The World Bank Second Ethiopia Urban Water Supply and Sanitation Project (P156433) REPORT NO.: RES30725 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF SECOND ETHIOPIA URBAN WATER SUPPLY AND SANITATION PROJECT APPROVED ON MARCH 31, 2017 TO FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA WATER AFRICA Regional Vice President: Makhtar Diop Country Director: Carolyn Turk Senior Global Practice Director: Guang Zhe Chen Practice Manager/Manager: Wambui G. Gichuri Task Team Leader: Yitbarek Tessema, Tesfaye Bekalu Wondem The World Bank Second Ethiopia Urban Water Supply and Sanitation Project (P156433) ABBREVIATIONS AND ACRONYMS FM Financial Management LIA Low Income Area MoWIE Ministry of Water Irrigation and Electricity PDO Project Development Objective PIO Project Implementation Office PMU Project Management Unit SDR Special Drawing Right UWSSP Urban Water Supply and Sanitation Project UWSSP II Second Urban Water Supply and Sanitation Project The World Bank Second Ethiopia Urban Water Supply and Sanitation Project (P156433) BASIC DATA Product Information Project ID Financing Instrument P156433 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 31-Mar-2017 07-Jul-2023 Organizations Borrower Responsible Agency Federal Democratic Republic of Ethiopia Ministry of Water, Irrigation and Electricity Project Development Objective (PDO) Original PDO The objective of the project is to increase access to enhanced water supply and sanitation services in an operationally efficient manner in Addis Ababa and selected Secondary Cities. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-60070 31-Mar-2017 07-Apr-2017 07-Jul-2023 320.00 0 332.07 IDA-60080 31-Mar-2017 07-Apr-2017 07-Jul-2023 125.00 0 125.00 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Second Ethiopia Urban Water Supply and Sanitation Project (P156433) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project Status and Achievements 1. The Second Urban Water Supply and Sanitation Project (UWSSP-II) – P156433 was approved on March 31, 2017 with a total project cost of US$ 505 million, of which US$445 is IDA financing and US$ 60 million is counterpart fund from Addis Ababa City Administration. The development objective of the project is to increase access to enhanced water supply and sanitation services in an operationally efficient manner in Addis Ababa and selected Secondary Cities. The project has three components: Component 1- Sanitation and water supply services improvements in Addis Ababa; Component 2- Sanitation and water supply services improvement in twenty-two secondary cities selected from all the regional states and the Dire Dawa city administration; and Component 3- project management and institutional strengthening. 2. The project was declared effective on August 4, 2017 and launched on November 7, 2017. Consultants have been deployed to conduct detailed design and feasibility studies for five cities including Dire Dawa; sanitation situation assessments are underway for the other secondary cities, and the Ministry of Water Irrigation and Electricity (MOWIE), regional bureaus, and utilities are undertaking other startup activities. B. Rationale for Restructuring: 3. The first Urban Water Supply and Sanitation Project (UWSSP) was approved on April 24, 2007 as an investment project with a total financing of SDR 67.2 million from an IDA grant and Credit. With a slight change to the objective of the original project, the World Bank approved an Additional Financing (AF) of SDR 96.90 million on May 31, 2012. The revised closing date for the UWSSP is December 31, 2017 and all project activities have been completed, except for the completion, testing and commissioning of the Addis Ababa Kality sewerage system expansion and the Dire Dawa water supply system expansion sub-projects. Specifically, the remaining activities for Addis Ababa Kality subproject consist of extension of Kality trunk sewer line for the remainder of about 4 Kms, provision of sewer connections to households, and completion of Kality wastewater treatment plant (5%) including commissioning, testing and handing over the plant to the client. The remaining activities for the Dire Dawa subproject consist of completion of electromechanical equipment and pipes supply and installation works; extension of the primary and secondary distribution network into unserved areas, and provision of tertiary distribution, and residential connections. At project closing, the UWSSP will be 10.8 years old. Recognizing the implications of further extending the project closing date on the overall country portfolio performance, the Government of Ethiopia (GOE)officially requested to close the project without further extension and to transfer the incomplete activities from the two sub-projects to the UWSSP-II. The project objective and activities under the UWSSP-II are similar to the UWSSP. In addition, both Addis Ababa and Dire Dawa cities are among the 23 beneficiary cities covered by the UWSSP-II. 4. The proposed restructuring will have the following advantages: The World Bank Second Ethiopia Urban Water Supply and Sanitation Project (P156433) i. provide enough time to ensure proper completion, testing, commissioning, handover, and operationalization of the Kality and Dire Dawa subprojects after project closing and avoid risks resulting from incomplete large infrastructure projects; ii. allow AAWSA to jointly operate the system with the contractor and facilitate effective knowledge transfer in operation and maintenance as well as to examine options for future management approaches; and iii. enhance effective resource utilization by canceling and recommitting the undisbursed balance to the country. II. DESCRIPTION OF PROPOSED CHANGES 5. The following changes to the UWSSP-II are proposed: Amend the component description in the financing agreement to accommodate remaining activities from expansion of the Kality Sewerage System in Addis Ababa and the Dire Dawa water supply improvement. The restructuring will not involve additional funding to the UWSSP-II at this stage, only the additional activities (Kality Sewerage System in Addis Ababa and the Dire Dawa water supply improvement) will be transferred to be implemented using the funding from UWSSP-II. 6. Potential Risks may arise during the transition of financing the above described remaining activities from UWSSP to UWSSP-II, potentially triggering contractual claims. The interruption could arise due to time taken to restructure the two projects. This will be mitigated by processing restructuring of the two projects simultaneously and ensuring that the client clearly communicates and coordinates with the contractors on the transition to the UWSSP-II. III. SUMMARY OF CHANGES Changed Not Changed Change in Components and Cost ✔ Change in Implementing Agency ✔ Change in DDO Status ✔ Change in Project's Development Objectives ✔ The World Bank Second Ethiopia Urban Water Supply and Sanitation Project (P156433) Change in Results Framework ✔ Change in Loan Closing Date(s) ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Change in Disbursements Arrangements ✔ Change in Disbursement Estimates ✔ Change in Systematic Operations Risk-Rating Tool ✔ (SORT) Change in Safeguard Policies Triggered ✔ Change of EA category ✔ Change in Legal Covenants ✔ Change in Institutional Arrangements ✔ Change in Financial Management ✔ Change in Procurement ✔ Change in Implementation Schedule ✔ 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_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Component 1: Sanitation and Component 1: Sanitation and water supply services 260.00 Revised water supply services 260.00 improvements in Addis Ababa improvements in Addis Ababa Component 2: Sanitation and Component 2: Sanitation and water supply services water supply services 241.00 No Change 241.00 improvement in secondary improvement in secondary cities cities The World Bank Second Ethiopia Urban Water Supply and Sanitation Project (P156433) Component 3: Project Component 3: Project management & institutional 4.00 No Change management & institutional 4.00 strengthening strengthening Total 505.00 No Change Total 505.00 TOTAL 1,010.00 1,010.00