.435     25.0167      39.965
    37.98      31.3899      47.965     32.0367      46.985

  17.28%       18.86%      22.71%      16.84%      25.14%

				
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