Document of The World Bank FOR OFFICIAL USE ONLY Report No: 82530-NP RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF RURAL ACCESS IMPROVEMENT AND DECENTRALIZATION PROJECT (RAIDP) (IDA GRANT H171-NEP) AND ADDITIONAL FINANCING FOR RAIDP (IDA GRANT H525-NP AND IDA CREDIT 4664-NP) TO NEPAL DATE OF RESTRUCTURING: 7 NOVEMBER, 2013 Bangladesh and Nepal Country Management Unit South Asia Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. ABBREVIATIONS AND ACRONYMS ACRONYM EXPANDED DEFINITION GON Government of Nepal IDA International Development Association RAIDP Rural Access Improvement and Decentralization Project SDR Special Drawing Rights Regional Vice President: Philippe H. Le Houerou Country Director: Johannes Zutt Sector Manager: Karla Gonzalez Carvajal Task Team Leader: A. K. Farhad Ahmed NEPAL RURAL ACCESS IMPROVEMENT AND DECENTRALIZATION PROJECT CONTENTS Page. A. SUMMARY ........................................................................................................................... 1 B. PROJECT STATUS .............................................................................................................. 1 C. PROPOSED CHANGES ...................................................................................................... 1 D. APPRAISAL SUMMARY.................................................................................................... 5 ANNEX 2: REALLOCATION OF IDA PROCEEDS................................................................. 6 ii NEPAL RURAL ACCESS IMPROVEMENT AND DECENTRALIZATION PROJECT RESTRUCTING PAPER A. SUMMARY 1. This restructuring paper proposes the partial cancellation, as well as a reallocation, of grant and loan proceeds for the Nepal Rural Access Improvement and Decentralization Project (RAIDP). It also proposes changes in output indicators. These changes are necessary in order to adjust with the implementation requirements. B. PROJECT STATUS 2. The World Bank Board of Executive Directors approved the RAIDP on June 21, 2005 and the project became effective on August 16, 2005. The total grant amount from the International Development Association (IDA) World Bank was SDR 21.2 million (US$32 million). The original closing date of the project was December 31, 2010. A mid- term review of the project was conducted in March 2009. The implementation progress during the mid-term review was assessed as “moderately satisfactory.” 3. On December 19, 2009, the project received an Additional Financing from IDA of total SDR 28.50 million; (US$45 million). This means that the total IDA amount for the project increased to SDR 49.7 million (US$76 million). The closing date was extended to December 31, 2013. 4. Project implementation has proceeded slower than envisaged due to the fragile political situation in Nepal and other issues. In 2010, the project struggled to implement activities in a number of project districts that faced violent criminal activity and insecurity. The project also faced difficulties with procurement. The situation has improved considerably after the introduction of e-bidding in 2010 and various remedial management actions. More recent problems faced by the project included the sudden transfer of the Project Coordinator in September 2012 and budget shortages due to the Government of Nepal’s inability to approve a full budget during most of fiscal year 2012/13. However, a new Project Coordinator joined the project in early 2013, which improved proactivity and quality in project management. In addition, a new interim government approved a new full budget in April 2013. Key implementation issues were brought to the attention of the Bank management. They were also discussed at different forums with the Government. 5. A recent review (May 2013) rated the overall project progress as "moderately satisfactory" with improving performance trends. It is likely most likely that the project will achieve almost all its outcome indicators. The up-to-date disbursement rate of the project is approximately 75% of the committed amount. It is expected that the disbursements will be substantial before the end of the schedule closing date. C. PROPOSED CHANGES Financing and Project Costs 6. The restructuring is proposing some adjustments in the project costs. A cancellation of SDR 3.96 m (US$6.0m equivalent) is being proposed as a part of the restructuring process. This amount is due to underspend on selected activities and savings 1 in actual vs. estimated expenditures. In addition, there has been a sharp depreciation (approximately 30%) in the Nepalese rupee since 2012 which has increased the purchasing power of IDA funds. Reallocation 7. The following tables provide the details of the re-allocation of loan/grant proceeds under different grant/credit heads. Table 1: IDA GRANT H1710 Original Undisb. Disbursed Category Allocation Balance (SDRm) (SDRm) (SDRm) 1 Works 15.59 17.03 (1.44) 2 Goods 0.67 0.87 (0.20) 3 Consultants Services and Training 3.45 2.55 0.90 4 Incremental Operating Costs 0.40 0.49 (0.09) 5 Refinancing of Project Preparation Advance 0.27 0.16 0.11 6 Unallocated 0.82 0.00 0.82 Designated Account Balance 0.11 (0.11) TOTAL 21.20 21.20 0.00 Table 2: IDA Grant H5250 Original Undisb. Proposed Disbursed Changes Category Allocation Balance Allocation (SDRm) (SDRm) (SDRm) (SDRm) (SDRm) 1A Works Except Part 1 D 6.80 6.78 0.02 7.00 0.20 1B Works Part 1 D 1.70 1.69 0.01 1.7 00 2 Goods 0.90 0.12 0.78 0.29 (0.61) 3 Consultants Services and Training 2.50 0.99 1.51 1.24 (1.26) 4 Incremental Operating Costs 0.40 0.22 0.18 0.66 0.26 5 Unallocated 0.50 - 0.50 (0.50) Designated Account Balance 0.31 (0.31) - Total Net of Designated Account Balance 12.80 9.48 3.32 10.89 (1.91) Proposed Cancellation 1.91 TOTAL Grant Amount 12.80 2 Table 3: IDA Credit 46640 Original Undisb. Proposed Disbursed Changes Category Allocation Balance Allocation (SDRm) (SDRm) (SDRm) (SDRm) (SDRm) 1A Works Except Part 1 D 13.00 4.58 8.42 11.25 (1.75) 1B Works Part 1 D 2.10 0.41 1.69 2.40 0.30 2 Goods - - 3 Consultants Services and Training - - 4 Incremental Operating Costs - - 5 Unallocated 0.60 0.60 (0.60) Designated Account Balance 0.99 (0.99) - TOTAL 15.70 2.45 13.25 13.65 (2.05) Proposed Cancellation 2.05 TOTAL Credit Amount 15.70 8. The summary re-allocation of loan/grant proceeds (including savings) under different grant/credit heads are provided below: Savings/ Current Reallocation Grant/Credit heads Deficits (SDRm) (SDRm) (SDRm) Grant H171-NEP 21.20 21.20 0.00 Grant H525-NP 12.80 10.89 1.91 Credit 4664-NP 15.70 13.65 2.05 Total 49.70 45.74 3.96 Output indicator targets 9. The following changes in the output indicator targets are being proposed in this restructuring: Original output Revised output Justification for the Output indicator indicator target indicator target proposed changes Component One: Rural Transport Infrastructure (RTI) Improvement Component 1. Rehabilitation and 1,165km 1,350km There have been upgrading of exiting savings from mainly dry-season road two sources: (i) upgraded to all season appreciation of US$ standard value against Nepalese Rupees; (ii) lower bid prices as a result of the introduction of e- bidding. 3 Original output Revised output Justification for the Output indicator indicator target indicator target proposed changes 2. Upgrading of existing 211km 140km The implementation rural trails and tracks of this sub-component to dry-season has been delayed to standard. the problems faced during procurement of design and supervision consultant of this sub- component. This is as a result of complaints lodged by one of the competing firms. 3. Construction of trail 317 nos. 650 numbers [164 Increased total bridges numbers construction numbers due to (include all steel part introduction SWAP and civil works) and approach 486 numbers steel parts fabrication support only] Component Two: Capacity Building and Advisory Services (CBAS) Component 1. Update of District 10 nos. 30 nos. Updating of these Transport Master Plan DTMPs is required to (DTMPs) facilitate the rural transport planning in these additional districts. 4 D. APPRAISAL SUMMARY NOT APPLICABLE 5 ANNEX 2: REALLOCATION OF IDA PROCEEDS NEPAL– RURAL ACCESS IMPROVEMENT AND DECENTRALIZATION PROJECT P083923 (IDA GRANT H171-NEP) AND ADDITIONAL FINANCING FOR RAIDP(IDA CREDIT 4664-NPAND IDA GRANT H525-NP) Restructuring Paper 10. Proceeds for Nepal, Rural Access Improvement and Decentralization Project, Grant H171-NEP, P083923 will be reallocated as follows: Amount of the Grant Percentage of Expenditures to be Financed Category Allocated (Expected in SDR) (Inclusive of Taxes) Current Revised Current Revised (1) Works 15,590,000 17,110,000 100% 100% (2) Goods 670,000 870,000 100% 100% (3) Consultants' 3,450,000 2,560,000 100% 100% services and training (4) Incremental 400,000 500,000 100% 100% Operating Costs (5) Refunding of 270,000 160,000 Amount due pursuant Amount due pursuant Project to Section 2.2(c) of the to Section 2.2(c) of the Preparation agreement of August agreement of August Advance 1, 2005 1, 2005 (6) Unallocated 820,000 0 TOTAL AMOUNT 21,200,000 21,200,000 11. Proceeds for Nepal, Rural Access Improvement and Decentralization Project, Credit 4664-NP, Grant H525-NP, P083923 will be reallocated as follows: Percentage of Amount of the Credit Amount of the Grant Expenditures to be Category Allocated (Expected in Allocated (Expected in Financed SDR) SDR) (Inclusive of Taxes) Current Revised Current Revised Current Revised (1)(a) Works under 13,000,000 11,250,000 6,800,000 7,000,000 90% 90% Part 1(a), 1(b), 1(c) and 1(f) of the Project, and Community Infrastructure Grants under Part 1(e) of the Project (1)(b) Works under 2,100,000 2,400,000 1,700,000 1,700,000 100% 100% Part 1(d) of the Project (2) Goods 0 0 900,000 290,000 100% 100% 6 Percentage of Amount of the Credit Amount of the Grant Expenditures to be Category Allocated (Expected in Allocated (Expected in Financed SDR) SDR) (Inclusive of Taxes) (3) Consultants' 0 0 2,500,000 1,240,000 100% 100% services and training (4) Incremental 0 0 400,000 660,000 100% 100% Operating Costs (5) Unallocated 600,000 0 500,000 0 TOTAL AMOUNT 15,700,000 13,650,000 12,800,000 10,890,000 Project implementation progress 12. The last review (August-September, 2013) rated the overall implementation progress as “moderately satisfactory” with improving trends. The project is most likely to achieve its PDO indicators. The project is also likely to achieve its output indicators barring one (the construction of dry-season roads). In some cases the project will surpass its outputs indicator targets (e.g. all weather roads). The project has suffered due to the issues linked to the political fragility of Nepal and due to the untimely transfer of a key official. 13. The proposed reallocation is necessary to accommodate the following: a) A reduced target for the construction of dry season roads due to delays faced by the project in the procurement of design and supervision consultants linked to this particular sub-component; b) An increased target for all-weather roads and bridges. They are required to accommodate requests from the Government, which were based on increasing the investment impact; c) There are savings in the project due to the appreciation of US$ against the Nepalese Rupees; and d) Some sub-components require less (e.g. Consultants services and training) and some sub-components require more than the allocated amount (e.g. incremental operating costs). 7