The World BankSecond Urban Infrastructure Project (P132386)

REPORT NO.: RES32617

RESTRUCTURING PAPER

ON A

PROPOSED PROJECT RESTRUCTURING

OF THE

SECOND URBAN INFRASTRUCTURE PROJECT

APPROVED ON MAY 22, 2014

TO

UKRAINE

WATER

EUROPE AND CENTRAL ASIA

Regional Vice President: Cyril E Muller Country Director: Satu Kristiina J. Kahkonen

Senior Global Practice Director: Guang Zhe ChenPractice Manager/Manager: David Michaud

Task Team Leader: Sana Kh.H. Agha Al Nimer, Ivaylo Hristov Kolev

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The World BankSecond Urban Infrastructure Project (P132386)

ABBREVIATIONS AND ACRONYMS

CTF Clean Technology FundIBRD International Bank for Reconstruction and Development ISCB Institutional Strengthening and Capacity Building MOF Ministry of FinancePDO Project Development Objectives

The World BankSecond Urban Infrastructure Project (P132386)

Note to Task Teams: The following sections are system generated and can only be edited online in the Portal.

BASIC DATA

Product Information

Project ID Financing Instrument

P132386 Investment Project Financing

Original EA Category Current EA Category

Partial Assessment (B) Partial Assessment (B)

Approval Date Current Closing Date

22-May-2014 31-Oct-2020

Organizations

Borrower Responsible Agency

Ukraine MoRDCHC of Ukraine

Project Development Objective (PDO)

Original PDOThe project development objective (PDO) is to improve the quality and efficiency of water, wastewater, and solid waste services in selected cities in Ukraine.OPS_TABLE_PDO_CURRENTPDOSummary Status of Financing

Ln/Cr/Tf Approval Signing Effectiveness ClosingNet

Commitment Disbursed Undisbursed

IBRD-83910 22-May-2014 26-May-2014 21-Nov-2014 31-Oct-2020 300.00 20.09 279.91

TF-17112 22-May-2014 26-May-2014 21-Nov-2014 31-Oct-2020 50.00 3.84 46.16

Policy Waiver(s)

Does this restructuring trigger the need for any policy waiver(s)?No

The World BankSecond Urban Infrastructure Project (P132386)

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I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING

1. Overall, Project performance has improved over the past six months (since the November MTR mission). This is the outcome of agreed corrective actions being taken with regard to internal rules and regulations to ensure that they support project implementation, in particular those related to: registration of contractors and consultants; granting of state expertise approvals and construction permits; and the timely advance payments. As of May 18, 2018, disbursements have increased to US$23.14 million (representing 6.61 percent of Project funds), compared to US$16.19 million reported at MTR, while commitments stand at US$200 million (58 percent of Project funds). Based on the improved performance resulting from the Counterpart’s continuing adherence to corrective actions, the Project Development Objective (PDO) is considered achievable within the timeframe remaining. Following is a summary of the implementation status of the 2 project components to date.

2. Component 1 – Infrastructure Investment (Total cost: million US$285 IBRD and 50 CTF). All 12 participating utilities are making progress on investment packages which are currently either committed, in the process of contract award, or at the tendering stage. For the three utilities that joined the Project as a result of the October 2016 restructuring (Vinnitsa, Chuguiv and Novovolynsk,) preparation of bidding documents to be tendered is progressing.

3. However, Kramatorsk Vodokanal Utility has not been able to finalize the contract award for works due to its inability to obtain city council approval. Accordingly, during the MTR mission, both the Ukrainian authorities and the Bank, agreed to reduce the IBRD loan by US$4.893 million (i.e., the amount allocated for the Kramatorsk Vodokanal).

4. Component 2: Institutional Strengthening and Capacity Building Component (Total cost: IBRD US$10million). Progress under this component has continued to lag. the two key studies (i.e., the “Utility Performance Improvement Study [UPIS]” and the “Development of the National Water and Wastewater Strategy”), have been launched.

Other studies such as; the “Utility Performance Assessment Benchmarking” was recently delivered by a WTR GP expert. The “Energy Efficiency Study”, both the Bank and Borrower agreed to merge under the UPIS.. In addition, a number of other activities such as training and monitoring and evaluation are being financed under Component 3 ” Project Management and Supervision”, and hence it was agreed that amounts associated with these activities totaling US$3 million will be cancelled.

5. Although the PDO remains relevant and is considered achievable by the current closing date, thereby reflecting the MS DO rating, the IP rating is maintained at MU owing to implementation delays as evidenced in the low disbursement rate attained to date. Yet, project performance is expected to improve substantially during the coming months increasing prospects for upgrading the IP rating to MS provided the current pace is maintained. The Bank team will continue to directly support both CPMU and the RPMUs to this end.

6. Performance on the fiduciary and safeguards fronts can be summarized as follows: a. Fiduciary Performance. The current financial management rating of the Project is Moderately Unsatisfactory,

because a number of important actions are still to be completed such as the IT system which to date is not installed. There are no outstanding audit reports. The procurement rating is moderately satisfactory

b. Safeguards Performance. The current environmental rating is Moderately Satisfactory while social safeguard rating is satisfactory.

The World BankSecond Urban Infrastructure Project (P132386)

I. DESCRIPTION OF PROPOSED CHANGES

This Restructuring Paper seeks CD approval to proceed with:

A. The cancellation of a total of US$7,893,000 dated April 17, 2018 corresponds to a reduction of the total loan amount from US$300,000,000 to US$292,107,000. This cancellation will entail:

(a) The reduction of the loan amount allocated to Kramatorsk Vodokanal Utility by US$4,893,000 under Component 1: Infrastructure Investment.

(b) Cancellation of the US$3,000,000 allocated to Component 2: Institutional Strengthening and Capacity Building;

B. Corresponding changes to component activities and costs under Component 1 and 2.C. The reallocation of funding between disbursement categories. D. Revisions to the Project’s disbursement estimates to reflect these cancellations. As a result of restructuring, the total IBRD

Loan amount will be reduced. Category 2 (A) in the table specifying the categories of Eligible Expenditures “Utility Company Kramatorsk)” will be reduced to US$343,000, and Category 3 will be reduced to US$12,000,000.

Note to Task Teams: The following sections are system generated and can only be edited online in the Portal.

II. SUMMARY OF CHANGES

Changed Not Changed

Change in Components and Cost ✔

Cancellations Proposed ✔

Reallocation between Disbursement Categories ✔

Change in Disbursement Estimates ✔

Change in Implementing Agency ✔

Change in DDO Status ✔

Change in Project's Development Objectives ✔

Change in Results Framework ✔

Change in Loan Closing Date(s) ✔

Change in Disbursements Arrangements ✔

Change in Overall Risk Rating ✔

Change in Safeguard Policies Triggered ✔

Change of EA category ✔

The World BankSecond Urban Infrastructure Project (P132386)

Change in Legal Covenants ✔

Change in Institutional Arrangements ✔

Change in Financial Management ✔

Change in Procurement ✔

Change in Implementation Schedule ✔

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)

OPS_DETAILEDCHANGES_COMPONENTS_TABLE

COMPONENTS

Current Component Name

Current Cost

(US$M)Action Proposed

Component NameProposed

Cost (US$M)

Component 1: Urban Infrastructure Improvement 335.00 Revised Component 1: Urban

Infrastructure Improvement 330.10

Component 2: Institutional Strengthening and Capacity Building

10.00 RevisedComponent 2: Institutional Strengthening and Capacity Building

7.00

Component 3: Project Management and Supervision 5.00 No Change Component 3: Project

Management and Supervision 5.00

TOTAL 350.00 342.10

OPS_DETAILEDCHANGES_CANCELLATIONS_TABLE

CANCELLATIONS

Ln/Cr/Tf Status Currency Current Amount

Cancellation Amount

Value Date of

Cancellation

New Amount

Reason for

Cancellation

IBRD-83910-001

Disbursing USD 300,000,000.0

0 7,893,000.00 29-Jun-2018 292,107,000.00

BORROWER'S REQUEST

FOR

The World BankSecond Urban Infrastructure Project (P132386)

COUNTRY REASONS

TF-17112-001

Disbursing USD 50,000,000.00 0.00 50,000,000.00

OPS_DETAILEDCHANGES_REALLOCATION _TABLE

REALLOCATION BETWEEN DISBURSEMENT CATEGORIES

Current Allocation Actuals + Committed Proposed Allocation Financing %(Type Total)

Current Proposed

IBRD-83910-001 | Currency: USD

iLap Category Sequence No: 1-A Current Expenditure Category: GD,CW,Non-CS,CS for Donetsk UC

0.00 0.00 0.00 81.50 81.50

iLap Category Sequence No: 1-B Current Expenditure Category: GD,CW,Non-CS,CS for Kharkiv UC

69,727,625.00 389,426.98 69,727,625.00 81.50 81.50

iLap Category Sequence No: 1-C Current Expenditure Category: GD,CW,Non-CS,CS for Kharkiv Waste

35,755,000.00 1,701,502.82 35,755,000.00 81.50 81.50

iLap Category Sequence No: 1-D Current Expenditure Category: GD,CW,Non-CS,CS for Kyiv UC

9,264,000.00 2,789,833.34 9,264,000.00 81.50 81.50

iLap Category Sequence No: 1-E Current Expenditure Category: GD,CW,Non-CS,CS for Kirovohrad UC

36,097,884.00 3,758,754.26 36,097,884.00 81.50 81.50

iLap Category Sequence No: 1-F Current Expenditure Category: GD,CW,Non-CS,CS for Ternopil UC

29,815,000.00 659,943.70 29,815,000.00 81.50 81.50

iLap Category Sequence No: 1-G Current Expenditure Category: GD,CW,Non-CS,CS for Zhytomyr UC

32,507,625.00 799,634.24 32,507,625.00 81.50 81.50

The World BankSecond Urban Infrastructure Project (P132386)

iLap Category Sequence No: 1-H Current Expenditure Category: GD,CW,Non-CS,CS for Vinnytsia UC

39,473,116.00 0.00 39,473,116.00 96.60 96.60

iLap Category Sequence No: 2-A Current Expenditure Category: GD,CW,Non-CS,CS for Kramatorsk UC

5,236,000.00 342,509.29 343,000.00 100.00 100.00

iLap Category Sequence No: 2-B Current Expenditure Category: GD,CW,Non-CS,CS for Kolomiya UC

3,092,250.00 440,740.56 3,092,250.00 100.00 100.00

iLap Category Sequence No: 2-C Current Expenditure Category: GD,CW,Non-CS,CS for Ivano-Frankivsk

0.00 0.00 0.00 100.00 100.00

iLap Category Sequence No: 2-D Current Expenditure Category: GD,CW,Non-CS,CS for Cherkasy UC

12,309,000.00 723,009.16 12,309,000.00 100.00 100.00

iLap Category Sequence No: 2-E Current Expenditure Category: GD,CW,Non-CS,CS for Novovolynsk UC

5,985,000.00 30,808.89 5,985,000.00 100.00 100.00

iLap Category Sequence No: 2-F Current Expenditure Category: GD,CW,Non-CS,CS for Chuguiv UC

4,987,500.00 0.00 4,987,500.00 100.00 100.00

iLap Category Sequence No: 3 Current Expenditure Category: GD,CW,Non-CS,CS for CPMU

15,000,000.00 476,410.35 12,000,000.00 100.00 100.00

iLap Category Sequence No: 5 Current Expenditure Category: Interest Rate Cap & Collar Premium

0.00 0.00 0.00

iLap Category Sequence No: 6 Current Expenditure Category: UNALLOCATED

0.00 0.00 0.00

The World BankSecond Urban Infrastructure Project (P132386)

Total 299,250,000.00 12,112,573.59 291,357,000.00

OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE

DISBURSEMENT ESTIMATES

Change in Disbursement EstimatesYes

Year Current Proposed

2014 0.00 0.00

2015 0.00 0.00

2016 6,000,000.00 4,585,670.00

2017 25,000,000.00 2,935,338.91

2018 55,000,000.00 20,000,000.00

2019 95,000,000.00 90,000,000.00

2020 90,000,000.00 115,000,000.00

2021 79,000,000.00 109,585,991.09

2022 0.00 0.00

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