Millennium Challenge Program narrowly escaped a failure
23 December, 2010
Millennium Challenge Program narrowly escaped a failure

The US supported Millennium Challenge Georgia Program narrowly escaped a failure due to unskillful management and faced USD 31 million of losses ultimately.
The USD 395.3 million worth five-year compact of Millennium Challenge Georgia Fund (MCG) supported by the Millennium Challenge Corporation (MCC) of the US started in 2006 is designed to reduce poverty and stimulate economic growth in region via five projects as following: energy infrastructure rehabilitation project, regional infrastructure development project, Samtskhe-Javakhseti road rehabilitation project, Agribusiness Development Activity

(ADA), and Georgia regional development fund project.
The compact is scheduled to be completed by April of 2011 and MCC CEO [visiting Georgia in October to assess whether or not the money of US tax-payers is spent effectively] as well as Georgian government have already given a positive assessment to the project dubbing it as one of the most successful  international projects ever implemented in Georgia.
Non-governmental Economic Policy Research Center (EPRC) having been monitoring the MCG compact since it took a start in 2006 fears however that fulfillment of the project in the negotiated terms is under threat [due to incompetent management of the now fired CEO of MCG.] EPRC presented its number fifth monitoring report on December 14, 2010 and stressed that due to postponed timetables the MCG project faced a USD 31 million loss ultimately. The MCG project had some transparency problems as well.
As Nino Evgenidze, a spokesperson of EPRC, told Georgian Journal, during the monitoring 5th stage EPRC faced a problem when requested protocols at MCG. In particular, EPRC managed to obtain the protocol ¹ 48 of the MCG Fund Steering Committee August 5th meeting and resolution only in October 2010 after a number of requests. Besides, the MCG Fund didn’t provide us with protocol ¹ 47 of the meeting held on July 6, 2010.  According to the explanation of MCG Fund PR Manager this protocol and resolution are not signed by the chairperson of the steering committee yet. Evgenidze doubts that during this period the MCG compact nearly failed as a result of mistakes made by previous management
“The incumbent management team somewhat saved the program but the timetables envisaged initially were broken and postponed that resulted in USD 31 million of extra financing. You can easily imagine the impact of the loss taking into account that USD 20 million was earmarked as a budget of the MCG’s agriculture project, that is one of the most successful  along with the energy project,” she said. 
The most troublesome project that was the key target of criticism and that led to financial losses in fact is the Samtskhe-Javakheti Road Rehabilitation project.  According to the EPRC findings every financial resource emerged in the project was mobilized   basically to eliminate problems that arose in the Samtskhe-Javakheti project. After the August war in 2008 amount of USD100 million allotted additionally was completely expended for Samtskhe-Javakheti road project. Besides, extra USD 10 million from other projects is entitled to it as well when only 60% of additional finances was supposed to be spent on this project.
During the monitoring period its cost raised from USD 203 515 million up to USD 212 615 million i.e. approximately by 9 million. Though, the initial length of the road to be rehabilitated decreased by about 22 km from 245 km to 222,72 km.
EPRC believes that the Samtskhe-Javakheti road project faced problems mainly due to inappropriate work process of the operator company. Ashtrom International identified even in the beginning of the reporting period leading to force majeure situation.
A contract with Company Ashtrom International was finally invalidated only in August 2010 and it was fined by USD 8.2 million in total while MCG disbursed to it USD 37 938 632 .
Giorgi Abdushelishvili, the CEO of MCG, acknowledged problems in Samtskhe-Javakheti project, although assured that increase of funding to the project was caused by improved quality of rehabilitation works that sets the new road in compliance with the best international standards as well as by rehabilitation of unforeseen passages [of the targeted road] affected by land-slides.
The 5-year MCG Program is in its final phase. The issue of concluding a new compact is under review. MCC has already announced two lists of potential country-beneficiaries in 2011: countries with low revenues and countries with average low revenues. Under the announced criteria Georgia has a good opportunity to become one of the financed by Millennium Challenge Program countries again. However, there is no precedent of authorizing the second compact for a country so far.

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