The World Bank Second Integrated Sanitation and Sewerage Project - EG (P120161) REPORT NO.: RES29820 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF THE SECOND INTEGRATED SANITATION AND SEWERAGE PROJECT APPROVED ON JUNE 30, 2011 TO THE ARAB REPUBLIC OF EGYPT WATER MIDDLE EAST AND NORTH AFRICA Regional Vice President: Hafez M. H. Ghanem Country Director: Asad Alam Senior Global Practice Director: Guang Zhe Chen Practice Manager/Manager: Steven N. Schonberger Task Team Leader: Yogita Mumssen, Heba Yaken Aref Ahmed The World Bank Second Integrated Sanitation and Sewerage Project - EG (P120161) ABBREVIATIONS AND ACRONYMS AM Aide Memoire CY Calendar Year GOE Government of Egypt HCWW Holding Company for Water and Wastewater ISSIP Integrated Sanitation and Sewerage Infrastructure Project IP Implementation Progress ML Management Letter MHUUC Ministry of Housing, Utilities and Urban Communities OHS Occupational Health and Safety PDO Project Developmental Objective PIU Project Implementation Unit PMU Project Management Unit TTL Task Team Leader WSC Water and Sanitation Company WWTP Wastewater treatment plant The World Bank Second Integrated Sanitation and Sewerage Project - EG (P120161) Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. BASIC DATA Product Information Project ID Financing Instrument P120161 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 30-Jun-2011 31-Dec-2017 Organizations Borrower Responsible Agency Ministry of International Cooperation Holding Company for Water & wastewater (HCWW) Project Development Objective (PDO) Original PDO The Project Development is to provide targeted populations in the Governorates of Menoufia, Sharkeya, Assiut and Sohag with increased access to improved sanitation and sewerage services. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-80690 30-Jun-2011 17-Jan-2012 16-Dec-2012 31-Dec-2017 200.00 49.36 150.64 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Second Integrated Sanitation and Sewerage Project - EG (P120161) I. PROJECT COMPONENTS, STATUS AND RATIONALE FOR RESTRUCTURING 1. Project components: Component A: Wastewater infrastructure systems in rural areas within the two Delta Governorates of Menoufia and Sharkeya (Revised Estimated Cost US$23 million): This component provides wastewater infrastructure systems for households in 9 villages in 3 clusters in the rural areas of the Governorates of Menoufia and Sharkeya using appropriate technology. It will provide sewerage systems comprising wastewater treatment plants and/or collection networks connection (gravity sewers and pump stations) for villages within 3 clusters in the two project Governorates. Component B: Wastewater infrastructure systems in rural areas within the two Upper Egypt Governorates of Assiut and Sohag (Revised Estimated Cost US$76 million): This component provides wastewater infrastructure systems for households in 22 villages in 8 clusters in the rural areas of the Governorates of Assiut and Sohag using appropriate technology. It will provide sewerage systems comprising wastewater treatment plants and/or collection networks connection (gravity sewers and pump stations) for villages within 8 clusters in the two project Governorates. Component C: Project Management (Revised Estimated Cost US$3.8): This component will provide support to MHUUC and HCWW in project implementation, monitoring and evaluation and management including construction supervision and environmental management services. Approximately US$3.8M is financed from the loan proceeds with the remaining covered through counterpart funding. Component D: Support to Ministry of Housing, Utilities and Urban Communities (MHUUC) Project Management Unit (Revised Estimated Cost US$7 million): This component will provide support to the establishment of Project Management Unit (PMU) within (MHUUC) and provision of support to prepare a follow up project in the sanitation and sewage sector. 2. Project Status 3. Project approval and early implementation: The project was approved on June 30, 2011 and became effective on December 16, 2012. The total US$200 million is financed through the IBRD Loan 8069. Project implementation was very slow in the first few years, in part due to the uncertainty and changes following the Arab Spring, but also due to the complex institutional implementation activities that led to slow decision-making and delivery. 4. Project performance ratings: Project implementation significantly picked up pace between August 2015 to December 2016 following a major restructuring of implementation arrangements in March 2015. The improvement in implementation progress was recognized in an independent technical assessment that was conducted at the end of CY2016. However, in December 2016, the project was partially suspended after a fatality on site, and further, contractor performance was severely impacted by a major devaluation of the EGP. At signing, the EGP / USD exchange rate was 5.6; at the time of signing of most contracts, the rate was about 7.8, and more recently has climbed to over EGP 17.6. The PDO and IP ratings were downgraded to Moderately Unsatisfactory due to the slowdown of implementation as a result of these events. 5. Since the project suspension, following the recommendations of the Root Cause Analysis Action Plan, the Occupational Health and Safety (OHS) systems have been significantly upgraded at all project sites and implementation is well underway, with measures in place on the ground to monitor and enforce them, as concluded by the World Bank safeguards mission that took place in July 2017. Further, the implementing agency has confirmed the majority of the compensation amounts required for affected contractors, and has clarified the process to be followed in determining compensatory adjustments, mainly through a law signed by the President as well as a Prime Ministerial decree on procedures. Upon completion of this restructuring of the project, Government will be able to provide a one-off agreed compensation, when The World Bank Second Integrated Sanitation and Sewerage Project - EG (P120161) contracts can be extended and the compensation processed to enable contractors to purchase parts and supplies and move forward with physical progress at a faster pace, as anticipated prior to the suspension and the devaluation. 6. At the time of the project suspension early in 2017, about 15 out of 18 contracts were progressing well, as demonstrated through an independent technical assessment made at the time. The lagging contracts were highlighted for specific proactivity and actions were being taken. However, the suspension and the impacts of the EGP devaluation had significant impacts on the rate of implementation: a technical assessment conducted in May 2017 concluded that at least 11 out of 18 contracts would not likely be completed by the current closing date of December 31, 2017. The same assessment concluded that should a 12-month extension be granted and the main issues pertaining to the OHS and compensation be resolved, all contracts would have high likelihood to be completed (and disbursed against), and most of the project targets met. 7. All 18 works contracts have been under implementation since August 2016, and the average rate of physical progress is currently almost at 50%. One non-performing contract previously identified is in the process of being retendered, and a second has improved performance after actions by the PIU. Once the restructuring has taken place, the contractors can request contract extensions and one-off compensation along the lines agreed with the Bank, which will allow the contractors to pick up the pace of construction which would allow the project to meet the PDO by December 31, 2018. Therefore, given the steps taken, as well as the 12-month extension to enable achievement of the PDO, the project DO/IP ratings have been upgraded to Moderately Satisfactory. 8. Disbursements: Based on the latest data, 24.7% of the total loan amount has been disbursed against the original US$200 million financing. Because of the devaluation, US$90 million of the loan will be cancelled as per the request from the GOE, leaving the total loan value at US$110 million. This will result in an immediate increase in the disbursement ratio to over 40%, which is a more accurate reflection of the situation on the ground, and with the completion of works and processing of the payments, disbursements are expected to accelerate at a higher pace. 9. Rationale for Restructuring 10. Meeting the PDO: The project has been impacted by major macroeconomic developments which it could not control. With the major devaluation, along with changes in VAT and energy prices, local contractors under the project, operating under fixed-price contracts, have been unable to keep up the progress made prior to the suspension and the devaluation. Now that these issues are on track to being resolved, a 12-month extension coupled with other aspects of the restructuring would enable the project to meet its targets and objectives, and maximize utilization of the project funds. 11. Adjustment of commitments. Restructuring will allow an adjustment of the loan amount to realistic project funding needs taking into account currency fluctuations, variation orders and other price adjustments, while cancelling an amount of the uncommitted funding that would not be utilized for the needs of the project, given the exchange rate devaluation. 12. Retaining the existing project targets. It must be noted that the original project was approved based on connecting over 55,000 households to the sewerage network and improving the quality of wastewater ejected into the Nile. Notwithstanding cancellation of about 45% of the loan amount, there will be no direct impact on the project targets and goals as revised at previous restructuring. Because of the major devaluation of the EGP, the same number of households, along with most other intermediate indicators, will be reached for almost half of the original financing amount. 13. Improved project performance as outlined by the Bank: The Government has made important progress on the three remaining critical issues that are prerequisites for the Bank’s consideration of the request for an extension of the loan closing date. These issues were highlighted during the past mission in June and documented in the Management Letter (ML) and Aide Memoire (AM). After the fatality in December 2016, a rigorous OHS system was to be put in place and operational; 2) specific actions were to be taken with under-performing contractors; and 3) adjustments for the EGP denominated fixed-price contracts were required. The project has demonstrated solid proactivity and commitment on the required actions over the last year and project restructuring to allow the completion of the started infrastructure works would enable it to sustain the implementation momentum to maximize the possible project outcomes. The World Bank Second Integrated Sanitation and Sewerage Project - EG (P120161) 14. It should also be noted that: (a) the loan is not subject to suspension of disbursements, and (b) there are no outstanding audit reports nor audit reports which are not satisfactory to the Bank. The project has been upgraded to Moderately Satisfactory, and the Bank and the Borrower agree on actions that will be undertaken by the Borrower to complete the project. II. DESCRIPTION OF PROPOSED CHANGES A. Proposed Changes 1. Cancellation of about US$90 million due to the decrease in USD-value of all contracts, which were committed and under implementation prior to the devaluation. The cancellation will adjust the loan amount to the levels needed for the remaining project implementation and improve disbursement results. The individual disbursement categories will be amended accordingly. 2. Extension of the closing date by 12 months, from December 31, 2017 to December 31, 2018. This would be the second extension of the project, for a total of 24 months. This extension would compensate for the delays for a variety of reasons, including the impact of substantial price increases due to the EGP devaluation and the recent partial suspension due to a fatality on a project site, and allow additional time to finalize the original project activities towards accomplishment of its objectives. 3. Revision of the results framework to adjust for incorrect entries in some of the systems and documents. There was an incorrect presentation of the PDO indicator targets in the original Project Appraisal Document (PAD): the target for direct project beneficiaries expected to be achieved at project completion included both the actual targeted households of 57,000 (which at 5 people per household meant a final target at project close of 285,000), but also, all potential beneficiaries of the full water treatment capacity at 2050, i.e. including all future connections to the treatment plants envisaged but not financed under the project itself, which at the extreme could reach 1.2 million people and is clearly outside the scope of this loan. Although the Feasibility Assessment differentiated between actual and horizon values, unfortunately all subsequent documentation captured solely the horizon value of 2050. The current Task Team identified this in past Aide Memoires and noted the required change through a restructuring. The restructuring will include a correction to capture the accurate number of beneficiaries envisioned for the project, i.e. 285,000 beneficiaries. In addition, a number of other targets included outputs related to wastewater treated under separate projects which would feed into the same network. Therefore, the revised targets would be reflective of the activities financed only by ISSIP2. Finally, with the previous restructuring in 2015, more emphasis was placed on increasing access to services in Upper Egypt as opposed to the Nile Delta, consistent with the Bank’s agenda and the coverage of the Bank-financed PforR in the Nile Delta. Table below details changes made to the revised Results Framework. Current Proposed Change Explanation PDO-level indicators 1. Direct project beneficiaries, of which female 1. Change in target from 1. The new target will reflect the 878,340 to 285,000 beneficiaries from the project beneficiaries interventions rather than horizon values of 2050, which was erroneously reflected in the system. 2. Increased number of people in the project 2. Same as above 2. Same as above areas connected to improved sanitation and sewerage services 3. Number of wastewater treatment plans 3. No change 3. No change meeting Egyptian effluent treatment The World Bank Second Integrated Sanitation and Sewerage Project - EG (P120161) standards 4. Volume wastewater treated 4. Change in target from 4. Previous target included wastewater 74,000 to 55,000 treated under other projects which would feed into the same network. The new target is reflective of the ISSIP2 activities only. Intermediate Indicators 1. Volume (mass) BOD pollution load removed 1. Change in target from 1. Previous target included wastewater by treatment plant under the project 39.96 to 29.79 treated under other projects which would feed into the same network. The new target is reflective of the ISSIP2 activities only. 2. Total number of additional working 2. Change in target from 2. Correction per technical specifications wastewater connections in Sharkeya and 4,957 to 5,637 and variations required. Menoufia 3. Number of WWTPs operating at 2017 design 3. No change 3. No change flow rate in Sharkeya and Meoufia 4. Total number of pumping stations 4. No change 4. No change constructed in Sharkeya and Menoufia 5. Total kms of sewerage pipelines laid in 5. Change in target from 5. Correction per previous restructuring Sharkeya and Menoufia 281.8 to 93.4 placing more emphasis on Upper Egypt. 6. Total number of additional working 6. Change in target from 6. Correction per technical specifications wastewater connections in Assuit and Sohag 52,482 to 51,285 and variations required. 7. Number of WWTPs operating at 2017 design 7. No change 7. No change flow rate in Assuit and Sohag 8. Change in target from 8. Correction per technical specifications 8. Total number of pumping stations 24 to 23 and variations required. constructed in Assuit and Sohag 9. Target increased from 9. Correction per previous restructuring 9. Total kms of sewerage pipelines laid in 281.8 to 401.7 km placing more emphasis on Upper Egypt Assuit and Sohag 10. Correction per changes in technical 10.Works contracts awarded 10.Increase in target from specifications. 16 to 18 11.ESMMF training delivered 11.No change 11.No change 12.Number of construction supervision contracts 12.Target increased from 12.For strengthened construction signed for treatment plants 4 to 6 supervision. 13.% of Project management and Technical 13.No change 13.No change training courses completed in PIU and RSUs The World Bank Second Integrated Sanitation and Sewerage Project - EG (P120161) I. SUMMARY OF CHANGES Changed Not Changed Change in Results Framework ✔ Change in Components and Cost ✔ Change in Loan Closing Date(s) ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Change in Disbursement Estimates ✔ Change in Implementation Schedule ✔ Change in Implementing Agency ✔ Change in DDO Status ✔ Change in Project's Development Objectives ✔ Change in Disbursements Arrangements ✔ Change in Overall Risk Rating ✔ Change in Safeguard Policies Triggered ✔ Change of EA category ✔ Change in Legal Covenants ✔ Change in Institutional Arrangements ✔ Change in Financial Management ✔ Change in Procurement ✔ Other Change(s) ✔ Change in Economic and Financial Analysis ✔ Change in Technical Analysis ✔ Change in Social Analysis ✔ Change in Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_RESULTS_TABLE RESULTS FRAMEWORK Project Development Objective Indicators PDO_IND_TABLE The World Bank Second Integrated Sanitation and Sewerage Project - EG (P120161) Direct project beneficiaries Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 0.00 285000.00 No Change Date 06-Jun-2011 31-Jul-2017 31-Dec-2017 Female beneficiaries Unit of Measure: Percentage Indicator Type: Custom Supplement Baseline Actual (Current) End Target Action Value 0.00 0.00 50.00 No Change Increased number of people in the project areas connected to improved sanitation and sewerage services. Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 0.00 285000.00 No Change Date 06-Jun-2011 31-Jul-2017 31-Dec-2017 Number of wastewater treatment plants meeting Egyptian effluent treatment standards. Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 0.00 5.00 No Change Date 06-Jun-2011 31-Jul-2017 31-Dec-2017 Volume of wastewater treated Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 0.00 55000.00 No Change Date 06-Jun-2011 31-Jul-2017 31-Dec-2017 The World Bank Second Integrated Sanitation and Sewerage Project - EG (P120161) Intermediate Indicators IO_IND_TABLE Volume(mass) of BOD pollution load removed by treatment plant under the project Unit of Measure: Tones/year Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 0.00 29.79 No Change Date 06-Jun-2011 31-Jul-2017 31-Dec-2017 Total number of additional working wastewater connections in Sharkeya and Menoufia Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 2344.00 5637.00 No Change Date 06-Jun-2011 31-Jul-2017 31-Dec-2017 Number of WWTPs operating at 2017 design flow rate in Sharkeya and Meoufia Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 0.00 3.00 No Change Date 06-Jun-2011 31-Jul-2017 31-Dec-2017 Total number of pumping stations constructed in Sharkeya and Menoufia Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 5.00 8.00 No Change Date 06-Jun-2011 31-Jul-2017 31-Dec-2017 Total kms of sewerage pipelines laid in Sharkeya and Menoufia Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 57.60 93.40 No Change The World Bank Second Integrated Sanitation and Sewerage Project - EG (P120161) Date 06-Jun-2011 31-Jul-2017 31-Dec-2017 Total number of additional working wastewater connections in Assuit and Sohag Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 1447.00 51285.00 No Change Date 06-Jun-2011 31-Jul-2017 31-Dec-2017 Number of WWTPs operating at 2017 design flow rate in Assuit and Sohag Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 0.00 2.00 No Change Date 06-Jun-2011 31-Jul-2017 31-Dec-2017 Total number of pumping stations constructed in Assuit and Sohag Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 8.00 24.00 No Change Date 06-Jun-2011 31-Jul-2017 31-Dec-2017 Total kms of sewerage pipelines laid in Assuit and Sohag Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 145.80 281.80 No Change Date 06-Jun-2011 31-Jul-2017 31-Dec-2017 Works contracts awarded Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 18.00 18.00 No Change Date 06-Jun-2011 31-Jul-2017 31-Dec-2017 The World Bank Second Integrated Sanitation and Sewerage Project - EG (P120161) ESMMF training delivered Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 8.00 14.00 No Change Date 06-Jun-2011 31-Jul-2017 31-Dec-2017 Number of construction supervision contracts signed for treatment plants Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 6.00 4.00 No Change Date 06-Jun-2011 31-Jul-2017 31-Dec-2017 % of Project Management and Technical Training Courses completed in PIU and RSUs Unit of Measure: Percentage Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 64.20 100.00 No Change Date 06-Jun-2011 31-Jul-2017 31-Dec-2017 OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Component 1: Water Component 1: Water infrastructure systems in 35.74 Revised infrastructure systems in 23.00 Menoufia and Sharkeya Menoufia and Sharkeya Component 2: Water Component 2: Water infrastructure systems in Assiut 148.76 Revised infrastructure systems in Assiut 76.20 and Sohag and Sohag Component 3: . Project Component 3: . Project 18.00 Revised 3.80 Management Management Support to Ministry of Housing, Support to Ministry of Housing, Utilities and Urban Communities 7.00 Revised Utilities and Urban 7.00 (MHUUC) Project Management Communities (MHUUC) Project The World Bank Second Integrated Sanitation and Sewerage Project - EG (P120161) Unit Management Unit TOTAL 209.50 110.00 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-80690 Effective 31-Dec-2016 31-Dec-2017 31-Dec-2018 30-Apr-2019 OPS_DETAILEDCHANGES_CANCELLATIONS_TABLE CANCELLATIONS Value Reason Current Cancellation New Ln/Cr/Tf Status Currency Date of for Amount Amount Amount Cancellation Cancellation LOAN IBRD- Disburs 200,000,000.0 110,000,000.0 RESTRUCTUR USD 90,000,000.00 23-Oct-2017 80690-001 ing 0 0 ING, COST SAVINGS OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IBRD-80690-001 | Currency: USD iLap Category Sequence No: 1 Current Expenditure Category: Works Part A,B, C 184,500,000.00 36,994,169.35 98,750,000.00 100.00 100.00 iLap Category Sequence No: 3 Current Expenditure Category: PREMIUM FOR CAPS/COLLARS 0.00 0.00 0.00 iLap Category Sequence No: 4 Current Expenditure Category: CS Part A,B,C 8,000,000.00 519,964.95 3,780,000.00 100.00 100.00 The World Bank Second Integrated Sanitation and Sewerage Project - EG (P120161) iLap Category Sequence No: 5 Current Expenditure Category: G,CS, OP under part D 7,000,000.00 342,257.15 6,970,000.00 100.00 100.00 Total 199,500,000.00 37,856,391.45 109,500,000.00 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2011 0.00 0.00 2012 0.00 0.00 2013 0.00 0.00 2014 10,000,000.00 0.00 2015 40,000,000.00 3,000,000.00 2016 80,000,000.00 21,579,840.00 2017 70,000,000.00 22,343,024.00 2018 0.00 63,077,136.00 Note to Task Teams: End of system generated content, document is editable from here.