The World Bank Third National Urban Water Sector Reform Project (P123513) REPORT NO.: RES46010 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF THIRD NATIONAL URBAN WATER SECTOR REFORM PROJECT APPROVED ON APRIL 18, 2014 TO FEDERAL REPUBLIC OF NIGERIA WATER AFRICA WEST Regional Vice President: Ousmane Diagana Country Director: Shubham Chaudhuri Regional Director: Simeon Kacou Ehui Practice Manager/Manager: Yogita Mumssen Task Team Leader(s): Gerhardus Nicolaas Albertus Soppe The World Bank Third National Urban Water Sector Reform Project (P123513) BASIC DATA Product Information Project ID Financing Instrument P123513 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 18-Apr-2014 30-Mar-2021 Organizations Borrower Responsible Agency Federal Republic of Nigeria Federal Ministry of Water Resources Project Development Objective (PDO) Original PDO The Project Development Objectives (PDO) are: a) to increase access to improved water supply service in selected States of Nigeria and improve the financial viability of existing water utilities in those States, and b) to increase the investment planning capacityof participating States. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-54160 18-Apr-2014 07-Nov-2014 12-Feb-2015 30-Mar-2021 205.83 139.47 44.26 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Third National Urban Water Sector Reform Project (P123513) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING Introduction: 1. The proposed Level 2 restructuring of the Third National Urban Water Sector Project, P123513, (NUWSRP-3) “the Project”, will (i) complete the partial cancellation; (ii) add the term works, to Category 2 activities. The restructuring for partial cancellation has been formally requested by the Federal Ministry of Finance (MoF) on November 23, 2020 and the request to include works in category 2 was made on June 15, 2020. This would be the fourth Level 2 restructuring applied to the Project. Background: 2. The Project Development Objective (PDO) is to a) increase access to improved water supply service in selected states of Nigeria and improve the financial viability of existing water utilities in those states; and to b) increase the investment planning capacity of participating states. The project was approved by the Board on April 18, 2014, signed on November 7, 2014 and became effective in February 12, 2015. At approval the project had a total budget of SDR 161.60 million spread through three components: Component 1: Sector reforms and water supply investments (SDR139 million), Disbursement Category 1 (SDR126.1 million) and category 3 (SDR12.9 million); Component 2: Water sector governance, institutional strengthening and human capital development (SDR14.86 million); and Component 3: Sector wide improvement and project management at the federal level (SDR7.74 million). Components 2 and 3 are in Disbursement Category 2 (SDR 22.6 million). 3. The first restructuring of the project was in 2018 to (i) reallocate the unallocated budget (SDR 12.9 million) of the disbursement category 3 to disbursement category 2; and (ii) to introduce minor modification to the Project Results Framework (replacing one indicator) based on the project progress and the feasibility of achieving that indicator. 4. The Project had a second restructuring in May 2020 to (i) cancel loan amount of SDR 32.03 million which corresponds to a reduction of total loan amount from SDR 161.6 million to SDR 129.57 million; (ii) Cancellation of Rivers works component and modification of the results framework to reflect same (iii) extend closing date by six months to December 30, 2020. The revised loan amount is spread across three components: Component 1: Sector reforms and water supply investments (SDR111.97 million) under Disbursement category 1; Component 2: Water sector governance, institutional strengthening and human capital development (SDR9.86 million); and Component 3: Sector wide improvement and project management at the federal level (SDR7.74 million). Component 2 and 3 are in disbursement category 2 (SDR 22.6 million). 5. The third restructuring was in December 2020 to extend the project with three months (a cumulative extension of nine months) until March 30, 2021. 6. The beneficiary states are divided into two categories: Tier 1 states (or Selected States) include Bauchi, Ekiti and Rivers which have engaged sector reforms and which benefit from the large infrastructure investments under Component 1; and Tier 2 states (or Participating States), 13 in total, which include Abia, Adamawa, Anambra, Bayelsa, Benue, Gombe, Imo, Jigawa, Kano, Kebbi, Ondo, Plateau, and Sokoto benefiting from technical assistance and minor investments under Component 2. Component 3 supports the Federal Government and the Federal Project Implementation Unit (PIU). 7. The Project suffered significant implementation delays as a result of changes in state government leadership following elections and the need to undertake studies and designs. Since then the project has made significant progress and most contracts were completed by December 31, 2020. Nevertheless, four contracts slipped into 2021 as they were affected by overseas delivery which were delayed by the Covid-19 pandemic. Status: The World Bank Third National Urban Water Sector Reform Project (P123513) 8. Under Component 1, as of February 2021, the percentage of total commitments in signed contracts versus available allocation were 100 percent in Ekiti and 97 percent in Bauchi states. Implementation levels on all contracts in both states are now in concluding stages. Ekiti state has made tremendous progress and most activities have achieved physical completion by December 31, 2020; tests and quality control are ongoing. The completion of house connections are ongoing and advancing well. In Bauchi state, good progress has been made. However, the four contracts which slipped into early 2021 will be physically completed by mid-March, 2021. Besides infrastructure, Ekiti state also made good progress on reform. It has established a Regulatory unit that will be transformed to an independent Agency. The bill establishing the corporatized utility is at an advanced stage of review and would be signed into law in the coming months. Due to delay in procurement of works the funds allocated to Rivers state were cancelled in 2020. Support to Rivers state is now limited to the preparation of safeguards instruments and institutional assessments being undertaken by the Federal Implementation Unit. The safeguards assignment is completed and the Environmental and Social Impact Assessment (ESIA) has been publicly disclosed whilst the Resettlement Action Plan (RAP) final report has been cleared. 9. Under Component 2, as of February 2021, the total funds committed in signed contracts stands at US $25.89 million (including counterpart funding) with award of all the identified improvement works and procurement of outstanding hardware and goods in the Tier 2 states. The project has built capacity and improved the governance of states; Plateau state has passed its WASH law whilst several others have their draft bills before their respective House of Assembly. The project has completed investment plans for all the Tier 2 states for Water supply and Sanitation. The project has also demonstrated through the pilot quick wins implemented in the Tier 2 states that water supply services can be restored. 10. Under Component 3, the total IDA funds committed was US$5.13 million. An additional US$5 million was earmarked for the preparation of the new WASH Project. One main activity under this component is the design of the National WASH Fund which is currently in advanced stages of implementation. In addition, a consultancy for utility benchmarking for 2019 was completed by December 2020. The other activity on the review of the National Water Supply and Sanitation Policy has been stepped down; the procurement process was protracted and completion of that activity within the remaining project period is no longer feasible. However, with the successful completion of the National WASH Fund the PDO element will be substantially completed. 11. Under the circumstances, the Project progress towards achievement of PDO is now MS as at February 2021. 12. There are no outstanding audits Rationale for restructuring: 13. Complete partial cancellation of loan: The client requested the partial cancellation of SDR61.45 million in a letter dated February 28, 2020. However, this was split in two tranches in FY20 and FY21. At the time of the original request insufficient funds were available in the undisbursed account to allow for the cancellation of the full SDR61.45 million. Hence the need for this second request to cancel the remainder of the fund; SDR29.42 million (US$42 million) to complete the Bank’s response to the original request. The request to cancel this specific amount which would not be utilized by the new closing date of March 30, 2021 was received by the Bank on November 23, 2020. 14. In the Project Appraisal Document under Component 2 it is stated that the Federal Ministry will support nine states with “also small but critical emergency and rehabilitation works”, however this was not included in the Financing Agreement. Currently the activities in Category 2 (which includes Component 2 and 3) includes goods, non-consulting services, consultant’s services, operating costs and training. Under Component 2 the project has demonstrated through quick wins implemented in the Tier 2 states that services can be restored. This was done through supply of goods and restoration of pumping stations. Small-scale works are being implemented under Component 2 (since February 2020). To ensure this is in line with Category 2, The World Bank Third National Urban Water Sector Reform Project (P123513) it is proposed to add Works to the category. This addition will not change the allocation across components. 15. The proposed restructuring will support the achievement of the PDO. The task team works closely with the client to ensure the completion of house connections to ensure improved service delivery. II. DESCRIPTION OF PROPOSED CHANGES 16. This Restructuring Paper seeks approval to proceed with (i) cancellation of SDR 29.42 million (US$42 million) which corresponds to a reduction of the total loan amount from SDR 129.57 million to SDR 100.15 million; (ii) add works to category 2. 17. This cancellation entails: a) the cancellation of the loan amount allocated to Rivers State by SDR24.42 million in Category 1c: Sector Reforms and Water Supply Investment; (b) cancellation of SDR5.00 million under Category 2 which support component 2 and 3. The budget allocations as well as disbursement progress and projections for the various categories are summarized in Table 1 below. These cancellations will not influence the achievement or targets in the result framework as this was already adjusted in the second restructuring. III. SUMMARY OF CHANGES Changed Not Changed Components and Cost ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Other Change(s) ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Results Framework ✔ Loan Closing Date(s) ✔ Disbursements Arrangements ✔ Disbursement Estimates ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ The World Bank Third National Urban Water Sector Reform Project (P123513) Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) 1. Sector Reforms and Water 1. Sector Reforms and Water 177.70 Revised 107.50 Supply Investments Supply Investments 2. Water Sector Governance, 2. Water Sector Governance, Institutional Strengthening and 16.10 Revised Institutional Strengthening and 26.00 Human Capital Development Human Capital Development 3. Sector wide Improvement and 3. Sector wide Improvement Project Management at the 12.00 Revised and Project Management at 10.70 Federal Level the Federal Level TOTAL 205.80 144.20 OPS_DETAILEDCHANGES_CANCELLATIONS_TABLE CANCELLATIONS Value Reason Current Cancellation New Ln/Cr/Tf Status Currency Date of for Amount Amount Amount Cancellation Cancellation BORROWER' Disburs S REQUEST IDA-54160- 129,570,000.0 100,150,000.0 ing&Re XDR 29,420,000.00 23-Nov-2020 FOR 001 0 0 paying COUNTRY REASONS The World Bank Third National Urban Water Sector Reform Project (P123513) OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IDA-54160-001 | Currency: XDR iLap Category Sequence No: 1(A) Current Expenditure Category: Gds,Wks,NonCS,CS,OC,Trg Pt 1 Bauchi 42,000,000.00 21,930,747.90 42,000,000.00 90.00 90.00 iLap Category Sequence No: 1(B) Current Expenditure Category: Gds,Wks,NonCS,CS,OC,Trg Ekiti 32,400,000.00 32,007,024.02 32,400,000.00 90.00 90.00 iLap Category Sequence No: 1(C) Current Expenditure Category: Gds,Wks,NonCS,CS,OC,Trg Rivers 24,670,000.00 0.00 250,000.00 90.00 90.00 iLap Category Sequence No: 2 Current Expenditure Category: Gds,Wks,NonCS,CS,OC,Trg Pt 2&3 30,500,000.00 13,112,877.99 25,500,000.00 90.00 90.00 iLap Category Sequence No: 3 Current Expenditure Category: UNALLOCATED 0.00 0.00 0.00 Total 129,570,000.00 67,050,649.91 100,150,000.00 .