The World Bank Pap-Angren Railway (P146328) REPORT NO.: RES35123 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF PAP-ANGREN RAILWAY APPROVED ON FEBRUARY 13, 2015 TO REPUBLIC OF UZBEKISTAN TRANSPORT EUROPE AND CENTRAL ASIA Regional Vice President: Cyril E Muller Country Director: Lilia Burunciuc Senior Global Practice Director: Guangzhe Chen Practice Manager/Manager: Binyam Reja Task Team Leader: James A. Reichert, Antoine Avedis Kunth, Mansur Bustoni The World Bank Pap-Angren Railway (P146328) ABBREVIATIONS AND ACRONYMS GoU Government of Uzbekistan IBRD International Bank for Reconstruction and Development MoF Ministry of Finance PARP Pap-Angren Railway Project PDO Project Development Objective UTY Uzbekiston Temir Yollari The World Bank Pap-Angren Railway (P146328) BASIC DATA Product Information Project ID Financing Instrument P146328 Investment Project Financing Original EA Category Current EA Category Full Assessment (A) Full Assessment (A) Approval Date Current Closing Date 13-Feb-2015 31-Mar-2019 Organizations Borrower Responsible Agency Uzbekistan Temir Yo'allari State Joint Stock Republic of Uzbekistan Company,Uzbekenergo, State Joint Stock Company Project Development Objective (PDO) Original PDO The proposed project development objectives are to reduce transport costs and to increase transport capacity and reliability through the construction of a rail link between the Uzbek part of the Ferghana Valley and the rest of Uzbekistan. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-84650 13-Feb-2015 04-Mar-2015 15-Sep-2015 31-Mar-2019 143.63 49.87 93.76 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Pap-Angren Railway (P146328) Note to Task Teams: End of system generated content, document is editable from here. I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING Project Status: The US$1,633.75 million Pap-Angren Railway Project (PARP) consists of a new electrified railway link between Angren and Pap through the Kamchik Pass. The new line has been completed and now provides a direct rail link between the Ferghana Valley, where some 10 million people, or one-third of Uzbekistan’s population lives, and Tashkent. World Bank financing stands at US$195.00 million (IBRD), out of which US$51.37 million were cancelled following declaration of misprocurement on October 29, 2018. As of January 28, 2019, US$49.87 (34.7%) million of the remaining commitments was disbursed with US$93.76 million of undisbursed balance and 2 months left until the closing date of the project (March 31, 2019). Component 1: Railway Main Infrastructure (76% GoU- and 24% China EXIM-financed). The construction of a single, 124km rail line, including the 19.2km Kamchik Tunnel (the longest in Central Asia), between Angren and Pap was completed with funding from the Government of Uzbekistan (GoU) for rail works, and the Chinese EXIM Bank for tunneling works. It became fully operational in February 2016 and provides a safer, year-round alternative to the more dangerous highway over Kamchik Pass. Component 2: Rail Electrification, Signaling, Track Maintenance and Railway Video Surveillance System (100% IBRD- financed: Original Allocation US$154 mil., Amount Disbursed US$30.75 mil.). A temporary signaling and communications system has been in place since early-2016. The selection process for a permanent signaling and communications system (package AP-03) was initiated two times, but never successfully completed. The first bidding process in June 2015 resulted in the submission of five bids. After prolonged discussions, the Bank was unable to support the Uzbekiston Temir Yollari’s (UTY) recommendation of award because there was insufficient justification to reject competing bids. The Bank and the UTY mutually agreed to cancel the selection process and to rebid, but with more clearly defined and neutral technical specifications. The second bidding process was launched in March 2017 and resulted in seven bids. In December 2017, the Bank provided it’s no objection to the bid evaluation report, but the National Agency for Project Management concluded that the technical specifications of the package had been prepared in favor of a specific bidder. Because counterparts failed to resolve the impasse and proceed in a timely manner with signing of the contract more than ten months from the date of the Bank’s no-objection to the proposed contract award, the Bank declared misprocurement on October 29, 2018. UTY has indicated that it will seek other financing sources to pay for a permanent system. UTY is awaiting delivery of a SCADA system, seven lots of heavy track maintenance equipment, specialized trackside and fire-fighting equipment, and a video surveillance system with a collective estimated amount of around US$21.62 million. Component 3: Power Distribution Line (100% IBRD-financed: Original Allocation US$35 mil., Amount Disbursed US$9.79 mil.). Bank funding was used to dismantle dated overhead power lines and erect new lines along the 124km of rail line from Angren to Pap. The power lines were commissioned and are operational. Component 4: Technical Assistance to UTY for Supporting Railway Construction (100% IBRD-financed: Original Allocation US$0.5 mil., Amount Disbursed US$0.15 mil.). As part of this component, advice was provided on the potential for small- and medium-enterprise reform in the rail sector and UTY’s business model. The World Bank Pap-Angren Railway (P146328) Component 5: Technical Assistance to UTY for Improving Railway Logistics (100% IBRD-financed: Original Allocation US$1.0 mil., Amount Disbursed US$0.50 mil.). Noteworthy activities under this component have been programs to strengthen traffic safety along the Angren-Pap Line, particularly through the 19.2km Kamchik Tunnel. Component 6: Implementation Support (100% IBRD-financed: Original Allocation US$4.5 mil., Amount Disbursed US$4.00 mil.). In addition to implementation support, this component has financed capacity building and targeted activities to transfer knowledge. Also, input on resettlement policies has been consistently given to UTY through specialist services. PARP implementation contributed to a reduction in transport costs, an increase in transport capacity, and greater transport reliability between the Uzbek part of the Ferghana Valley and the rest of Uzbekistan. Compliance with safeguards requirements as described in the Environmental Management Framework and Resettlement Policy Framework has been satisfactory, and to-date there have been no negative impacts in relation to works financed under PARP. The project is also in compliance with Bank procurement and financial management policies, as well as all legal covenants. PARP has no outstanding audits and no audit qualifications. Rationale for Restructuring: Despite that PDO is likely to be achieved due to completion of key activities, implementation progress has been facing major challenges since July 2018. Given the persistent delays in key procurement activities, the IP rating was downgraded to Moderately Unsatisfactory, and later, in December 2018, to Unsatisfactory due to inability of UTY to proceed in a timely manner with the contracting of AP-03 package resulting in declaration of misprocurement by the Bank. However, with the submission of the overdue 2017 project audit in late-January 2019, and the request to restructure the project and cancel US$72.87 million in uncommitted funds, the IP rating is upgraded from Unsatisfactory to Moderately Satisfactory. These hurdles had long served as a drag on implementation, but the way has been cleared for improved implementation. The World Bank Pap-Angren Railway (P146328) The need for project restructuring involving partial cancellation of the remaining balance and closing the project by the original closing date was discussed with UTY in October 2018. While UTY agreed to cancel any uncommitted funds, it asked that PARP’s closing date be extended by one year so that proceeds from the Bank Loan can be used to pay for ongoing contracts that will not be completed before the current closing date of the Project (March 31, 2019). The combined value of these and a final contract for a video surveillance equipment (award expected in February 2019) is US$21.62 million, all of which are to be financed entirely from the Bank Loan. About 25 percent of the specialized equipment and systems will be delivered to UTY by the current closing date, leaving an estimated US$16.4 million to be disbursed after PARP’s closing date. UTY does not have contingency plans to finance these contracts. As part of the restructuring, it was agreed that no new activities would be initiated during the one-year extension, and that the balance of uncommitted funds, US$72.87 million, would be cancelled. On January 15, 2019, the Borrower (Ministry of Finance) submitted a formal request to the World Bank seeking an extension of the Loan Agreement by one year, or up to March 31, 2020, and cancellation of US$72.87 million. In the more than two years since the new rail link between Angren and Pap opened, passenger and cargo traffic has been higher than expected, but the necessary investments, systems and equipment have not been fully acquired. Extending the project’s closing date would contribute to achievement of PDO by i) providing UTY with financial resources to fulfill their contractual obligations under the ongoing contracts; ii) enabling UTY to carry out essential maintenance activities and create safer and more reliable services for users of the new rail line, and thus, contribute to a better project outcome; and iii) maintaining the Bank’s policy dialogue in railway sector as part of the broader engagement with GoU in the transport sector. Project Development Objective (PDO): Although more than one-third of the Loan is proposed for cancellation, and some PARP activities will not be carried out, as originally planned, there have been several notable achievements, and the PDO is expected to be achieved for the following reasons:  Component 1 involved the construction of the main 124km railway line between Angren to Pap. This rail line was completed and became operational in February 2016.  Component 2 was successfully implemented by UTY. It consisted of developing two, traction sub-stations for rail electrification at Angren and Pap, installing a system to monitor and optimize electricity supply to all stations on the line, and acquiring various pieces of essential maintenance equipment.  Under Component 3, new power lines along the rail link have delivered more reliable electricity to run trains and enable the line to be functional. It activity was successfully implemented by Uzbek Energo, the second Implementing Agency for the project.  As part of Component 4, an initial assessment on preparedness and actions to improve responses to adverse events was prepared after a landslide derailed several wagons on a cargo train in February 2017. The above achievements support a reduction in transport costs, an increase in transport capacity, and greater transport reliability between the Uzbek part of the Ferghana Valley and the rest of Uzbekistan. The World Bank Pap-Angren Railway (P146328) II. DESCRIPTION OF PROPOSED CHANGES 1. Components and Cost None of PARP’s components will be cancelled. The following table reflects the project costs by component at appraisal, and the amounts of the IBRD Loan to be utilized and cancelled. Project Components at Appraisal Project Costs IBRD Financing (US$ million) (US$ million) At Appraisal Requested Revised for Allocation cancellation 1. Railway Main Infrastructure 1,438.75/a 0.00 0.00 2. Rail Electrification, Signaling, Track Maintenance and 154.00/b 48.63 54.00 Railway video surveillance system 3. Power Distribution Line 35.00 24.24 10.76 4. Technical assistance to UTY for Supporting Railway 0.50 Construction 5. Technical Assistance to UTY for Improving Railway 0.00 6.00 1.00 Logistics 6. Implementation support 4.50 Total IBRD financing: 195.00 72.87 70.76 The World Bank Pap-Angren Railway (P146328) NOTES: /a Component 1 was fully financed by the Government of Uzbekistan (US$1,088.75 million for rail works) and the EXIM Bank of China (US$350.00 million for tunneling works). /b US$51.37 million was excluded from original component amount following the Bank’s declaration of misprocurement of AP- 03 package (permanent signaling and communications system) on October 29, 2018. 2. Loan Closing Date At appraisal, PARP was designed to be implemented within four years (March 2015 to March 2019), which is less than the five-year implementation period that is common for most projects in the region. The current closing date of March 31, 2019 would be extended by one year, or until March 31, 2020, to enable ongoing contracts to be fully financed using Bank proceeds and no new activities would be initiated during the one-year extension. This would be the first extension of the project’s (IBRD Loan 84650) closing date. 3. Loan Cancellations Proposed A total amount of US$72.87 million is proposed to be cancelled. The following table depicts the changes to PARP’s disbursement categories: Disbursement Category Original Amount Amount to be Revised Loan of Loan Cancelled (US$ Allocation Allocation (US$ million) (US$ million) million) (1) Goods, works, non-consulting services and 160.00 48.63 60.00 consultants’ services for Parts II, IV, V and VI of the Project. (2) Goods, works, non-consulting services and 35.00 24.24 10.76 consultants’ services for Parts III of the Project. Total Amounts: 195.00 72.87 /c 70.76 NOTE: /c US$51.37 million was excluded from original component amount following the Bank’s declaration of misprocurement of AP- 03 package (permanent signaling and communications system) on October 29, 2018. 4. Disbursement Estimates The estimated annual disbursements are modified as follows: Original (US$ mil.) Proposed (US$ mil.) FY2015 0.00 0.00 FY2016 30.00 12.29 FY2017 100.00 12.81 FY2018 40.00 7.38 FY2019 25.00 22.00 FY2020 0.00 15.28 FY2021 0.00 1.00 The World Bank Pap-Angren Railway (P146328) 5. Implementation Schedule The implementation schedule will be revised to reflect the one-year extension of the project’s closing date. 6. Other Changes N/A III. SUMMARY OF CHANGES Changed Not Changed Components and Cost ✔ Loan Closing Date(s) ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursement Estimates ✔ Implementation Schedule ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Results Framework ✔ Disbursements Arrangements ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ The World Bank Pap-Angren Railway (P146328) Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Railway Main Infrastructure 1438.75 No Change Railway Main Infrastructure 1438.75 Rail Electrification, Signaling, Rail Electrification, Signaling, Track Maintenance and Track Maintenance and Railway 154.00 Revised 54.00 Railway Video Surveillance Video Surveillance System System Power Distribution Line 35.00 Revised Power Distribution Line 10.76 Technical assistance to UTY for Technical assistance to UTY for 0.50 No Change Supporting Railway 0.50 Supporting Railway Construction Construction Technical Assistance to UTY for Technical Assistance to UTY for 1.00 No Change 1.00 Improving Railway Logistics Improving Railway Logistics Implementation Support 4.50 No Change Implementation Support 4.50 TOTAL 1,633.75 1,509.51 OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IBRD-84650 Effective 31-Mar-2019 31-Mar-2020 31-Jul-2020 OPS_DETAILEDCHANGES_CANCELLATIONS_TABLE CANCELLATIONS Value Reason Current Cancellation New Ln/Cr/Tf Status Currency Date of for Amount Amount Amount Cancellation Cancellation IBRD- Disburs 143,629,168.0 BORROWER' USD 72,870,000.00 15-Jan-2019 70,759,168.05 84650-001 ing 5 S REQUEST The World Bank Pap-Angren Railway (P146328) FOR COUNTRY REASONS OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IBRD-84650-001 | Currency: USD iLap Category Sequence No: 1 Current Expenditure Category: GO, WO, NON-CS, CS Parts II,IV,V,VI 108,629,168.05 41,187,679.45 59,999,168.05 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: GO, WO, NON-CS, CS Part III 35,000,000.00 9,788,742.02 10,760,000.00 100.00 100.00 Total 143,629,168.05 50,976,421.47 70,759,168.05 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2015 0.00 0.00 2016 30.00 30.00 2017 100.00 100.00 2018 40.00 40.00 2019 25.00 22.00 2020 0.00 15.28 2021 0.00 1.00 . The World Bank Pap-Angren Railway (P146328)