The World Bank Climate Adaptation and Mitigation Program for Aral Sea Basin CAMP4ASB (P151363) REPORT NO.: RES29026 DOCUMENT OF THE WORLD BANK RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF CLIMATE ADAPTATION AND MITIGATION PROGRAM FOR ARAL SEA BASIN CAMP4ASB APPROVED ON NOVEMBER 3, 2015 TO REPUBLIC OF TAJIKISTAN,REPUBLIC OF UZBEKISTAN,EXECUTIVE COMMITTEE FOR INTERNATIONAL FUND FOR SAVING THE ARAL SEA ENVIRONMENT & NATURAL RESOURCES EUROPE AND CENTRAL ASIA Regional Vice President: Cyril E Muller Country Director: Lilia Burunciuc Senior Global Practice Director: Karin Erika Kemper Practice Manager/Manager: Valerie Hickey Task Team Leader: Gayane Minasyan, Philippe Ambrosi The World Bank Climate Adaptation and Mitigation Program for Aral Sea Basin CAMP4ASB (P151363) I. BASIC DATA Product Information Project ID Financing Instrument P151363 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 03-Nov-2015 30-Apr-2021 Organizations Borrower Responsible Agency Republic of Tajikistan,Republic of Uzbekistan,Executive EC-IFAS,Committee for Environmental Committee for International Fund for Saving the Aral Sea Protection,Ministry of Agriculture and Water Resources Project Development Objective (PDO) Original PDO To enhance regionally coordinated access to improved climate change knowledge services for key stakeholders (e.g., policy makers, communities, and civil society) in participating Central Asian countries, as well as to increased investments and capacity building that, combined, will address climate challenges common to these countries. Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-57410 03-Nov-2015 13-Mar-2017 28-Apr-2017 30-Apr-2021 14.00 2.10 11.90 IDA-57420 03-Nov-2015 22-Jan-2016 04-Aug-2016 30-Apr-2021 9.00 1.75 7.18 IDA-D0940 03-Nov-2015 01-Jul-2016 04-Aug-2016 30-Apr-2021 15.00 1.01 13.90 The World Bank Climate Adaptation and Mitigation Program for Aral Sea Basin CAMP4ASB (P151363) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No II. SUMMARY OF PROJECT STATUS AND PROPOSED CHANGES The CAMP4ASB regional program seeks to help Central Asian countries build upon the benefits of regional cooperation to address the mounting challenges from climate change, which often transcend borders. IDA financing of US$38 million equivalent approved by the World Bank Board of Executive Directors on November 3, 2015, is supporting Tajikistan, Uzbekistan, and a regional organization (the Executive Committee of International Fund for Saving the Aral Sea, or EC-IFAS), with the objective to enhance regionally coordinated access to improved climate change knowledge services for key stakeholders, as well as increase investments and capacity building that will address climate challenges common to the participating Central Asian countries. The Project was declared effective on August 4, 2016 (based on cross-conditionality), while Uzbekistan part of it became effective in April 2017. As of July 2017, overall implementation progress of the Project is satisfactory. The implementation has picked up both in Tajikistan and Uzbekistan, and the regional component is quite advanced, with most of the activities having commenced and well underway. Component 2 of the project, the Regional Climate Investment Facility (US$21.35 million: US$21.4 million in IDA financing and US$6.8 million in beneficiary contributions), provides financing via sub-loans, through Participating Financial Institutions (PFIs), to rural enterprises and farmers for climate investments in sectors considered by participating Central Asian countries as priority for scaled-up climate action. The component also supports capacity building of credit line beneficiaries, for the successful design, implementation, and sustainability of their climate investments, as well as of PFIs, notably on climate change appraisal of sub-loan applications. The objective of this Level 2 Restructuring is to amend the Financing Agreement between the Republic of Tajikistan and IDA dated January 22, 2016 in response to the request of the Minister of Finance of Tajikistan dated June 7, 2017. The proposed changes would facilitate on-lending by the Climate Investment Facility in Tajikistan, by addressing the issues that impede participation of a larger number of PFIs in the Facility. Tajikistan: The Climate Investment Facility has been operational in Tajikistan for about six months by now. The Facility has disbursed about US$251,000, leveraging US$79,000 in sub-borrower contributions. So far 158 sub-loans have been approved, indicating a rather small size of the underlying sub-projects. At the same time, 931 people benefited from the credit line, including 135 male and 23 female immediate sub-borrowers. The most popular types of investments are crop and livestock diversification, which combined, comprise more than 85% of borrowing from the credit line. Currently the Project works with only two PFIs – Humo and Arvand, and in fact, more than two-thirds of financing has been channeled through Humo so far. It is hoped that one more PFI can join the Project sometime soon since limited number of PFIs restricts the clientele base for the credit line and obviously impedes disbursement. The proposed changes are in response to the request of the Minister of Finance (attached). The World Bank Climate Adaptation and Mitigation Program for Aral Sea Basin CAMP4ASB (P151363) 1. On-lending rates of subsidiary loans are established on the base of the reference rate, which shall be equal to the refinancing rate of the National Bank of Tajikistan. At the inception stage of the Project, the refinancing rate was 8,00%; it has since increased considerably, and currently stands at 16%. Adding to the interest rate charged by PFIs, the final beneficiaries face a borrowing rate of 36-38%. Such high interest rate have indeed slowed down the disbursements from the credit line and moreover seem to be prohibitively expensive for investments targeting climate resilience. The task team thus concurs with the Minister's request and suggests that the interest rate on the Subsidiary Loans denominated in Somonis shall be the refinancing rate set forth by the National Bank of Tajikistan plus 1% margin to cover risks associated with currency exchange, or the reference rate equal to the average between the annual inflation rate projected by the National Bank of Tajikistan for the respective year and the actual inflation rate of the preceding year plus 1% margin to cover risks associated with currency exchange, whichever is lower. The interest rate after restructuring would be around 27-29% which would be lower and more attractive for final beneficiaries than the currently prevailing interest rates. 2. According to the Financing Agreement, sub-borrowers under the Climate Facility are expected to contribute no less than 20% of the total cost of their sub-projects. This has proven to be problematic and in most cases the actual contribution has been in-kind. Since the sub-loans are offered at market rate, not subsidized and securitized, the task team agrees to lower the contribution of the sub-borrowers to 10% of the sub-project cost. 3. Limiting the scope of activities of Tajikistan’s supervisory authorities in any way or form is not intended by the project and therefore is not considered to be a valid reason to accept the proposed amendment. All Bank financing shall be used exc lusively for the purposes of the respective project and for the activities specified in the respective Legal Agreement. Accordingly, the Bank, as well as the Recipient itself need to have an opportunity to supervise project beneficiaries’ activities financed by the Bank to make sure that the respective financing is used for the intended purposes. Request to include the following wording: “the overseeing and monitoring of the implementation of the Credit Line (sub-component 2.1) shall be conducted in accordance with the Line of Credit Manual” is deemed redundant, as it repeats the statements under Section I.A.1. III. DETAILED CHANGES