The World Bank Energy Sector Development Project (P148560) REPORT NO.: RES38552 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF ENERGY SECTOR DEVELOPMENT PROJECT APPROVED ON MAY 29, 2014 TO FEDERATED STATES OF MICRONESIA ENERGY & EXTRACTIVES EAST ASIA AND PACIFIC Regional Vice President: Victoria Kwakwa Country Director: Michel Kerf Regional Director: Ranjit J. Lamech Practice Manager/Manager: Jie Tang Task Team Leader: Leopold Sedogo, Takayuki Doi The World Bank Energy Sector Development Project (P148560) ABBREVIATIONS AND ACRONYMS AMU Association of Micronesian Utilities CD Country Director CPUC Chuuk Public Utility Corporation ESDP Energy Sector Development Project FM Financial Management FSM Federated States of Micronesia KUA Kosrae Utilities Authority IDA International Development Agency LED Light Emitted Diode MP Master Plan PIU Project Implementation Unit PDO Project Development Objective PUC Pohnpei Utilities Corporation PV Photovoltaics RE Renewable Energy SEDAP Sustainable Energy Development and Access Project YSPSC Yap State Public Service Corporation The World Bank Energy Sector Development Project (P148560) BASIC DATA Product Information Project ID Financing Instrument P148560 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 29-May-2014 30-Sep-2019 Organizations Borrower Responsible Agency Federated States of Micronesia Department of Resources and Development Project Development Objective (PDO) Original PDO The PDO is to increase the available generation capacity and efficiency of electricity supply in the state power utilities, and to strengthen the planning and technical capacities of the National Government and the state power utilities in the energy sector. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-H9570 29-May-2014 02-Oct-2014 15-Oct-2014 30-Sep-2019 14.40 11.87 1.25 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Energy Sector Development Project (P148560) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project Status 1. Summary of Project Status and Proposed Changes. Project performance is rated “Satisfactory” for “progress towards achievement of the PDO” and “Moderately Satisfactory” for “overall implementation progress” in the most recent Implementation Status and Results Report. Disbursements have reached 91 percent; commitments have reached 96 percent. The PDO has been achieved and all PDO indicators will be over achieved at closing: the generation capacity constructed under the project is 119 percent, the installation of efficient streetlights is 150 percent of their original targets, and the Master Plans have been completed. On July 26, 2018, a first extension was processed to allow for the completion of project activities, including the Master Plans, Chuuk PV Plant and activities to be funded from US$2 million cost savings made out of the component 2. 2. Implementation Progress by Component. (a) Component 1: Increasing available generation capacity and efficiency of electricity supply in the state power utilities (IDA US$9.19 million): this component consists mainly of: (a) the installation of additional generation capacity in three of the four FSM states: Pohnpei (PUC), Yap (YSPSC), and Kosrae (KUA); (b) efficient public lighting in Chuuk and Kosrae; and (c) a few other activities, including distribution equipment. (i) Additional Generation Capacity for Pohnpei, Yap, and Kosrae Commissioning of new diesel unit(s) was satisfactorily completed in Pohnpei, Yap, Kosrae, respectively in July 2016, May 2017 and July 2018. (ii) Efficient Public Street Lighting and Grid-connected Solar PV in Chuuk and Kosrae Commissioning of Chuuk LED street lights and Chuuk grid-connected solar PV was satisfactorily completed in September 2016 and September 2019. Kosrae LED street lights were delivered in Kosrae with 25% (100) remaining to be installed by the closing date. (iii) Distribution Equipment in Yap and Kosrae and Other Activities The Distribution work has been completed; other activities: the bucket trucks for Pohnpei and Kosrae were delivered in 2019. (b) Component 2: National and state energy planning (IDA US$1.48 million): this component includes (a) preparation of energy master plans for each of the FSM States, including identifying and prioritizing infrastructure investments in the energy sector and undertaking feasibility studies and environmental and social impact assessments for the priority investments; and (b) development of a national Energy Master Plan, which will build on the State energy master plans. The National and the four States Master Plans, and selected feasibility studies that include activities for the Sustainable Energy Development and Access Project (SEDAP) have been completed. The contract amount for the Energy Master Plan and other contracted activities resulted in US$2 million cost savings. (c) Component 3: Technical assistance and project management (IDA US$1.90 million): this component supports activities designed to build the capacity of the Energy Division and the Association of Micronesian The World Bank Energy Sector Development Project (P148560) Utilities (AMU), including developing a program to reform the utilities to improve sustainability of their operations. In addition, a Procurement Advisor, an Energy Advisor, a Safeguards Advisor, and a Project Implementation Officer were hired to support the PIU. 3. Safeguards. Implementation is compliant with safeguards instruments. 4. Fiduciary capacity and support. The project financial management rating was Moderately Satisfactory as of June 26, 2019 PRIMA assessment, Procurement rating is Satisfactory, and Project management is Satisfactory. There is no outstanding audit report and all legal covenants have been achieved. B. RATIONALE FOR RESTRUCTURING 1. A restructuring is proposed to respond to the request dated September 9, 2019 of the FSM government to cancel the anticipated unused funds before the project closing date. The rationale for restructuring is as follows: (a) IDA Grant funds will not be lost to the FSM. These funds are able to be reprogrammed during the IDA18 cycle; (b) the project PDO and results have been achieved and are anticipated to be over achieved at project closing; (c) a 12-month extension was already granted to take opportunity of the US$2 million savings made from component 2 and to address the power crises in Pohnpei. Given that the power crisis in Pohnpei has been resolved during this 12-month extension there are no pending critical operational issue for the sector that might be addressed by a further extension; (d) a new project, the Sustainable Energy and Access Project, is now active and supporting the FSM energy sector. II. DESCRIPTION OF PROPOSED CHANGES 1. Reallocation of component costs: to reflect the savings made from each component as well as an overall reduction USD due to currency fluctuations While the project originally equivalent to US$ 14.40 million, it is now US$ 13.12 million. 2. Partial cancellation of the IDA Grant-IDA-H9570: the proposed change includes a cancellation of SDR 401,833 amount, USD550,000 equivalent as of September 13, 2019. 3. Disbursement Categories: the withdrawal table in the Financing Agreement will be revised to reflect the cancelled amount. 4. Disbursement Estimates: the disbursement estimates have been updated to reflect the changes and the overall reduction in USD available. The World Bank Energy Sector Development Project (P148560) III. SUMMARY OF CHANGES Changed Not Changed Components and Cost ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursement Estimates ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Results Framework ✔ Loan Closing Date(s) ✔ Disbursements Arrangements ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) The World Bank Energy Sector Development Project (P148560) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Increasing available generation Increasing available generation capacity and efficiency of capacity and efficiency of 9.27 Revised 9.19 electricity supply in the state electricity supply in the state power utilities power utilities National and state energy National and state energy 3.40 Revised 1.48 planning planning Technical assistance and project Technical assistance and 1.50 Revised 1.90 management project management TOTAL 14.17 12.57 OPS_DETAILEDCHANGES_CANCELLATIONS_TABLE CANCELLATIONS Value Reason Current Cancellation New Ln/Cr/Tf Status Currency Date of for Amount Amount Amount Cancellation Cancellation LOAN IDA-H9570- Disburs RESTRUCTUR XDR 9,400,000.00 401,833.00 16-Sep-2019 8,998,167.00 001 ing ING, COST SAVINGS OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IDA-H9570-001 | Currency: XDR iLap Category Sequence No: 1 Current Expenditure Category: GDs,CW,NonCS,CS,TR & OPERATING COST 9,400,000.00 6,944,747.20 8,998,167.00 100.00 100 Total 9,400,000.00 6,944,747.20 8,998,167.00 The World Bank Energy Sector Development Project (P148560) OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2014 0.00 0.00 2015 1,000,000.00 1,000,000.00 2016 1,684,547.55 1,684,547.55 2017 2,296,992.28 2,071,172.54 2018 2,173,676.80 1,973,930.82 2019 4,921,051.12 3,524,270.79 2020 2,518,419.28 2,314,523.60 .