The World Bank Myanmar EITI Implementation Project (P156124) REPORT NO.: RES30440 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF MYANMAR EITI IMPLEMENTATION PROJECT APPROVED ON FEBRUARY 1, 2016 TO MINISTRY OF PLANNING AND FINANCE ENERGY & EXTRACTIVES EAST ASIA AND PACIFIC Regional Vice President: Victoria Kwakwa Country Director: Ellen A. Goldstein Senior Global Practice Director: Riccardo Puliti Practice Manager/Manager: Christopher Gilbert Sheldon Task Team Leader: Morten Larsen The World Bank Myanmar EITI Implementation Project (P156124) ABBREVIATIONS AND ACRONYMS ASM Artisanal and Small-scale Mining DFAT Department of Foreign Affairs and Trade (Australia) DFID Department for International Development (United Kingdom) EI Extractive Industries EITI Extractive Industries Transparency Initiative EITI MSG Multi-Stakeholder Group of EITI GIS Geographical Information System MOBD Myanmar EITI, Budget Department MONREC Ministry of Mines and Energy MOPF Ministry of Planning and Finance NCS National Coordination Secretariat PDO Project Development Objective SNU Sub-National Units The World Bank Myanmar EITI Implementation Project (P156124) BASIC DATA Product Information Project ID Financing Instrument P156124 Investment Project Financing Original EA Category Current EA Category Not Required (C) Not Required (C) Approval Date Current Closing Date 01-Feb-2016 31-Dec-2019 Organizations Borrower Responsible Agency Ministry of Planning and Finance EITI Unit, Budget Department, Ministry of Finance OPS_PROCESSING_DISCLOSABLE_TABLE Processing (this section will be automatically removed by the system before the paper is disclosed) Based on the proposed changes this Restructuring type is Decision Authority Level 2 CD Decision Financing (in USD Million) FIN_SUMM_PUB_TBL SUMMARY Total Project Cost 3.50 Total Financing 3.50 Financing Gap 0 DETAILS -NewFin3 The World Bank Myanmar EITI Implementation Project (P156124) Project Development Objective (PDO) Original PDO Increase transparency and accountability in Myanmar’s management of extractive industry data, revenue, and impacts OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net TF Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed TF-A6310 19-Jun-2017 15-Feb-2018 15-Feb-2018 31-Dec-2019 1.00 0 1.00 TF-A1901 11-Apr-2016 17-Jan-2017 17-Jan-2017 31-Dec-2019 2.50 2.06 .44 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Myanmar EITI Implementation Project (P156124) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project status 1. The Restructuring Paper proposes a closing date extension of the Myanmar Extractive Industries Transparency Initiative (EITI) Implementation Project from December 31, 2019 to March 31, 2021. Additionally, modest reallocations among disbursement categories are also proposed. This restructuring is in response to government requests received on March 29 and May 30, 2019. The EITI Project, which is financed by the Myanmar Partnership Multi Donor Trust Fund (TF072229 and TF072561), became effective in January 2017. The objective of the project is to increase transparency and accountability in Myanmar’s management of extractive industry data, revenue, and impacts. This will be achieved through implementation of the Myanmar EITI. The project comprises three components: (i) Support to the EITI Multi-Stakeholder Group (MSG) and EITI Secretariat to produce and disseminate annual EITI reports of public revenue data from the oil, gas and mining industry; (ii) Improving operators’ readiness for EITI implementation through training in accounting and reporting practices; and (iii) Institutional development for EITI implementation, inter alia, modernization of the mineral licensing system, streamlined reporting procedures and other initiatives to enhance the overall quality of the data. 2. Project performance is rated Moderately Satisfactory both with respect to achieving the Project Development Objective (PDO) and overall implementation progress. This rating is grounded in authorities’ ability to successfully complete the key activities under the EITI, including annual publication of government revenue generated from oil, gas and mineral extraction as well as stakeholder consultation. The implementing agencies are in compliance with relevant fiduciary and reporting requirements. The MSG in charge of implementing the Myanmar EITI released the latest of four annual Revenue Reconciliation Reports in March 2019. In line with the international EITI standard, Myanmar EITI is currently undergoing validation of its progress in meeting the international EITI standards. The conclusion of the validation is expected before the end of June 2019. 3. It is expected that the outcome of the on-going validation will be that Myanmar is assessed to have made Meaningful progress towards EITI requirements. This rating is less than Satisfactory progress, and as such, Myanmar will be expected to initiate a series of corrective actions within 18 months to achieve a Satisfactory rating. This extended timeframe for Myanmar’s EITI implementation, i.e. late 2020, represents the main reason for the proposed project extension, together with a disbursement performance which is slower than what was originally projected. 4. The disbursement rate as of May 1, 2019, is at 54% - with 8 months remaining before original grant closure. Project execution and EITI implementation suffered an initial delay due to the transition to civilian government in 2016- 17. Accordingly, grant effectiveness occurred only 11 months after Bank signing of the grant agreement. Since first disbursement in April 2017, the project has maintained a steady pace of disbursement at around 25% of total grant amount per year. The poposed grant closing date extension of 15 months would compensate for the initial stalemate. 5. Project performance against results indicators is acceptable with five out of seven indicators fully or substantially meeting annual targets. These indicators relate to annual publication of EITI Reconciliation Reports and effective functioning of the MSG and other consultations and capacity building activities. The two indicators which have not been achieved are (i) the MSG’s ability to convert EITI findings and recommendations into tangible sector strengthening and reform and (ii) measured impacts and public perceptions of the EITI process. The proposed closing date extension will directly support sector reform activities and enhanced public consultation with the objective to meet the two underperforming indicators. The EITI MSG of 25 members meets on monthly basis, and sub-national chapters of the EITI MSG have been formed in Magway, Mandalay, Thanintharyi, Shan and Sagaing. The reform impact of the EITI process in Myanmar has been muted, although three advances stand out: First, mineral license information has been The World Bank Myanmar EITI Implementation Project (P156124) digitized, including mapping of licensed areas. This is the first step towards a digital Mineral Cadastre Management System which is expected to contribute to systematic and transparent licensing procedures before the end of 2020. Second, work has commenced on publication of beneficial ownership of all extractive permits. Third, transparency of public revenue management has been boosted by the planned abolishment of “Other Accounts� which have been used by State-Owned Enterprises to retain excess earnings from extractive industry operations. In sum, EITI implementation in Myanmar has exceeded expectations in terms of publication of sector statistics and the level of activity and consultations. On the other hand, the process has struggled to convert transparency and inclusiveness into actual reforms. B. Rationale for restructuring 6. As mentioned above, Myanmar EITI is expected to initiate a set of corrective measures as a result of the on- going validation process in order to achieve fully Satisfactory progress of EITI implementation. This series of corrective measures will need to be completed by the end of 2020. In the interest of avoiding disruptions to the EITI process, it is recommended that the current grant closing date be extended to March 31, 2021 to ensure continued support to the MSG throughout the expected timeframe for implementation of corrective actions. Corrective measures are expected to include, among others, (i) improved management and transparency of mineral license allocation, (ii) expanded scope of reporting from mineral and gemstone companies which are not yet reporting under the EITI framework, (iii) more systematic dissemination and communication plans, (iv) reporting of beneficial ownership of registered companies in the oil, gas and mining industry. The scope of the grant is designed to support most of these actions. While December 2020 would be the expected deadline for Myanmar EITI to complete corrective measures, the additional three months extension would also allow for expected government transition arrangements following planned elections in late 2020 (as was the case after elections in 2015). 7. An essential part of the grant is the development of a modern and digital mineral cadaster management system to administer the vast number of registered mineral and gemstone license. MONREC’s digital registration of existing mineral and gemstone licenses is well advanced with a total of 1,023 mineral licenses registered in digital format by the end of May 2019. An additional 5,000 licenses are registered for gemstone extraction. The modernized mineral cadaster system will upgrade the current archiving system to a fully computerized system of management, approval, and monitoring of mineral licenses. The projected timeframe for installation and full operation is 18 months. This means that the contract duration would extend to December 2020. In order to secure funding from the existing grant, a closing date extension would be required. In the event that the grant closing is not extended, the cadaster services would need to be financed by other (yet unidentified) sources. If this failed, consultancy services would need to be amended and significantly reduced, thus producing a mineral registry without the requisite functionality to ensure effective and transparent sector monitoring. 8. The long delay in project effectiveness has negatively affected the disbursement rate, which stands at 54% of the total grant amount. It should be noted that barring the delayed effectiveness and counting from first disbursement in April 2017, the annual disbursement rate has reached approximately 25%. At this rate, an extended closing date of March 31, 2021, would allow full disbursement. The MSG has an approved an ambitious work plan which even assumes an acceleration of activity implementation and an expansion of the scope of EITI activities, including SOE reform, revenue reporting from other sector and others. The task team recommends that the current grant support be focused on core activities of EITI implementation. The World Bank Myanmar EITI Implementation Project (P156124) II. DESCRIPTION OF PROPOSED CHANGES A. Closing date and budget reallocation 9. An extension of grant closing date by 15 months is recommended, from December 31, 2019 to March 31, 2021. The approved Myanmar EITI Work Plan. Since the full Work Plan covers other activities which are not financed by the current grant, the key dates and activities financed by the current grant are summarized in the table below. These activities are presented in accordance with the three project components of the grant. The restructuring will require modest reallocation between disbursement categories as presented in the datasheet below. Modest reallocations to Category 3 are proposed with corresponding reductions of Category 1 and 2. allocation across project component will not change. Table 1: Proposed budget allocations by component Activity Budget (US$) Start date End date Disbursement and commitments end May 2019 1,800,000 Component 1. Support to MSG and EITI Secretariat Fifth EITI Reconciliation Report 300,000 July 2019 March 2020 Administration and operational costs 400,000 On-going March 2021 Dissemination and outreach 150,000 On-going December 2020 Component 2. Improving operators’ readiness for EITI implementation EITI reporting and systematic disclosure 50,000 August 2019 March 2020 Component 3. Institutional development for EITI implementation Mineral Cadastre System 800,000 July 2019 December 2020 Total 3,500,000 I. SUMMARY OF CHANGES Changed Not Changed Loan Closing Date(s) ✔ Reallocation between Disbursement Categories ✔ Disbursement Estimates ✔ Implementing Agency ✔ The World Bank Myanmar EITI Implementation Project (P156124) Project's Development Objectives ✔ Results Framework ✔ Components and Cost ✔ Cancellations Proposed ✔ Additional Financing Proposed ✔ Disbursements Arrangements ✔ Change in Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Other Change(s) ✔ IV. DETAILED CHANGE(S) OPS_DE TAILE DCHA NGES_ LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline TF Status Closing Closing(s) Closing for Withdrawal Applications TF-A1901 Effective 31-Dec-2019 31-Mar-2021 31-Jul-2021 TF-A6310 Effective 31-Dec-2019 31-Mar-2021 31-Jul-2021 OPS_DE TAILE DCHA NGES_REA LLOCAT ION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed TF-A1901-001 | Currency: USD The World Bank Myanmar EITI Implementation Project (P156124) iLap Category Sequence No: 1 Current Expenditure Category: Go,NCS,CS,Trng P1a,1b,2,3a,3c, 3d 2,036,000.00 1,155,478.63 1,750,000.00 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: OC P1a,1b,2,3a,3c, 3d for EITI Sec 178,000.00 16,938.67 50,000.00 100.00 100.00 iLap Category Sequence No: 3 Current Expenditure Category: Go,OC P1c,3b for MDRI-CESD 286,000.00 312,015.74 700,000.00 100.00 100.00 Total 2,500,000.00 1,484,433.04 2,500,000.00 TF-A6310-001 | Currency: USD iLap Category Sequence No: 1 Current Expenditure Category: Go,NCS,CS,Trng P1a,1b,2,3a,3c, 3d 814,000.00 0.00 814,000.00 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: OC P1a,1b,2,3a,3c, 3d for EITI Sec 72,000.00 0.00 72,000.00 100.00 100.00 iLap Category Sequence No: 3 Current Expenditure Category: Go,OC P1c,3b of the proj for RI 114,000.00 0.00 114,000.00 100.00 100.00 Total 1,000,000.00 0.00 1,000,000.00 OPS_DE TAILE DCHA NGES_ DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2016 0.00 0.00 The World Bank Myanmar EITI Implementation Project (P156124) 2017 250,000.00 250,000.00 2018 1,000,000.00 1,000,000.00 2019 1,000,000.00 750,000.00 2020 1,250,000.00 1,500,000.00