The World Bank Rural Electrification Project Stage II (P160658) REPORT NO.: RES33800 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF RURAL ELECTRIFICATION PROJECT STAGE II APPROVED ON MAY 31, 2017 TO MINISTRY OF FINANCE AND ECONOMIC MANAGEMENT ENERGY & EXTRACTIVES EAST ASIA AND PACIFIC Regional Vice President: Victoria Kwakwa Country Director: Michel Kerf Senior Global Practice Director: Riccardo Puliti Practice Manager/Manager: Jie Tang Task Team Leader: Kamleshwar Prasad Khelawan The World Bank Rural Electrification Project Stage II (P160658) ABBREVIATIONS AND ACRONYMS DOE Department of Energy MTR Mid Term Review PDO Project Development Objective RSF Risk Sharing Fund SEFP Sustainable Energy Financing Program VREP Vanuatu Rural Electrification Project The World Bank Rural Electrification Project Stage II (P160658) BASIC DATA Product Information Project ID Financing Instrument P160658 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 31-May-2017 30-Jun-2022 Organizations Borrower Responsible Agency Department of Energy, Ministry of Climate Change and Ministry of Finance and Economic Management Natural Disaster Project Development Objective (PDO) Original PDO The Project Development Objective is to support increased penetration of renewable energy and increased access to electricity services in the dispersed off-grid areas of Vanuatu. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-60720 31-May-2017 23-Jul-2017 21-Aug-2017 30-Jun-2022 2.00 .19 2.00 IDA-D1930 31-May-2017 23-Jul-2017 21-Aug-2017 30-Jun-2022 2.00 .19 1.99 TF-A4979 31-May-2017 23-Jul-2017 21-Aug-2017 30-Jun-2022 6.77 .38 6.39 TF-A5406 31-May-2017 23-Jul-2017 21-Aug-2017 30-Jun-2020 3.45 .38 3.07 The World Bank Rural Electrification Project Stage II (P160658) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project Status 1. The project has realized satisfactory progress towards the achievement of the project development objective. Following the longer than forecast establishment period, the Implementation Agency is making good progress toward achieving practical implementation. The processes of vendor and product registration and subsidy verification and reimbursement are operating effectively. Status of Project Components (i) Component 1: Provision of solar home systems and micro grids systems in rural areas of Vanuatu. The subsidy implementation arrangements have been finalized. Suppliers were invited to register as Vendors and proposals for products were sought. A total of 40 products were submitted for assessment against the technical requirements set out in the Subsidy Implementation Manual (SIM) and 5 suppliers have applied to be registered as vendors. A training course was conducted in July 2018 for suppliers and Department of Energy (DoE) staff on product assembly and installations. (ii) Component 2: Construction of mini grids systems in rural areas of Vanuatu. The Government of Vanuatu and DoE agreed the component should be implemented under a third-party arrangement (supply, install, operate and maintain) as agreements with the incumbent could not be reached to support the utility model (supply and install with the existing utility as the operator). A draft Memorandum of Understanding, including principles for tariff calculations, was negotiated with the Utilities Regulatory Authority to facilitate preparation of the bid documents for the mini grids. The procurement process for the Owner’s Engineer has been launched and it is expected to be concluded by December 2018. The Owner’s Engineer will support DoE to implement Component 2. (iii) Component 3: Technical assistance and project management. A Program Manager and an Independent Verification Agent are in place and performing satisfactorily. A Project Operations Manual has been finalized and a Technical Advisor was engaged by DoE to prepare the SIM for Component 1 of the project. The SIM has been updated to include standard requirements for batteries. B. Rationale for Restructuring 2. This restructuring seeks to amend the grant agreement of the project to reflect its newly established association with the Sustainable Energy Financing Program (SEFP). The extension of SEFP to Vanuatu will support both the Vanuatu Rural Electrification Project Stage I (VREP I – P150908) and the Vanuatu Rural Electrification Project Stage II (VREP II - P160658). The relaunched Risk Sharing Fund (RSF)under SEFP will help address a key issue identified during the Mid-Term Review (MTR) of VREP I, which is to support access to finance for the consumers (households and small businesses) for their cost contribution and to finance working capital for suppliers. The beneficiaries of the relaunched program will be the households and businesses who qualify to participate in VREP I and VREP II. The products that are eligible for loans will be those on the VREP-approved product catalog; the individual and business borrowers will be those that are approved for participation; and The World Bank Rural Electrification Project Stage II (P160658) the products and participants will need to meet the safeguards requirements of VREP I and VREP II for them to be eligible to participate in the relaunched RSF in Vanuatu. The Implementation Agency for VREP I and VREP II is Vanuatu’s Department of Energy (DOE). The financing/grant agreements with Vanuatu for the VREP I and VREP II projects (TF018003, IDA Credit 6072-VU/Grant D1930-VU, TFA4979, TFA5406) will be amended to link the RSF to VREP I and II by including a provision in the VREP I and II agreements with the World Bank that the failure by Vanuatu to perform its obligations under the proposed Project Agreement between Vanuatu and the World Bank for the SEFP RSF will be an additional event of suspension under the VREP I and II agreements. II. DESCRIPTION OF PROPOSED CHANGES 4. The Grant Agreements for VREP I and II will be amended to link the SEFP to the two projects by including a provision in the Grant Agreements that the failure by Vanuatu to perform its obligations under the proposed Project Agreement between Vanuatu and the World Bank for the SEFP RSF will be an additional event of suspension under the VREP I and VREP II grant agreements. A restructuring for VREP I to give effect to the same change has been processed in parallel. III. SUMMARY OF CHANGES Changed Not Changed Other Change(s) ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Results Framework ✔ Components and Cost ✔ Loan Closing Date(s) ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursements Arrangements ✔ Disbursement Estimates ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ The World Bank Rural Electrification Project Stage II (P160658) Procurement ✔ Implementation Schedule ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) . 5. The grant agreement will be amended to link the SEFP to VREP I and II by including a provision in the grant agreements that the failure by Vanuatu to perform its obligations under the proposed Project agreement between Vanuatu and the World Bank for the SEFP RSF will be an additional event of suspension under the VREP I and VREP II grant agreements. No other changes to the project are proposed.