The World Bank CAPE VERDE - Recovery and Reform of the Electricity Sector Project (P115464) REPORT NO.: RES29468 DOCUMENT OF THE WORLD BANK RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF CAPE VERDE - RECOVERY AND REFORM OF THE ELECTRICITY SECTOR PROJECT APPROVED ON JANUARY 19, 2012 TO MINISTRY OF FINANCE ENERGY & EXTRACTIVES AFRICA Regional Vice President: Makhtar Diop Country Director: Louise J. Cord Senior Global Practice Director: Riccardo Puliti Practice Manager/Manager: Charles Joseph Cormier Task Team Leader: Karen Bazex The World Bank CAPE VERDE - Recovery and Reform of the Electricity Sector Project (P115464) I. BASIC DATA Product Information Project ID Financing Instrument P115464 Specific Investment Loan Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 19-Jan-2012 30-Sep-2017 Organizations Borrower Responsible Agency Ministry of Finance Unidade de Gestao de Projectos Especiais Project Development Objective (PDO) Original PDO The proposed main development objectives of the Recovery and Reform of the Electricity Sector Project (RRESP) are to increase electricity generation in the Islands of Sao Vicente and Santiago and to assist ELECTRA to reduce electricity losses in Santiago Island. Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-81150 19-Jan-2012 03-Feb-2012 23-May-2012 30-Sep-2017 53.50 50.94 .79 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 CAPE VERDE - Recovery and Reform of the Electricity Sector Project (P115464) The current project closing date is September 30, 2017. A first closing date extension, which extended the original closing date by 12 months from September, 30 2016 to September 30, 2017, was approved on September 14, 2016. The present project restructuring proposes to extend the closing date by an additional six months, from September 30, 2017 to March 30, 2018, and to reallocate the loan proceeds between the categories. The extension of the closing date will allow the completion of the Revenue Protection Program (RPP) as well as the ELECTRA restructuring studies, which are key to the improvement of ELECTRA's operational and commercial performance. In particular, the Revenue Protection Program will help ELECTRA secure revenues from its largest clients, thereby reducing commercial losses, which reached 27.3% in 2016 (vs.24.4% in 2015), a level that is jeopardizing the sustainability of the sector and weighing on Government fiscal resources. The reallocation of loan proceeds will allow ELECTRA to be able to finance the restructuring studies. Implementation Status The Project is nearing completion with almost 98% of funds disbursed. The investments under Component 1 (“Priority investments in electricity and water”, accounting for 86 percent of project costs) have contributed to a significant improvement in the availability of electricity services in Santiago and the Sao Vincente Islands over the past five years. Thanks to the investments financed under the Project, available generation capacity increased by 30% in Santiago and 50% in Sao Vicente. Average duration of interruptions in Praia (the capital of Santiago) fell by half since the start of the Project, over original target. The switch to heavy fuel oil (HFO) also contributed to a decrease in variable costs of generation by 34%, significantly above the target of a 17% reduction. The implementation of Component 1 is therefore considered highly satisfactory. Implementation of Component 2 (Support to ELECTRA’s loss reduction plan) has experienced delays, mainly due to ELECTRA’s difficulties to implement a clear loss reduction strategy, followed by the change in Government in 2016. Implementation of Components 3 (ELECTRA’s reform and sector governance) and 4 (Project implementation) has progressed: under Component 3, a performance contract between ELECTRA and the Government was put into place in 2012, but it was discontinued since the last elections in 2016; the Project Implementation Unit has performed consistently well, supporting implementation of project activities in a timely and efficient manner. Extension of closing date The new Government that came into power in March 2016 expressed interest in pursuing loss reduction activities under Component 2 of the Project, through the implementation of a Revenue Protection Program (RPP). In addition, the Government has established as a priority the reform of State Owned Companies, and requested support to implement a sector restructuring study, to define options for a new organizational structure of ELECTRA, based on the institutional arrangement chosen for ELECTRA’s restructuring. Thus, to accommodate time for the implementation of the RPP and sector restructuring study, the Project closing date was extended for a year from September 30, 2016 to September 30, 2017. Following the extension of the closing date, a consultant was hired to prepare bidding documents for the RPP, consisting in the purchase of Smart Meter and Communication Equipment, Meter Reading Software (MRS), Meter Data Management (MDM) system, Metering Control Center (MCC), and Computer Control Center (CCC). However, there was a delay in launching the bidding process due to changes in the energy sector following the political transition. The contract was awarded in May 2017 and the installation of the systems and smart meters is expected to be completed by the end of February 2018.The changes following the political transition also caused delays in finalizing the scope of the restructuring study. The study to review experiences with unbundling the electricity sector in small islands was completed in June 2017 and the analysis of options for organizational structuring of ELECTRA is underway and expected to be completed by the end of January 2018. Reallocation of funds between categories The World Bank CAPE VERDE - Recovery and Reform of the Electricity Sector Project (P115464) In addition, a reallocation between categories is necessary to (i) regularize funds in Category 2 ("works and non- consulting services", EUR877,038 corresponding to 2.5% of the allocation), which is slightly overdrawn, and in Category 3 ("Consultant services", EUR153,364 corresponding to 6.9% of allocation) to provide sufficient funds to finance the two consultancy activities for ELECTRA’s organizational restructuring (Analysis of experiences with energy sector reform in small systems similar to Cabo Verde and Assessment of options for the organizational restructuring of ELECTRA), by (iii) drawing funds from Category 1 (Goods, EUR487,538 corresponding to 21.0% of the allocation), Category 4 ("Refund of preparation advance", EUR92,864, which were not used) and the whole amount under Category 5 ("Unallocated", EUR450,000). III. DETAILED CHANGES LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IBRD-81150 Effective 30-Sep-2016 30-Sep-2017 30-Mar-2018 30-Jul-2018 REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Current Current Actuals + Proposed Disbursement % Ln/Cr/TF Expenditure Allocation Committed Allocation (Type Total) Category Current Proposed IBRD- Goods 2,319,038.00 796,059.27 1,831,500.00 100.00 100.00 81150-001 Currency: Works and non- EUR 34,830,962.00 35,707,932.05 35,708,000.00 100.00 100.00 CS CS (including 2,200,000.00 2,088,681.03 2,353,364.00 100.00 100.00 Audits), Training PPF Refinancing 400,000.00 307,135.51 307,136.00 Unallocated 450,000.00 0.00 0.00 The World Bank CAPE VERDE - Recovery and Reform of the Electricity Sector Project (P115464) Total 40,200,000.00 38,899,807.86 40,200,000.00