The World Bank Electricity Supply Accountability and Reliability Improvement Project (P133446) REPORT NO.: RES39301 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF THE ELECTRICITY SUPPLY ACCOUNTABILITY AND RELIABILITY IMPROVEMENT PROJECT APPROVED ON JULY 15, 2014 TO THE KYRGYZ REPUBLIC ENERGY & EXTRACTIVES GLOBAL PRACTIVE EUROPE AND CENTRAL ASIA REGION Regional Vice President: Cyril E Muller Country Director: Lilia Burunciuc Regional Director: Lucio Monari Practice Manager: Sameer Shukla Task Team Leader: Maksudjon Safarov The World Bank Electricity Supply Accountability and Reliability Improvement Project (P133446) ABBREVIATIONS AND ACRONYMS CHP Combined Heat and Power Plant ERP Enterprise Resource Planning IFRS International Financial Reporting Standards SE Severelectro The World Bank Electricity Supply Accountability and Reliability Improvement Project (P133446) BASIC DATA Product Information Project ID Financing Instrument P133446 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 15-Jul-2014 31-Dec-2019 Organizations Borrower Responsible Agency Kyrgyz Republic Severelectro OJSC Project Development Objective (PDO) Original PDO The proposed development objective is to improve the reliability of electricity supply in the project area and strengthen the governance of Severelectro’s operations. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-55150 15-Jul-2014 07-Apr-2015 29-Dec-2015 31-Dec-2019 13.75 9.89 2.57 IDA-H9720 15-Jul-2014 07-Apr-2015 29-Dec-2015 31-Dec-2019 11.25 10.17 0 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Electricity Supply Accountability and Reliability Improvement Project (P133446) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project Status 1. The Project Development Objective (PDO) is to improve the reliability of electricity supply in the project area and strengthen the governance of Severelectro’s (SE) operations. Progress towards achievement of the Project Development Objective and Overall Implementation Progress are both rated as Moderately Satisfactory as of December 1, 2019. 2. The Project has disbursed US$19.5 million, which is 86 percent of the total financing. Due to the SDR/USD exchange rate fluctuations, the original US$25 million USD equivalent of the IDA financing has been reduced by US$2.4 million and is now about US$22.6 million. 3. The Project has been demonstrating good implementation progress. All physical works associated with the infrastructure facilities under Component 1 (Distribution Infrastructure Strengthening) have been completed and the long-standing licensing issue with the commissioning of underground cable lines has been resolved. The Geographic Information System under Component 2 (Customer Service and Corporate Management System Improvement) is being implemented as planned. An audit firm acceptable to the Bank has been selected and contracted for Severelectro’s (SE) 2018-2019 IFRS-based financial statements audit, and procurement for the savings generated under the Project have been undertaken and contracts signed. The Project implementation progress by components is briefly outlined below. 4. Component 1 – Distribution Infrastructure Strengthening. This component has been successfully completed with construction of 3 distribution substations, as well as procurement and installation of 40,000 smart meters. 5. Component 2 - Customer Service and Corporate Management System Improvement. This component provides SE with information and tools to improve the quality of the services it provides to its customers and to enhance the overall efficiency of its performance. The Bank-financed Geographic Information System (GIS) and the Outage Management System (OMS) are on track. The OMS has already been successfully completed and GIS is at the final completion stage. In parallel, SE has upgraded its existing Enterprise Resource Planning System (ERP) with additional modules allowing for improved information system and integration with existing IT-systems and GIS under implementation. In the meantime, implementation of the Commercial Management System (CMS) and Asset Management System (AMS), financed respectively by KfW and ADB, may not be fully completed by the project closing date due to the lack of coordination and implementation capacity of both the vendor and government agencies. 6. Component 3 - Institutional Strengthening and Project Implementation Support. This Component includes several activities aimed at strengthening SE’s accounting and financial departments’ capacity: (i) corporate financial management strengthening; (ii) corporate procurement strengthening; and (iii) support for project management. All the activities have been successfully completed during the Project implementation. This component supported, among others, the preparation, audit and publication of SE’s first-ever financial statements compliant with International Financial Reporting Standards enhancing the company’s financial management and transparency. The component will support the preparation and audit of 2019 financial statements as well. The World Bank Electricity Supply Accountability and Reliability Improvement Project (P133446) 7. The Project has no outstanding audit reports, and previous audits were found to be acceptable by the Bank. The contracts with the audit firms till the end of project are in place with no delays expected in submission of the final project’s audited financial statements and SE’s audit report for fiscal year 2019. The Project is also in compliance with the Bank’s environmental and social safeguards and guidelines. 8. Detailed project implementation outcomes, including achievement of results indicators will be elaborated in the project Implementation and Completion Results Report under preparation. B. Rationale for Restructuring 9. This is the second restructuring of the Project. The client requested the Bank (letter dated November 13, 2019 from the Ministry of Finance) to restructure the Project and cancel the uncommitted portion of funds (project savings). 10. The Project has had considerable savings due to: (a) competitive bidding resulting in reduced contract prices compared to the initial plans; and (b) an earlier restructuring of the project requested by the Recipient which shifted the financing source of the ERP from IDA to counterpart financing. 11. In addition, the last two procurement packages - advanced meters (estimated cost US$580,000) and switchgears (US$1,400,000) - had to be cancelled. The tender for the advanced meters was conducted with only two bids received, one of which didn’t provide a Bank guarantee and the second one proposed meters which did not meet the technical specifications. The contract for the switchgears was signed, but SE and the supplier discussed and agreed on some changes on technical specifications (connection mode) only in October 2019. With the understanding that the switchgears could not be delivered to SE’s sites by the Project’s Closing Date of December 31, 2019, SE and the supplier agreed to cancel the contract. Following these developments, the Bank team agreed with SE and the Ministry of Finance to cancel the respective funds. The cancellation of mentioned procurement packages will not impact the PDO and PDO indicators, as those activities were not included in the project’s initial scope and prepared in May 2019 for utilizing the project generated savings. 12. Finally, the Results Indicator – “Average duration of outages in Severelectro's network (minutes/1,000 customers)” - will also be updated based on more reliable data provided by SE. As indicated in the Project Appraisal Document (PAD) during preparation of the Project, SE was recording and managing outages and related parameters (duration, etc.) relying on the manual entry of incomplete data based on the reports of 17 regional offices, without the support of an Outage Management System (OMS). Within the framework of the project, SE has developed and integrated the full set of functionalities of a state-of-the-art OMS, and gradually implemented the system in all the regions served by the company for attending and solving complaints from customers and incidents in high and medium voltage networks. It is evident that only following completion of the deployment of the OMS companywide in 2017, SE is now able to record any parameter on quality and duration of electricity supply in an accurate and reliable manner. Therefore, based on more reliable data, this results indicator will be updated to reflect more accurately the project outcomes. The World Bank Electricity Supply Accountability and Reliability Improvement Project (P133446) II. DESCRIPTION OF PROPOSED CHANGES 13. The Project Restructuring entails the following changes: (a) cancellation of SDR 1,310,000 (US$1.80 million equivalent); and (b) an update of the Results Indicator “Average duration of outages in Severelectro's network (minutes/1,000 customers)”. 14. Cancellation of funds. This Project Restructuring entails the following changes: (a) cancellation of SDR 1,310,000 (US$1.80 million equivalent) from Component 2 (Customer Service and Corporate Management System Improvement). Thus, Component 2 will be reduced from US$5.50 million to US$3.70 million equivalent. 15. Update of PDO-level indicator “Average duration of outages in Severelectro's network (minutes/1,000 customers)”. This indicator measures the total duration of outages in the network and is computed as the sum of duration of all outages recorded over a calendar year, divided by the total number of customers, and multiplied by 1,000. The baseline and target values originally included in the PAD were expressed in “hours” (the baseline was 21 hours and the target was 18 hours). Due to a mistake during the first project restructuring approved in 2017, caused by unreliable data, the unit of measure of this indicator was changed to “minutes” (the baseline was 16 minutes and the target was 15 minutes). The updated data reported by SE (based on OMS) confirms that the baseline and target values, and unit of measure of the original indicator were correct in the PAD and should not have been changed during the 2017 restructuring. Accordingly, the indicator will be revised back to the original definition “Duration of outages per 1,000 customers reduced, hours/1,000” and the baseline and target values will also be revised. III. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Components and Cost ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursement Estimates ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Loan Closing Date(s) ✔ Disbursements Arrangements ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ The World Bank Electricity Supply Accountability and Reliability Improvement Project (P133446) EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Distribution Infrastructure Distribution Infrastructure 19.25 No Change 19.25 Strengthening Strengthening Customer Service and Corporate Customer Service and Management System 5.50 Revised Corporate Management 3.70 Improvement System Improvement Institutional Strengthening and Institutional Strengthening and 1.12 No Change Project Implementation 1.12 Project Implementation Support Support TOTAL 25.87 24.07 OPS_DETAILEDCHANGES_CANCELLATIONS_TABLE The World Bank Electricity Supply Accountability and Reliability Improvement Project (P133446) CANCELLATIONS Value Reason Current Cancellation New Ln/Cr/Tf Status Currency Date of for Amount Amount Amount Cancellation Cancellation BORROWER' S REQUEST IDA-55150- Disburs XDR 8,900,000.00 1,310,000.00 13-Nov-2019 7,590,000.00 FOR 001 ing COUNTRY REASONS BORROWER' S REQUEST IDA-H9720- Disburs XDR 7,300,000.00 0.00 13-Nov-2019 7,300,000.00 FOR 001 ing COUNTRY REASONS OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IDA-55150-001 | Currency: XDR iLap Category Sequence No: 1 Current Expenditure Category: G, W, Non-CS, CS, TR, and IOC 8,900,000.00 6,775,777.38 7,590,000.00 100.00 100.00 Total 8,900,000.00 6,775,777.38 7,590,000.00 IDA-H9720-001 | Currency: XDR iLap Category Sequence No: 1 Current Expenditure Category: G, W, Non-CS, CS, TR, and IOC 7,300,000.00 7,286,733.45 7,300,000.00 100.00 100.00 Total 7,300,000.00 7,286,733.45 7,300,000.00 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates The World Bank Electricity Supply Accountability and Reliability Improvement Project (P133446) Yes Year Current Proposed 2015 0.00 0.00 2016 442,126.93 400,000.00 2017 4,719,301.73 4,083,857.95 2018 11,287,368.00 12,589,470.49 2019 7,000,000.00 2,122,913.51 2020 2,228,773.00 1,603,488.05 . The World Bank Electricity Supply Accountability and Reliability Improvement Project (P133446) The World Bank Electricity Supply Accountability and Reliability Improvement Project (P133446) . Results framework COUNTRY: Kyrgyz Republic Electricity Supply Accountability and Reliability Improvement Project Project Development Objectives(s) The proposed development objective is to improve the reliability of electricity supply in the project area and strengthen the governance of Severelectro’s operations. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 Electricity losses per year in Severeletro's distribution network Electricity losses per year in Severeletro's distribution 15.00 13.00 network (Percentage) Average duration of outages in Secerelectro's network Duration of outages per 1000 customers reduced 21.00 22.00 22.00 22.00 20.00 18.00 (Hours) Action: This indicator has been Revised Share of customers satisfied with SE's services Share of customers satisfied with SE's services increased 0.00 0.00 0.00 0.00 5.00 10.00 10.00 (Percentage) The World Bank Electricity Supply Accountability and Reliability Improvement Project (P133446) RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 Share of female customers satisfied with 0.00 0.00 0.00 0.00 5.00 10.00 10.00 SE’s services increased (Percentage) Share of customers from low income groups satisfied with SE’s 0.00 0.00 0.00 0.00 5.00 10.00 10.00 services increased (Percentage) Reliable operational and financial data available to the management of SE and key external stakehold Data generated through MISs Data generated Reliable operational and available to SE through MISs available Data generated financial data available to management, to SE management, through MISs the management of SE and n/a n/a n/a n/a regulatory authority regulatory authority available to SE key external stakeholders and Government; and Government; management (Text) selected data selected data available available to to customers customers PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 Distribution Infrastructure Strengthening The World Bank Electricity Supply Accountability and Reliability Improvement Project (P133446) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 Capacity added (Kilovolt- 0.00 0.00 0.00 0.00 14,000.00 54,000.00 54,000.00 Amphere(KVA)) Meters installed (Number) 0.00 0.00 2,000.00 6,000.00 12,000.00 20,000.00 38,000.00 Direct project beneficiaries 0.00 0.00 2,000.00 6,000.00 527,000.00 527,000.00 527,000.00 (Number) Female beneficiaries 0.00 0.00 52.00 52.00 52.00 52.00 52.00 (Percentage) Customer Service and Corporate Management System Improvement MISs in use as MISs in use as MISs in use as evidenced by 75% of: evidenced by 95% of: evidenced by 95% of: (i) customers (i) customers (i) customers metered metered and billed metered and billed and billed using CMS; MISs incorporated and Installation of MISs MISs installed and using CMS; (ii) using CMS; (ii) None Contract awarded (ii) commercial operational (Text) launched staff trained commercial commercial complaints attended complaints attended complaints attended using CMS; and (iii) using CMS; and (iii) using CMS; and (iii) complaints for outages complaints for complaints for using IRMS outages using IRMS outages using IRMS Institutional Strengthening and Project Implementation Support Financial Statements Financial Statements are in accordance Alignment of are in accordance with Accounting policies Accounting policies Accounting policies with IFRS and audited accounting policies IFRS and audited by IFRS applied (Text) None reviewed and staff aligned with IFRS and aligned with IFRS and by independent with IFRS started and independent private trained staff trained staff trained private auditor staff trained auditor acceptable to acceptable to the the Bank Bank The World Bank Electricity Supply Accountability and Reliability Improvement Project (P133446) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 Tenders through e- Tenders through e- Tenders through e- Gov. Procurement Gov. Procurement Government issued, and 100 % of issued, and 100 % of Procurement issued, Tenders through e- Transparency and fairness Standard Bidding invitation for bid and invitation for bid and and 100% of invitation Gov. Procurement in procurement improved None Documents (SBD) SBDs adopted contract award contract award for bid and contract issued and SE website (Text) developed results (following results (following award results improved competitive tenders) competitive tenders) (following competitive are published on SE’s are published on SE’s tenders) are published website website on SE’s website IO Table SPACE . The World Bank Electricity Supply Accountability and Reliability Improvement Project (P133446)