Kakheti Regional Development Program Kvareli Urban Regeneration ABBREVIATED RAP March 20, 2012 Municipal Development Fund Georgia

Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized RP1250 v3 Kakheti Regional Development Program Kvareli Urban Regeneration ABBREVIATED RAP March 20, 2012 Municipal Development Fund Georgia 1

CURRENCY EQUIVALENTS (as of 16 march 2012) Currency Unit lari (GEL) $1.00 = GEL1.65 ABBREVIATIONS ACS Acquisition and compensation Scheme AB AH Affected Business Affected Household AP Affected Person CBO CSC DMS EPARD Community Based Organization Construction Supervision Consultant Detailed Measurement Survey Environment Protecction Analysis and Resettlment Division GoG Government of Georgia GRC Grievance Redress Committee IA Iimplementing Agency IFI - International Financial Institution IP Indigenous Peoples EMA External Monitoring Agency km Kilometre LARC land acquisition and resettlement commitee RAP MDF Resettlement Action Plan Municipal Development Fund RPF Resettlement Policy Framework M&E Monitoring and Evaluation MFF Multitranche Financing Facility 2

MOF Ministry of Finance MPR Monthly Progress Report MRDI Ministry of Regional Development and Infrastructure NAPR National Agency of Public Registry NGO Non-Governmental Organization PEMI Persons Experiencing Major Impact PFR Periodic Financing Request PPR Project Progress Report PPTA Project Preparatory Technical Assistance R&R Resettlement and Rehabilitation RoW Right of Way SES Socioeconomic Survey 3

Table Contenst Executive Summary 8 1 Introduction 13 1.1 Project Background 13 1.2 Kvareli Subproject 13 1.3 Expected Impacts and Applicable Resettlement Instrument 14 1.4 Preparation of Abbreveiated RAP 15 1.5 Conditions for Project Implementation 15 2 Census and Impact Assessment 16 2.1 Introduction 16 2.2 Impact Assessment 16 2.2.1 Impact on land, Crops and Trees 16 2.2.2 Impact on Buildings and Relocation Needs and 16 2.2.3 Business Impacts and loss of incomes 16 2.2.4 Vulnerable Persons 18 2.2.5 Impact on Common Property Resources 18 3 Legal and policy Framework 19 3.1 General 19 3.2 Legal Framework 19 3.2.1 Georgia s Laws and Regulations on Land Acquisition and Resettlement 19 3.2.2 WB s Policy on Involuntary Resettlement 20 3.2.3 Comparison of Georgian Legislation on LAR and WB Resettlement 23 Policy 4

3.2.4 Resettlement Policy Commitments for the Project 23 3.2.5 Compensation Eligibility and Entitlements Eligibility 22 4 Institutional Arrangement 25 4.1 Introduction 4.1.1 Kvareli Municipality 25 4.1.2 Municipality Registration Office 26 4.2 Other Organizations and Agencies 26 4.2.1 Civil Works Contractor 26 4.2.2 Court of Georgia 26 4.2.3 Ministry of Finance 26 4.2.4 Ministry of Justice 26 4.2.5 The World Bank 26 5 Consultation and Participation 26 5.1 Introduction 26 5.2 Summary of Consultation during SECHSA Study 27 25 5.3 Consultation meetings with the APs during RAP Preparation and Disclosure of Draft Abbreviated RAP 28 6 Grievance Redress Mechanism 31 6.1 Objectives 6.2 Grievance Resolution Process 32 6.3 Formation of GRC 32 7 Implementation Schedule 33 8 Costs And Financing 33 8.1 Compensation for Business Interruption 33 31 5

8.2 Summary LAR Cost and Flow of Funds 33 9 Monitoring and Reporting 34 9.1 Introduction 34 9.2 Monitoring and Evaluation Indicators 34 9.3 Level of Monitoring 34 6

Definitions Beneficiary Community: All persons and households situated within the government-owned or acquired property who voluntarily seek to avail and be part of the Project and represented by a community association that is duly recognized by the community residents, accredited by the local government, and legally registered with the appropriate institutions. Compensation: Lump-sum Payment of the replacement cost of the acquired assets. Entitlement: Range of measures comprising compensation, income restoration, transfer assistance, income substitution, and relocation which are due to Affected People, depending on the nature of their losses, to restore their economic and social base. Improvements: Structures constructed (dwelling unit, fence, waiting sheds, animal pens, utilities, community facilities, stores, warehouses, etc.) and crops/plants planted by the person, household, institution, or organization. Affected People (AP): Individuals affected by Project-related impacts. Affected Household (AH): All members of a household residing under one roof and operating as a single economic unit, who are adversely affected by the Project. It may consist of a single nuclear family or an extended family group. Affected Business(AB): Businesses affected by Project-related impacts. Relocation: The physical temporary relocation of a AP/AH/AB from her/his pre-project place of residence. Relocation Cost: The value determined to be fair compensation for land based on its productive potential and location.. The replacement cost of houses and structures (current fair market price of building materials and labour without depreciation or deductions for salvaged building material), and the market value of residential land, crops, trees, and other commodities. Mitigation Measures: All measures taken to mitigate any and all adverse impacts of the Project on AP s property and/or livelihood, including compensation, relocation (where relevant), and rehabilitation of the damaged/removed infrastructure and installations. Sakrebulo: Representative body of local self-government. The representative and executive branches of self-government are represented accordingly by Local Council (Sakrebulo) and the Gamgebeli of municipal level. The exclusive responsibilities of self-government include land-use and territorial planning, zoning, construction permits and supervision, housing, and communal infrastructure development. 7

Executive Summary The main objective of implementation of RAP is to improve or at least restore the social and livelihood resources of the APs at their pre-project level. The process of implementation should ensure that this objective is achieved over a reasonable time with allocated resources. Therefore, monitoring of the process of RAP implementation and delivery of institutional and financial assistance to the APs has been designed as an integral part of the overall functioning and management of the Project. The Government of Georgia has asked the World Bank to support financing of regional development project in Kakheti region. The proposed program of interventions will emphasize tourism and agriculture as two key pillars and drivers of economic growth. The proposed initial project will focus on support for the tourism sector and enabling the environment for the private sector to invest in Kakheti. Kvareli, one of the most beautiful cities of Georgia, has a rich history. It is located in 160 km from Tbilisi. Records and archeological findings demonstrate the existence of considerable dwellings on that territory. One of the components of Kvareli subproject is restoration of buildings in the central part of the town. Conservation-restoration designs have been developed for following buildings in selected areas: restoration of Kvareli Castle; rehabilitation of Local Government building; restoration of façade of administrative building (Chavchavadze str. N87); restoration of fences and gates on Chavchavadze and Kudigora Streets Expected Impacts and Applicable Resettlement Instrument The zone of rehabiltiation is located on two central streets of Kvareli, in particular: Kudigora and Chavchavadze Streets. Physical work will take place in a total of 71 buildings, out of which three are non-residential. These include two administrative buildings and the Kvareli Castle. The remaining 68 residential buildings are resided by 71 households and occupied by 33 businesses, majority of which are of small size. The project does not involve any permanent resettlement or physical relocation of affected households or businesses; only temporary disruptions to businesses are anticipated. No temporary relocation of households is anticipated at this stage To mitigate any negative impacts on houselholds and business welfare, this Abbreviated RAP was prepared in accordance to the WB OP/BP 4.12 and the RPF approved for the KRDP. Consultations were conducted with population living in planned project area. During the consultations it was revealed that in case temporary relocation of businesses or households are required for unforeseen reasons, none of households or businesses prefers to be relocated to temporary accommodation facilitated by the project. All ABs agreed to take 8

lump-sum compensation and continue to pay regular salaries to their employees. Before the launch of construction activities the information boards with contact requisites and addresses will be arranged in all business offices according to which employees will have information to whom to address in case of violation of their rights. The committee is entitled to consider all complaints and to have the final decision within 7 days. Based on the type of works for Buildings Restoration envisaged under Kakheti Regional Development Project, buildings are categorized into three types: Category I - Residents/users of buildings will not require temporary relocation; Category II Residents/users of buildings will be given the option to relocate temporarily; Category III - Residents/users of buildings would be required to relocate temporarily. The following 20 criteria are used to define the category of the buildings: # description of Works 1 Finishing of facade 2 Installation of doors/windows 3 Arrangement of balconies 4 Strengthening of foundations and retaining walls outside the building 5 Strengthening of foundation in basement (in non-residential area) 6 Arrangement of seismic belt in attic 7 Replacement of roof covering 8 Partial replacement of roof structures 9 Rehabilitation of fences and gates 10 Strengthening of foundations and retaining walls inside the building 11 Partial re-arrangement of load-bearing walls 12 Complete replacement of roof structures 13 arrangement of new floor (storey) 14 arrangement of attic 15 Arrangement of balcony and stairs, when access to the building is limited 16 Extension and strengthening of openings 17 Arrangement of new reinforced-concrete floor covering 18 Arrangement of seismic belt at floor covering level 19 Complete re-arrangement of walls 20 complete demolition of building Buildings that only involve works under items 1-9 belong to category I. Buildings that involve any of the works under items 10-16, but not 17-20 belong to category II Buildings that involve any of the works under items 17-20 belong to category III. All 71 households and 33 businesses occupying the buildings subject to physical work are in category I. Affected Households Overall, all of the 71 households residing in the 68 buildings are in category I, and will not be affected for the duration of the project related civil works. In the process of rehabilitation 9

impact on the househols residing at the above mentioned buildings will be minimal, whereas all above mentioned households have some benefit due to the project implementation. The complete list of the 71 households is found in Annex 1 Business Impacts and loss of profit There are 33 businesses operating in the 68 buildings subject to physical work, which may experience loss of profit due to reduced number of customers during restoration work. This loss is estimated to be less than 20%. Businesses in buildings subject to physical work will be compensated for expected 20% decline of profit during 3 months (see Annex 1). Based on survey data, none of businesses will be requierd to close during construction work. Compensation amount, which was calculated as 20% of profit was established with close consultations with business owners. All business owners assured that they are not going to decrease the amount of salaries to employees, and that they are not going to give temporary leave to them. These provisions on the compensation for 20% loss of profit and the continued payment of salaries to employees will be reflected in letters of agreement, which will be signed by business owners prior to the transfer of compensation funds. No construction work will commence on a building until (a) the letters of agreement are signed by the owners of businesses operating in the building and (b) compensation is paid to them. If business owners incur loss of profit greater than 20% during the period of disruption and can demonstrate it with verifiable proof, they would be able to request additional compensation through the grievance redress mechanism described in the RAP. Vulnerable Project Affected People No vulnerable housholds will be affected by this subproject. Although there are 10 vulnerable households (all under poverty line) residing in the 68 buildings where physical work will take place, since they are in Category I buildings where temporary relocation is not required, they are not considered as AHs.,.. Costs and Financing The 33 owners of the temporarily affected businesses are eligible for compensation of business profit losses corresponding to the period of business interruption. The losses are valuated based on tax declaration, or in case of abscense of such proof, based on minimum subsitence income for the households consisting of 5 persons. Amount of business employees affected by the project is 0. All employees will be paid salaries uninterrupted. Compensation for expected losses due to decline of business activities (20% of net monthly profit multiplied on 3 months) for 33 businesses constitutes 5,818.00 GEL. In case the duration of business disruptions lasts longer than anticipated the contingency funds will be available to cover additional compensation costs. Contingency funds will be sufficient for additional three month. If business owners incur loss of profit greater than 20% during the period of disruption and can demonstrate it with verifiable proof, they would be able to request additional compensation through the grievance redress mechanism described in the RAP, which will be covered by the contingency fund. In case the category of buildings would be changed to category II or III in the future for unforeseen reasons, the additional cost of compensation and allowance related to these changes would also be covered by the contingency fund. 10

Summary LAR Cost and Flow of Funds The table below summarizes the types and amounts of compensation and allowance to be awarded to the project affected households and businesses. In addition to the total amount stated in the table, contingency funds of 5,818.00 GEL (equivalent to the compensation cost of affected businesses) will be made available. The Government has agreed to make these compensations in lump-sum. 11

Compensation Entitlement Matrix Affected Households (AHs): Occupants (including owners and renters) residing in buildings subject to physical work Building Category Compensation Measure Total Number of Households Compensatio n Cost Category I (0 AHs): No relocation required. Works cause no considerable restriction of living conditions of inhabitants, discomfort or infringement of sanitary standards. No impact on safety of population. Category II: Temporary relocation of inhabitants may be needed. Works restrict living conditions of the inhabitants to an extent. Infringement of sanitary standards is expected in certain cases. Possible impact on safety of population. Category III: Inhabitants require temporary relocation. Works considerably restrict living conditions of the inhabitants and infringes sanitary standards. Safety of the inhabitants may not be secured. 71 (not counted as AHs) None GEL 0 0 Lump-sum compensation equivalent to 3 months of rental cost plus GEL 200 relocation cost 0 Lump-sum compensation equivalent to 6 months of rental cost plus GEL 200 relocation cost GEL 0 GEL 0 Subtotal 0 GEL 0 Affected Businesses (ABs): Owners of businesses operating in the buildings subject to physical work Total Building Category Number of Affected Businesses Compensation Measure Compensation Cost Category I 33 Lump-sum compensation for 20% monthly GEL 5,818 profit based on tax declaration x 3 months Category II 0 Lump-sum compensation for 20% monthly GEL 0 profit based on tax declaration x 3 months Category III 0 Lump-sum compensation for 20% monthly GEL 0 profit based on tax declaration x 6 months Subtotal 33 GEL 5,818 Vulnerable People: Households living below the poverty line residing in the buildings subject to physical work Total Building Category Number of Vulnerable Households Allowance Compensation Cost Category I (Not Affected) 10 (Not considered as Ahs) None GEL 0 Category II 0 Allowance of GEL 313 (minimum subsistence cost of 1 month) per Vulnerable Households GEL 0 Category III 0 Allowance of GEL 313 (minimum subsistence cost of 1 month) per Vulnerable Households Subtotal 0 Allowance GEL 0 Grand Total Grand total GEL 5,818 GEL 0 12

1. INTRODUCTION 1.1 Project Background Following four years of rapid growth, backed by far-reaching reforms and strong financial investment inflows, Georgia experienced a sharp economic downturn resulting from the August 2008 conflict and the global financial crisis. Economic recovery is underway, with growth of an estimated 6.3 percent in 2010. The authorities responded to the downturn with a countercyclical fiscal stimulus coupled with a marked reallocation of public expenditures toward social and infrastructure investments. As economic recovery takes hold, driven by higher exports and private investment, the authorities are winding down the stimulus and implementing fiscal adjustment to safeguard sustainability. There is, however, uncertainty regarding the pace of economic recovery. Georgia will need to refinance a public debt amortization spike in 2013. The authorities are addressing these vulnerabilities through well designed fiscal, monetary and debt management policies. Infrastructure projects are considered by the Government as part of the physical stimulus package. The Government refocused efforts in the past six years by launching several initiatives to attract private investors in selected regions (Tbilisi, Adjara, and Imereti) on various sectors. Georgia, however, has not yet fully tapped its potential to promote sustainable tourism in promising regions, such as Kakheti, or transform the rural economy through investment in agriculture supply chains for both export and import substitution. There is also a need for skills development in order to provide the skilled labor needed for a growing economy and increased productivity. The Government of Georgia has asked the World Bank to support regional development in Kakheti by applying a vertical programmatic approach. The proposed program of interventions will emphasize tourism and agriculture as two key pillars and drivers of economic growth. The proposed initial project will focus on support for the tourism sector and enabling the environment for the private sector to invest in Kakheti. Proposed Kakheti Regional Development Program consists of 2 major components: Component 1: Infrastructure Investment Component 2: Institutional Development Provision of financial resources to local self-governments (LSGs), in particular, comprises Investment Subprojects for Urban regeneration: Integrated approach to urban transformation of Telavi, Kvareli and Dartlo (as a heritage village) 1.2 Kvareli Subproject Kvareli is one of the most beautiful cities of Georgia, Kakheti region, in 160 km from Tbilisi that has a rich history. Records and archeological findings demonstrate the existence of considerable dwellings on that territory. Components for Kvareli subproject include: Rehabilitation of Roads in Kvareli streets (Central Part of Kvareli Town) ; Rehabilitation Outdoor Lighting in Kvareli streets (Central Part of Kvareli Town); 13

Rehabilitation of Underground Utilities in Kvareli streets (Central Part of Kvareli Town); Urban Regeneration Works in Kvareli Streets (Central Part of Kvareli Town); Conservation/restoration of selected historical buildings. For restoration of buildings in the central part of the town Kvareli, conservation-restoration designs have been developed for following buildings in selected areas: restoration of Kvareli Castle; rehabilitation of Local Government building; restoration of façade of administrative building (Chavchavadze str. N87); restoration of fences and gates on Chavchavadze and Kudigora Streets 1.3 Expected Impacts and Applicable Resettlement Instrument The project is designed to exclude any permanent resettlement impact and physical relocation of affected households and businesses. Longterm social impact of the project is beneficial, as the sanitation conditions in appartment buildings will be improved and appearance and the real estate value of the rehabilitated buildings enhanced. There are 33 legal persons (businesses) and 71 households (physical persons) occupying the buildings subject to physical work. The rehabilitation of certain part of buildings (which is limited to fences and gates) will not require temporary relocation of the residents for the duration of the rehabilitation works but may cause interruption of business activities of the commercial structures located in these buildings. According to the WB OP/BP 4.12 and the RPF approved for the KRDP, preparation of Abbreviated RAP is required. An abbreviated plan covers the following minimum elements: (a) A census survey of affected persons, assets, and their anticipated loss of income; (b) Institutional responsibility for implementation and procedures for grievance redress; (c) Arrangements for monitoring and implementation; and (d) A timetable and budget. For the purpose of preparing the Abbreviated RAP, buildings subject to physical work have been categorised in the following way: (a) Residents/users of Category I buildings will not require temporary relocation; (b) Residents/users of Category II will be given the option to relocate temporarily; (c) Residents/users of Category III would be required to relocate temporarily. The following 20 criteria are used to define the category of the buildings: # description of Works 1 Finishing of facade 2 Installation of doors/windows 3 Arrangement of balconies 4 Strengthening of foundations and retaining walls outside the building Table 1.1 14

5 Strengthening of foundation in basement (in non-residential area) 6 Arrangement of seismic belt in attic 7 Replacement of roof covering 8 Partial replacement of roof structures 9 Rehabilitation of fences and gates 10 Strengthening of foundations and retaining walls inside the building 11 Partial re-arrangement of load-bearing walls 12 Complete replacement of roof structures 13 arrangement of new floor (storey) 14 arrangement of attic 15 Arrangement of balcony and stairs, when access to the building is limited 16 Extension and strengthening of openings 17 Arrangement of new reinforced-concrete floor covering 18 Arrangement of seismic belt at floor covering level 19 Complete re-arrangement of walls 20 complete demolition of building Buildings that only involve works under items 1-9 belong to category I. Buildings that involve any of the works under items 10-16, but not 17-20 belong to category II. Buildings that involve any of the works under items 17-20 belong to category III. According to elaborated categorization all residential buildings belong to I category. In the process of rehabilitation impact on the househols will be minimal and none of them will be subject to temporal relocation. All above mentioned househols will have some benefit that will be reflected in rehabilitation of their buildings (fences and facades). 1.4 Preparation of Abbreveiated RAP 1. This RAP has been prepared as a condition to contract award signing. The document complies with relevant Georgian laws and provisions of the WB OP 4.12 on Involuntary Resettlement, as well as the updated version of the Resettlement Policy Framework developed by MDF in 2011 for the Kakheti RDP. RAP preparation entailed survey and consultations: (i) a detailed census of affected households and commercial entities (ii) description of project related resettlement impacts, valuation of temporary losses and estimation of required compensations and rehabilitation allowances and measures (iii) Intensive consultations with all affected households, businesses and other stakeholders were conducted during the process. The survey and consultation activities have been carried out in February 2012. 1.5 Conditions for Project Implementation 2. Based on the WB policy/practice, the approval of project implementation will be based on the following RAP-related conditions: (i) Signing of Contract Award: Conditional to the approval of the RAP by WB and Government. 15

(ii) Notice to Proceed to Contractors: Conditional to the implementation of RAP for the buildings of category I buildings were not a business structures, as well as rehabilitation of streets and undeground utilities could be strated upon the approval of the present Abbreviated RAP. 2. CENSUS AND IMPACT ASSESSMENT 2.1 Introduction Based on the project information and with assistance of Kvareli municipality 100% Census were undertaken. These surveys were conducted started on Feabruary 24, 2012 and was terminated on Feabruary 29, 2012. The start date of the census survey is considered as the compensation eligibility cut-off date for the project which is therefore February 24, 2012. 2.2 Impact Assessment 2.2.1 Impact on land, Crops and Trees The project does not envisage any permanent or long term acquisition of private land plots owned by physical or legal persons. The residential buildings have adjacent private land plots. However, these land plots are not occupied even for temporary needs and the trees growing on these land plots are not affected. The land plots adjacent to the residential houses constitute small yards of the appartment houses and none of the mentioned land plots will be affected, nor are they used for crop cultivation. Therefore, the project is not associated with losses of residential or agricultural land plots, trees or crops. Accordingly no compensations for the land, trees or crops are included in current RAP. 2.2.2 Impact on Buildings and Relocation Needs and Strategy The zone of rehabiltiation is located on two central streets of Kvareli, in particular: Kudigora and Chavchavadze Streets. Phsyial work will take place in a total of 71 buildings, out of which three are non-residential. These include two administrative buildings and the Kvareli Castle. The remaining 68 residential buildings are resided by 71 households and occupied by 33 businesses, majority of which are of small size. All Buldings in the project area belong to category I, and there will be no temporary or permanent relocation of households or businesses. Works cause no considerable restriction of living conditions of inhabitants, discomfort or infringement of sanitary standards, and the safety of population will not be impacted. None of the 71 households residing in these buildings are considered as affected households. 2.2.3 Business Impacts and loss of incomes Longterm social impact of the project on businesses is beneficial, as the project will reslult in increased flow of tourists, general economical growth in the region and this will have indirect positive effect on the businesses (shops, cafes and other service providers), which are located in the buildings subject to physical work. However, the 33 businesses operating in the buildings subject to physical work could experience negative impacts in a short term, 16

entailing temporary interruption of business activity due to the disturbance (noise, dust, emissions), limitation of access and safety risks related to the construction activities. Based on survey data, none of businesses will need to be closed during construction activities. The businnesses may have some partial losses in profits related to the decline of business activities. However, this loss is estimated to be less than 20%. All 33 businesses in buildings subject to physical work will be compensated for expected 20% decline of profits during 3 months (see Annex 1). Compensation amount, which was calculated as 20% of profit was established with close consultations with business owners. All business owners assured that they are not going to decrease the amount of salaries to employees, and that they are not going to give temporary leave to them. These provisions on the compensation for 20% loss of profit and the continued payment of salaries to employees will be reflected in letters of agreement, which will be signed by business owners prior to the transfer of compensation funds. No construction work will commence on a building until (a) the letters of agreement are signed by the owners of businesses operating in the building and (b) compensation is paid to them. If business owners incur loss of profit greater than 20% during the period of disruption and can demonstrate it with verifiable proof, they would be able to request additional compensation through the grievance redress mechanism described in the RAP. Before the launch of construction activities the information billboards with contact requisites and addresses will be arranged in all business offices according to which employees will have information to whom to address in case of violation of their rights. The committee is entitled to consider all complaints and to have the final decision within 7 day period. The composition of the affected businesses are summarized in the table below: Table 2.1 Affected Businesses (ABs): Owners of businesses operating in the buildings subject to physical work Building Category Category I 33 Category II 0 Number of Affected Businesses Compensation Measure Lump-sum compensation for 20% monthly profit based on tax declaration x 3 months Lump-sum compensation for 20% monthly profit based on tax declaration x 3 months Category III 0 Lump-sum compensation for 20% monthly profit based on tax declaration x 6 months Total number of affected businesses Total Compen sation Cost GEL 5,818 GEL 0 GEL 0 33 Total compensation amount GEL 5,818 17

The 33 owners of the temporarily affected businesses are eligible for compensation of business profit losses corresponding to the period of business interruption. The losses should be evaluated based on tax declaration, or in case of absence of such proof, based on minimum subsistence income for the households consisting of 5 persons. 2.2.4 Vulnerable Project Affected Persons Affected households attributed to the group of vulnerable people (households below poverty line, headed by woman, family member with a disability) are elgible for one time rehabilitation allowance equal to 1 month of minimum subsidence income for a family of five. There are 10 vulnerable households (all under poverty line) residing in the buildings subject to physical work, but since all of these 10 households are in Category I buildings, and are not considered as AHs, there will be no households receiving this allowance. 2.2.5 Impact on Common Property Resources In the long term, public infrastructure, such as water supply, sewage etc. will be improved. Short-term interruption of the water supply may take place during the rehabilitation of the water supply networks. The residents will be timely notified to enable water storage, as usually done during the routine maintenance works. In unlikely case of long-term interruption, bottled water will be provided to the affected households. PAPs have raised a concern of increased utility fees as a result of these improvements; they were given assurances that there will be no increase of taxes or fees related to this project and that no increase of utility fees is envisaged. 18

3. LEGAL AND POLICY FRAMEWORK The aforementioned impacts of this subproject are addressed through the measures stated in this RAP, which were prepared in line with the legal and policy framework of the project as described in this section. 3.1 General 1. The legal and policy framework of the Project is based on national laws and legislations related to Land Acquisition and Resettlement (LAR) in Georgia and the World Bank Involuntary Resettlement Policy (OP/BP 4.12). Based on the analysis of applicable laws and policies and Policy requirements of the mentioned IFIs, project related LAR principles have been adopted. 3.2 Legal Framework 3.2.1 Georgia s Laws and Regulations on Land Acquisition and Resettlement 2. In Georgia, the legislative acts given below regulate the issues of obtaining State ownership rights to privately owned land parcels based on the necessary public needs caused due to constructions activities: (i) The Constitution of Georgia, August 24, 1995 (ii) The Civil Code of Georgia, June 26, 1997 (iii) The Law of Georgia on Protection of Cultural Heritage, 2007 (iv) The Law of Georgia on Notary Actions, December 4 2009; (v) The Law of Georgia on Privatization of State-owned Agricultural Land, July 8, 2005 (vi) The Law of Georgia on Ownership Rights to Agricultural Land, March 22, 1996 (vii) The Law of Georgia on Recognition of the Property Ownership Rights Regarding the Land Plots Owned (Used) by Physical Persons or Legal entities; 2007 (viii) The Law of Georgia on Public Register (No820 IIs; December 19 of 2008; (ix) The Law of Georgia on the Rules for Expropriation of Ownership for Necessary Public Need, July 23, 1999 (x) The Civil Procedural Code of Georgia, November 14, 1997 3. The existing Laws provide that compensation for lost assets, including land, structures, trees and standing crops, should be based on the current market price without depreciation. Overall the above laws/regulations provide that the principle of replacement cost compensating at market value is reasonable and legally acceptable. The laws also identify the types of damages eligible to compensation and indicate that compensation is to be given both for loss of physical assets and for the loss of incomes. Finally, these laws place strong emphasis on consultation and notification to ensure that the APs participate in the process. Income loss due to loss of harvest and business closure will be compensated to cover net loss. The above-listed laws and regulations give the possibility of applying the following mechanisms for legal application of the property rights: 19

(i) Obtaining the right of way (servitude) without expropriation through the payment of due compensation (on the basis of a contract of agreement or a court decision) prior to commencement of the activities. (ii) Expropriation which gives the possibility of obtaining permanent right to land and/or other real estate property on the basis of Eminent Domain Law or a court decision through the payment of due compensation. Land will be acquired through eminent domain, first on the basis of negotiated settlement with individual affected entities. Should the contract fails, the expropriation process under the eminent domain will start. Under the existing Law in Georgia, the president will issue an order for expropriation based on the request from relevant state agencies. Relevant regional court will assess the presidential order and determine the case of public needs, and grant the expropriation entity rights to obtain land. The court will also appoint a third party to assess the market value of lost assets and determine the compensation payable to relevant land owners accordingly to the value of assets thus found. 3.2.2 WB s Policy on Involuntary Resettlement All projects funded by the WB must comply with the WB social and environmental safeguards. The WB financed projects, in their turn, require compliance with the WB safeguards and guidelines. WB BP/OP 4.12 Involuntary Resettlement is one of the most important safeguards guiding land acquisition and related resettlement/compensation issues during project implementation. In line with the principles of host-country responsibility, Georgia is committed to implement the WB financed projects in compliance with the requirements of WB BP/OP 4.12. Generally, the Georgian legislation is compatible with the major provisions of the WB Resettlement Policy but a few important differences are to be noted. The WB resettlement policy is directed at improving (or at least restoring) incomes and living standards, rather than merely compensating people for their expropriated assets. This improvement of incomes and living standards broadens the objective of the policy to include the restoration of income streams and retraining of people unable to continue their old income-generating activities after displacement. The emphasis on incomes and living standards, in contrast to the conventional emphasis on expropriated property, expands the range and number of people recognized as adversely affected. Recognition of this broader range of adverse impacts leads to a greater appreciation of the issues to be considered in resettlement and consequently requires careful delineation of responsibilities, elaborate risk management and explicit and distinct resettlement planning. The WB policy complements the Georgian legislation/regulation with certain additional requirements, which are mandatory for the WB financed projects. In particular, appropriate planning/management instruments must be developed prior to project appraisal, like Resettlement Policy Framework (RPF) and Resettlement Action Pan (RAP), as appropriate. Resettlement Policy Framework (RPF). A policy framework was prepared because the extent and location of resettlement was not known at appraisal.. The policy framework 20

establishes resettlement objectives and principles, organizational arrangements, and funding mechanisms for any resettlement operation that may be necessary during project implementation. The framework also assesses the institutional capability to design, implement, and oversee resettlement operations. Resettlement Action Pan (RAP). This RAP was prepared in line with the OP4.12 and the RPF. It is a location-specific action plan including preliminary studies (sociological survey, census, valuation of impacts, and consultation with affected persons), a set of compensation/mitigation measures for each affected person/household, and detailed implementation plan with indication of responsible parties and schedule. The WB Policy on Involuntary Resettlement, as defined in the OP/BP 4.12, is based on the following principles: Involuntary resettlement is to be avoided or at least minimized. Compensation/Rehabilitation provisions provide affected persons with opportunity to improve, or at least restore, pre-project incomes and living standards. Affected Persons should be fully informed and consulted on Land Acquisition and Resettlement compensation options. Affected Persons socio-cultural institutions should be supported/used as much as possible. Compensation will be paid at replacement cost to affected persons, without deduction for depreciation or any other purpose. Lack of legal title should not be a bar to compensation or alternative forms of assistance as needed to achieve policy objectives. Particular attention should be paid to households headed by women and other vulnerable groups. Land Acquisition and Resettlement should be conceived and executed as a part of the project, and the full costs of compensation should be included in project costs and benefits. Compensation and resettlement subsidies will be fully provided prior to clearance of right of way/ ground leveling and demolition. 21

Comparison of Georgian Legislation on LAR and WB Resettlement Policy Generally the Georgian legislation is compatible with major provisions of the WB Resettlement Policy but a few differences are to be noted. The most significant of these differences is that under Georgian legislation/regulation, emphasis is put on the definition of formal property rights and on how the acquisition of properties for public purposes is to be implemented and compensated while in the case of WB policy emphasis is put both on the compensation of rightfully owned affected assets and on the general rehabilitation of the livelihood of the Project Affected People (PAP) and Households (AH). Also, in addition, the legislation of Georgia does not require any specific planning/implementation instrument like RPF or RAP based on extensive public consultations. The differences between the legislation of Georgia and WB policy are outlined in Table 3.1 below. Table 3.1: Comparison of Georgia Laws/Regulations on LAR and WB Resettlement Policy Georgia Laws and Regulations WB Involuntary Resettlement Policy Land compensation only for titled landowners Only registered houses/buildings are compensated for damages/demolition caused by a project Crop losses compensation provided only to registered landowners. Land valuation based on replacement cost: (i) current market value where active land markets exist; (ii) Reproduction cost of an identical plot where no active land markets exist. PAP the grievance should lodge the complaints at the court. No formal requirements to organize public consultation to inform the PAP of the nature of the project and expected impact No provision for income/livelihood rehabilitation, allowances for severely affected or vulnerable APs, or resettlement expenses. Lack of title should not be a bar to compensation or alternative forms of assistance. Non-titled landowners may receive alternative forms of assistance in lieu of formal compensation payments. All affected houses/buildings are compensated for the damages/demolition caused by a project Crop losses compensation provided to landowners and sharecrop/lease tenants whether registered or not Land valuation based on replacement cost. Adequate grievance redress mechanism, which consists of both formal and informal venues, should be developed and made accessible to all PAP Information on quantification, affected items value assets, entitlements, and compensation/financial assistance amounts is to be disclosed to the APs prior to appraisal. Income loss, disturbance allowance, and expenses incurred by the PAPs during the relocation process, should be compensated. 3.2.3 Resettlement Policy Commitments for the Project 22

Considering the above-mentioned differences, WB policy complements the Georgian legislation/regulation with additional requirements related to (i) the economic rehabilitation of all AP/AF (including those who do not have legal/formal rights on assets acquired by a project); (ii) the provision of indemnities for loss of business and income, (iii) and the provision of special allowances covering PAP expenses during the resettlement process and covering the special needs of severely affected or vulnerable PAPs. Therefore, during implementation of the Regional Development the MDF is committed to ensure that: 1. For each subproject that involves acquisition of private land, temporary or permanent income loss, or other impact that triggers the OP 4.12, a Resettlement Action Plan (RAP) will be developed in compliance with policies and procedures set out in this RPF, the WB OP 4.12 and Georgian legislation. 2. Municipalities that propose subprojects to the MDF will be responsible for developing the relevant RAP, and the MDF will provide technical support. 3. No civil work can start at the section where impacts that trigger OP 4.12 occur before a RAP is deemed acceptable by the Bank and implemented. 4. No structural demolition that would cause physical relocation of households or businesses is allowed under the Project. 5. The private sector investments to be supported under this project will not involve involuntary resettlement or restriction of access to land or other natural resources, including informal usage. 6. PAP will receive compensation or support of various kinds, without regard to the status of land registration and ownership, in accordance with the entitlement matrix included in this RPF and in compliance with the active legislation of Georgia and the World Bank safeguard policy. 7. PAP will be informed about their rights and existing alternatives; 8. PAP will be consulted on, offered choices among, and provided with technically and economically feasible resettlement alternatives. 9. PAP will be offered effective compensation at full replacement cost for losses of assets; 10. PAP will be offered additional support in case impact is considered to be severe, to support their livelihood during the transition period, based on a reasonable estimate of the time likely to be needed to restore their livelihood and standards of living; 11. PAP will be provided with development assistance in addition to compensation measures described, such as land preparation, credit facilities, training, or job opportunities; 12. Special attention will be paid to the needs of the most vulnerable groups of the population children, women, the elderly, those below the poverty line, disabled, refugees, etc. 13. A fair and accessible grievance redress mechanism will be developed. 14. Compensation measures are completed prior to start up of the particular construction activities that trigger OP 4.12. 3.2.4 Compensation Eligibility and Entitlements PAPs entitled for compensation or at least rehabilitation provisions under the Project are: 1. Residents of category III buildings who are required to relocate temporarily and those of the category II buildings, who will be given the option to relocate temporarily. 2. Owners of the businesses located in the buildings of all three categories (Categories I-III); 3. Vulnerable households (women headed, under the poverty line, family member with disability) living in buildings subject to physical work of categories II and III. 23

Compensation eligibility will be limited by a cut-off date, which was February 24, 2012 for this subproject. Persons who have settled in the affected areas after this locally publicized cut-off date will not be considered project-affected, and persons initiating improvements to land or structures after a locally publicized cut-off date will not be eligible for additional compensation. They, however, will be given sufficient advance notice prior to project implementation. Assessment of Compensation Unit Values for Affected Households Since all of the 71 households residing in the buildings subject to physical work are in building category I and do not require temporary relocation, none of them are considered as affected households; therefore, there will be no compensation for households under this subproject. In case unforeseen changes in the project design or circumstances require the category of these buildings to change to category II or III, households residing in those buildings would be compensated as follows: households residing in category II buildings will be entitled to a lump-sum compensation equivalent to three months of rental costs plus a transportation cost of GEL 200; affected households residing in category III buildings are entitled to a lump-sum compensation equivalent to six months of rental costs plus a transportation cost of GEL 200. Monthly rental costs are estimated on the basis of family size as follows and according to the local market survey: 1. Group I: one and two-person households 2-room apartments; 2. Group II: three and four-person households 3-room apartments; 3. Group III: five and six- person households 4-room apartments; 4. Group IV: seven and more -person households 2-storey apartments. Assessment of Compensation Unit Values for Affected Businesses The 33 owners of the temporarily affected businesses are eligible for compensation of business profit losses corresponding to the period of business interruption. The losses should be evaluated based on tax declaration, or in case of absence of such proof, based on minimum subsistence income for the households consisting of 5 persons. Compensation for expected losses due to decline of business activities (20% of net monthly profit multiplied by 3 months) for 33 businesses constitutes GEL 5,818. The present RAP does not provide any compensation for employees working for affected businesses, since the business owners have committed to continue paying full salaries to their employees during the period of business disruption. Allowances for Vulnerable People No vulnerable housholds will be affected by this subproject. Although there are 10 vulnerable households (all under poverty line) residing in the 68 buildings where physical work will take place, since they are in Category I buildings where temporary relocation is not required, they are not considered as AHs. 24

In case any of these households would be affected by the subproject due to unforeseen changes in the physical work, they would be entitled to receive an adjustment and transition allowance equal to one month s minimum subsistence along with priority access to project related employment. Households are considered as vulnerable if they are registered as poor in the local social services, headed by a woman, or have members with disabilities. The above households will receive an allowance of 313 GEL x month x 1 months or 313 GEL in all. These figures are taken from the National Statistics Office of Georgia Department data on minimum subsistence income for a family of 5 persons in February 2012). Compensation Entitlement Matrix Tasks under the Project will be implemented according to a compensation eligibility and entitlements framework in line with both Georgia laws and regulation, WB OP 4.12. A summary entitlements matrix is included in Table 3.2 below. Table 3.2 Compensation Entitlement Matrix Affected Households (AHs): Occupants (including owners and renters) residing in buildings subject to physical work Building Category Number of Households Compensation Measure Total Compensatio n Cost Category I (0 AHs): No relocation required. Works cause no considerable restriction of living conditions of inhabitants, discomfort or infringement of sanitary standards. No impact on safety of population. Category II: Temporary relocation of inhabitants may be needed. Works restrict living conditions of the inhabitants to an extent. Infringement of sanitary standards is expected in certain cases. Possible impact on safety of population. Category III: Inhabitants require temporary relocation. Works considerably restrict living conditions of the inhabitants and infringes sanitary standards. Safety of the inhabitants may not be secured. 71 (not counted as AHs) None GEL 0 0 Lump-sum compensation equivalent to 3 months of rental cost plus GEL 200 relocation cost 0 Lump-sum compensation equivalent to 6 months of rental cost plus GEL 200 relocation cost GEL 0 GEL 0 Subtotal 0 GEL 0 Affected Businesses (ABs): Owners of businesses operating in the buildings subject to physical work Total Building Category Number of Affected Businesses Compensation Measure Compensation Cost Category I 33 Lump-sum compensation for 20% monthly GEL 5,818 profit based on tax declaration x 3 months Category II 0 Lump-sum compensation for 20% monthly GEL 0 profit based on tax declaration x 3 months Category III 0 Lump-sum compensation for 20% monthly GEL 0 profit based on tax declaration x 6 months Subtotal 33 GEL 5,818 Vulnerable People: Households living below the poverty line residing in the buildings subject to physical work 25