The World Bank Vishnugad Pipalkoti Hydro Electric Project (P096124) REPORT NO.: RES29233 DOCUMENT OF THE WORLD BANK RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF VISHNUGAD PIPALKOTI HYDRO ELECTRIC PROJECT APPROVED ON JUNE 30, 2011 TO THDC ENERGY & EXTRACTIVES SOUTH ASIA Regional Vice President: Annette Dixon Country Director: Junaid Kamal Ahmad Senior Global Practice Director: Riccardo Puliti Practice Manager/Manager: Demetrios Papathanasiou Task Team Leader: Simon J. Stolp, Pyush Dogra The World Bank Vishnugad Pipalkoti Hydro Electric Project (P096124) I. BASIC DATA Product Information Project ID Financing Instrument P096124 Investment Project Financing Original EA Category Current EA Category Full Assessment (A) Full Assessment (A) Approval Date Current Closing Date 30-Jun-2011 31-Dec-2017 Organizations Borrower Responsible Agency THDC Tehri Hydro Development Corporation Project Development Objective (PDO) Original PDO The Project Development Objectives are: (a) to increase the supply of electricity to India's national grid through the addition of renewable, low-carbon energy; and (b) strengthen the institutional capacity of THDC with respect to the preparation and implementation of economically, environmentally and socially sustainable hydropower projects. Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-80780 30-Jun-2011 10-Aug-2011 07-Nov-2011 31-Dec-2017 648.00 94.37 553.63 TF-58016 24-Apr-2007 24-Apr-2007 24-Apr-2007 31-Mar-2010 .99 .99 0 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Vishnugad Pipalkoti Hydro Electric Project (P096124) II. SUMMARY OF PROJECT STATUS AND PROPOSED CHANGES The objectives of the Project are: (a) to increase the supply of electricity to India’s national grid through the addition of renewable, low-carbon energy; and (b) strengthen the institutional capacity of THDC with respect to the preparation and implementation of economically, environmentally and socially sustainable hydropower projects. The components of the Project are: (i) construction of the Vishnugad Pipalkoti Hydro Electric Project (US$638 million, Bank-funded portion); and (ii) technical assistance for capacity building and institutional strengthening at THDC (US$10 million, Bank-funded portion). This restructuring extends the Project Closing Date to June 30, 2019, to take into account significant delays in the early stages of project implementation. Further extension of the Project Closing Date will be consider subject to implementation progress over the next 18 months. Immediately after having achieved loan effectiveness, but prior to the award of the principle civil works contract, the Project experienced protracted delays in achieving forest clearance approvals. These delays were associated with a lengthy Government review of all hydropower development on the headwaters of the Ganga River. The project was one of the few hydropower projects that was ultimately cleared, largely on account of the Project's robust safeguards preparations. But as a result of the review, the Project was delayed by two years before the award of the civil works contract. Since then, Project implementation has been further delayed by almost 12 months, mostly due to significant flooding in 2013, which required re-design of downstream structures and additional construction and stabilization works, and also due in part to protests by local citizens over employment opportunities. The Project is located in a remote mountain area with few other economic opportunities, leading local communities to regard this public sector project as a possible source of employment. An extension to the Project Closing Date is being sought to address these early delays in the Project’s implementation. None of these early delays in Project implementation were under the control of the Borrower. As a result of these delays the current schedule completion date for the Project is December 30, 2019. Project implementation is now progressing reasonably well, though slowly. Slow progress rates are attributable to: - Cash-flow issues, due to liquidity constraints being faced by the civil works contractor, which are affecting its ability to pay for and source goods and materials, and pay sub-contractors; - Poor rock conditions in a number of the down-stream tunnels causing delays in tunneling progress. The Bank is continuing to work with THDC to address these issues. THDC has been proactive in seeking solutions to the Contractor’s cash flow issues, and it is expected that these will mostly resolved by a Government decree which will release arbitral awards to the Contractor in September 2017. The Bank is also strengthening THDC’s capacity to address construction challenges by bringing in international technical experts in project and construction management, contract management and advanced tunneling techniques. THDC has also been proactive in addressing local communities' concerns over livelihoods opportunities offered by the Project. Given the limits on its ability to provide direct employment to all local communities, THDC has worked closely The World Bank Vishnugad Pipalkoti Hydro Electric Project (P096124) with the Bank to develop a Community Outreach and Action Plan, which seeks to go beyond direct project employment, and develop local economic development plans to support improved livelihoods in the Project area. THDC is currently in the process of hiring a specialist consulting firm which will build upon the work it has already done, and lead the implementation of a range of local economic development activities. THDC has recently met several key milestones. This included the release of a cash advance to HCC to allow the critical shipment of the Project’s Tunnel Boring Machine (TBM). The Project has also sought and received an extension to its Environmental Certification. As a result of THDC having met these milestones the Bank team has rated the Project's performance as Moderately Satisfactory against Implementation Progress. Based on a recent portfolio review undertaken with SAR Director Operations, and the CMU, it was agreed that, although PDOs remain relevant and achievable, the rating against achievement of Project Development Objectives should be Moderately Unsatisfactory, due to the fact that the Project would not be completed within the original Project Closing Date. The Project was the subject of an investigation in 2012. The Inspection Panel Investigation Report for VPHEP raised two key issues, namely: a) The requirement to undertake baseline studies to document village water sources along the tunnel alignment routes, and to ensure that THDC commits to provide alternative water sources in the event that an existing source is lost, and b) The resolution of the outstanding question of the resettlement and livelihood restoration of Project affected people in Hatsari village. THDC has now fully implemented actions regarding planning for alternat e water sources as required under the World Bank Management’s Action Plan in response to the Inspection Panel report. Discussions continue to be held to finalize compensation payments and reach agreement on resettlement with the remaining families of Hatsari. The Project's development objectives continue to be relevant and achievable; the performance of the Borrower, Tehri Hydro Electric Development Corporation Limited (THDC), remains satisfactory; the Bank and the Borrower agree on actions that will be undertaken by the Borrower to complete the project; and there are no outstanding audits, or financial monitoring reports (FMR) for the Loan. III. DETAILED CHANGES LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications The World Bank Vishnugad Pipalkoti Hydro Electric Project (P096124) IBRD-80780 Effective 31-Dec-2017 30-Jun-2019 30-Oct-2019 30-Sep-2009, 31-Mar- TF-58016 Closed 17-Mar-2009 2010, 28-Oct-2010