Document of The World Bank FOR OFFICIAL USE ONLY Report No: 78116-PE RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF THE NATIONAL RURAL WATER SUPPLY AND SANITATION PROJECT LOAN NO. 7142-PE AND LOAN NO. 7978-PE BOARD APPROVAL DATE: August 29, 2002 TO THE REPUBLIC OF PERU May 1, 2013 Sustainable Development Department Bolivia, Chile, Ecuador, Peru and Venezuela Country Management Unit Latin America and Caribbean Region Regional Vice President: Hasan Tuluy Country Director: Susan G. Goldmark Sector Manager: Wambui Gichuri Task Team Leader: Christophe Prevost ABBREVIATIONS AND ACRONYMS PRONASAR National Rural Water Supply and Sanitation Project (Proyecto Nacional de Agua y Saneamiento Rural) PNSR National Rural Sanitation Program (Programa Nacional de Saneamiento Rural) PDO Project Development Objective GoP Government of Peru USB Basic Health Units (Unidades Sanitarias Básicas) PAAC Annual Acquisitions Plan (Plan Anual de Adquisiciones) MONC Unskilled Labor (Mano de Obra no Calificada) 2 PERU NATIONAL RURAL WATER SUPPLY AND SANITATION PROJECT CONTENTS Page A. SUMMARY ........................................................................................................................... 4 B. PROJECT STATUS .............................................................................................................. 4 C. PROPOSED CHANGES ...................................................................................................... 5 3 Restructuring Status: Submitted for CD Approval Restructuring Type: Level two Last modified on date : 05/30/2013 1. Basic Information Project ID & Name P065256: PE NATIONAL RURAL WATER SUPPLY AND Country Peru Task Team Leader Christophe Prevost Sector Manager/Director Wambui G. Gichuri Country Director Susan G. Goldmark Original Board Approval Date 08/29/2002 Original Closing Date: 12/31/2008 Current Closing Date 12/31/2013 Proposed Closing Date [if applicable] 06/30/2013 EA Category B-Partial Assessment Revised EA Category B-Partial Assessment-Partial Assessment EA Completion Date 04/07/2011 Revised EA Completion Date 2. Revised Financing Plan (US$m) Source Original Revised BORR 12.58 12.58 CIDA 5.00 5.00 COMM 7.57 7.57 IBRD 50.00 50.00 MUNI 4.85 4.85 Total 80.00 80.00 3. Borrower Organization Department Location 4. Implementing Agency Organization Department Location 4 5. Disbursement Estimates (US$m) Actual amount disbursed as of 06/06/2013 65.00 Fiscal Year Annual Cumulative 2012 0.00 65.00 2013 0.00 65.00 Total 65.00 6. Policy Exceptions and Safeguard Policies Does the restructured project require any exceptions to Bank policies? N Does the restructured projects trigger any new safeguard policies? If yes, please select N from the checklist below and update ISDS accordingly before submitting the package. 7a. Project Development Objectives/Outcomes Original/Current Project Development Objectives/Outcomes Increase coverage and sustainable use of water and sanitation services in rural areas and small towns while adopting improved hygiene practices and training in O&M 7b. Revised Project Development Objectives/Outcomes [if applicable] 5 NATIONAL RURAL WATER SUPPLY AND SANITATION PROJECT RESTRUCTING PAPER A. SUMMARY 1. This is a proposal for a Level 2 restructuring of the Peru National Rural Water Supply and Sanitation Project. The Project is financed by two loans, Loan No. 7142, approved in 2002 for US$50 million, and Loan No. 7978, an additional financing loan of US$30 million approved in 2010. Due to recent Government policy changes, the Project design is no longer aligned with the Government's policies in the rural water sector and the Government has requested the following changes: i) Advance the dates of closing of both Loans from December 31, 2013 to June 30, 2013 to allow all rural water and sanitation interventions in Peru to be aligned with the strategy of National Rural Sanitation Program ii) Reallocate category loan allocations for Loan No. 7142 to account for actual expenditures iii) Modify the financing percentages for Loan No. 7978 to fully utilize the loan funds before project’s new closing dates. 2. The Government is committed to financing after project’s new closing date, all the remaining works and activities until finalization, with own resources. B. PROJECT STATUS 3. The development objective of the National Rural Water Supply and Sanitation Project (PRONASAR) is to increase the sustainable use of new and rehabilitated water supply and sanitation facilities in rural areas and small towns while emphasizing improvement in hygiene practices and training in operation and maintenance. 4. On September 13, 2002, Loan No. 7142–PE was signed for US$50 million and on December 14, 2010 Loan No. 7978-PE was signed for an additional US$30 million. Loan No. 7142-PE was first restructured in 2006 mainly to address issues related to advancement in the consolidation of sector institutions and the inability of FONCODES – originally the main implementing agency of Component 1 – to change its methodology and implement the Project’s designed demand-driven and participative approach to building rural WSS systems. In November 2008, a second restructuring for Loan No. 7142-PE was approved to extend the original Project’s closing date to December 31, 2010. A third restructuring for Loan No. 7142-PE was approved in order to support the implementation of the additional financing and extend the Project’s closing date to December 31, 2013. Loan No. 7978-PE has never been amended. The project’s overall progress towards achievement of the PDO and overall implementation progress are currently rated as Moderately Satisfactory (MS). 6 5. To date, Loan No. 7142-PE has been fully disbursed, while disbursements for Loan No. 7978-PE stands at US$14,446,902 which corresponds to 48.16% of the US$30 million financing. The execution of Components 2 (water supply and sanitation for small cities) and 3 (capacity building) was finalized on December 31, 2010. The project is currently extending all efforts in order to accelerate the implementation of Component 1 (water supply and sanitation for small rural communities). 6. An action plan for the implementation of these changes has been agreed upon with the Borrower. With this plan, the project implementation would be accelerated in order to maximize the achievement of the Project Development Objectives. However, it is estimated that about 80% of the agreed PAD targets would probably be achieved under Component 1 by end of June 2013. 7. In 2011 the Government of Peru created the National Rural Sanitation Program (PNSR), a technical-administrative unit that specializes in the implementation of water and sanitation projects in rural areas. The creation of PNSR enabled a consolidation of all rural water-related activities and investments under one authority, and with time it became evident that the model and intervention strategy of PRONASAR was not aligned with the objectives and strategies of PNSR. The time and effort that it would take to make this alignment and the cost involved (changing locations, new records, new works) would not be justifiable, particularly given the short implementation time left before the closing date. 8. Therefore, the government decided to advance PRONASAR’s closing date to June 2013. From January 2013, PRONASAR entered closure stage. Once the project is closed, PNSR will be in charge of financing any on-going activities under the project until their finalization. In order to utilize all of the available funds under the additional financing loan (US$15.5 million), the government has requested that the percentage of Bank financing for activities under Component 1 be increased from 60% to 100%, this will apply to the implementation of contracts in execution. C. PROPOSED CHANGES 9. Change closing date: The government has requested that the project’s closing date be advanced from December 31, 2013 to June 30, 2013. 10. Reallocation of funds for Loan No. 7142-PE: Although Loan No. 7142-PE has been fully disbursed, the balances of other Categories need to be reallocated to Category 6 “Goods and works for Rural Subprojects�, which is overdrawn – in order to be able to close the Loan. Below is the proposed reallocation of amounts between categories of Loan No. 7142-PE: 7 Allocation (US$) Category of Expenditure Current Revised (1) Goods and works for Community Subprojects under Parts A.1 and A.2 of the 1,100,000 1,080,733 Project (2) Works for Small Town Subprojects 3,870,000 1,479,157 under Part B of the Project (3) Goods (other than those for Community 865,000 826,214 Subprojects and Rural Subprojects) (4) Consultants’ services and audits 25,900,000 25,841,947 (5) Fee 500,000 500,000 (6) Goods and works for Rural Subprojects under Part A.3 and A.4 of the Project 17,120,000 19,910,518 (7) Training 645,000 361,431 TOTAL AMOUNT 50,000,000 50,000,000 11. Change in financing percentages for Loan No. 7978-PE: The percentage of expenditures to be financed by the Bank corresponding to Categories 4 and 6 need to be modified in order to allow for payments of all ongoing contracts to be made with 100% of the Loans resources, allowing for the total execution of the remaining balance. Also a reallocation between Loan categories is needed in order to reflect the activities that are currently being financed under the Loan. The proposed reallocation is as follows: Amount of the Loan Percentage of Expenditures Allocated to be financed Category (expressed in USD) (inclusive of Taxes) (1) Goods and works for Community Subprojects as -- Not applicable defined in the Original Loan Agreement (2) Works for Small Town Subprojects as defined in the -- Not applicable Original Loan Agreement (3) Goods (other than those for 300,000 80% Rural Subprojects) (4) Consultants’ services and 7,500,000 audits 100% (5) Fee payable under Section 2.04 of the Original Loan -- Not applicable Agreement (6) Goods and works for Rural 22,200,000 100% Subprojects (7) Training -- Not applicable TOTAL AMOUNT 30,000,000 8 12. A grace period of 4 months will be granted to the project to pay for goods and services received and works executed before the new closing date. 13. Risks. The proposed restructuring involves no other changes in terms of project objectives, institutional, disbursement or procurement arrangements. The Loan Agreements will be amended to reflect the changes proposed in this Restructuring Paper. The Project Development Objective remains the same. However, it is anticipated to have a reduced number, in terms of localities that will benefit from the project under Component 1. Finally, the Government is committed to financing with their own resources, all of the remaining activities under the project that will not be completed by the new closing date. 9