The World Bank Mozambique Energy For All (ProEnergia) (P165453) REPORT NO.: RES40249 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF ENERGY FOR ALL (PROENERGIA) APPROVED ON MARCH 28, 2019 TO REPUBLIC OF MOZAMBIQUE Energy & Extractives Global Practice Africa Region Regional Vice President: Hafez M. H. Ghanem Country Director: Mark R. Lundell Regional Director: Riccardo Puliti Practice Manager/Manager: Sudeshna Ghosh Banerjee Task Team Leader(s): Zayra Luz Gabriela Romo Mercado, Claudio Miguel Jamisse Buque The World Bank Mozambique Energy For All (ProEnergia) (P165453) ABBREVIATIONS AND ACRONYMS AA Administrative Agreement CMU Country Management Unit CY Calendar Year EDM Electricidade de Moçambique E.P. EIRR Economic Internal Rate of Return ESIA Environmental and Social Impact Assessment ESMF Environmental and Social Management Framework ESMP Environmental and Social Management Plan EC European Commission EU European Union FA Financing Agreement FM Financial Management FUNAE Energy Fund (Fundo de Energia) FY Financial Year GOM Government of Mozambique GRM Grievance Redress Mechanism IDA International Development Association IFR Interim Financial Report kV kilo Volt LEGEN Environmental and International Law Practice Group LV Low Voltage MDTF Multi-Donor Trust Fund MV Medium Voltage MVA Mega Volt Ampere NPV Net Present Value OESRC Operations Environmental and Social Review Committee PDO Project Development Objectives PIM Project Implementation Manual PIU Project Implementation Unit PPZ Partial Protection Zone PV Photovoltaic RAP Resettlement Action Plan ROW Right-of-Way RPF Resettlement Policy Framework SAIFI System Average Interruption Frequency Index SDR Special Drawing Right The World Bank Mozambique Energy For All (ProEnergia) (P165453) BASIC DATA Product Information Project ID Financing Instrument P165453 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 28-Mar-2019 31-Dec-2023 Organizations Borrower Responsible Agency Fundo de Energia (FUNAE),Electricidade de Moçambique Ministry of Economy and Finance (EdM) Project Development Objective (PDO) Original PDO The Project Development Objective is to increase access to electricity service in Mozambique. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-D4410 28-Mar-2019 24-May-2019 23-Oct-2019 31-Dec-2023 82.00 .15 80.95 TF-A9837 28-Mar-2019 24-May-2019 23-Oct-2019 31-Dec-2023 5.90 0 5.90 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Mozambique Energy For All (ProEnergia) (P165453) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. PROJECT STATUS Overall 1. The Board of Directors approved ProEnergia on March 28, 2019. The Government of Mozambique and IDA signed the Financing and Grant Agreements on May 24, 2019. The project became effective on October 23, 2019 with a closing date of December 31, 2023. Electricidade de Moçambique, E.P. (EDM) and Fundo de Energia (FUNAE), the two implementing agencies, have finalized the process of creating the designated accounts, authorized signatures, and client connection accounts for project implementation. 2. The Project was approved with a total amount of US$ 148 million and has three (3) components, namely: Component A (Peri-urban and Rural Electrification, US$126 million), Component B (Off-grid electrification, US$13 million) and Component C (Technical Assistance and Implementation Support, US$9 million). Component A is co-financed by IDA, contributing US$ 60 million and a Mozambique Energy for All Multi-Donor Trust Fund (MDTF; TF073225), contributing US$ 66 million and implemented by EDM. While components B and C are financed solely by IDA. 3. The Project Implementing Agencies have established Project Implementation Units (PIUs) with core team members who are fully dedicated to the project in all aspects related to procurement, financial management. EDM is also in the process to hire new staff to support the large volume of transactions for the project and environmental and social specialists. These PIUs have started the procurement of key contracts as per the project procurement plan and they have established operations as per the Project Implementation Manual (PIM), approved by the Bank. The first contracts are expected to be signed by EDM in March 2020 and disbursements will start shortly thereafter. Status by Component 4. Component A: Peri-urban and rural electrification (total amount US$ 126 million, IDA – US$ 60 million, MDTF – US$ 66 million). EDM continues to advance with the procurement process for seven (7) packages of materials (cables and conductors, distribution boards, poles, transformers, ready boards, meters and insulators), required to electrify all households, enterprises and public facilities in the project target areas. EDM has also launched the procurement for the supply and installation contractor as well as the supervision engineer. EDM engaged the National Rural Electric Cooperative Association (NRECA) to provide support in optimization of the construction standards and technical specifications for bidding documents. NRECA is supporting EDM with three (3) consultants based in Maputo (Distribution Specialist, Procurement Specialist, and Project Manager) for the preparation of bidding documents and evaluation of the bids. Two evaluation reports are currently under review by the Bank, with the remaining expected by the end of January 2020. 5. Component A is co-financed by a MDTF comprised of the Kingdom of Norway, the Government of Sweden and the European Union. Norway and Sweden have finalized their Administrative Agreements with IDA and disbursed an amount of US$15 million to the Bank. The Bank team prepared and presented to the MDTF members the first Annual Report related to the MDTF financing for component A. The presentation was made on October 22nd, 2019, the report was accepted by all contributing members and minutes of the meeting were shared. TABLE 1 PROCUREMENT STATUS OF KEY CONTRACTS UNDER COMPONENT A S/NO Reference No. Description Contract Awarded Expected Contract Award Expected Contract Signature 1 MZ-EDM-121965-GO-RFB Cables and Conductors February 2020 March 2020 The World Bank Mozambique Energy For All (ProEnergia) (P165453) 2 MZ-EDM-121192-GO-RFB Distribution Transformers February 2020 March 2020 3 MZ-EDM-121191-GO-RFB Medium and Low Voltage Poles February 2020 March 2020 4 MZ-EDM-121963-GO-RFB Meters January 2020 February 2020 5 MZ-EDM-104785-GO-RFB Ready Boards and Pole Top Boxes January 2020 February 2020 6 MZ-EDM-121200-GO-RFB Low Voltage panels January 2020 February 2020 7 MZ-EDM-121968-GO-RFB Insulator January 2020 February 2020 8 MZ-EDM-106292-CS-LCS Consulting Services for Supervision of Works March 2020 April 2020 9 MZ-EDM-104977-CW-RFB Supply and Installation Contract March 2020 April 2020 6. Component B: Off-grid electrification (IDA, US$ 13 million). FUNAE has prepared a procurement plan outlining the first activities to be implemented under Component B and the World Bank provided comments on the sequencing of the activities and advised on the methods of procurement to be followed to achieve the best value. On mini-grids, FUNAE is in process of adjusting the specific activities under the procurement plan focused on feasibility studies and procurement strategy. On stand- alone systems, FUNAE and the Bank have been advancing a series of technical conversations to determine the scope of the activities to be financed to strategically complement the programs currently under implementation supporting SHS. The FUNAE team has been invited to participate in the Off-grid forum on February 2020 in Kenya organized by the Bank, with the objective of facilitating knowledge exchange and providing governments with a platform to showcase their off-grid energy programs, aiming to harness partnerships and accelerate development of their off-grid solar plans. FUNAE’s participation in the forum would further contribute to the design of activities to implement. 7. Component C: Technical assistance and Implementation Support (IDA, US$ 9 million). EDM is preparing TORs for specialists for procurement, engineering and planning to enhance the capacity of the implementation unit, including a detailed training plan. B. Rationale for Restructuring 8. Although the project has made significant progress and the rate of implementation is satisfactory, there are some constraints that impede signing of contracts and disbursement for activities under Component A. 9. Disbursement condition. The project has an outstanding disbursement condition for Component A, requiring: “evidence, inform and substance satisfactory to the Association, is provided to the Association that adequate measures have been adopted by the Recipient to ensure that the rights of people located within the Partial Protection Zone are not adversely affected by the application of the Recipient’s Land Law to electricity distribution networks being supported under Part A of the Project.” This condition was set out in the Financing Agreement to ensure that the Recipient would address any potential resettlement impacts that might be associated with the establishment of a wider PPZ (as set out in the Land Law) than strictly needed from a safety and technical standpoint. Concretely, the Land Law indicates that when an electricity “conductor” is built, a partial protection zone (PPZ) of 50 meters on either side is established. Given the legal requirements for such a wide PPZ set out in the Land Law and the principles of OP 4.12, the task team has sought guidance from Bank Management, including the Country Management Unit (CMU), along with legal and safeguard colleagues in exploring alternatives to address this legal requirement. After exploring various options, the Operations Environmental and Social Review Committee (OESRC) indicated that the best alternative is to set out a reduced PPZ for the purposes of the Project in the Financing Agreement and any resettlement instruments and, hence, limit land acquisition to what is strictly needed from a technical and safety standpoints, in line with the principle of minimizing resettlement impacts under OP 4.12. OESRC guidance was provided in October 24th, 2019. Hence, through the restructuring a new covenant setting out the PPZ would be introduced and the existing disbursement condition would be eliminated accordingly. 10. Funding from the European Union (EU). The European Commission (EC) on behalf of the EU and the World Bank Group (WBG) are currently negotiating a revised Framework Agreement between the two institutions. This discussion may have some The World Bank Mozambique Energy For All (ProEnergia) (P165453) impact and cause alterations of the current model of the Administrative Agreement (AA) signed between the two parties in 2016. While the Bank is prepared to sign an AA based on the existing Framework Agreement from 2016, the EU office in Mozambique has been asked not to sign any new agreements, following the EC’s suspension to sign AAs for EU contributions with the WBG, until the discussions at the corporate level are finalized. The EU contribution will not be formalized by the time the first disbursement for Component A is expected in April 2020. To avoid any risk of delays or overcommitting funds, the team proposes to proceed with the contracts without the expected EU contribution. This will result in a reduction of the project scope, including a reduction of new on-grid connections. The selection of new customers to be excluded from the project will be done in close coordination with EDM, to ensure that no previously selected provinces are excluded from the project. EU resources can be later added to the project once the Administrative Agreement is signed, subject to GoM and EU confirmation. II. DESCRIPTION OF PROPOSED CHANGES 11. The proposed changes under this restructuring are: (i) remove the existing disbursement condition related to the PPZ and introduce a new covenant that will set out what is the reduced PPZ for new infrastructure being supported under the Project in a manner consistent with the advice received from OESRC, and (ii) removing the expected EU allocation to the MDTF and (iii) Reduce the expected results from Component A, as a result of the reduction of funds available. 12. It is proposed that the Disbursement Condition referenced above is removed and a new covenant setting out a reduced PPZ for purposes of the Project is added to the Financing Agreement. The disbursement condition was originally set out in the Financing Agreement to ensure that the Recipient would address any potential resettlement impacts that might be associated with the establishment of a wider PPZ (as set out in the Land Law) than strictly needed from a safety and technical standpoint. The proposed approach reflects the guidance on this matter received from the OESRC. The creation of such a wide PPZ, as set out in the Land Law of Mozambique, is not necessary from a technical and safety stand points, and the implementation of the provisions in the Mozambican Land Law creates potential adverse impacts on the rights of land holders and users, which can be avoided by application of technical standards. With respect to the new distribution network infrastructure to be supported under Component A of the Project, a PPZ will not be created, notwithstanding any provisions in the Land Law. The project's safeguards instruments have been revised to reflect the covenant set out in the FA and the recognition of the technical standards to prevail in relation to scope of the project. The document will be resubmitted to MITADER and lastly redisclosed in country and on the World Bank’s external website after project restructuring approval and prior to disbursements being made under Component A. This approach was recommended by country lawyer, in accordance with OESCR and OP4.12. 13. For administrative reasons, beyond the control of the project teams, the EU and the IDA are unable to sign the Administrative Agreement in relation to the MDTF in time to co-finance the activities under Component A. It is not certain that the issue will be resolved in time for the Implementing Agencies to sign contracts with material suppliers, as contract signing for material is expected in April 2020. To avoid any risk of delays or overcommitting funds, the team proposes to revise the funds allocated to Component A as per Table 2. The reduction results in US$ 28 million being removed from the MDTF contribution at this stage. This will allow the implementing agency and contractors to sign contracts with confidence but with a reduce scope of number of connections in accordance with the funding available. Once the framework agreement is completed and the AA between the EU and IDA is signed the task team will evaluate with its counterparts the best way to include these funds for the project. This could be done either through a level 2 restructuring or an Additional Financing to the project TABLE 2: REVISED – PROJECT COST AND FINANCING IDA Financing (US$ Project Components MDTF (US$ million) Total (US$ million) million) Current Revised Current Revised Current Revised The World Bank Mozambique Energy For All (ProEnergia) (P165453) Component A: Peri-urban and rural electrification 60 60 66 38 126 98 Component B: Off-grid electrification 13 13 13 13 Component C: Technical assistance Implementation support 9 9 9 9 82 82 66 38 148 120 14. The reduction of funds available for component A will have a direct impact on the number of new connections which can be covered by the project. Initially, based on the expected MDTF, it was expected that 250,000 new household connections would be covered under component A. However, under the revised scenario, the new estimate is 195,000 households will be connected with electricity services through grid connections. Accordingly, it is proposed that the PDO indicator target, and the corresponding intermediate result target for new household connections as follows: i. PDO indicator (People provided with new or improved electricity service, number) remains the same, target revised from 1,360,000 to 1,085,000; ii. Intermediate indicator under Component A (Households provided with access to electricity services with grid connections, number) remains the same, however, target reduced from250,000 to 195,000. 15. Other changes: The disbursement estimates have been revised to show the proportional increase in IDA’s contribution to the co-financing. This change will adjust the contributions from IDA and the MDTF defined in the legal agreements to set the correct disbursement ratios. The Bank will make Direct Payments of invoices to suppliers in proportion to IDA’s contribution to the project. The MDTF is currently set to cover 52 percent of all invoices received for Component A, while IDA will pay for the rest (48 percent). This will require an amendment to the disbursement ratios in the Financing and Grant Agreements to allocate 61 percent to IDA and 39 percent to the MDTF, as displayed in Table 2. The revised results indicators are shown in the revised Results Framework. III. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Components and Cost ✔ Other Change(s) ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ DLIs ✔ Loan Closing Date(s) ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ The World Bank Mozambique Energy For All (ProEnergia) (P165453) Disbursements Arrangements ✔ Disbursement Estimates ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ 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) Peri-urban and Rural Peri-urban and Rural 126.00 Revised 98.00 Electrification Electrification Off-grid Electrification 13.00 No Change Off-grid Electrification 13.00 Technical Assistance and Technical Assistance and 9.00 No Change 9.00 Implementation Support Implementation Support TOTAL 148.00 120.00 . The World Bank Mozambique Energy For All (ProEnergia) (P165453) . Results framework COUNTRY: Mozambique Mozambique Energy For All (ProEnergia) Project Development Objectives(s) The Project Development Objective is to increase access to electricity service in Mozambique. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline End Target Increased access to electricity services in target areas People provided with new or improved electricity service (CRI, 0.00 1,085,000.00 Number) Action: This indicator has been Revised PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name DLI Baseline End Target Component A: Peri-urban and Rural Electrification (on-grid) Households provided with access to electricity services with grid 0.00 195,000.00 connections (Number) Action: This indicator has been Revised Distribution lines constructed or rehabilitated under the project 0.00 2,900.00 (Kilometers) Action: This indicator has been Revised The World Bank Mozambique Energy For All (ProEnergia) (P165453) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline End Target Enterprises provided with access to electricity services with grid 0.00 300.00 connections (Number) Action: This indicator has been Revised Public Facilities (Schools, Health Centers, Administrative Buildings) provided with access to electricity services with grid 0.00 300.00 connections (Number) Action: This indicator has been Revised Accounts created on the Commercial Management System (CMS) 0.00 198,500.00 database for new customers (Number) Action: This indicator has been Revised Creation of virtual warehouses to be used for the project 0.00 5.00 (Number) Component B: Off-grid electrification Households provided with access to electricity services with mini- 0.00 4,000.00 grids (Number) Number of off-grid energy companies mobilized by the project 0.00 2.00 (Number) Households provided with new electricity connections by stand- 0.00 18,000.00 alone systems (Number) Generation capacity of energy constructed or rehabilitated (CRI, 0.00 1.00 Megawatt) Renewable energy generation capacity (other than 0.00 1.00 hydropower) constructed under the project (CRI, Megawatt) Component C: Technical Assistance and Implementation Support Gender sensitive communications campaign developed (Yes/No) No Yes The World Bank Mozambique Energy For All (ProEnergia) (P165453) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline End Target Percentage of females hired under the Young Professionals 0.00 50.00 Program at EDM (Percentage) Develop and disclose a policy for gender equality and justice in No Yes EDM (Yes/No) Lighting Global quality standards for solar home systems adopted No Yes and published (Yes/No) IO Table SPACE The World Bank Mozambique Energy For All (ProEnergia) (P165453) Table 3: Revised Eligible Expenditures and Categories Category Amount of the Percentage of Amount of the Percentage of Grant Allocated Expenditures to Grant Expenditures by IDA be Financed by Allocated by to be Financed (expressed in IDA MDTF by MDTF SDR) (inclusive of (expressed in (inclusive of Taxes) (%) USD) Taxes) (%) (1) Goods, works, non-consulting services, 42,840,000.00 61 38,000,000 39 consulting services, Training and Incremental Operating Costs for Part A of the Project (EDM) (2) Goods, non-consulting services, 4,310,000.00 100 consulting services, Training and Incremental Operating Costs for C.1. of the Project (EDM) (3) Goods, non-consulting services, 2,168,000.00 100 consulting services, Training and Incremental Operating Costs for C.2. of the Project (FUNAE) (4) Results-Based Financing Payments under 2,142,000.00 100 Part B.2. of the Project (FUNAE) (5) Goods, Works, Consulting and non- 7,140,000.00 100 consulting services, training Part B1 of the project (FUNAE) TOTAL AMOUNT 58,600,000 38,000,000