In June 1997, a presidential decree in Georgia created the Municipal Development Fund (MDF) to enable municipal governments to take out soft loans and grants for municipal infrastructure investments.  Since then, the MDF has enjoyed the support of many international development agencies, including the Asian Development Bank (ADB) that provided its first loan for Georgia’s Municipal Services Development Project (MSDP) in 2008.  However, as several urgent infrastructure subprojects, particularly in urban transport, had not been included in the scope of the first MSDP, the government requested for additional assistance, for which ADB approved a loan of $30 million for MSDP phase 2 in July 2009.  MSDP 2 was a financial intermediation loan comprising two components—the project financing facility and project management and capacity development. 

The project financing facility provided MDF with capital resources for lending to municipal governments to implement subprojects to increase the service quality, coverage, and reliability of transport, water supply, wastewater, and solid waste management systems.  The project management and capacity development component aimed to: (i) improve municipal government capacity to prepare and appraise feasibility, engineering, design, environmental, social, and other related studies; (ii) improve municipal-level project management capacity; and (iii) strengthen corporate and business planning processes within MDF and improve the capacity of MDF to conduct studies.

At appraisal, the project envisaged that about 70% of its financing facility would support municipal governments eligible for both loans and grants (W1), and about 30% for those that are eligible only for grants (W2). In 2010, MDF reassessed the creditworthiness of candidate municipalities, and categorized 27 of the country’s total 64 municipal governments eligible for 34 subprojects under W2, and only 2 municipal governments eligible for 4 subprojects under W1. Exceeding the number of subprojects expected to be financed at appraisal, the W2 approved subprojects were for road rehabilitation/improvement, and by completion, the project improved 101.7 kilometers (km) of urban and suburban roads.  The W1 subprojects were for the rehabilitation/development of water supply systems (WSS) rehabilitation, including well and spring intakes, pumping stations and reservoirs, disinfection facilities, and transmission and distribution pipelines.  The expansion and rehabilitation of distribution networks was a major item in all the municipalities. 

Because of the project, over 2% of the urban roads in each participating municipality was improved; travel time on such roads was reduced by more than half; and bus services in the project cities increased, with multiple social, financial, and livelihood benefits to the local people.  By February 2013, the number of local people benefiting from the improved roads had reached 320,000.  For the WSS, the project gave 72,000 local people access to pressurized quality water supply for 12–24 hours a day. In addition, 50,000 people in 2 municipalities had been enjoying cleaner living spaces because of the garbage collection cans and collection trucks provided by the WSS subprojects.   Overall, the project thus achieved its expected outcome of improving the urban environment, local economy, and living standards in the participating municipalities.

Training seminars and workshops, conducted in Tbilisi and overseas, strengthened the capacity of the MDF staff.  The training programs were also financed by the World Bank and other development partners.  However, as no consultant was engaged to deliver the capacity development activities initially envisaged for the participating municipalities, only on-the-job trainings were provided by trained MDF staff in the preparation of subproject feasibility reports and detailed designs, and in construction supervision.  With still largely unaddressed capacity development needs among municipal governments and inadequate operation and maintenance funding, the project’s sustainability was deemed less likely at completion.

The project had the MDF as executing agency.  No project management or implementation units were established; instead, the same technical, financial, and administrative staff assigned to phase 1 of the MSDP were responsible for MSDP 2 implementation.