The World Bank Sustainable Hydropower Development Project (P174327) REPORT NO.: RES60012 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF SUSTAINABLE HYDROPOWER DEVELOPMENT PROJECT APPROVED ON MARCH 1, 2022 TO DEPARTMENT OF ENERGY, MINISTRY OF ENERGY AND NATURAL RESOURCES, ROYAL GOVERNMENT OF BHUTAN ENERGY & EXTRACTIVES SOUTH ASIA Regional Vice President: Martin Raiser Country Director: Abdoulaye Seck Global Director: Demetrios Papathanasiou Practice Manager/Manager: Simon J. Stolp Task Team Leader(s): Dzenan Malovic, Fanny Kathinka Missfeldt- Ringius, Sunil Kumar Khosla The World Bank Sustainable Hydropower Development Project (P174327) BASIC DATA Product Information Project ID Financing Instrument P174327 Investment Project Financing Environmental and Social Risk Classification (ESRC) High Approval Date Current Closing Date 01-Mar-2022 30-Jun-2024 Organizations Borrower Responsible Agency Department of Energy, Ministry of Energy and Natural Druk Green Power Corporation Limited Resources, Royal Government of Bhutan Financing (in USD Million) FIN_SUMM_PUB_TBL SUMMARY Total Project Cost 0 Total Financing 0 Financing Gap 0 DETAILS -NewFin3 Project Development Objective (PDO) Original PDO The Project Development Objective is to strengthen the capacity of the power sector agencies in Bhutan to plan and prepare regional hydropower and transmission line projects following international good practices and to support development of DHPP. OPS_TABLE_PDO_CURRENTPDO The World Bank Sustainable Hydropower Development Project (P174327) Summary Status of Financing (US$, Millions) Net TF Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed TF-B8007 01-Mar-2022 17-Mar-2022 02-May-2022 30-Jun-2024 2.80 1.53 1.27 TF-B8049 01-Mar-2022 17-Mar-2022 02-May-2022 30-Sep-2023 1.50 .33 1.17 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No This Restructuring Paper seeks the approval to: - Extend the closing date of the Project from June 30, 2024, to December 31, 2024; - Adjust the disbursement estimates and schedule according to the new proposed closing date; - Adjust the results framework to the proposed changes as well as to the latest progress status of the Project. The rationale behind this request is presented in this Restructuring Paper. I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project Background 1. The Sustainable Hydropower Development Project (SHDP, the Project) was approved by the South Asia Regional Vice President on March 1, 2022, and became effective on May 2, 2022. The SHDP supports the Royal Government of Bhutan (RGoB)'s objective to apply its updated framework to greenfield hydropower projects in the pipeline, including the 1,125 megawatt (MW) Dorjilung Hydropower Project (DHPP), and also provides technical assistance (TA) based on gap analysis carried out on existing reports of the DHPP and the challenges and experience from recently developed or on-going hydropower projects in Bhutan. The TA is funded with a US$ 2.8 million grant from the South Asia Regional Infrastructure Connectivity (SARIC) Trust Fund (TF) (Component 1) and with US$ 1.5 million grant from the Energy Sector Management Assistance Program (ESMAP) Hydropower Development Facility TF to support the application of the regulatory framework to DHPP and associated institutional capacity building (Component 2). 2. More specifically, under Component 1, the USD 2.8 million SARIC grant funds Preparation Studies/Technical Assistance for Dorjilung Hydropower Plant Project (DHPP) and Transmission Lines. The component supports the preparation studies and TA to support the RGoB with preparing the DHPP 1,125 MW and associated transmission lines. The support under this component includes the following activities: (a) Activity 1-1 a: Detailed Project Report (DPR) Update (US$ 0.87 million); (b) Activity 1-1 b: Additional Geotechnical Investigations (US$ 0.55 million); The World Bank Sustainable Hydropower Development Project (P174327) (c) Activity 1-2: Update of Environmental and Social Impact Assessment (ESIA), including updates of the Cumulative Impact Assessment (CIA), the Resettlement Action Plan (RAP) and the Environmental and Social Framework (ESF)- related plans such as Stakeholder Engagement Plan (SEP) and Labor Management Procedures (LMP) (US$ 0.97 million); and (d) Activity 1-3: Project implementation, management support, and hardware purchase for DPR Update (US$ 0.11 million). 3. Directly informed by the work carried under Component 1, Component 2 is financed by a USD 1.5 million USD ESMAP grant to support capacity building of the main hydropower institutions in Bhutan. This includes Druk Green Power Corporation (DGPC) (implementing entity of the Sustainable Development of Hydropower Project, or SHDP) and the Department of Energy (DoE), Ministry of Energy and Natural Resources (MoENR), the main governmental authority responsible for hydropower development in Bhutan. This capacity building aims at supporting the Royal Government of Bhutan (RGoB) policy and regulatory framework for hydropower development, and for hydropower management. The support under this activity includes the following activities: (a) Activity 2-1: Software purchase for DPR update including power system analysis software and training (US$ 0.42 million); (b) Activity 2-2 a: Engineering and Dam Safety Project Review Panel (PRP) (US$ 0.34 million); (c) Activity 2-2 b: Environmental and Social Panel (ESP) (US$ 0.09 million);  The PRP and the ESP will be in charge of reviewing the work carried by technical and E&S consultants under Component 1. (d) Activity 2-3: Assessment of options for regulatory reviews of rate variations in hydropower construction contracts & assessment of hydropower design manual, including analysis and design of embankment dams (US$ 0.25 million); and (e) Activity 2-4: Other capacity building activities (US$ 0.4 million). B. Implementation progress 4. The current rating for both progress towards the achievement of the PDO and overall implementation progress is “Satisfactory”. As of March 25, 2024, the disbursements for TFB8007 and TFB8049 stand at 55 percent and 22 percent respectively. 5. Overall, the Project has made very good progress, and DGPC has been managing the Project well. DGPC has set up a six person Project Implementing Unit, which draws on a seven-person advisory technical team. Reporting has been on time and the majority of reports have been of very satisfactory quality. However, COVID-19 related delays have occurred and impacted the speed of procurement of the two key consulting assignments under the SARIC- funded Component 1, which eventually affected implementation progress under ESMAP-funded component 2. In spite of these delays, some key milestones have been achieved, such as: (a) Under Component 1: i. Tasks such as preparatory works (Task I) and review by the Consultant of key technical analyses submitted by the implementation team (Task II) - such as updated infrastructure plan for planning of Land Acquisition and Livelihood Restoration Plan surveys - are completed. ii. Other technical analytical tasks are progressing at a satisfactory pace, with drafts DPR and ESIA to be shared in May/June 2024. (b) Under Component 2: i. Key software to the Detailed Project Report update was purchased (including Power system analysis). The World Bank Sustainable Hydropower Development Project (P174327) ii. An engineering and Dam Safety Project Review Panel (PRP) was constituted and comprises four members. The PRP has already issued six reviews relating to the technical analyses submitted by the RGoB’s implementation team or its Consultant under Component 1. iii. An Environmental and Social Panel (ESP) was constituted and comprises two members. The ESP has already issued three reviews relating to the Environmental and Social analyses submitted by the Consultant under Component 1. iv. 4 in-country trainings and 4 out-of-country trainings were provided to DGPC and Department of Energy participants on key IT, technical, and environmental matters. These trainings were attended by a total of 98 participants, 40 percent of which were female staff. C. Rationale for restructuring 6. While the Project made good progress, on March 21, 2024, the Department of Macro-Fiscal and Development Finance of the Ministry of Finance of the Kingdom of Bhutan formally requested the extension of the closing date of the Project from June 30, 2024, to December 31, 2024, to allow for the full completion of the activities planned under this Project and the achievement of its PDO. 7. The suggested restructuring aims at: (a) Extending the closing date of the Project, from June 30, 2024, to December 31, 2024; (b) Adjust the Disbursement schedule accordingly; (c) Adjust the results framework to the proposed changes as well as to the latest progress status of the Project. 8. The rationale behind the restructuring is to allow the RGoB to: (a) Fully disburse the ESMAP grant, which was unavailable for withdrawal due to the challenges faced by its parent Multi Donor Trust Fund (MDTF): The RGoB was unable to withdraw from the proceeds of the ESMAP USD 1.5 million grant (TF0B8049) due to the temporary suspension of activities hosted under its parent TF, the Multi-Donor Trust Fund (MDTF) TF072490. This suspension was the result of the delay in the extension of MDTF TF072490 from December 31, 2023, to December 31, 2027, following longer than expected negotiations with the MDTF donors. On February 9, 2024, the retroactive extension of the MDTF TF072490 was approved by all donors, subsequently allowing all child TFs to request a closing date extension. The extension of the Project’s closing date will allow the team to submit a request for an extension of the ESMAP grant closing date – an approach approved by the Office of the Regional Vice President on March 29, 2024 (via clearance provided by email). Ultimately, this will allow the client to catch up on the disbursements it must make to pay for the services procured under this activity, as well as the remaining disbursement related to the finalization of the planned activities described above. (b) Fully achieve the Project’s Development Objective following the operational delays resulting from the ramifications of the COVID-19 pandemic: The two key elements of the work under the SARIC and ESMAP TFs are the work undertaken by the two international firms to update the DPR and ESIA, which were hired in December 2022 with a contract duration of 15 months. The recruitment of two consulting firms took longer than expected due to delays related to COVID-19 effects on doing business. This closing date extension request would accommodate the completion of the work by the hired consultants, whose pace and quality of progress have been satisfactory. Delivery of their studies’ main findings shall be shared with the World Bank team by May/June 2024. (c) Allow the RGoB to deploy additional and complementary activities under this Project, financed by additional financing: In its letter dated May 23, 2023, the RGoB also requested USD 300,000 additional financing from SARIC to support additional capacity building for DGPC. These activities are expected to directly contribute to the achievement of the PDO of the Project. The World Bank Sustainable Hydropower Development Project (P174327) II. DESCRIPTION OF PROPOSED CHANGES 9. Under this restructuring, the proposed changes are: (a) Extension of the closing date: Under the Project, this closing date extension would entail the extension of the closing date of the two grants financing the project: (i) Extension of the closing date of the SARIC grant (TFB8007) from June 30, 2024, to December 31, 2024; (ii) Retroactive extension of the closing date of the ESMAP grant (TFB8049) from September 30, 2023 to December 31, 2024. This extension is sought retroactively due to reasons independent from the Task Team’s power, and is a consequence of the challenges faced by the parent MDTF of this ESMAP grant, which were resolved on February 7, 2024, as described above. The Client has agreed and committed to document the expenditures under this TFB8049 within one month of the project’s closing date extension. The extension of the closing date of the Project is the first step that will allow the Task Team to submit a closing date request to each of these Trust Funds for their respective grant. This approach was approved by the Office of the Regional Vice President, through a clearance email received on March 29, 2024. (b) Adjustment of disbursement estimates and disbursement schedule: The disbursement estimates and disbursement schedule are adjusted to reflect the extension of the closing date, as represented in the indicative table below. Fiscal Year Annual Cumulative 2021 0.00 0.00 2022 78,148.00 78,148.00 2023 1,168,286.45 1,246,434.45 2024 992,098.19 2,238,532.64 2025 200,000.00 2,438,532.64 Table 1. Indicative disbursement schedule, FY2021 – FY2025 (in USD) (c) Adjustments to the results framework to: a. Adjust the end target dates for achievement of results: From the previous closing date (June 30, 2024) to the proposed closing date (December 31, 2024). b. Delete one intermediary result indicator: The indicator “Government agency officials and specialists trained in regulatory reviews for major elements of hydropower projects” was dropped, at the demand of the Client. c. Reflect the actual achievement on one output: Indeed, as of March 2024, 173 Government agency officials and specialists were trained in project management, including environmental and social risk management – against an end target of 100. 10. The E&S performance is rated Satisfactory based on the progress of implementing the E&S commitments and the following achievements to date: The World Bank Sustainable Hydropower Development Project (P174327) (i) DGPC has maintained one environmental specialist and one social specialist as part of the PIU who coordinate E&S aspects of the TA Project. The E&S specialists continue to oversee the E&S tasks of the Project including coordinating field visits, reviewing E&S outputs of the consulting firm, and reporting on quarterly E&S progress. So far, four quarterly reports have been submitted which adequately cover the status of the Project, including E&S aspects. (ii) DGPC has an environmental and social panel (ESP) of experts comprising one environmental expert and one social expert who have been providing DGPC with E&S advice and recommendations. The ESP has so far conducted one site visit in October 2023 and regularly shares its recommendations on the ESIA update activities. In addition to the ESP, DGPC has an Engineering and Dam Safety Project Review Panel that comprises four members who provide advice on the TA Project activities. (iii) The E&S consulting firm, Artelia, continues to make progress on the ESIA update activities, despite several challenges. The consultant submitted an Inception Report and undertook field surveys which were used as input to the first draft ESIA report. The consultant submitted the draft ESIA report on September 15, 2023 but DGPC, the Bank and E&S Panel deemed it incomplete. Artelia resubmitted the report on December 22, 2023 and the Bank provided feedback on January 22, 2024. The Report was missing a freshwater plankton assessment which Artelia claimed was outside their scope. Consequently, DGPC developed separate TOR for this assessment which were reviewed and approved by the Bank. Sherubtse College under the Royal University of Bhutan was hired to conduct the assessment under a direct selection process. The assessment was approved by the Bank on January 23, 2024 and Artelia will reflect the findings in the 2nd ESIA Report which is expected in February 2024. Similarly, Artelia claimed that the scope of the terrestrial and aquatic biodiversity assessment did not cover eDNA survey and camera trap monitoring and if required, it would be treated as a variation. Following discussions between DGPC and the Bank, DGPC identified that the Department of Forests and Park Services under the Ministry of Energy and Natural Resources has the capacity to conduct these assessments. DGPC has drafted TOR which are currently under review by the Bank. Once the assessments are conducted, Artelia will integrate the results into the ESIA Report. (iv) DGPC, with assistance from the Bank, developed a draft training plan to strengthen DGPC's technical expertise on E&S risk management, environmental flows, GHG estimation, and E&S management systems. Several E&S trainings have been conducted as part of DGPC's E&S capacity strengthening. These include an in-person training delivered by the World Bank on E&S risk management in May 2023, two trainings on environmental flow assessment delivered by the Bank and Artelia in May and October 2023 respectively, a training on the GHG reservoir (G-res) Tool in Nov 2023, and other technical trainings delivered to DGPC, the Department of Environment and other government agencies and ministries. The World Bank Sustainable Hydropower Development Project (P174327) III. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Loan Closing Date(s) ✔ Disbursement Estimates ✔ Implementation Schedule ✔ Implementing Agency ✔ Project's Development Objectives ✔ Components and Cost ✔ Cancellations Proposed ✔ Additional Financing Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursements Arrangements ✔ Change in Overall Risk Rating ✔ 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_RESULTS_TABLE RESULTS FRAMEWORK Project Development Objective Indicators PDO_IND_TABLE 1000MW of hydropower capacity and associated transmission line prepared Unit of Measure: Yes/No The World Bank Sustainable Hydropower Development Project (P174327) Indicator Type: Custom Baseline Actual (Current) End Target Action Value No No Yes Revised Date 05-May-2021 19-Jan-2023 31-Dec-2024 Number of government agency officials and specialists trained in hydropower project planning and preparation Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 0.00 40.00 Revised Date 05-May-2021 19-Jan-2023 31-Dec-2024 Intermediate Indicators IO_IND_TABLE Detailed Project Report is updated to meet international standards Unit of Measure: Yes/No Indicator Type: Custom Baseline Actual (Current) End Target Action Value No No Yes Revised Date 05-May-2021 19-Jan-2023 31-Dec-2024 ESIA is updated to meet the requirements of the World Bank ESF Unit of Measure: Yes/No Indicator Type: Custom Baseline Actual (Current) End Target Action Value No No Yes Revised Date 05-May-2021 19-Jan-2023 31-Dec-2024 Government agency officials and specialists trained in regulatory reviews for major elements of hydropower projects Unit of Measure: Percentage Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 0.00 100.00 Marked for Deletion Date 05-May-2021 19-Jan-2023 31-Dec-2023 The World Bank Sustainable Hydropower Development Project (P174327) Government agency officials and specialists trained in project management, including environmental and social risk management Unit of Measure: Percentage Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 173.00 100.00 Revised Date 05-May-2021 19-Jan-2023 31-Dec-2024 OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline TF Status Closing Closing(s) Closing for Withdrawal Applications TF-B8007 Effective 31-Dec-2023 30-Jun-2024 31-Dec-2024 30-Apr-2025 31-Aug-2023, 30- TF-B8049 Closed 30-Jun-2023 Sep-2023 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Expected Disbursements (In US$) Fiscal Year Annual Cumulative 2021 0.00 0.00 2022 0.00 0.00 2023 0.00 0.00 2024 0.00 0.00 2025 200,000.00 200,000.00