REPORT NO.: RES30907 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF CABO VERDE: DISTRIBUTED SOLAR ENERGY SYSTEMS (SIDS DOCK) APPROVED ON DECEMBER 28, 2015 TO REPUBLIC OF CABO VERDE 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, David Vilar Ferrenbach The World Bank Cabo Verde: Distributed Solar Energy Systems (SIDS DOCK) (P151979) ABBREVIATIONS AND ACRONYMS ii The World Bank Cabo Verde: Distributed Solar Energy Systems (SIDS DOCK) (P151979) BASIC DATA Product Information Project ID Financing Instrument P151979 Investment Project Financing Original EA Category Current EA Category Not Rated (for all adjustment operations except for SECA) Not Rated (for all adjustment operations except for (U) SECA) (U) Approval Date Current Closing Date 28-Dec-2015 31-Dec-2017 Organizations Borrower Responsible Agency Republic of Cabo Verde MTIDE,MTIDE Project Development Objective (PDO) Original PDO The project development objective (PDO) is to increase the generation of solar renewable energy in Cabo Verde. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net TF Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed TF-A1811 28-Dec-2015 10-Feb-2016 10-Feb-2016 31-Dec-2017 1.00 .33 .67 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No iii The World Bank Cabo Verde: Distributed Solar Energy Systems (SIDS DOCK) (P151979) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING Overview The Cabo Verde: Distributed Solar Energy Systems (SIDS DOCK) (P151979) consists of a grant of the Support for Small Island Developing States Sustainable Energy Initiative SIDS Dock Support Program Multi Donor Trust Fund in the amount of US$1 million, approved by the World Bank Board on December 28, 2015. The project includes three components: (i) Installation of RE generation capacity; (ii) Market assessment and enabling environment; and (iii) Implementation support, communication and dissemination. Implementation of the project is progressing, albeit at a slower pace than expected. Following the change in administration in May 2016, the General Directorate of Energy of the Ministry of Economy and Employment (in charge of the strategic guidance and activities oversight) was restructured and downgraded to a Service Directorate of Energy, creating a temporary vacuum in the sector oversight during 12 months. The situation is now resolved, and a new director for the unit was nominated in July 2017. Disbursement rate is current 32 percent as the main activity (installation of solar rooftops on hospitals) has not yet been completed due to the absence of decision making during the restructuring process of the General Directorate of Energy. Project Status Component 1: Installation of RE generation capacity (US$434,500). This component focuses on the installation of solar photovoltaic (PV) and solar water heating systems in hospitals in Cabo Verde. Based on the feasibility studies, it will finance the provision and installation of 300 kW PV systems in the six regional hospitals of Cabo Verde (Hospital Agostinho Neto and Hospital Regional Santiago Norte in Santiago, Hospital Baptista de Sousa in Sao Vicente, Hospital Regional Fogo e Brava in Fogo, hospital Regional João Morais in Santo Antao and Hospital do Sal in Sal) and the installation of solar water heaters in two hospitals in Cabo Verde (Hospital Agostinho Neto in Santiago and Hospital Batista de Sousa in Mindelo in Sao Vicente). Despite the good progress on implementation, the subcomponent experienced delays due to the restructuring of the sector, as mentioned above, as well as delays in signing co financing agreements with hospitals. The installation of the PV systems is at an advanced stage of execution. The contract for supply and installation of equipment was signed in October 2017. Completion date of installation is expected by the end of March 2018. In addition, the six co- financing agreements between hospitals and the project were signed in June 2017, paving the way for deposit of the funds by hospitals in December 2017, a condition of disbursement of the project funds. There will be approximately USD220,000 savings in this component, as solar PV costs were lower than estimated at project preparation. The savings are being utilized to co- finance the solar water heaters investments described below. The installation of solar water heaters is designed and co-financed (for an amount of up to 30% of the costs) by the Economic Community of West African States (ECOWAS) Center for Renewable Energy and Energy Efficiency (ECREEE). Agreement on the space needed for the equipment and cohabitation with solar PV systems was only reached with the General Directorate of Energy and the World Bank in October 2017. Following a site mission in November 2017, it was confirmed that systems could be installed alongside PV panels in the hospitals of Praia and Mindelo. Draft bidding documents are being finalized and the procurement process should be launched in January 2018, with installation planned to commence in April 2018 and completed by October 2018, as civil works will be needed in Praia to install a hydraulic system. Estimated cost for the activity is USD330,000, 70% of which would be paid under the Grant (USD231,000) and the remaining with ECREEE funds. Component 2: Market study and framework (US$320,000). The market assessment study was finalized, outlining a set of recommendations to encourage distributed energy investments in Cabo Verde, which the Energy Directorate should follow through. These included, among other: awareness raising of commercial banks to encourage financing of solar systems, creation of accreditation process for small size systems technicians/installers and an equipment certification system for small system projects; revision of the current legal and regulatory framework (change the installed power limit values, facilitation of new systems registration, creation of alternative communication channels with the Managing Entity of the Auto-Production 2 The World Bank Cabo Verde: Distributed Solar Energy Systems (SIDS DOCK) (P151979) Registration System (SRA) and removing of the registration tax value establishment barrier; and implementation of the draft decree for distributed generation). Upon finalization of payments, the balance of this component will finance technical assistance activities needed to implement the recommendations of the market assessment study, namely: (i) review of the electricity law to enable distributed generation in Cape Verde; (ii) assist the three main financing institutions in Cape Verde to structure financing products for rooftop PV; (iii) train companies in the development of PV rooftop turnkey products to clients. The General Directorate of Energy will define the precise list of tasks by end of December 2017. Component 3. Implementation support, communication and dissemination (US$245,000). The component focuses on supporting incremental expenses related to Project implementation including stakeholder engagement. The implementation unit has been in place since the launching of the project, with a coordinator, as well as technical, procurement and Financial Management (FM) specialists. Communication and dissemination of the outcomes of the project will take place once the systems are installed. The solar market study will be disseminated in the second quarter of 2018 within the industry as well as financial institutions. II. DESCRIPTION OF PROPOSED CHANGES The Government of Cape Verde has requested an extension of the project closing date of the by 12 months (December 31, 2018) to allow for (i) completion of activities under implementation (mainly completion of installation and commissioning of the solar PV systems in six hospitals and the procurement and installation of the two solar thermal systems); and (ii) launching and completion of follow-on activities to promote distributed energy in Cabo Verde, namely, awareness actions to financing institutions, installers and general public and preparation of regulatory/legal assessments, as recommended under the market assessment. Based on expected implementation of remaining activities, a closing date extension of extension of twelve (12) months from December 31, 2017 to December 31, 2018, is hereby requested. This is the first closing date extension of the project. The project duration is currently two years, and with the proposed extension, would be three years. The proposed extension is supported by an action plan, which includes the following milestones: - Launching of the bidding process for the installation of solar thermal systems in Praia and Mindelo hospitals: December 22, 2017 - Solar PV equipment in Praia: January 4, 2018 - Definition of follow-on tasks to support distributed generation: December 22, 2017 - Selection of consulting firms for studies: February 28, 2018 - Signing of contract for supply and installation of solar water systems: March 30, 2018 - Completion of installation of solar PV systems: March 30, 2018 - Finalization of studies and workshop presentations: November 30, 2018 - Completion of installation of solar thermal systems: October 31 2018 The requirements of BP10.00 regarding closing dates are met, specifically, (i) the project objectives continue to be achievable, within the time afforded by the proposed revised closing date; (ii) the performance of the Borrower is moderately satisfactory; (iii) the Bank and the Borrower have agreed on a realistic and implementable action plan and revised implementation schedule for project completion, which the Borrower has already begun to implement; and (iv) there are no outstanding audits, IFRs for the Grant. The end target date for achieving the PDO indicators is revised to the new proposed project closing date and there are no other changes in the result framework 3 The World Bank Cabo Verde: Distributed Solar Energy Systems (SIDS DOCK) (P151979) III. SUMMARY OF CHANGES Changed Not Changed Change in Loan Closing Date(s) ✔ Change in Implementing Agency ✔ Change in Project's Development Objectives ✔ Change in Results Framework ✔ Change in Components and Cost ✔ Cancellations Proposed ✔ Additional Financing Proposed ✔ Reallocation between Disbursement Categories ✔ Change in Disbursements Arrangements ✔ Change in Disbursement Estimates ✔ Change in Overall Risk Rating ✔ Change in Safeguard Policies Triggered ✔ Change of EA category ✔ Change in Legal Covenants ✔ Change in Institutional Arrangements ✔ Change in Financial Management ✔ Change in Procurement ✔ Change in Implementation Schedule ✔ Other Change(s) ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_LOANCLOSING_TABLE 4 The World Bank Cabo Verde: Distributed Solar Energy Systems (SIDS DOCK) (P151979) LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline TF Status Closing Closing(s) Closing for Withdrawal Applications TF-A1811 Effective 31-Dec-2017 30-Sep-2018 30-Jan-2019 5