The World Bank Energy Efficiency Facility for Industrial Enterprises (P118737) REPORT NO.: RES59499 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF ENERGY EFFICIENCY FACILITY FOR INDUSTRIAL ENTERPRISES APPROVED ON JUNE 17, 2010 TO THE REPUBLIC OF UZBEKISTAN Energy and Extractives Global Practice Europe and Central Asia Region Regional Vice President: Antonella Bassani Country Director: Tatiana A. Proskuryakova Regional Director: Charles Joseph Cormier Practice Manager: Stephanie Gil Task Team Leader: Irina Voitekhovitch The World Bank Energy Efficiency Facility for Industrial Enterprises (P118737) ABBREVIATIONS AND ACRONYMS AF Additional Financing ECA Eastern Europe and Central Asia EE Energy Efficiency GoU Government of Uzbekistan GW Gigawatt IBRD International Bank for Reconstruction and Development IE Industrial Enterprises IFIs International Finance Institutions IFR Interim Financial Report IFRS International Financial Reporting Standards M&E Monitoring and Evaluation MoEF Ministry of Economy and Finance MWh Megawatt-hour OM Operational Manual PAD Project Appraisal Document PBs Participating Banks PCU Project Coordinating Unit PDO Project Development Objective PIU Project Implementation Unit TA Technical Assistance US$ US Dollar UZEEF Uzbekistan Energy Efficiency Facility for Industrial Enterprises UZS Uzbek Som WB World Bank The World Bank Energy Efficiency Facility for Industrial Enterprises (P118737) BASIC DATA Product Information Project ID Financing Instrument P118737 Investment Project Financing Original EA Category Current EA Category Financial Intermediary Assessment (F) Financial Intermediary Assessment (F) Approval Date Current Closing Date 17-Jun-2010 31-Jan-2024 Organizations Borrower Responsible Agency Asia Alliance Bank, Ministry of Economic Development and Poverty Reduction, ASAKA Bank, Uzpromstroybank, The Republic of Uzbekistan National Bank of Uzbekistan, Hamkorbank, Aloqabank, Ministry of Economy and Finance, Invest Finance Bank Project Development Objective (PDO) Original PDO The project objective is to improve energy efficiency in Industrial Enterprises (IEs) by designing and establishing a financing mechanism for energy saving investments. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-88260 30-Jan-2018 17-May-2018 12-Sep-2018 31-Jan-2024 200.00 185.86 14.14 IDA-52410 26-Apr-2013 18-Jul-2013 06-Dec-2013 31-Jan-2023 94.42 87.27 0 IDA-47450 17-Jun-2010 18-Aug-2011 15-Dec-2011 31-Jan-2016 24.20 24.23 0 The World Bank Energy Efficiency Facility for Industrial Enterprises (P118737) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING 1. Uzbekistan Energy Efficiency in Industrial Enterprises Project consists of the Parent project and Additional Financing 1 and 2 (AF1 and AF2). The financing for the Parent Project (US$24.2 million, IDA) was approved June 2010, became effective December 2011, was closed on January 2016, and reached the disbursement level of 100 percent. AF1 (US$100 million, IDA) was approved April 2013, became effective December 2013, was closed on January 2023, and reached the disbursement level of 95 percent. Despite some delays in the implementation of activities supported by AF1, it has demonstrated steady disbursements starting 2019 and growing demand leading to preparation of AF2. AF2 (US$200 million, IBRD) was approved January 2018, became effective September 2018, reached the disbursement level of 92 percent in January 2024, and is expected to be closed on January 31, 2024. Progress towards achievement of the Project Development Objective (PDO) is rated Satisfactory and Overall Implementation Progress (IP) is rated Moderately Satisfactory.1 As of January 2024, the total disbursement rate reached 95 percent. There are no outstanding issues. 2. The AF2 finances two components: Component A (US$1 million) supports: (i) the development of the energy efficiency (EE) strategy for industrial enterprises in Uzbekistan; (ii) the development and implementation of an EE communication strategy and outreach programs, through the provision of consulting services; (iii) enhancing the EE capacity of selected industries, banks, industry banks, and energy professionals, through the provision of consulting services and training; and (iv) strengthening the capacity of the Ministry of Economy and Finance (MEF) and the Project Coordination Unit (PCU) for project management, coordination, and monitoring and evaluation, through the provision of goods, consulting services and Training. Component A activities were fully completed, and some details are provided below: (a) development of energy efficiency (EE) strategy for industrial enterprises: Guidelines for the Strategic Development of Energy Efficiency in Uzbekistan Industry were developed. (b) development and implementation of EE communication strategy: communication strategy was approved by the Cabinet of Ministers Instruction # 06/1-669 as of October 10, 2014, and successfully implemented. (c) enhancing the EE capacity of selected industries: a training series on energy efficiency in mining, metallurgical, oil and gas and chemical industries were conducted. (d) strengthening the capacity of the MoE and the PCU for project management: a training series on energy efficiency and project management were conducted. 3. Component B (US$199 million) finances credit line to Participating Banks (PBs) and provides sub-credits(s) to PBs to finance the energy efficiency of sub-projects. The AF2 has disbursed a total of US$184.1 million with PBs co-financing of US$144.9 million. As of January 2024, one bank fully disbursed the allocated amount, five banks are implementing the pipeline of sub-projects for US$30.2 million with supporting PB’s co-financing of US$15.4 million and one bank was not able to find the clients and will return about US$5.0 million. The proposed extension would allow to complete the ongoing 1 Implementation Status and Results Report dated August 29, 2023. The World Bank Energy Efficiency Facility for Industrial Enterprises (P118737) sub-projects pipeline and overachieve its target values of PDO indicators on leveraged amount of EE investments indicator and energy savings; the CO2 emission reduction indicator would be modestly achieved. If the sub-projects in the pipeline are not completed, the PDO indicator on leveraged amount of EE investments would be substantially achieved, energy savings indicator would be overachieved and third indicator on CO2 emission reductions would be modestly achieved. 4. There are no major issues related to procurement, FM, and E&S. Based on new Procurement Framework dated 2016 the WB Procurement Regulations are not applicable to the sub-lending projects under Component B, however they remain applicable for Component A. FM arrangements including accounting, budgeting, and planning, reporting, internal controls, external audits, funds flow, organization and staffing are found to be Satisfactory in the PCU and PBs. Periodic unaudited interim financial reports and latest audited project financial statements for the year ended December 31, 2022, were submitted on time, and found to be acceptable and the auditor has issued clean opinion on the project financial statement. On E&S, all subprojects follow the national environmental approval process including environmental screening and categorization of the risks, and 70% of the sub-projects approved until now are in the low risk 'C' category, and 30% in the moderate risk 'B' category. During the extended period the PCU will prepare beneficiary survey report, submit relevant ESMP reports, include E&S sections into the new contracts and distribute GRM widely. 5. The project was first restructured in January 2022 to incorporate the following changes: (i) addition of Aloqabank to the list of participating banks and reallocation of amounts between the participating banks; (ii) change in the participating bank co-financing requirement from 25 percent of each sub-loan to 25 percent of the total value of each participating banks’ portfolio; (iii) extension of the AF2 closing date from January 31, 2023 to January 31, 2024. The main reason for the restructuring was the negative impact of COVID-19 on implementation pace and decrease in the PBs clients’ number, so two banks (AsakaBank and National Bank) were not able to find eligible industrial enterprises (IEs) for US$90 million. This amount was redistributed to larger banks (AloqaBank - US$40 million, PromStroyBank - US$45 million, AsiaAlianceBank - US$5 million) having bigger and private clients. This allowed to put the project back on track in terms of disbursement and reaching PDO indicators. 6. The second restructuring is requested by the Ministry of Economy and Finance of the Republic of Uzbekistan (Letter 02/45-2-1739 dated January 24, 2024) and would enable to finalize the implementation of several ongoing contracts and put into operation remaining units/lines of energy efficient equipment, thus mitigating the impact of recent 2-times gas and power tariff increase2 to the IEs and avoiding the PBs turning to other financial sources to complete the contracts. Additional four months of implementation period would also allow to mitigate the impact of the following external factors, that caused delays in the last year of AF2 implementation, namely: COVID-19 restrictions, causing delays in the equipment production and logistics, transfer from LIBOR to SOFR and dynamic increase of SOFR interest rate, fostering several contracts withdrawal by the PBs clients, and delays in equipment delivery caused by the current geopolitical situation in the region. Successful completion of these subprojects will represent continuity to further scale- up energy efficiency of the industrial sector of Uzbekistan and confirm the willingness of the World Bank to continue the dialogue in this important sector. 7. The proposed second restructuring involves an extension of the AF2 closing date from January 31, 2024, to May 31, 2024, with no other changes. If approved, this will be the second extension for the AF2 with cumulative extension period of 16 months in total. The extension complies with the requirements of IPF Policy and Directive – the project’s development objective remains achievable, the Client performance is satisfactory and the working plan for the proposed four months of extension, including strengthened supervision and monitoring activities from the Client and PCU, is in place 2Cabinet of Ministers Decree #475 dated October 1, 2023, based on which the electricity tariffs were increased from UZS 450 to UZS 900 for 1 kWh, and natural gas tariffs from UZS 660 to UZS 1,500 for 1 m3. The World Bank Energy Efficiency Facility for Industrial Enterprises (P118737) and agreed with the World Bank. The restructuring would also reflect the recent Government reforms and introduce the merge of the Ministry of Economic Development and Poverty Reduction with Ministry of Finance, thus establishing a joint Ministry of Economy and Finance. II. DESCRIPTION OF PROPOSED CHANGES 8. The restructuring includes the following changes: (i) extensions of the loan closing date; (ii) revision of the result framework; and (iii) changes to the title of the implementing agency. 9. Loan closing date. Closing date of Loan IBRD-8826 is extended to May 31, 2024. 10. Revision of the results framework. Target dates for some of indicators are being revised to align with the revised closing date. 11. Changes to the title of the Implementing Agency. Following the major wave of administrative reform and re- organization of the Government entities, Ministry of Finance and Ministry of Economic Development & Poverty had merged into the Ministry of Economy and Finance. Therefore, in this restructuring relevant references to Ministry of Finance and Ministry of Economic Development and Poverty Reduction in the Loan Agreement will be revised accordingly. 12. Disbursement Estimates and Implementation Schedule will be adjusted to reflect the proposed extension of the AF2 closing date. III. SUMMARY OF CHANGES Changed Not Changed Implementing Agency ✔ Results Framework ✔ Loan Closing Date(s) ✔ Disbursement Estimates ✔ Implementation Schedule ✔ DDO Status ✔ Project's Development Objectives ✔ PBCs ✔ Components and Cost ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ The World Bank Energy Efficiency Facility for Industrial Enterprises (P118737) Disbursements Arrangements ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_IA_TABLE IMPLEMENTING AGENCY Implementing Agency Name Type Action Aloqabank Implementing New Agency ASAKA Bank Implementing No Change Agency Asia Alliance Bank Implementing No Change Agency Hamkorbank Implementing No Change Agency Invest Finance Bank Implementing No Change Agency Ministry of Economic Development and Implementing Marked for Deletion Poverty Reduction Agency Ministry of Economy and Finance Implementing New Agency National Bank of Uzbekistan Implementing No Change Agency Uzpromstroybank Implementing No Change Agency The World Bank Energy Efficiency Facility for Industrial Enterprises (P118737) OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IBRD-88260 Effective 31-Jan-2023 31-Jan-2024 31-May-2024 30-Sep-2024 IDA-47450 Closed 31-Jan-2016 11-Jul-2016 31-Jan-2023, 17-Jan- IDA-52410 Closed 31-Jan-2018 2024 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2010 0.00 0.00 2011 2,701,800.00 0.00 2012 7,570,200.00 0.00 2013 10,988,400.00 9,928,841.47 2014 12,326,000.00 25,419,109.00 2015 17,734,200.00 13,936,336.20 2016 21,478,800.00 27,871,147.36 2017 20,832,800.00 31,514,447.21 2018 23,801,000.00 31,807.80 2019 207,166,000.00 52,001,772.10 2020 10,778,000.00 10,493,293.28 2021 13,216,600.00 11,023,713.37 2022 24,749,800.00 18,960,208.23 2023 13,105,800.00 55,834,385.65 2024 0.00 54,493,524.14 . The World Bank Energy Efficiency Facility for Industrial Enterprises (P118737) . Results framework COUNTRY: Uzbekistan Energy Efficiency Facility for Industrial Enterprises Project Development Objectives(s) The project objective is to improve energy efficiency in Industrial Enterprises (IEs) by designing and establishing a financing mechanism for energy saving investments. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name PBC Baseline End Target Improve energy efficiency in industrial enterprises (Action: This Objective has been Revised) Leveraged amount of EE Investments (Amount(USD)) 0.00 201,000,000.00 Action: This indicator has been Revised Energy savings (Megawatt hour(MWh)) 0.00 613,000.00 Action: This indicator has been Revised CO2 emission reduction (Metric ton) 0.00 1,269,000.00 Action: This indicator has been Revised PDO Table SPACE The World Bank Energy Efficiency Facility for Industrial Enterprises (P118737) Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 Development of Energy Efficiency Capacity EE Strategy for IEs (Text) Not developed Completed Establishment and Operation of PCU Not established Established (Text) EE Communication Strategy (Text) Not developed Completed Number of IEs which adopted Energy 22.00 50.00 Management System (Amount(USD)) Action: This indicator has been Revised Credit Line to Participating Banks Number of beneficairy industrial 12.00 24.00 32.00 70.00 enterprises (Number) Action: This indicator has been Revised Co-financing amount by participating 0.00 96,000,000.00 banks (Amount(USD)) Action: This indicator has been Revised Amount of subloans to SMEs 0.00 30,000,000.00 (Amount(USD)) Action: This indicator has been Revised SMEs' satisfaction with their engagement in the development of 0.00 80.00 subprojects (Percentage) IO Table SPACE The World Bank Energy Efficiency Facility for Industrial Enterprises (P118737) . The World Bank Energy Efficiency Facility for Industrial Enterprises (P118737)