The World Bank PACIFIC RESILIENCE PROJECT UNDER PACIFIC RESILIENCE PROGRAM (P155257) REPORT NO.: RES29157 DOCUMENT OF THE WORLD BANK RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF PACIFIC RESILIENCE PROJECT UNDER PACIFIC RESILIENCE PROGRAM APPROVED ON JUNE 19, 2015 TO REPUBLIC OF THE MARSHALL ISLANDS SOCIAL, URBAN, RURAL AND RESILIENCE GLOBAL PRACTICE EAST ASIA AND PACIFIC Regional Vice President: Victoria Kwakwa Country Director: Michel Kerf Senior Global Practice Director: Ede Jorge Ijjasz-Vasquez Practice Manager/Manager: Abhas Kumar Jha Task Team Leader: Habiba Gitay, Samantha Jane Cook The World Bank PACIFIC RESILIENCE PROJECT UNDER PACIFIC RESILIENCE PROGRAM (P155257) ABBREVIATIONS AND ACRONYMS IBRD International Bank of Reconstruction and Development IDA International Development Association ISDA International Swaps and Derivatives Association ISR Implementation Status Report PCRIC Pacific Catastrophe Risk Insurance Company PDO Project Development Objective PICs Pacific Island Countries PREP The Pacific Resilience Program QBS Quality Based Selection WB World Bank The World Bank PACIFIC RESILIENCE PROJECT UNDER PACIFIC RESILIENCE PROGRAM (P155257) BASIC DATA Product Information Project ID Financing Instrument P155257 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 19-Jun-2015 30-Nov-2020 Organizations Borrower Responsible Agency Republic of the Marshall Islands Ministry of Finance,Ministry of Finance Project Development Objective (PDO) Original PDO To strengthen the financial protection of the Republic of Marshall Islands. Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-D0790 19-Jun-2015 24-Jul-2015 15-Oct-2015 30-Nov-2020 1.50 1.00 .53 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING The World Bank PACIFIC RESILIENCE PROJECT UNDER PACIFIC RESILIENCE PROGRAM (P155257) The Republic of Marshall Islands (RMI) is participating in the Premium Finance part of Phase I of the regional umbrella Pacific Resilience Project (PREP or Project), which was approved by the Board on June 19, 2015 and became effective on October 15, 2015. The project development objective (PDO) of the IDA Grant of SDR 1.1M, approximately equivalent to USD 1.5M to RMI is to strengthen the financial protection of the Republic of Marshall Islands. The Grant finances the annual premia cost of US$0.5million/year for three years to provide insurance coverage against tropical cyclones and earthquakes/tsunamis until 31st October 2018. The premia for the first two years have been paid through disbursements from the Grant. Project implementation is progressing satisfactorily and the PDO is expected to be achieved. The project is in compliance with Bank fiduciary and safeguard policies. There are no overdue audit reports and no significant unaddressed audit observations. The rationale for restructuring. Under the existing system, IDA funds are passed to World Bank Treasury pursuant to the submission of a hedge request which authorizes the World Bank to act on behalf of the RMI to enter into a contract with the selected re-insurance companies. It was envisaged during the preparation of PREP that this arrangement would be changed with the creation of a regional risk transfer facility through which the premium finance would then flow. The Pacific Catastrophe Risk Insurance Company (PCRIC) was established in 2016 and will assume the role carried out by the World Bank Treasury in entering into a contract with the selected re-insuance companies on behalf of RMI. The RMI will sign a singular insurance policy or contract (the legal instrument to provide an insurance) with the PCRIC. The proposed change means that the Ministry of Finance as Implementing agency would procure one insurance premium contract (Risk Transfer Agreement or Insurance Contract) for an amount of US$560,000, with US$500,000 from IDA and a co-payment of US$60,000 from the national budget. The PDO remains achievable with this change and the results framework for the project will remain unchanged. The proposed restructuring would however mean a change in institutional arrangements and procurement risk rating. II. DESCRIPTION OF PROPOSED CHANGES Change in institutional arrangements. The World Bank Treasury will no longer act on behalf of RMI and will not enter into contracts with re-insurance companies. RMI, acting through its Ministry of Finance, will enter into a Risk Transfer Agreement or an Insurance Contract with PCRIC, or other catastrophe risk insurance provider acceptable to IDA for the provision by PCRIC/the other catastrophe risk insurance provider of catastrophe risk management insurance coverage to RMI, and the payment of insurance premia by RMI to PCRIC. Change in Disbursement Arrangements. Under the proposed arrangements, the premia will be paid by the direct payment method, and a Designated Account will not be required. Changes to Financial Management. As a result of the proposed change, the financing agreement will need to be changed to remove the reference to the existing arrangements where the funds are passed directly to World Bank Treasury. RMI will ensure that clear responsibilities are in place for making contractual payments, as well as for ensuring the proper recording, reporting, and audit of the transactions in accordance with the legal agreements. Due to the minimal number The World Bank PACIFIC RESILIENCE PROJECT UNDER PACIFIC RESILIENCE PROGRAM (P155257) of transactions, interim financial reports (IFR) will not be required. The project transactions and balances will be disclosed as a note to the annual National Accounts which are audited and issued within nine months after the end of the fiscal year of the RMI. It is anticipated that the annual audit will be conducted by the Supreme Audit Institution with audit costs financed by the Government for Vanuatu. For the Marshall Islands, the audit will be integrated into the National Accounts. Changes in Procurement. Disaster insurance coverage is treated as a non-consulting service from a procurement perspective. The direct contracting of PCRIC would be done on an exceptional circumstance listed under paragraph 3.7(e) of the Procurement Guidelines as the provision of catastrophe risk insurance is a form of ex ante contract that provides support in the event of a natural disaster. The remaining procurement transaction for non-consulting services would be subject to the Bank’s post review. The volume of procurement is not impacted by the proposed restructure. The above changes to procurement will however result in the procurement rating being revised from low to moderate. Changes in Legal Covenants. In addition to the changes to the disbursement, financial management and procurement arrangements described above, the Financing Agreement for the project also will be amended to include a covenant which requires the RMI to enter into an Insurance Contract with PCRIC or other catastrophe risk insurance provider, under terms and conditions acceptable to IDA, to obtain insurance coverage of the disaster and climate-related events. The premia payment financed by IDA proceeds will be made in consideration for the entry into, and coverage under, such Insurance Contract. III. SUMMARY OF CHANGES Changed Not Changed Change in Implementing Agency ✔ Change in Disbursements Arrangements ✔ Change in Legal Covenants ✔ Change in Institutional Arrangements ✔ Change in Financial Management ✔ Change in Procurement ✔ Change in Implementation Schedule ✔ Change in DDO Status ✔ Change in Project's Development Objectives ✔ The World Bank PACIFIC RESILIENCE PROJECT UNDER PACIFIC RESILIENCE PROGRAM (P155257) Change in Results Framework ✔ Change in Components and Cost ✔ Change in Loan Closing Date(s) ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Change in Disbursement Estimates ✔ Change in Systematic Operations Risk-Rating Tool ✔ (SORT) Change in Safeguard Policies Triggered ✔ Change of EA category ✔ Other Change(s) ✔ Change in Economic and Financial Analysis ✔ Change in Technical Analysis ✔ Change in Social Analysis ✔ Change in Environmental Analysis ✔ IV. DETAILED CHANGE(S) IMPLEMENTING AGENCY Implementing Agency Name Type Action Implementing Ministry of Finance No Change Agency Implementing Ministry of Finance New Agency COMPLIANCE The World Bank PACIFIC RESILIENCE PROJECT UNDER PACIFIC RESILIENCE PROGRAM (P155257) LEGAL COVENANTS Loan/Credit Description Status Action /TF In carrying out activities under the Project, the Recipient shall enter into an Insurance Contract with an Eligible IDA-D0790 Expected soon New Insurer under terms and conditions acceptable to the Association.