61527 Document of The World Bank Report No: RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF RURAL ELECTRIFICATION AND RENEWABLE ENERGY DEVELOPMENT PROJECT CREDIT 3679-BD (JUNE 25, 2002) ADDITIONAL FINANCING CREDIT 4643-BD (AUGUST 4, 2009) TO THE PEOPLE’S REPUBLIC OF BANGLADESH APRIL 12, 2011 Regional Vice President: Isabel M. Guerrero Country Director: Ellen A. Goldstein Sector Manager / Director: Malcolm Cosgrove-Davies Task Team Leader: Zubair K.M. Sadeque 2 BANGLADESH RURAL ELECTRIFICATION AND RENEWABLE ENERGY DEVELOPMENT P071794 CONTENTS Page ANNEX REALLOCATION OF PROCEEDS 3 BANGLADESH — RURAL ELECTRIFICATION AND RENEWABLE ENERGY DEVELOPMENT P071794 CR. 4643-BD Restructuring Paper 1. Proceeds for Bangladesh, Rural Electrification and Renewable Energy Development, Additional Financing Credit No 4643-BD, P071794 will be reallocated as follows. The original credit (Cr. 3679-BD) is fully disbursed and is closed. Category of Expenditure Allocation % of Financing Current Revised Current Revised Current Revised (SDR) (SDR) (1) Works 980,000 380,200 100 (2) Goods (a) For Part 1 7,740,000 5,587,100 100 (b) For Part 3 130,000 0 100 (3) Services No (a) For Part 1 No 980,000 527,700 100 Change (b) For Part 3 Change 1,290,000 0 100 (4) Goods, Services, and 9,670,000 25,096,300 100 Incremental Operating Costs (For CFL under Part 2) (5) Subloans (For Part 3) 63,010,000 52,208,700 100 2. There will be no change in the Project Development Objectives (PDO) or in the implementation arrangement because of this reallocation. 3. Project Implementation Progress: The project implementation rating is Satisfactory. The major components of the additional financing credit are the Solar Home Systems (SHS) (Category 5) with an allocation of SDR 63 million (US$100 million) and the Compact Fluorescent Lamp (CFL) component (Category 4) with an allocation of SDR 9.67 million (US$15 million). An amount SDR9.67 million (US$15 million) is allocated to the grid components of the Rural Electrification Board (REB) (Categories 1, 2a, and 3a). 4. The SHS component under the additional financing has supported a total of about 296,000 systems as of March 31, 2011 against a target of 300,000 systems. An amount of SDR 48.7 million (US$77.6 million) has already been disbursed under this component (Category 5). 5. An amount of SDR 8.6 million (US$13.65 million) has been disbursed under the CFL component (category 4). Distribution of about 10 million CFLs in exchange of incandescent lamps to reduce peak demand has been completed in two stages under a nation-wide distribution campaign. 4 6. The CFLs are supposed to have 10,000 lamp hours (i.e., last for 4-5 years), but there have been reports of the distributed CFLs going out of order shortly after being put to use. A post-installation survey is currently on-going to measure the extent of failed lamps. A sample of bulbs will also be sent to test labs for re-testing to confirm the quality. 10% payments on the second stage CFLs (5 million) are currently withheld by the implementing agency Rural Electrification Board (REB). REB also has 5% performance guarantee from the supplier on the first stage distribution (5.5 million CFLs). Once the lamp failure rates are established through post-installation surveys and re-testing, REB will take recourse as per contract document including claiming replacement of the poor quality bulbs from the supplier. 7. Out of SDR 9.7 million (US$15 million) allocation under categories 1, 2(a), and 3(a) for retroactive financing for the REB grid components, REB has confirmed savings of SDR 3.2 million (US$5.1 million equivalent) (letter dated March 16, 2011). 8. Financial Management Rating of the Project is rated Moderately Satisfactory due to qualified audit observations on project accounts of REB grid components under the original credit. An action plan has been prepared by REB for addressing the audit observations. Some progress has already been made in addressing the audit observations, while others are being addressed by REB. The Procurement rating of the Project is moderately satisfactory due to delays in procurement of CFLs in the first phase program. The procurement has now been completed. 9. Proposed allocation is necessary for the following reasons: 10. Government intends to procure and distribute another 17.5 million CFLs under the second phase of the program at an estimated cost of US$24.57 million (equivalent to SDR 15.4 million as of April 10, 2011). The proposed reallocation is necessary to finance the second phase of the CFL component. Government has requested for a re- allocation from the SHS component (Category 5) to meet the funding needs for the second phase CFLs (letter dated February 28, 2010). In response to the request, the following reallocations are done: (a) The savings of SDR3.2 million (US$5.1 million) under REB categories 1, 2(a) and 3(a) are re-allocated to Category 4 (CFL component). (b) IDCOL has confirmed that no expenditure will be made against Categories 2(b) and 3(b). The savings in these two categories amounting to SDR 1.4 million (US$2.26 million) are re-allocated to Category 4 (CFL component) (c) An amount of SDR 10.8 million (US$17.2 million) has been re-allocated to Category 4 (CFL component) from Category 5 (SHS component) to meet the remaining funding needs for CFL second phase. 11. Bids have already been invited for procurement of the second phase CFLs in 8 lots. IDA provided it’s no objection on April 6, 2011 to REB’s recommendations for award for 6 lots and requested REB to re-evaluate the bids on the other two lots. To strengthen the quality aspects, IDA has advised and REB has accepted to strengthen the 5 quality inspection by appointing an independent technical team in addition to the third- party pre-shipment inspection agent. The second phase CFLs are planned for distribution in September 2011. 12. Conditions for Disbursement: The initial allocation of SDR 9.7 million (US$15 million) for CFL Category 4 was provided to REB by the Government on grant under a Subsidiary Grant Agreement. For the additional allocation of SDR 15.4 million to Category 4 to be effective, the Subsidiary Grant Agreement between REB and the Government will be amended to reflect the additional allocation. 6