Document of The World Bank Report No: 75758-AZ RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF NATIONAL WATER SUPPLY & SANITATION PROJECT LOAN 7460-AZ JUNE 14, 2007 TO THE REPUBLIC OF AZERBAIJAN February 28, 2013 Sustainable Development Department South Caucasus Country Department Europe and Central Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. ABBREVIATIONS AND ACRONYMS Azersu Azersu Joint Stock Company EBRD European Bank for Reconstruction and Development IBRD International Bank for Reconstruction and Development IFRS International Financial Reporting Standards ISDS Integrated Safeguard Data Sheet JSC Joint Stock Company NWSSP National Water Supply and Sanitation Project PAD Project Appraisal Document PDO Project Development Objective SCUPA State Committee of Urban Planning and Architecture SNWSSP Second National Water Supply and Sanitation Project WSS Water Supply and Sanitation Regional Vice President: Philippe E. Le Houerou (ECAVP) Country Director: Henry Kerali (ECCU3) Sector Manager: Sumila Gulyani, (ECSUW) Task Team Leader: Manuel Mariño (ECSUW) AZERBAIJAN NATIONAL WATER SUPPLY & SANITATION P096213 CONTENTS Page A. SUMMARY ........................................................................................................................... 1 B. PROJECT STATUS .............................................................................................................. 1 ANNEX 1: RESULTS FRAMEWORK AND MONITORING ................................................. 3 Restructuring Restructuring Type: Level two Last modified on date : 2/18/2013 1. Basic Information Project ID & Name P096213: NAT'L WATER SUPPLY & SAN Country Azerbaijan Task Team Leader Manuel Marino Co-Task Team Leader Hadji Huseynov Sector Manager/Director Sumila Gulyani Country Director Henry Kerali Original Board Approval Date 06/14/2007 Original Closing Date: 01/31/2012 Current Closing Date 02/28/2013 Proposed Closing Date 12/31/2014 EA Category A-Full Assessment Revised EA Category A-Full Assessment EA Completion Date 03/28/2006 Revised EA Completion Date 2. Revised Financing Plan (US$m) Source Original Revised (according to first restructuring dated 11/22/2011 BORR 80.00 80.00 IBRD 230.00 207.58 Total 310.00 287.58 3. Borrower Organization Department Location Republic of Azerbaijan Azerbaijan 4. Implementing Agency Organization Department Location Azersu Joint Stock Company Azerbaijan Republic of Azerbaijan 1 5. Disbursement Estimates (US$m) Actual amount disbursed as of 2/28/2013 56.58 Fiscal Year Annual Cumulative 2009 2.50 2.50 2010 5.50 8.00 2011 10.00 18.00 2012 17.20 35.20 2013 70.00 105.20 2014 102.28 207.58 Total 207.58 6. Policy Exceptions and Safeguard Policies Does the restructured project require any exceptions to Bank policies? N Does the restructured project triggers 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 To provide quality and reliable water supply and sanitation services in selected regional (rayon) centers of Azerbaijan. NATIONAL WATER SUPPLY & SANITATION PROJECT RESTRUCTURING PAPER A. SUMMARY This paper proposes to extend the Project closing date from February 28, 2013 to December 31, 2014 to enable completion of on-going contracts and fully meet the project development objectives. The request responds to a letter from the Minister of Finance dated October 31, 2012. B. PROJECT STATUS The IBRD loan in the amount of US$230 million for the National Water Supply and Sanitation Project was approved by the Bank on June 14, 2007 and became effective on March 14, 2008. In November 2011, the original closing date of the National Water Supply and Sanitation Project was extended by 13 months from January 31, 2012 to February 28, 2013 as part of a first order Restructuring. This restructuring reflected (i) a partial cancelation of funds; (ii) downsizing in the number of cities due to price escalations; and (iii) the need to align the closing date with the Second National Water Supply and Sanitation Project. During calendar year 2012, the Government managed to advance project implementation and now most of the large contracts are under implementation. There are only two pending contracts for which procurement is on-going (these contracts have been delayed due to changes in the design against the solutions defined at the feasibility studies, as agreed in the implementation support mission of November 2012). It is therefore expected that all outstanding project funds will be fully committed by April 26, 2013. There is also noticeable progress in the key institutional modernization activities: (i) the update of the Baku water and sanitation master plan is almost completed; (ii) introduction of improved billing and collection systems is advancing as planned; (iii) Azersu has started training programs for its operational staff in Baku and regional subsidiaries; and (iv) International Financial Report Standards (IFRS) have been introduced by Azersu. Additionally, the project financed the analysis of economic, environmental and spatial constraints and development opportunities for Greater Baku. Three alternative spatial development scenarios for the development of Greater Baku Regional Development Plan (GBRDP) have been prepared on the basis of these studies. All deliverables under GBRDP are open to the public and can be reviewed and commented on at the website hosted by the State Committee for Urban Planning and Architecture (SCUPA). Adoption of the GBRDP is expected to take place towards the end of 2013, once the on-going public consultation process and strategic environmental assessment are completed and a final option is detailed. Disbursements have doubled in the last 8 months to US$56 million or 27% of the loan amount, while total commitments reached US$176 million or 85% of total loan amount. 1 The Project has been rated as Moderately Unsatisfactory towards achieving the Project Development Objectives (PDO) because the above-mentioned activities and project development objectives cannot be reasonably achieved within the time remaining until the current closing date. However, given advances to date and provided that progress is sustained, the team expects to upgrade the PDO rating to Moderately Satisfactory (MS) after the extension of the closing date. C. PROPOSED CHANGES This Restructuring Paper proposes the extension of the closing date to December 31, 2014 since: (i) all contracts with the exception of two are underway; (ii) the two remaining contracts, totaling US$78 million, are expected to be signed in the next 2-3 months; (iii) the team is confident that Azersu can complete ongoing works and reach all Project targets by the extended closing date; and (iv) institutional development objectives have largely been achieved and will be further consolidated with the proposed extension. The team is convinced that the proposed extension will allow the project to achieve its development objectives once the Borrower can complete all on-going contracts. No changes are proposed with regard to implementation agencies, there are no outstanding audits, and financial management reports are satisfactory. The Project’s objectives have not changed and are considered to be achievable within the extended closing date period. The performance of the project implementing agency is satisfactory. During the last implementation support mission dated November 7, 2012, the team has agreed with the counterparts on a specific Action Plan to complete the Project within the extended timeframe. Azersu has intensified site supervision and reporting to the Bank in order to track progress and mitigate any possible delays promptly. Annex 1 contains the result framework updated to incorporate the extended closing date. ANNEX 1: Results Framework and Monitoring AZERBAIJAN: NATIONAL WATER SUPPLY & SANITATION Project Development Objective (PDO): To improve the availability, quality, reliability, and sustainability of water supply and sanitation services in twenty of Azerbaijan's regional centers. Revised Project Development Objective: To provide quality and reliable water supply and sanitation services in selected regional (rayon) centers of Azerbaijan. D=Dropped Cumulative Target Values C=Continue Responsibility Core Project Development N= New Unit of Data Source/ Baseline Frequency for Data Objective Indicators R=Revised Measure 2009 2010 2011 2012 2013 2014 Methodology Collection People in project area receiving improved water C Number 0 0 0 0 0 56,000 200,000 Annually Project Progress Azersu supply and sanitation Report services resulting from the project1 Pollution load measured in persons equivalent (PE) C Number 0 0 0 0 0 20,000 105,000 Annually Project Progress Azersu eliminated through adequate Report wastewater treatment2 INTERMEDIATE RESULTS Intermediate Result (Component One): Component A: Rayon Investment Component Water supply and sanitation systems in the project area are rehabilitated and operational. Revised Intermediate Result (Component One): D=Dropped Unit of Baseline Cumulative Target Values** C=Continue Measure Responsibility N= New Data Source/ 2009 2010 2011 2012 2013 2014 Frequency for Data R=Revised Methodology Collection Number of rayons in which water supply and C Number 0 0 0 0 0 1 4 Annually Project Progress Azersu wastewater systems in the Report project area are rehabilitated and operational Water network rehabilitated C Km 0 0 0 0 30 230 450 Annually Project Progress Azersu 1 Improved water supply is defined as 24-hour continuous service that complies with quality standards. 2 Adequate treatment is defined as conformity with the EU Wastewater Treatment Directive for secondary treatment. 3 Report Sewerage network C Km 0 0 0 0 20 205 380 Annually Project Progress Azersu rehabilitated Report New reservoir capacity C m3 0 0 0 0 8,000 15,000 17,000 Annually Project Progress Azersu provided Report Percentage of drinking water samples in C Percentage 40 40 40 40 40 70 100 Biannually Monitoring Azersu project area meeting Azeri Report water quality standards Effluent water samples passing water quality tests C Percentage 0 0 0 0 0 40 100 Biannually Monitoring Azersu Report Daily number of hours of water supply service C Number 4 4 4 4 6 10 24 Biannually Monitoring Azersu (average per connection) Report Intermediate Result (Component Two): Component B: Regional Development Plan for Greater Baku Component Key instruments for urban planning activities in the Greater Baku area are in place Revised Intermediate Result (Component Two): Greater Baku Regional Development Plan C Text No No No No No Yes Yes Biannually Project Progress SCUPA completed Report Updated Apsheron Peninsula Water Supply C Text No No No No No No Yes Biannually Project Progress Azersu Masterplan completed Report Updated Apsheron Peninsula Wastewater C Text No No No No No No Yes Biannually Project Progress Azersu Masterplan completed Report Intermediate Result (Component Three): Component C: Institutional Modernization Component Azersu is financially restructured. Azersu has enhanced its technical and financial performance. Improved collection. Increase number of metered customers. Improved operational structure of Birleshmish Sukanal. 4 Revised Intermediate Result (Component Three): Azersu has a corporate business plan, transparent multiple-year investment plan, and adopts IFRS by the end of the project, while setting the basis for future financial sustainability. Financing and restructuring plan completed and adopted C Text No No No No No No Yes Annually Project Progress Azersu by Azersu Report IFRS adopted by Azersu C Text No No No No No No Yes Annually Project Progress Azersu Report 5