The World Bank PY Energy Sector Strengthening Project (P114971) REPORT NO.: RES27440 DOCUMENT OF THE WORLD BANK RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF PY ENERGY SECTOR STRENGTHENING PROJECT APPROVED ON NOVEMBER 30, 2010 TO REPUBLIC OF PARAGUAY ENERGY & EXTRACTIVES LATIN AMERICA AND CARIBBEAN Regional Vice President: Jorge Familiar Calderon Country Director: Jesko S. Hentschel Senior Global Practice Director: Riccardo Puliti Practice Manager/Manager: Antonio Alexandre Rodrigues Barbalho Task Team Leader: Lucia Spinelli The World Bank PY Energy Sector Strengthening Project (P114971) I. BASIC DATA Product Information Project ID Financing Instrument P114971 Specific Investment Loan Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 30-Nov-2010 31-Oct-2017 Organizations Borrower Responsible Agency Republic of Paraguay ANDE Project Development Objective (PDO) Original PDO The development objective of the Project is to increase the quantity and quality of the provision of electricity services by the Borrower, while improving the Borrower’s performance. Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-79940 30-Nov-2010 23-Feb-2011 09-Feb-2012 31-Oct-2017 100.00 82.00 18.00 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No II. SUMMARY OF PROJECT STATUS AND PROPOSED CHANGES The World Bank PY Energy Sector Strengthening Project (P114971) Summary of proposed changes 1. A Level Two Restructuring of the Paraguay Energy Sector Strengthening Project (Loan 7994-PY) is proposed, consisting in a 12-month extension of the loan closing date (from October 31, 2017 to October 31, 2018) and a reallocation of proceeds among categories. The restructuring aims to allow the project to finish implementing critical processes and fully achieve its development objective. 2. This would be the second extension of the loan closing date, for a total cumulative extension of 34 months from the original closing date. The first restructuring, approved in December 2015, extended the loan closing date for 22 months from the original closing date of December 31, 2015 to the current closing date of October 31, 2017. 3. The proposed reallocation of proceeds aims to reassign funds from Categories 2 and 3 into Category 1 of the project, to account for procurement costs that differed from what was initially estimated, and for new activities to be financed under Category 1. Project Background and Status 4. The project was approved in November 2010 and became effective in February 2012. The Project Development Objective (PDO) is to increase the quantity and quality of the provision of electricity services by the Borrower, while improving the Borrower’s performance. Project Components are: (1) to modernize ANDE’s distribution management system and install advanced metering system for large customers; (2) Improve the performance of the transmission network; and (3) Strengthen Paraguay’s electricity sector and ANDE’s institutional capacity. 5. The project continues to be relevant for the country, as it allows for better quality and reliability of electricity service for most of the country’s population (including the poorest) and assists in improving the management capabilities of the Administracion Nacional de Electricidad (ANDE). It has specially benefited the 2,5 million people in the Asuncion Metropolitan Area, of which approximately 15 percent are poor (using the national poverty line). 6. To date, the project has committed USD 86 million, disbursed USD 82 million, and has processes under preparation for an estimated USD 14 million. During the last year, disbursements have increased from 46% to 82% of loan proceeds, due to the signing of several large contracts for goods and services, and an increased implementation pace. 7. Progress towards achieving the development objective is moderately unsatisfactory. The PDO rating was recently downgraded to moderately unsatisfactory because the Project is unlikely to reach its PDO within the current closing date (October 2017). The rating would be upgraded upon extension of the closing date. The PDO indicators related to better control and invoicing to large clients and improvements in tension quality in Asuncion's metropolitan area are already achieved. The PDO indicator related to improvements in energy transmitted through the system is on track to be achieved by mid-2018, with the installation of electrical equipment that has been procured. Two of the four Intermediate Results Indicators (related to installation of advanced measurement equipment, and to integration of supervision points into a supervisory control and data acquisition, or SCADA, system) are showing satisfactory results, while the other two (increase of transformer’s installed capacity and additional fiber optic network installed) are still suffering from implementation delays but will be achieved under the proposed extension. 8. Implementation performance is moderately satisfactory. Since the last restructuring, the project has shown quick results in publishing tenders for most of the processes, with most of them currently under implementation. The World Bank PY Energy Sector Strengthening Project (P114971) However, the latest implementation schedule shows that some of the contracts might not be finalized by the current closing date (October 31, 2017). 9. Of the 45 procurement processes financed by the project: 6 have been completed, 23 are under implementation, and 16 are at different stages of the procurement process (evaluation, award, signing, etc.). The disbursement schedule has been attached to this restructuring package. 10. The extension of the closing date, as requested by the borrower, complies with the conditions for closing date extensions as outlined in OP/BP 10.00 in that: the PDO remains achievable; the performance of the Borrower remains satisfactory; the loan is not subject to suspension of disbursements and there are no outstanding audit reports or audit reports th at are not satisfactory to the Bank. In addition, all legal covenants and Safeguards requirements are complied with. Rationale for proposed Extension of Closing Date and Reallocation of proceeds 11. The proposed 12-month extension of the loan closing date would allow the achievement of the project objectives, the full disbursement of the loan, and the completion of five critical processes that would otherwise remain unfinished: (a) the implementation of a SCADA system; (b) the construction of a 3600-km fiber optic network, (c) the establishment of a wireless network for control and communic ations; (d) the construction of two transforming sub-stations; and (e) consultancies for the revision of energy planning and human resources structure. 12. The proposed reallocation of the loan proceeds would allow the financing of Category 1 processes currently under preparation, including the construction of a 3600-km fiber optic network and the procurement of electricity distribution equipment. The reallocation is necessary due to lower than expected procurement prices for activities in processes from Category 2 and 3 and to higher than expected funding needs in processes from Category 1. The latter is due mainly to the extension of the contract for the installation of a fiber optic network, and the procurement of additional electricity distribution goods, shown in the attached disbursement schedule. III. DETAILED CHANGES LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IBRD-79940 Effective 31-Dec-2015 31-Oct-2017 31-Oct-2018 REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Current Current Actuals + Proposed Disbursement % Ln/Cr/TF Expenditure Allocation Committed Allocation (Type Total) Category The World Bank PY Energy Sector Strengthening Project (P114971) Current Proposed IBRD- GO, CW, CS, 79940-001 Non-CS, TR for 25,631,000.00 6,646,042.97 30,145,000.00 100.00 100.00 Currency: PART 1 USD GO, CW, CS, Non-CS, TR for 71,769,000.00 47,114,593.74 67,833,000.00 100.00 100.00 PART 2 GO, CS, Non-CS, 2,350,000.00 156,541.46 1,772,000.00 100.00 100.00 TR for PART 3 Premia for 0.00 0.00 0.00 CAPS/COLLARS Total 99,750,000.00 53,917,178.17 99,750,000.00