The World Bank Second Regional and Municipal Infrastructure Development Project (P147521) REPORT NO.: RES35203 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF THE SECOND REGIONAL AND MUNICIPAL INFRASTRUCTURE DEVELOPMENT PROJECT APPROVED ON JULY 3, 2014 TO GEORGIA SOCIAL, URBAN, RURAL AND RESILIENCE GLOBAL PRACTICE EUROPE AND CENTRAL ASIA REGION Regional Vice President: Cyril E. Muller Country Director: Mercy Miyang Tembon Senior Global Practice Director: Ede Jorge Ijjasz-Vasquez Practice Manager/Manager: David N. Sislen Task Team Leader: Axel Baeumler, Tengiz Gogotishvili The World Bank Second Regional and Municipal Infrastructure Development Project (P147521) ABBREVIATIONS AND ACRONYMS IP Implementation Progress PDO Project Development Objective SDC Swiss Development Cooperation SRMIDP Second Regional and Municipal Development Project TA Technical Assistance TF Trust Fund WWTP Wastewater Treatment Plant The World Bank Second Regional and Municipal Infrastructure Development Project (P147521) BASIC DATA Product Information Project ID Financing Instrument P147521 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 03-Jul-2014 31-Dec-2020 Organizations Borrower Responsible Agency Ministry of Finance Georgia Municipal Development Fund Project Development Objective (PDO) Original PDO To improve the efficiency and reliability of targeted municipal services and infrastructure. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-83800 03-Jul-2014 18-Aug-2014 16-Dec-2014 30-Jun-2019 30.00 20.43 9.57 TF-18090 03-Jul-2014 01-May-2015 11-Jun-2015 31-Dec-2020 5.00 3.15 1.85 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Second Regional and Municipal Infrastructure Development Project (P147521) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. General 1. The IBRD loan for the Second Regional and Municipal Development Project (the Project) was approved on July 3, 2014 in the amount of USD 30 million and became effective on December 16, 2014. Part of the Project activities on municipal capacity building are financed by the Swiss Agency for Development and Cooperation (SDC) Trust Fund (TF) in the amount of USD 5 million that was signed on May 1, 2015. The current IBRD loan Closing Date is June 30, 2019. In November 2018, the Closing Date of SDC Trust Fund, originally scheduled for closing December 31, 2018, was extended to December 31, 2020. 2. The Project’s current Development Objective (PDO) is to improve the efficiency and reliability of targeted municipal services and infrastructure. The Project consists of two components. Component 1 “Infrastructure Investment, Project Management and Monitoring” is financed by the IBRD loan and is designed to support both infrastructure investments for creditworthy municipalities through on-lending and infrastructure investments for non-creditworthy municipalities on a grant basis. Component 2 “Institutional Development” is financed by the SDC Trust Fund and aims to improve the capacity of municipalities and the Municipal Development Fund (MDF) for municipal services delivery. B. Status of the Project 3. Project Development Objective (PDO) and Disbursement Status. Progress towards meeting the PDO and implementation progress (IP) are rated as Moderately Satisfactory. The total IBRD loan disbursement is USD 19.68 million (65.6%). The TF disbursement is USD 2.81 million (56.2%). The total disbursement under the Project is USD 22.49 million (64%). 4. Main Project Achievements. To date, the Project has delivered significant results and has led to improved municipal and infrastructure services for 298,132 beneficiaries, 51 percent of which are women. Under Component 1 “Infrastructure Investment, Project Management and Monitoring”, a total of 37 investments have been financed and completed, which include 32.5 km of rehabilitated roads in rural areas and 20.75 km in non- rural areas, 53 km of rehabilitated water supply networks (benefitting 2,900 people with improved access to potable water sources), 13 km of rehabilitated sewage network, 11 rehabilitated public spaces and buildings (five kindergartens, four sports and community center, a botanical garden (close to completion), and a theater (close to completion), and provision of coast cleaning machinery for three municipalities along the Black Sea coast. Under Component 2 “Institutional Development”, three Technical Assistance (TA) contracts, funded by the SDC TF, have been implemented on i) spatial planning and asset management, ii) project cycle management, and iii) improved fiscal and accounting systems at the local level. Together, these activities have improved the capacity of civil The World Bank Second Regional and Municipal Infrastructure Development Project (P147521) servants in over 60 municipalities and directly contributed to building capacity to implementing Government’s decentralization strategy. C. Rationale for Restructuring 5. Rationale for Restructuring. The Borrower, represented by the Ministry of Finance, approached the Bank and requested a restructuring of SRIMDP, including (1) a 22-month extension of the IBRD loan Closing Date from the current Closing Date of June 30, 2019 to April 30, 2021, (2) modification of the Project Results Framework and (3) reallocation of funds between loan categories. 6. Despite the significant progress made, there have been some Project implementation delays. The Project was designed as a demand driven project whereby participating municipalities identify priority investments. This led to some delays during the investment priority identification stage and subsequent implementation, particularly, in light of the low capacity of some participating municipalities. Furthermore, the sub-component aimed at on- lending to municipalities faced difficulties in generating a project pipeline due to the abundance of other donor grant funding availability at MDF which led to an initial underutilization of the on-lending sub-component. As a result, the Borrower has requested an extension of the Closing Date. 7. The proposed Closing Date extension is required to allow the Borrower to complete all the remaining works which will enable the Project to reach its full development impact. Currently, ten infrastructure sub-projects in participating municipalities are being implemented, with the majority to be completed by the current Closing Date of June 2019 (85% of the total loan amount is completed or committed). However, the completion of two sub- projects will require an additional 20 months. The two sub-projects are:  Gardabani Water Supply: rehabilitation of the water system in the villages of Gardabani (IBRD financing: USD 3 million) which will support the client to supply potable water to about 25,000 residents in 5 villages; and  Khashuri Stadium: stadium rehabilitation works in Khashuri (IBRD financing: USD 1 million) which will help the local administration to attract more youth to engage in various sports activities, host regional and national sports events and therefore support the residents’ income generating economic activities. 8. Both sub-projects are financed under the on-lending window and were only identified and prepared during the fall 2018. Finally, given the closing date extension, the Government will have the opportunity to identify and prioritize additional investments with a cost of up to USD 1.5 million (the open balance of funds that remain uncommitted under the Project). 9. Furthermore, the PDO will be changed to better reflect the Project-financed activities. The individual sub-projects have been identified on a “demand-driven” basis and were therefore not fully known at the time of Board approval. Associated changes in the Results Framework are also required to better reflect the achieved and targeted results. Finally, re-allocation of loan proceeds will be required to allow for adequate arrangements of the The World Bank Second Regional and Municipal Infrastructure Development Project (P147521) required consulting services such as construction supervision, annual audit and monitoring and evaluation during the extended life of the Project. 10. The requirements of the Bank Policies to process the Project restructuring are met, namely: (i) the Project objectives continue to be achievable; (ii) the performance of the Borrower remains moderately satisfactory; (iii) the World Bank and the Borrower have agreed on actions that will be undertaken by the Borrower to complete the Project (such as realistic work programs for ongoing investments); and (iv) there are no outstanding or unsatisfactory audit reports. II. DESCRIPTION OF PROPOSED CHANGES 11. In response to the Borrower’s requests dated November 30, 2018 (IBRD loan Closing Date extension), December 4, 2018 (results framework modification), and February 6, 2019 (reallocation of Loan Proceeds) this restructuring paper seeks the following changes: a. Extension of the Loan Closing Date. The restructuring proposes an extension of the IBRD loan Closing Date by 22 months, from June 30, 2019 to April 30, 2021 to allow for full implementation of all sub-project investments that are critical to achieving the Project development objectives. b. Change in the PDO. The current PDO - to improve the efficiency and reliability of targeted municipal services and infrastructure – places emphasis on “efficiency” and “reliability” compared to “access” and “quality” which is what most investments under the Project helped to achieve. The proposed revised PDO - to improve access to quality municipal services and infrastructure - will better capture the “access” and “quality” dimensions and thereby will allow for better measurement of results achieved under the Project. c. Change in Results Framework. Given that this is a “demand-driven” Project, the results framework is adjusted based on the list of completed, ongoing and planned investments, and to allow for a better assessment of PDO achievement. In particular, two PDO-level indicators will be added to improve the results framework alignment with the Project’s actually financed investments, while two PDO-level indicators will be dropped, based on the assessment that they are no longer relevant to the Project’s activities. Furthermore, the proposed results framework offers three new intermediate indicators to better track Project results, while four intermediate indicators are dropped as deemed no longer relevant to the Project. All the other PDO and intermediate indicators remain unchanged, while their target values will be revised to meet the extended Closing Date. Table 1 below summarizes the proposed modifications in the Results Framework indicators along with rational for each of the revisions. In addition, target values for some intermediate level indicators were updated to reflect actual progress to date and expected results at project completion Table 1: proposed changes in results framework indicators Indicator Action Rationale for revision The World Bank Second Regional and Municipal Infrastructure Development Project (P147521) PDO Level Results Indicators Number of Project Moved from The indicator was elevated to the PDO level to better capture beneficiaries (number; intermediate the overall results of the project. thousand) (% of females) to PDO level indicator Reduction in Energy Dropped This indicator was assessed as not relevant, given that the consumption per cubic indicator Project did not support rehabilitation of any WWTPs, since the meter of water or Government has invested other funds in dedicated WWTP wastewater pumped programs. (KWh/m3) in selected municipalities (Percentage) Volume (mass) of BOD Dropped Same as above. pollution loads removed indicator by the treatment plant supported under the project. Intermediate Level Results Indicators Roads Rehabilitated Revised In the current results framework two indicators measure length of roads in rural and non-rural setting. The two are merged for consistency reasons. Public facilities New This indicator will help to track the progress related to the rehabilitated (including indicator delivery of public facilities to targeted communities. educational, sports and community centers) Water supply networks New This indicator will help to track progress on the delivery of rehabilitated indicator water supply services. Wastewater network New The same as above, but for wastewater rehabilitated indicator Amount of treated waste Dropped This indicator was dropped as deemed no longer relevant as water indicator no waste water treatment plan was financed. Roads rehabilitated Dropped This indicator was merged with Roads Rehabilitated for (rural) indicator consistency. Number of implemeted Dropped This indicator is not deemed to produce meaningful data to projects indicator measure the project achievements. d. Reallocation between the loan proceeds. The proposed extension of the Loan Closing Date with 22 months will lead to the increased costs for supervision and other extended consulting services (audit, monitoring and evaluation, etc.). The Government proposed to increase proceeds for Component 1.2 (Category (2) Consultants services, Training and Incremental Operating Costs under Part A.2 of the Project) from USD 2,000,000 to USD 3,300,000. This will be done via relocation of funds from Category (1) Goods and Works under Part A1 (a) of the Project (amount of funds under this Category will be decreased from USD 12,925,000 to USD 12,575,000) and Category (1) Goods and Works, under Part A1 (b) of the Project (amount of funds will The World Bank Second Regional and Municipal Infrastructure Development Project (P147521) be decreased from USD 13,000,000 to USD 12,050,000). The total amount of funds allocated for Part A of the Project (Component 1 “Infrastructure Investments”) will remain the same. e. Change in Disbursement Estimates. The disbursement estimates are revised to reflect the expected implementation progress and the proposed extension of the Loan Closing Date. 12. There are no outstanding audits under the Project. All audit and financial management reports have been submitted in time and found to be acceptable to the Bank. Both Procurement and Safeguards compliance are satisfactory. There will be no change to the Project implementation and institutional arrangements. The Project will continue following the same Operations Manual, Environmental and Social Management Framework and Resettlement Policy Framework. The proposed restructuring does not change the Project’s environmental classification (Category B) nor trigger any new safeguard policy of the Bank or require exceptions from any of those applicable. Project’s general rating on the safeguard compliance is Satisfactory as documented in the recent Implementation Status Report (ISR), and there is no need for its revision. 13. The proposed changes will not impact the original economic, financial, technical, institutional, environmental or social aspects of the Project as appraised. III. SUMMARY OF CHANGES Changed Not Changed Project's Development Objectives ✔ Results Framework ✔ Loan Closing Date(s) ✔ Reallocation between Disbursement Categories ✔ Disbursement Estimates ✔ Implementing Agency ✔ DDO Status ✔ Components and Cost ✔ Cancellations Proposed ✔ Disbursements Arrangements ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ The World Bank Second Regional and Municipal Infrastructure Development Project (P147521) 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) OPS_DETAILEDCHANGES_PDO_TABLE PROJECT DEVELOPMENT OBJECTIVE Current PDO To improve the efficiency and reliability of targeted municipal services and infrastructure. Proposed New PDO To improve access to quality municipal services and infrastructure 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-83800 Effective 30-Jun-2019 30-Apr-2021 30-Aug-2021 TF-18090 Effective 31-Dec-2018 31-Dec-2020 OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IBRD-83800-001 | Currency: USD The World Bank Second Regional and Municipal Infrastructure Development Project (P147521) iLap Category Sequence No: 1A Current Expenditure Category: G,W, Part A.1(a) 12,925,000.00 7,182,306.44 12,575,000.00 40.00 40.00 iLap Category Sequence No: 1B Current Expenditure Category: G,W, Part A.1(b) 13,000,000.00 7,841,469.94 12,050,000.00 85.00 85.00 iLap Category Sequence No: 2 Current Expenditure Category: CS,TR,IOC,Part A.2 2,000,000.00 2,138,513.86 3,300,000.00 80.00 80.00 iLap Category Sequence No: 3 Current Expenditure Category: G,CS,TR,Part B 2,000,000.00 1,197,020.87 2,000,000.00 22.80 22.80 iLap Category Sequence No: 5 Current Expenditure Category: PREMIUM FOR CAPS/COLLARS 0.00 0.00 0.00 Total 29,925,000.00 18,359,311.11 29,925,000.00 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2015 3,914,832.78 3,914,832.78 2016 5,264,602.81 5,664,602.81 2017 5,393,485.82 5,892,209.28 2018 3,000,000.00 3,613,457.66 2019 4,000,000.00 3,332,280.76 2020 8,427,078.59 3,000,000.00 2021 0.00 4,082,616.71 2022 0.00 500,000.00 The World Bank Second Regional and Municipal Infrastructure Development Project (P147521) . The World Bank Second Regional and Municipal Infrastructure Development Project (P147521) . Results framework COUNTRY: Georgia Second Regional and Municipal Infrastructure Development Project Project Development Objectives(s) To improve the efficiency and reliability of targeted municipal services and infrastructure. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 To improve access to quality municipal services and infrastructure (Action: This Objective has been Revised) Number of direct project 0.00 10,000.00 40,000.00 80,000.00 238,000.00 300,000.00 330,000.00 330,000.00 beneficiaries (Number) Rationale: Action: This indicator is This indicator was elevated from the intermediate level to capture the overall impact of the project on project beneficiaries. The final number has been revised to New reflect the expected results and new intermediate targets have been added for the extended closing date. Female Beneficiaires 0.00 51.00 51.00 51.00 51.00 51.00 51.00 51.00 (Percentage) Action: This indicator is New Average number of hours per day of piped water 7.00 7.00 7.00 7.00 24.00 24.00 24.00 24.00 service in selected municipalities (Hours) Percentage of LSGS with 0.00 0.00 0.00 0.00 0.00 30.00 70.00 70.00 improved asset The World Bank Second Regional and Municipal Infrastructure Development Project (P147521) RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 management system (Percentage) Reduction in Energy consumption per cubic meter of water or wastewater pumped 0.00 0.00 0.00 10.00 20.00 30.00 30.00 (KWh/m3) in selected municipalities (Percentage) Action: This indicator has Rationale: been Marked for No longer relevant in light of actual financed investments. Deletion Volume(mass) of BOD pollution load removed 0.00 0.00 0.00 0.00 153.00 153.00 153.00 by treatment plant under the project (Tones/year) Action: This indicator has Rationale: been Marked for No longer relevant in light of the actual financed investments. Deletion PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 Infrastructure Investments The World Bank Second Regional and Municipal Infrastructure Development Project (P147521) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 People in project areas with access to Improved 0.00 0.00 0.00 30,000.00 35,000.00 40,000.00 Water Sources (Number) Action: This indicator has Rationale: been Marked for Number of beneficiaries has now been captured as a PDO indicator across all subsectors including water supply. Deletion Roads rehabilitated 0.00 53.00 55.00 58.00 58.00 (Kilometers) Rationale: Action: This indicator has The indicator has been rephrased to cover rural, urban roads and streets. Intermediate and final targets have been added to reflect the extended closing date. been Revised Water supply pipes 0.00 53.00 53.00 108.00 108.00 rehabilitated (Kilometers) Rationale: Action: This indicator is This is a new indicator to capture the water related progress under the project. This indicator will capture the length of water pipes being rehabilitated through New the project. Public facilities 0.00 20.00 21.00 23.00 23.00 rehabilitated (Number) Rationale: Action: This indicator is This new indicator will capture the number of public facilities improved by the project, covering educational, sports and community centers and other municipal New facilities. Wastewater network 0.00 16.00 16.00 16.00 16.00 rehabilitated (Kilometers) The World Bank Second Regional and Municipal Infrastructure Development Project (P147521) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 Rationale: Action: This indicator is This new indicator will capture the wastewater pipelines rehabilitated under the project. New Establishment of pilot beneficiary feedback mechanisms to provide 0.00 0.00 1.00 2.00 7.00 8.00 9.00 10.00 feedback on municipal services (Number) Rationale: Action: This indicator has Intermediate targets have been added, plus the current targets have been increased to reflect the actual progress been Revised Number of beneficiary feedbacks reviewed and 0.00 0.00 30.00 50.00 165.00 170.00 200.00 230.00 addressed (disaggregated by gender) (Number) Rationale: Action: This indicator has The interim targets have been added for extended lifetime of the project been Revised Number of beneficiary feedbacks reviewed 0.00 0.00 15.00 25.00 35.00 40.00 115.00 115.00 and addresses (female) (Number) The World Bank Second Regional and Municipal Infrastructure Development Project (P147521) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 Rationale: Action: This indicator Intermediate targets have been added for the extended closing date has been Revised Roads rehabilitated, rural 0.00 0.00 10.00 20.00 40.00 30.00 (Kilometers) Action: This indicator has Rationale: been Marked for This indicator has been merged with the other indicator on roads to capture all interventions related to roads Deletion Direct project 0.00 10,000.00 40,000.00 80,000.00 120,000.00 150,000.00 beneficiaries (Number) Action: This indicator has Rationale: been Marked for This indicator has been elevated as the PDO-level indicator to capture the overall project interventions Deletion Female beneficiaries 0.00 50.00 50.00 50.00 50.00 52.00 (Percentage) Action: This indicator has been Marked for Deletion Number of implemented 0.00 20.00 40.00 55.00 60.00 69.00 investments (Number) Action: This indicator has Rationale: been Marked for This indicator is removed as it does not capture any meaningful results neither it helps to measure the success of the project Deletion Amount of treated wastewater (Cubic 0.00 0.00 0.00 0.00 14,000.00 14,000.00 Meter(m3)) The World Bank Second Regional and Municipal Infrastructure Development Project (P147521) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 Action: This indicator has been Marked for Deletion Institutional Development Percentage of LSGs with established PCM systems 0.00 0.00 0.00 0.00 0.00 30.00 70.00 70.00 and procedures (Percentage) Rationale: Action: This indicator has Intermediate targets have been revised to align them with the current state of the project and new interim targets been added to reflect the extended closing date been Revised Percentage of LSGs with staff that can operate 0.00 0.00 0.00 0.00 0.00 30.00 70.00 70.00 PCM systems (Percentage) Rationale: Action: This indicator has Intermediate targets have been revised to align them with the current state of the project and new interim targets been added to reflect the extended closing date been Revised Percentage of LSGs with functioning, budgeting 0.00 0.00 0.00 0.00 0.00 30.00 70.00 70.00 and accounting systems (Percentage) Rationale: Action: This indicator has Intermediate targets have been revised to align them with the current state of the project and new interim targets been added to reflect the extended closing date been Revised Percentage of LSGs with 0.00 0.00 0.00 0.00 0.00 30.00 70.00 70.00 staff that can operate The World Bank Second Regional and Municipal Infrastructure Development Project (P147521) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 budgeting and accounting systems (Percentage) Rationale: Action: This indicator has Intermediate targets have been revised to align them with the current state of the project and new interim targets been added to reflect the extended closing date been Revised Percentage of LSGs with established asset planning and 0.00 0.00 0.00 0.00 0.00 30.00 70.00 70.00 management systems (Percentage) Rationale: Action: This indicator has Intermediate targets have been revised to align them with the current state of the project and new interim targets been added to reflect the extended closing date been Revised Percentage of LSGs with staff that can plan and 0.00 0.00 0.00 0.00 0.00 30.00 70.00 70.00 manage LSG assets (Percentage) Action: This indicator has been Revised IO Table SPACE The World Bank Second Regional and Municipal Infrastructure Development Project (P147521)