The World Bank DJ Geothermal Power Generation Project (P127143) REPORT NO.: RES34576 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF DJ GEOTHERMAL POWER GENERATION PROJECT APPROVED ON JUNE 5, 2013 TO MINISTRY OF ECONOMY AND FINANCE ENERGY & EXTRACTIVES MIDDLE EAST AND NORTH AFRICA Regional Vice President: Ferid Belhaj Country Director: Samia Msadek Senior Global Practice Director: Riccardo Puliti Practice Manager/Manager: Erik Magnus Fernstrom Task Team Leader: Roger Coma Cunill The World Bank DJ Geothermal Power Generation Project (P127143) ABBREVIATIONS AND ACRONYMS EDD Electricité de Djibouti ESMAP Energy Sector Management Assistance Program GEF Global Environment Facility IDA International Development Association ISR Implementation Status Report OFID OPEC Fund for International Development PDO Project Development Objective PIU Project Implementation Unit TF Trust Fund The World Bank DJ Geothermal Power Generation Project (P127143) BASIC DATA Product Information Project ID Financing Instrument P127143 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 05-Jun-2013 30-Jun-2019 Organizations Borrower Responsible Agency Ministry of Economy and Finance EDD,EDD/PIU Project Development Objective (PDO) Original PDO The objective of the Project is to assist the Recipient in assessing the commercial viability of the geothermal resource in Fiale Caldera within the Lake Assal region. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-52620 05-Jun-2013 13-Oct-2013 02-Jul-2014 31-Dec-2018 6.00 5.49 .10 TF-14757 13-Oct-2013 13-Oct-2013 02-Jul-2014 31-Dec-2018 6.04 5.81 .23 TF-14765 13-Oct-2013 13-Oct-2013 02-Jul-2014 30-Jun-2019 1.10 0 1.10 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank DJ Geothermal Power Generation Project (P127143) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING 1. The Djibouti-Geothermal Power Generation Project (P127143) was approved on June 5, 2013 and became effective on July 2, 2014. The US$ 31.23 million project budget at approval is funded by the following sources: World Bank (US$ 13.14 million, of which US$ 6 million IDA, US$ 6.04 million GEF, and US$ 1.1 million ESMAP), African Development Bank (US$ 7.34 million), Agence Française de Développement (US$ 3.25 million), OPEC Fund for International Development (US$ 7 million) and Republic of Djibouti (US$ 0.5 million). The ISR of June 5, 2018 rated both the Progress towards achieving the PDO and Overall implementation progress as Moderately Satisfactory. 2. The project has been progressing satisfactorily since the start of drilling operations on the Fiale Caldera site in July 17, 2018 (“spud date”). The disbursement rate of the IDA credit is 98%. The overall project disbursement rate including the three sources of funding mobilized by the World Bank (IDA, GEF and ESMAP) is 89% due to contract delays in the ESMAP-financed testing equipment. 3. The first well (Fiale 1) has been drilled completely until a measured depth of 2,750 meters (i.e. vertical depth of 2,500 meters). The second well (Fiale 2) has reached a measured depth of 2,080 meters and is expected to be completed by December 19, 2018. 4. High temperature and permeability are two of the key parameters required for any geothermal reservoir to be commercially viable. The preliminary results of two injectivity tests in the shallow zones of Fiale 1 and Fiale 2 indicate the existence of high temperatures (minimum of 303 oC at the bottom of the well), but lower-than- expected permeability. The injectivity test in the shallow zone of Fiale 2 identified commercial permeability within 524 to 780 meters. This permeable zone is most likely within the high (150 to 180 °C) shallow zone also recognized in Assal 5 (a well drilled over 30 years ago) and Fiale 1, but this needs to be confirmed with additional tests. 5. Additional injectivity tests of the deep reservoir (i.e. 2,500 meters) in Fiale 2 are expected by December 24, 2018. A successful test is defined as having an injectivity index > 2.5 grams/second/bar and a temperature of > 200 oC. The Bank team encouraged the PIU and its geothermal technical advisors, Geologica, to revise the drilling target and the conceptual model of Fiale 3 based on the lessons learned and results of Fiale 1 and 2. Accordingly, if the final test results of Fiale 2 are unsuccessful, the PIU/Geologica plans to drill to the south outside the Fiale Caldera. If successful, Fiale 3 could be targeted towards an expansion of the Fiale 2 zone. 6. The project is expected to drill three full-size production wells instead of four as originally planned, due to cost overruns in the drilling service contract. Despite this change, the PDO remains achievable. The Government of Djibouti remains deeply committed to the project and increased its financial contribution from US$ 0.5 million at approval to US$ 2.8 million to cover PIU operation expenditures. The African Development Bank also increased its financial contribution from US$ 7.34 million to US$ 22.34 million through an additional financing approved on June 2018 to cover the drilling costs of the third well. Thus, the overall project budget is currently of US$ 48.53 million. The World Bank DJ Geothermal Power Generation Project (P127143) II. DESCRIPTION OF PROPOSED CHANGES 7. The proposed changes include the extension of the closing date of the IDA credit (IDA-52620) and the GEF grant (TF-14757) from 31 December 2018 until 31 December 2019. This would be the first extension of both sources of funding. This extension will allow the project to complete: (i) the final production tests (expected by March 18, 2019), (ii) the feasibility study on a geothermal power plant (expected by June 26, 2019), (iii) the tender package for the selection of a private geothermal power plant developer (expected by August 21, 2019), and (iv) the final PIU project activity report (expected by September 30, 2019). 8. Due to changes in the operations portal system, the Bank team was requested to align the PDO indicators with the project’s outcome and the intermediate indicators with the project’s components. For this reason, indicators are shown as “new” in the Results framework of this Restructuring paper (see below). The only proposed changes in the Results framework concern two intermediate indicators. First, the target of the intermediate indicator “Number of wells drilled” is revised from four to three to reflect the current contractual target of the drilling contractor, Iceland Drilling Company, as per the available project financing. Second, the intermediate indicator “Grievances registered related to delivery of project benefits addressed” is included to respond to recent World Bank corporate requirements. III. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Loan Closing Date(s) ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Components and Cost ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursements Arrangements ✔ Disbursement Estimates ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ The World Bank DJ Geothermal Power Generation Project (P127143) 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_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IDA-52620 Effective 31-Dec-2018 31-Dec-2019 30-Apr-2020 TF-14757 Effective 31-Dec-2018 31-Dec-2019 30-Apr-2020 TF-14765 Effective 30-Jun-2018 30-Jun-2019 . The World Bank DJ Geothermal Power Generation Project (P127143) . Results framework COUNTRY: Djibouti DJ Geothermal Power Generation Project Project Development Objectives(s) The objective of the Project is to assist the Recipient in assessing the commercial viability of the geothermal resource in Fiale Caldera within the Lake Assal region. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline End Target Assist Djibouti in assessing the commercial viability of the geothermal resource in Fiale Caldera (Action: This Objective is New) Develop a fully-fledged power generation feasibility study (Text) No study has been done Study completed Action: This indicator is New Publish periodic updates of project implementation (Text) None All periodic updates published Action: This indicator is New Geothermal well test protocol developed and in place (Text) No Yes Action: This indicator is New Well test results independently reviewed and certified (Text) No Yes Action: This indicator is New Greenhouse Gas Emissions Avoided (Metric ton) 0.00 390,358.00 Rationale: Action: This indicator is New This indicator was previously omitted in the ISR and is now included accordingly to the approved PAD. PDO Table SPACE The World Bank DJ Geothermal Power Generation Project (P127143) Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name DLI Baseline End Target Drilling Program (Action: This Component is New) Access to the site is constructed (Text) No Yes Action: This indicator is New Number of wells drilled (Number) 0.00 3.00 Action: This indicator is New Technical Assistance (Action: This Component is New) Joint missions by donors (Number) 0.00 4.00 Action: This indicator is New Operating Costs of the Program Management Unit (Action: This Component is New) Grievances registered related to delivery of project benefits 0.00 90.00 addressed (Percentage) Rationale: This is a new corporate indicator, which was not available at project approval. The October 4, 2018 joint-donors Supervision Action: This indicator is New mission confirmed that a Grievance Redress Mechanism is in place and that 100% of grievances have been addressed so far. IO Table SPACE The World Bank DJ Geothermal Power Generation Project (P127143)