The World Bank Ecuador Risk Mitigation and Emergency Recovery Project (P157324) REPORT NO.: RES37619 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF ECUADOR RISK MITIGATION AND EMERGENCY RECOVERY PROJECT APPROVED ON MARCH 15, 2016 TO MINISTRY OF ECONOMY AND FINANCE SOCIAL, URBAN, RURAL AND RESILIENCE GLOBAL PRACTICE LATIN AMERICA AND CARIBBEAN Regional Vice President: Axel van Trotsenburg Country Director: Marianne Fay Regional Director: Anna Wellenstein Practice Manager/Manager: Ming Zhang Task Team Leader: Diana Marcela Rubiano Vargas, Alexander Agosti The World Bank Ecuador Risk Mitigation and Emergency Recovery Project (P157324) ABBREVIATIONS AND ACRONYMS CD Country Director ERL Emergency Recovery Project (ERL) GoE Government of Ecuador MAG Ministerio de Agricultura y Ganadería (Ministry of Agriculture and Livestock) MEF Ministerio de Economía y Finanzas (Ministry of Economy and Finance) MINEDUC Ministerio de Educación (Ministry of Education) PDO Project Development Objective The World Bank Ecuador Risk Mitigation and Emergency Recovery Project (P157324) BASIC DATA Product Information Project ID Financing Instrument P157324 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 15-Mar-2016 07-Sep-2020 Organizations Borrower Responsible Agency Ministry of Economy and Finance Ministry of Finance Project Development Objective (PDO) Original PDO The Project Development Objective is to reduce the potential effects of the El Niño phenomenon and the Cotopaxi volcano, and support the recovery of basic and production services in affected areas in case of an Eligible Disaster, in selected sectors. Current PDO To support the recovery of basic and productive services in selected sectors in affected areas in case of an Eligible Disaster and strengthen resilience to natural disasters and macroeconomic shocks OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-85910 15-Mar-2016 22-Apr-2016 19-Jul-2016 07-Sep-2020 91.79 6.57 85.22 The World Bank Ecuador Risk Mitigation and Emergency Recovery Project (P157324) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING 1. The Ecuador Risk Mitigation and Emergency Recovery Project (ERL) was approved by the Bank on March 15, 2016 and declared effective on July 19, 2016. Its revised Project Development Objective (PDO) is to “support the recovery of basic and productive services in selected sectors in affected areas in case of an Eligible Disaster and strengthen resilience to natural disasters and macroeconomic shocks”. It is currently undergoing a major restructuring to be processed in two distinct stages that will update the original Project design to be consistent with Government of Ecuador (GoE) priorities1 and process the two cancellation requests. The first restructuring was approved on April 23, 2019 and covered the following changes: a) PDO change to remove the reference to the mitigation of risks from the El Niño phenomenon and Cotopaxi volcano and add the reference to strengthening resilience to natural disasters and macroeconomic shocks; b) revision in description of components and costs; c) reallocation of funds between components and categories to reflect the cancellation of funds (US$58,210,000.00), requested on Sep. 27, 2018; d) change in the Results Framework; e) update of disbursement projections, and f) update of implementation arrangements (inclusion of Ministry of Education (MINEDUC) and exclusion of Ministry of Agriculture and Livestock (MAG). On August 28, 2019, the Bank received the amendment letter countersigned by the MEF, and the portal already reflects the loan amount after cancelation. The second restructuring will process the required changes to reflect the Feb. 7, 2019 request to cancel an additional US$32,204,448.41. 2. The Project´s disbursement rate as of August 31, 2019 is 7.15% (US$6.57 million), and approximately US$32 million of its funds are committed under on-going contracts 2. The progress towards achievement of the PDO and Implementation Progress (IP) are both rated Moderately Unsatisfactory (MU), particularly due to the slow implementation. The recent implementation support mission from April 8-12, 2019 witnessed positive developments in project implementation, and there has been progress in the procurement process for some priority activities and commitment by high-level ministerial officials to the updated implementation timeline. The restructured PDO and Results Framework are considered achievable within the remaining implementation period if the client adheres to the timeline agreed to during the April 2019 mission. Disbursements are also expected to improve considerably in the coming months with the awarding of contracts for major works. The ratings (progress towards achievement of the PDO and Implementation Progress) will be revisited in the next supervision mission scheduled for mid-October 2019. 1 Early on during implementation, Component 2 was activated by the heavy rains, floods and landslides caused by the “El Niño Costero” phenomenon and by a powerful earthquake (measuring 7.8 on the Richter scale) that hit the country on April 16, 2016 (one month after Board approval). The severity of the disasters and budgetary limitations gave way to a series of shifts in GoE priorities on the use of the loan funds. The first request was received in 2017 and implied a refocus of remaining project funds towards recovery activities (Component 2). Subsequent changes in GoE priorities for the project came as result of significant delays in the definition of activities to be financed, which eventually led to the identification of various activities that could not be completed before the Project closing date and resulted in the GoE’s first cancelation request for US$58.21 million on Sep. 27, 2018. A second cancelation of funds was requested by the GoE on Feb. 7, 2019 for US$32.2 million, following a further refocus of project activities towards including technical assistance for macroeconomic resilience under Component 3. 2 The procurement processes for the miscellaneous medical goods, supervision and reconstruction of the port, the supervision for the rehabilitation of the road, and the hiring of consultants have been initiated and are being processed through the STEP platform. The World Bank Ecuador Risk Mitigation and Emergency Recovery Project (P157324) 3. Rationale for Restructuring. This restructuring paper seeks Country Director approval to cancel US$32,204,448.41 of project funds as requested by the GoE in a letter dated February 7, 2019. This Level 2 restructuring is the second of two restructurings that had to be processed separately due to the requirements of the WBG Operations portal. All other required changes to the project were carried out in the first restructuring process, approved by the Regional Vice President on April 23, 2019. These changes will bring the total loan amount to US$59,585,551.59. The closing date of September 7, 2020 will not be affected. II. DESCRIPTION OF PROPOSED CHANGES 4. Summary of changes. The proposed changes are to: (a) reflect the cancellation of funds requested by GoE on February 7, 2019, (b) make changes to Components and Costs, (c) reduce disbursement category totals for component 2, and (d) update disbursement estimates. The Project closing date and implementation schedule will not change. The safeguards policies and fiduciary arrangements will remain the same. 5. Cancellation of US$32,204,448.41 of Loan IBRD-85910. Due to delays in Project implementation, the approaching Project closing date, and the desire to reprogram funds to address emerging national priorities, the GoE requested on Feb. 7, 2019 a second cancelation of funds for US$32,204,448.41 related to activities that would not be completed within the current Project timeframe. 6. Changes in Component and Costs for Component 2. The proposed changes in component costs as financed by the Bank loan are presented in Table 1 and comprise a revision to the amounts under Component 2. No other components will be amended under the restructuring. TABLE 1. PROPOSED CHANGES IN COMPONENT COSTS Current Cost Proposed Cost Component Action (US$) (US$) Component 1. Disaster Preparedness and Risk Mitigation 3,776,367.31 3,776,367.31 Component 2. Post-Disaster Recovery and Reconstruction 82,238,762.80 50,034,314.39 Revised Component 3. Technical Assistance to MEF and Project 5,774,869.89 5,774,869.89 Monitoring and Evaluation Amount to be cancelled (32,204,448.41) Total 91.790,000.00 59,585,551.59 Revised 7. Changes in disbursement categories. The proposed change reflects a reduction of funds to be disbursed under Component 2 (associated with Category 2 or Emergency Expenditures) from US$82,238,762.80 to US$50,034,314.39 to accommodate the proposed cancellation. No other categories are expected to be adjusted. 8. Update of Disbursement Estimates. The restructuring will adjust the disbursement estimates based on the agreed final definition of the Project scope. The disbursement estimates are based on the premise that the GoE will complete all recovery/reconstruction activities within the prescribed timeline agreed during the April 2019 mission. TABLE 2. UPDATED DISBURSEMENT ESTIMATES The World Bank Ecuador Risk Mitigation and Emergency Recovery Project (P157324) Fiscal Year Current (US$) Proposed (US$) 2015 - - 2016 - - 2017 994,465.00 994,465.00 2018 5,052,141.00 5,052,141.00 2019 3,451,100.00 455,800.00 2020 57,584,000.00 28,130,000.00 2021 24,708,294.00 24,953,145.59 Total: 91.790,000.00 59,585,551.59 III. SUMMARY OF CHANGES Changed Not Changed Components and Cost ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursement Estimates ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Results Framework ✔ Loan Closing Date(s) ✔ Disbursements Arrangements ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Other Change(s) ✔ The World Bank Ecuador Risk Mitigation and Emergency Recovery Project (P157324) Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Component 1: Disaster Component 1: Disaster 4.23 No Change Preparedness and Risk 4.23 Preparedness and Risk Mitigation Mitigation Component 2: Post-Disaster Component 2: Post-Disaster 92.11 Revised 56.04 Recovery and Reconstruction Recovery and Reconstruction Component 3: Technical Component 3: Technical Assistance to MEF and Project Assistance to MEF and Project 6.47 No Change 6.47 Implementation, Monitoring and Implementation, Monitoring Evaluation and Evaluation TOTAL 102.81 66.74 OPS_DETAILEDCHANGES_CANCELLATIONS_TABLE CANCELLATIONS Value Reason Current Cancellation New Ln/Cr/Tf Status Currency Date of for Amount Amount Amount Cancellation Cancellation BORROWER'S REQUEST IBRD-85910- Disburs USD 91,790,000.00 32,204,448.41 07-Feb-2019 59,585,551.59 FOR 001 ing COUNTRY REASONS OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) The World Bank Ecuador Risk Mitigation and Emergency Recovery Project (P157324) Current Proposed IBRD-85910-001 | Currency: USD iLap Category Sequence No: 1 Current Expenditure Category: GO, CW, NCS, CS and TR - Part 1 3,776,367.31 3,776,367.31 3,776,367.31 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: Emergency Expenditures - Part 2 82,238,762.80 1,974,576.96 50,034,314.39 100.00 100.00 iLap Category Sequence No: 3 Current Expenditure Category: GO,NCS,TR & CS (inc audit) - Part 3 5,774,869.89 487,762.38 5,774,869.89 100.00 100.00 Total 91,790,000.00 6,238,706.65 59,585,551.59 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2016 0.00 0.00 2017 994,465.00 994,465.00 2018 5,052,141.00 5,052,141.00 2019 3,451,100.00 455,800.00 2020 57,584,000.00 28,130,000.00 2021 24,708,294.00 24,953,145.59 .