The World Bank LK GPOBA - Access to Sanitation Project (P111161) REPORT NO.: RES33968 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF THE LK GPOBA - ACCESS TO SANITATION PROJECT APPROVED ON JUNE 8, 2011 TO THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA Water Global Practice South Asia Region Regional Vice President: Hartwig Schafer Country Director: Idah Z. Pswarayi-Riddihough Senior Global Practice Director: Guang Zhe Chen Practice Manager/Manager: Takuya Kamata Task Team Leader: Mathews K. Mullackal The World Bank LK GPOBA - Access to Sanitation Project (P111161) ABBREVIATIONS AND ACRONYMS GPOBA Global Partnership on Output Based Aid IVA Independent Verification Agency NWSDB National Water Supply and Drainage Board PDO Project Development Objective PPP Public Private Partnership The World Bank LK GPOBA - Access to Sanitation Project (P111161) BASIC DATA Product Information Project ID Financing Instrument P111161 Investment Project Financing Original EA Category Current EA Category Approval Date Current Closing Date 08-Jun-2011 30-Dec-2018 Organizations Borrower Responsible Agency Democratic Socialist Republic of Sri Lanka National Water Supply and Drainage Board Financing (in USD Million) FIN_SUMM_PUB_TBL SUMMARY Total Project Cost 13.12 Total Financing 0.00 Financing Gap 0.00 DETAILS -NewFin3 Project Development Objective (PDO) Original PDO The objective of the Project is to improve sanitation services to low-income households in Greater Colombo by increasing the numberof sewerage house connections to existing and new sewerage networks and improving on-site sanitation services at household level. OPS_TABLE_PDO_CURRENTPDO The World Bank LK GPOBA - Access to Sanitation Project (P111161) Summary Status of Financing Net TF Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed TF-99870 27-Dec-2011 27-Dec-2011 22-Jun-2012 30-Dec-2018 5.08 3.78 1.30 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project status: 1. This is a results-based financing project, funded by the Global Partnership on Output Based Aid (GPOBA)’s Trust Fund with two types of Outputs: increasing the number of sewer connections to households (Output 1) and improving on-site sanitation services at household level (Output 2). 2. To date, the project has resulted in 4,791 sewer connections against a planned target of 5,015 (96 percent), and 2,194 on-site connections against a target of 3,785 (58 percent). In total the project has delivered 6,985 outputs (79 percent). While the project has nearly achieved the target for Output 1, there were delays in Output 2, which entails innovative approaches, due to capacity issues of the contractor. In the past year, the National Water Supply and Drainage Board (NWSDB) has taken several measures such as procuring more contractors and intensifying demand generation activities, resulting in the steady increase in the rate of progress, as detailed in Table 1. Table 1: Recent Progress of the Project June 2017 Jan 2018 Mar 2018 Aug 2018 Target Achievement: Output 1 3282 (65%) 4612 (92%) 4,772 (95%) 4,791 (96%) 5015 Achievement: Output 2 9 (0.2%) 481 (13%) 812 (22%) 2,194 (58%) 3785 Value of completed Outputs $6.58m (50%) $10.4m (79%) $10.8m 82%) $11.9m 91%) $13.12m Disbursement of grant $1.65m (32%) $ 2.3m (45%) $2.9m (57%) $3.8m (74%) $5.08m 3. Scalable Approaches: The project has successfully piloted a menu of infrastructure options, which are scalable and sustainable, both in terms of technology and approach, as explained below. (a) The project supported three standalone decentralized sewerage networks cum waste water treatment systems (Dewats). The quality of effluent water was found to be better than acceptable standards and the The World Bank LK GPOBA - Access to Sanitation Project (P111161) cost of installation per household, including treatment has been found to be around one-tenth the cost for conventional sewer connection. (b) The project has piloted precast treatments units for onsite sanitation with anaerobic filter. The initial analysis of seven randomly selected units shows that Biological Oxygen Demand (BOD5) effluents is very low (highest 40 mg/l and average 24.5 mg/l). This shows a drastic improvement in the quality of effluents compared to conventional septic tanks which have a standard of 150-200 mg/lit (reference: Washington State Department of Health, Research Report, 2004). (c) The project has demonstrated a PPP approach for installation of treatment units and regularly scheduled desludging. It demonstrates the concept of a universal sanitation service which enables households to become legitimate “sanitation customers” of the utility, irrespective of whether services are provided by piped sewers or properly-managed and serviced on-site systems. B. Rationale for Restructuring. 4. Currently, results-based financing for the onsite sanitation (Outputs 2) are designed in two tranches – 80% after a first verification conducted at completion and then 20% after a second verification conducted six months after completion. The verifications are done by an Independent Verification Agency (IVA) contracted by the Bank under a separate Trust Fund (TF012175). The proposed restructuring would waive the requirement for the second verification of Outputs 2, based on the following rationale. (a) Reason 1. The first verification is sufficient to ensure the quality of Outputs: IVA has verified that, as of June 2018, all onsite treatment units have remained functional without any operational issues six months after installation. IVA suggested that the first verification itself could determine the likelihood that the onsite units are technically correct and will remain operational until and beyond the one-year mark when desludging takes place. Since these households had already been using toilets (though with unsafe disposal), there is no reason they would stop using toilets after installing the on-site treatment units. Hence, it is not necessary to undertake a second verification and 100% payment may be released after the first verification. By December 2018 there will have been ample units more than six months old (1,363 households) to establish if any issues such as overflow, surrounding contamination, or other customer complaints emerge. (b) Reason 2. This restructuring enables achievement of the project's targets: the NWSDB has recruited additional contractors for installations to achieve the targets and has made steady progress since then. Also, overcoming initial challenges, the PMU have mobilized 3,282 applications from low income households with payment for onsite sanitation against the target of 3,785. The demand is increasing with around 10 applications per day and is expected to exceed the target by December 2018. Without restructuring, the households connected after June 2018 will be eligible only for 80% subsidy. This restructuring enables 100% subsidy for installation of Outputs 2 till closing date, which will help the project to achieve the targets. 5. The Panel of Experts of GPOBA donors have endorsed this change, through virtual review process held during September 11-24, 2018. II. DESCRIPTION OF PROPOSED CHANGES C. Disbursement Arrangements The World Bank LK GPOBA - Access to Sanitation Project (P111161) 6. The disbursement of 100% subsidy of Output 2 is proposed to be released after the installation of onsite units are completed and their operations are initiated, instead of two tranches- 80% at completion and 20% six months after completion. 7. The legal agreement will be amended to reflect the above change; the amendment letter is attached. D. Disbursement Estimates 8. The disbursement estimate has been updated based on the above changes and historic disbursement, as updated in Section IV. III. SUMMARY OF CHANGES Changed Not Changed Disbursements Arrangements ✔ Disbursement Estimates ✔ Implementing Agency ✔ Project's Development Objectives ✔ Results Framework ✔ Components and Cost ✔ Loan Closing Date(s) ✔ Cancellations Proposed ✔ Additional Financing Proposed ✔ Reallocation between Disbursement Categories ✔ Change in Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Other Change(s) ✔ The World Bank LK GPOBA - Access to Sanitation Project (P111161) IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 0000 0.00 0.00 2011 0.00 0.00 2012 0.00 0.00 2013 0.00 0.00 2014 39,550.00 39,550.00 2015 176,000.00 176,000.00 2016 584,450.00 584,450.00 2017 3,300,000.00 1,400,000.00 2018 980,000.00 1,400,000.00 2019 0.00 1,400,000.00 Note to Task Teams: End of system generated content, document is editable from here.