The World Bank Mozambique Urban Sanitation Project (P161777) REPORT NO.: RES58227 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF MOZAMBIQUE URBAN SANITATION PROJECT APPROVED ON MAY 22, 2019 TO MINISTRY OF ECONOMY AND FINANCE WATER EASTERN AND SOUTHERN AFRICA Regional Vice President: Victoria Kwakwa Country Director: Zviripayi Idah Pswarayi Riddihough Regional Director: Iain G. Shuker Practice Manager/Manager: Francis Ghesquiere Task Team Leader(s): Jaime Palalane, Paulo Jorge Temba Sithoe, Rebecca Jean Gilsdorf i The World Bank Mozambique Urban Sanitation Project (P161777) ABBREVIATIONS AND ACRONYMS AIAS Administration of Water and Sanitation Infrastructure (Administração de Infraestruturas de Água e Saneamento) CERC Contingent Emergency Response Component COVID-19 Coronavirus Disease 2019 DNAAS National Directorate for Water Supply and Sanitation (Direcção Nacional de Abastecimento de Água e Saneamento) FSTP Fecal Sludge Treatment Plant GBV Gender-Based Violence GoM Government of Mozambique GRM Grievance Redress Mechanism IDA International Development Association PDO Project Development Objective SDR Special Drawing Rights WWTP Wastewater Treatment Plant ii The World Bank Mozambique Urban Sanitation Project (P161777) 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 P161777 Investment Project Financing Original EA Category Current EA Category Full Assessment (A) Full Assessment (A) Approval Date Current Closing Date 22-May-2019 30-Sep-2025 Organizations Borrower Responsible Agency Ministry of Economy and Finance Project Development Objective (PDO) Original PDO To increase access to safely managed sanitation services and strengthen municipal sanitation service delivery capacity in selected cities. Current PDO To increase access to safely managed sanitation services and strengthen municipal sanitation service delivery capacity in selected cities; and to provide immediate and effective response to an eligible crisis or emergency. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-D9330 09-Dec-2021 27-Dec-2021 17-Mar-2022 30-Sep-2025 50.00 9.84 36.89 IDA-D4750 22-May-2019 21-Jun-2019 27-Sep-2019 30-Sep-2025 115.00 85.48 27.90 iii The World Bank Mozambique Urban Sanitation Project (P161777) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No iv The World Bank Mozambique Urban Sanitation Project (P161777) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project Description 1. The Mozambique Urban Sanitation Project (MUSP) is the first operation of a series of projects that aim to increase access to sanitation services in urban areas of Mozambique. The project was approved on May 22, 2019, signed on June 21, 2019, and declared effective on September 27, 2019. The project is entirely financed by the International Development Association (IDA) in the original amount of SDR82.9 million (US$115 million equivalent). Additional financing, in the amount of SDR 35.4 million (US$50 million equivalent), was approved on December 9, 2021, signed on December 27, 2021, and declared effective on March 17, 2022. The Project Development Objective (PDO) is to increase access to safely managed sanitation services, strengthen municipal sanitation service delivery capacity in selected cities, and provide an immediate and effective response to an eligible crisis or emergency. The project consists of five components: Component 1 - Priority Sewerage Investments; Component 2 - Onsite Sanitation Investments; Component 3 - Municipal Sanitation Services Improvements; Component 4- Technical Assistance and Project Management Support; and Component 5 - Contingency Emergency Response. Component 1 is implemented by the Administration of Water and Sanitation Infrastructure (Administração de Infraestruturas de Água e Saneamento, AIAS) and Components 2, 3 and 5 are implemented by the National Directorate of Water Supply and Sanitation (Direcção Nacional de Abastecimento de Água e Saneamento, DNAAS). B. Overall Status 2. The overall implementation of the project has experienced a slow progression relative to its initial objectives depicted in the results framework and revised disbursement forecasts, though the progress has increased over the past six months. Therefore, the implementation progress (IP) was downgraded to moderately unsatisfactory during the mid-term review of the project in April 2023. The slow progress was derived from the delays in the implementation of critical contracts, particularly the designs of the packages of investments, coupled with inefficient contract management and monitoring, which resulted in a lack of timely and effective actions from the project coordination to satisfactorily address the challenges. The remaining large contract packages are now well advanced, with all contracts nearing signature, which should allow for smoother implementation in the remaining project timeline. In addition, the project has been impacted by safeguards measures, as a misalignment between the development of engineering and safeguards studies further delayed the start of the work. 3. Given the project has already achieved two out of three project development objectives (PDO), the PDO rating is currently moderately satisfactory. Specifically, the following two PDOs were achieved: (i) To strengthen service delivery capacity at the municipal level (second PDO indicator), with all five project municipalities having an operational sanitation entity compliant with the government regulatory framework and municipal bylaws approved and published; and (ii) To provide immediate and effective response to an eligible crisis or emergency (third PDO indicator), with 97,925 students provided with access to improved school sanitation facilities. There is an absence of progress for the first indicator, people provided with access to safely managed sanitation, which is being impacted by the delays in the start of the main works contracts. 4. The current disbursement rate stands at 55.2 percent, which is below the revised projections during the Additional Financing. Currently, the disbursement is 27.6 percent below the formally revised projection. Nevertheless, the procurement processes for the four main works were finalized. Maputo’s priority sewerage network upgrade (US$18.1 million) and Tete’s household onsite sanitation (US$23.6 million) contracts are signed and effective; Quelimane’s wastewater treatment plant (WWTP) and sewerage network (US$25.3 million) have their signatures and effectiveness pending the approval and implementation of the Resettlement Action Plan. The Tete’s WWTP and sewerage network were cancelled due to an insufficiency of funds for their satisfactory implementation. As a result, 1 The World Bank Mozambique Urban Sanitation Project (P161777) the investment for this city is limited to the fecal sludge treatment plant (FSTP), which is currently being redesigned, and bid documents are being reviewed to reduce the scope to the available budget of US$8.3 million for construction and supervision. 5. Both procurement and financial management are rated satisfactory. The procurement rate was upgraded to moderate satisfactory to reflect the recent progress and the conclusion on the contracting of the main works. Similarly, safeguards arrangements are in place and considered adequate for the risk assessment and the required mitigation measures. Further capacity enhancement will take place for social safeguards support to ensure that the activities at the municipal level are adequately implemented. The establishment of the Environmental and Social Management Systems (ESMS) at the municipal level is underway. The grievance redress mechanism (GRM) is fully operational at both, central and municipal levels. C. Rationale for restructuring 6. The primary reason for the restructuring is to adjust the scope of the project to the remaining budget and timeline. The mid-term review of the project identified a financing gap for a full implementation of the project of US$39.5 million. This gap was caused by cost escalations, with market prices being US$31.9 million above the project appraisal estimates and exchange losses of US$7.6 million. Therefore, it is not currently possible for the project to achieve full implementation of the originally planned infrastructure activities and fully reach the project’s objectives and targets. This restructuring will also be an opportunity to reallocate the balance from the Contingent Emergency Response Component (CERC) component (category 4) of US$1.559 million to the onsite sanitation priority investments component (category 2). The CERC component was activated on December 7, 2020, to support the Government of Mozambique's (GoM) response to the COVID-19 pandemic, with an allocation of US$30 million (US$20 million for the Ministry of Health and US$15 million for the Ministry of Public Works, Housing, and Water Resources). 7. The restructuring does not require changes to the Project Development Objective (PDO), and the Theory of Change will remain as it was under the AF design of the project. However, the restructuring does impact the original indicators at the PDO-level and intermediate level due to changes in the project activities and their scope, which are detailed in Section II. The Ministry of Economy and Finance submitted the restructuring request and the reallocation of the CERC balance on January 9, 2024. The restructuring does not affect the closing date nor implementation arrangements. Additionally, there will be no change to the E&S, procurement or financial management arrangements. II. DESCRIPTION OF PROPOSED CHANGES 8. The Project will keep the current five components, but some of the subcomponents will be cancelled or have their scope reduced. The proposed criteria for cancellation of sub-components were (i) maximize the impact by prioritizing the investment that will contribute most to the PDO; (ii) readiness for implementation by prioritizing the investments with designs in a more advanced stage; and (iii) have all three selected cities for infrastructure investment (Maputo, Tete, and Quelimane) with at least one infrastructure for safe treatment and disposal of the wastewater and/or fecal sludge. 9. Component 1: Priority sewerage investments (US$63.5 million equivalent). The objective of this component is to increase access to safely managed sanitation through decentralized treatment. In addition to the completed Maputo’s Infulene WWTP, this component will continue to finance priority sewerage investments for the cities of Maputo and Quelimane with a reduced scope and a new WWTP for Quelimane. Priority sewerage investments in Tete, such as the WWTP, will be cancelled. The final target of the sewerage network to be built is reduced to 38.6km (59% 2 The World Bank Mozambique Urban Sanitation Project (P161777) of the previous target of 65km). The number of beneficiaries will reduce to 78,045 people, resulting in 15,609 connections (81% of the previous target of 96,500 people and 19,296 connections). 10. Component 2: Onsite sanitation investments in Quelimane and Tete (increased to US$40.56 million equivalent; previous allocation US$39 million equivalent). The objective of this component is to increase access to safely managed sanitation through onsite sanitation facilities, and complementary transport services to treatment FSTP for safe treatment and disposal of the fecal sludge. The on-site sanitation investments in Quelimane sub-component will be cancelled. For the on-site sanitation investments in Tete, the scope will be reduced with the removal of investments in public toilets in local markets and support to private sector for FSM business development. For Tete, the project will continue to finance: (i) sanitation marketing and hygiene promotion to influence sanitation and hygiene behaviors; (ii) support to the construction and upgrade of 5,000 household onsite sanitation systems (54% of the initial target of 9,200 toilets), with 25,000 direct beneficiaries (54% of the initial target of 46,000 people) from the poorest areas of the city with high incidence of waterborne diseases and where open defecation is still a common practice; (iii) construction of one Fecal Sludge Treatment Plant (FSTP), against the two initially planned. This Component is receiving US$1.559 million, balance from the implementation of the closed CERC component to maximize the number of households who will gain safely managed access under the component. 11. Component 3: Municipal sanitation service improvements (US$11 million equivalent). This component provides performance-based grants to finance sanitation service improvements in the cities of Maputo, Beira, Nampula, Tete, and Quelimane. There are no proposed changes to the scope of activities under this component nor the indicators included in the results framework. However, the grants financed under this component are linked to the achievement of a minimum set of indicators (institutional, operational, and financial) on a performance scorecard agreed upon between each participating municipality and the DNAAS, which was partially revised to remove the ones that were too demanding in data collection with indicators linked to the provision of services that can be easily tracked. The following two performance indicators were removed for requiring yearly surveys, which could be costly and difficult to operationalize: (i) the proportion of households connected to the sewerage network (indicator 6); and (ii) the proportion of households with access to safely managed sanitation facilities (indicator 7). The following two indicators were added: (i) extension of drainage channels opened and registered in the georeferenced database each year; and (ii) number of emptying services performed and registered in the georeferenced database each year. In addition, for Tete, due to the cancellation of the WWTP works, the performance indicator 9, effluent samples in conformity with discharge standards, was also removed. 12. Component 4: Technical Assistance and Project Management Support (US$16.5 million equivalent) will remain unchanged. This component is financing technical assistance to support national institutional strengthening and project management as envisaged in the original project design. Institutional development support, including the Water Law and the sector-wide gender and gender-based violence (GBV) prevention strategy. 13. Component 5: Contingent Emergency Response Component (decreased to US$33.44 million equivalent; previous allocation was US$35 million equivalent). This component finances school sanitation upgrades in 95 schools to enable the safe return of pupils to classes following the health and hygiene restrictions imposed by the COVID-19 pandemic. It also financed the acquisition of health protection equipment, consumables, and medicines used in the prevention and treatment of the COVID-19 pandemic. The implementation of CERC activities finished on December 29, 2024, with the successful construction and handover of 80 out of 95 school toilets, benefiting 97,925 students, exceeding the target of 95,000 beneficiaries. The remaining 15 schools from Lots 1 and 6 with a physical execution level of around 82% had their contracts terminated due to the low performance of the contractors. A procurement process for the selection of new contractors to complete those works is ongoing as part of the Component 2 activities as the CERC component was closed. The balance of US$1.559 million from the implementation of the CERC activities will be allocated to Component 2 to enable the completion of the works at the missing schools. 3 The World Bank Mozambique Urban Sanitation Project (P161777) 14. Reallocations. The reallocation of the CERC balance of US$1,559,000 to Component 4 will require reallocation between disbursement categories, moving SDR1,174,688 equivalent from Category 4 into Category 2. 15. Results Framework. The results framework is being amended to reflect the reduced scope for components 1 and 2. One PDO indicator and five intermediate results indicators have their end targets reduced. One PDO indicator and two intermediate indicators had their target revised to account for the increased beneficiaries from public toilets coming from the school toilet upgrade. Table 1 summarizes these changes. Table 1 – Summary of changed indicators and targets Indicator Previous target Revised target [PDO indicator] People provided with access to safely managed sanitation 197,193 103,045 (Number) Of which 50% are women 98,597 51,522 Of which 40% are from the poorest quintiles of the population 78,878 41,218 19,296 15,609 Sewer connections receiving safely managed sanitation services (Number) Of which new connections 1,200 600 Length of sewers laid (km) 65km 38.6km Household sanitation facilities receiving safely managed sanitation services (Number) 20,1430 5,000 BOD5 removed from wastewater (tons/year) 2,576 2080 BOD5 removed from septage and fecal sludge (tons/year) 886 746 Girls provided with access to improved school sanitation facilities and MHM education programs (Number) 88,426 69,000 People reached by sanitation marketing campaign to promote on-site sanitation financed under the project (Number) 133,193 101,740 [target increased] Public sanitation facilities constructed (schools/markets) (Number) 78 115 [NEW] Additional people benefiting from fecal sludge management services (Number) - 254,500 [NEW] New gender and GBV prevention strategy for the public works sector (Yes/No) - Yes 4 The World Bank Mozambique Urban Sanitation Project (P161777) III. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Components and Cost ✔ Reallocation between Disbursement Categories ✔ Disbursement Estimates ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ PBCs ✔ Loan Closing Date(s) ✔ Cancellations Proposed ✔ Disbursements Arrangements ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) 5 The World Bank Mozambique Urban Sanitation Project (P161777) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Priority Sewerage Investments Priority Sewerage Investments in 56.50 Revised in Maputo, Quelimane and 63.50 Maputo, Quelimane and Tete Tete Onsite Sanitation Investments Onsite Sanitation Investments 32.50 Revised 40.56 for Quelimane and Tete for Quelimane and Tete Municipal Sanitation Services Municipal Sanitation Services 11.00 No Change 11.00 Improvements Improvements Technical Assistance and Project Technical Assistance and 15.00 Revised 16.50 Management Support Project Management Support Contigent Emergency Contigent Emergency Response 0.00 Revised 33.44 Response TOTAL 115.00 165.00 OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IDA-D4750-001 | Currency: XDR iLap Category Sequence No: 1 Current Expenditure Category: GD,WK,NCS,CS,TR INCR OC PRT 1&4D 41,880,000.00 18,371,218.83 41,880,000.00 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: GD,WK,NCS,CS,TR ICR OC P 2,4A,4B&4C 5,848,403.00 5,997,866.03 7,023,091.00 100.00 100.00 iLap Category Sequence No: 3 Current Expenditure Category: Perfrmance-based Grants undr prt 3 7,930,000.00 4,764,340.33 7,930,000.00 100.00 100.00 iLap Category Sequence No: 4 Current Expenditure Category: Emrgncy expndtures udr prt 5 Projec 6 The World Bank Mozambique Urban Sanitation Project (P161777) 25,211,597.00 12,978,831.38 24,036,909.00 100.00 100.00 iLap Category Sequence No: 5 Current Expenditure Category: Restlment expndtures prt 1 of Proje 580,000.00 569,451.43 580,000.00 100.00 100.00 iLap Category Sequence No: 6 Current Expenditure Category: Refund of Preparation advance 1,450,000.00 483,504.57 1,450,000.00 Total 82,900,000.00 43,165,212.57 82,900,000.00 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2019 0.00 0.00 2020 10,659,621.11 10,659,621.11 2021 18,594,865.65 18,594,865.65 2022 23,924,600.00 23,924,600.00 2023 42,356,600.00 42,356,600.00 2024 35,699,520.00 35,699,520.00 2025 25,942,740.00 25,942,740.00 2026 7,822,053.24 7,822,053.24 . 7 The World Bank Mozambique Urban Sanitation Project (P161777) . Results framework COUNTRY: Mozambique Mozambique Urban Sanitation Project Project Development Objectives(s) To increase access to safely managed sanitation services and strengthen municipal sanitation service delivery capacity in selected cities; and to provide immediate and effective response to an eligible crisis or emergency. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name PBC Baseline Intermediate Targets End Target 1 To increase access to safely managed sanitation services in selected cities People provided with access to safely managed 0.00 73,572.00 103,045.00 sanitation (Number) Action: This indicator has been Revised Of which 50% are women (Number) 0.00 40,000.00 51,522.00 Action: This indicator has been Revised Of which 40% are from the poorest quintiles of 0.00 29,429.00 41,218.00 the population (Number) Action: This indicator has been Revised To strengthen service delivery capacity at the municipal level Cities with an operational sanitation entity compliant with Government regulatory framework 2.00 5.00 5.00 (Number) Municipal bylaws approved and published 2.00 5.00 5.00 (Number) 8 The World Bank Mozambique Urban Sanitation Project (P161777) RESULT_FRAME_TBL_PDO Indicator Name PBC Baseline Intermediate Targets End Target 1 To provide immediate and effective response to an eligible crisis or emergency Students provided with access to improved school 0.00 115,000.00 sanitation facilities (Number) Action: This indicator has been Revised PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 Priority Sewerage Investments for Maputo, Quelimane and Tete Sewer connections receiving safely managed 0.00 8,000.00 15,600.00 sanitation services (Number) Of which new connections (Number) 0.00 0.00 600.00 BoD5 removed from wastewater (Tons/year) 0.00 1,720.00 2,080.00 Length of sewers laid (Kilometers) 0.00 19.00 38.00 Onsite Sanitation Investments for Quelimane and Tete Household sanitation facilities receiving safely 0.00 2,500.00 5,000.00 managed sanitation services (Number) Action: This indicator has been Revised BoD5 removed from septage and fecal sludge 0.00 265.00 746.00 (Tons/year) Action: This indicator has been Revised 9 The World Bank Mozambique Urban Sanitation Project (P161777) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 Girls provided with access to improved school sanitation facilities and MHM education programs 0.00 56,684.00 69,000.00 (Number) Action: This indicator has been Revised People reached by sanitation marketing campaign to promote on-site sanitation financed under the 0.00 79,916.00 101,740.00 project (Number) Action: This indicator has been Revised Public sanitation facilities constructed 0.00 60.00 115.00 (schools/markets) (Number) Action: This indicator has been Revised Additional people benefiting from fecal sludge 0.00 254,500.00 management services (Number) Rationale: Added to account for the population from Tete and Quelimane that can access fecal sludge emptying services with safe treatment and Action: This indicator is New disposal in a wastewater treatment plant or fecal sludge treatment plant. Municipal Sanitation Services Improvements User fees deposited in sanitation entity bank 0.00 1,067,000.00 3,200,000.00 account (Amount(USD)) Sanitation performance improvement plans prepared by sanitation entity and approved by 0.00 5.00 5.00 council (Number) Customer satisfaction index for sanitation services 0.00 60.00 80.00 (Percentage) 10 The World Bank Mozambique Urban Sanitation Project (P161777) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 Technical Assistance and Project Management Support City Wide inclusive sanitation plans prepared 0.00 1.00 2.00 (Number) Draft Water and Sanitation Law submitted to No No Yes Parliament (Yes/No) Gender and GBV prevention strategy for the No Yes public works sector (Yes/No) Action: This indicator is New Contigent Emergency Response Decrease in missed school days for girls 0.00 30.00 (Percentage) IO Table SPACE 11 The World Bank Mozambique Urban Sanitation Project (P161777)