11 infrastructure projects for which gov’t borrows 243 million completed at 0%
By Natalia Kochiashvili
Wednesday, May 27
The State Audit Office has published a report on the execution of the 2019 budget. The document summarizes the implementation of state investment projects. According to the report, a number of infrastructure projects, the development of which was invested in the 2019 budget, were completed at 0% by the end of the year.
The budget report also shows that 27 projects have less than 70% utilization in relation to the original plan.
According to the audit, the reasons given by the state structures as factors in the non-implementation of the projects are the delay in tenders and the delay in negotiations with donors. At the same time, due to the misappropriation of funds in certain projects, the state has allocated GEL4.8 million. The Commitment Fee was paid, which is a “fine” imposed by donors for non-compliance with these projects.
The State Audit 2019 report reads that it is important that the project implementing agencies ensure the timely and efficient use of the allocated loans and also take into account the current performance of the projects in connection with the need to attract additional loans within the existing projects ‘to avoid additional costs and/or delays in the projects.’
The list of projects, implementation of which was defined according to the initial law of the 2019 budget (before clarification, before amendment), but the actual absorption is 0% looks like this: Reconstruction-Construction (JICA) of Dzirula Argveta section of Tbilisi-Senaki-Leselidze highway-GEL48.8 million; Kutaisi Integrated Solid Waste Management Project (EU, KfW)-GEL15 million; Kakheti Infrastructure Strengthening (KfW)-GEL9 million; Strengthening the infrastructure of Guria transmission lines (KfW)-GEL4.5 million.
It’s interesting, that after renewal, the cost of some projects has been reduced: Strengthening the Capacity of the Georgian Defense Forces (SG)-initially was GEL55 million; under the renewed project-GEL15 million; North Ring Egg (Phase I) (KfW, EBRD)-initially was GEL13.5 million, under the renewed project-GEL1.5 million; Municipal Infrastructure Renovation Project of Georgia (EIB)-GEL8 million, renewed project - GEL1.6 million;
In 4 cases, they were reduced to GEL0:Tbilisi Bus Project (Phase II - Gas) (EBRD) - GEL75 million; 500 sq. Km Tskaltubo-Akhaltsikhe-Tortum (KfW) - GEL5 million, Kheledula-Lajanuri-Oni (KfW)-GEL9 million; Tbilisi Solid Waste Project (EBRD) - GEL20 million.
The audit negatively assessed the fact that the state agencies, after failing to implement the projects, change and reduce the plan of the mentioned projects, and as a result, the fact that their funds could not be appropriated is changed.
According to the State Audit Office, it is advisable for investment projects not to reduce the annual plans defined by the budget law due to the low use of credit resources allocated to them.
The Ministry of Regional Development and Infrastructure, one of the agencies responsible for implementing some of the projects, is responding to a report explaining that the misappropriation of state funds is related to various reasons such as protracted negotiations with donors or protest by locals.
Incase of Reconstruction-Construction of Dzirula Argveta section of Tbilisi-Senaki-Leselidze road, the ministry says the planned amount could not be used due to a change in the source of funding. The works on the mentioned section of the road were to be carried out with the financial resources of JICA. “With intensive work in 2019, today we already have a new donor, as well as a company that won this section, with which a contract was signed on January 16, 2020,”reads statement, adding that no interest was added on the JICA loan.
As for Kutaisi Solid Waste Integrated Waste Management Project (EU, KfW) the approved pla was canceled due to the change in the location of the waste, triggered by protests from residents.
The planned amount could not be used for the municipal infrastructure renovation project of Georgia, due to the delay in the agreement with the donor within the framework of the project. The Ministry has not yet been able to obtain the relevant consent and due to the urgency of the projects (including the construction of kindergartens), the source of funding will be changed, allowing the start of the projects this year. No interest was accrued on the EIB loan, as the loan interest is accrued on the amount received from the donor, notes statement.
“This is part of the work process and the legislation allows for the redistribution of funds,” ministry says, adding that this approach, within the existing available resources, has made it possible to accelerate the implementation of priority projects.
At the same time, the Ministry of Infrastructure notes that in 2019 they had a record number of applications in other programs.
"The cash performance of the state budget by the Ministry amounted to GEL2 121.2 million. Compared to the same period of 2018, the Ministry was able to use GEL459.5 million more financial resources,” said the statement.
In addition to budget expenditures, the document also addresses the state's external debt. According to the document, the risk of interest rates on this debt has been increasing in recent years, as more and more loans that the state receives, instead of fixed, are fixed at a variable rate.
Government debt increased by 14.8% (GEL 2.566 million) in 2019 compared to the previous year, and by 24.0% (GEL3.853 million) compared to 2017. This increase was due to both the taking of additional loans and the change in the GEL exchange rate. In 2019, compared to 2017, the effect of the exchange rate on the growth of debt balance is 28.1%, the effect of new loans is 71.9%, and compared to 2018, the effect of exchange rate increase on balance is 35.6%.
“As a result of the growth of the government debt portfolio, the depreciation of the lari and the change in interest rates, in 2019, compared to 2018, the total cost of public debt service and repayment increased by GEL386.6 million to both foreign and domestic loans and amounted to GEL2,901 million,” the audit report said.
