$ Report No: RES00013 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF CO Plan PAZcifico: Water Supply and Basic Sanitation Infrastructure and Service Delivery Project APPROVED ON October 182016 TO FONDO PARA EL DESARROLLO DEL PLAN TODOS SOMOS PAZCIFICO, represented by its Fiduciary Agent and Trust Water Latin America And Caribbean Regional Vice President: Carlos Felipe Jaramillo Regional Director: Benoit Bosquet Country Director: Mark Roland Thomas Practice Manager: David Michaud Task Team Leader(s): Veronique Verdeil, Hector Alexander Serrano The World Bank CO Plan PAZcifico:Water Supply and Basic Sanitation Infrastructure and Service Delivery Project (P156239) ABBREVIATIONS AND ACRONYMS DA Designated Account DL Disbursement Letter E&S Environment and Social ESMF Environmental and Social Management Framework FM Financial Management FMA Financial Management Assessment FTSP Fund We are all Pazcifico (Fondo Todos Somos Pazcifico) FY Fiscal Year GoC Government of Colombia IE Implementation Entity IP Implementation Progress LA Loan Agreement M&E Monitoring and Evaluation MIE Ministry of Equality and Equity (Ministerio de Igualdad y Equidad) POM Project Operations Manual PDO Project Development Objective POA Annual Operating Plan (Plan Operativo Anual) PIU Project Implementation Unit POM Project Operations Manual PPSD Project Procurement Strategy for Development RIRP Rapid Impact and Rehabilitation Plan ROP Project’s Operating Regulations (Reglamento Operativo del Proyecto) TORs Terms of Reference UIFR Unaudited Intermediary Financial Report National Unit for Disaster Risk Management (Unidad Nacional de Gestión del UNGRD Riesgo de Desastres) VP Vice-President The World Bank CO Plan PAZcifico:Water Supply and Basic Sanitation Infrastructure and Service Delivery Project (P156239) @#&OPS~Doctype~OPS^dynamics@restrhybridbasicdata#doctemplate BASIC DATA Product Information Operation ID Operation Name CO Plan PAZcifico:Water Supply and Basic Sanitation P156239 Infrastructure and Service Delivery Project Product/Financing Instrument Geographical Identifier Investment Project Financing (IPF) Colombia Approval Date Current Closing Date 18-Oct-2016 15-Nov-2024 Original EA Category Current EA Category Full Assessment (A) (PAD Approval Package-18 Oct 2016) Organizations Borrower Responsible Agency FONDO PARA EL DESARROLLO DEL PLAN TODOS SOMOS National Unit for Disaster Risk Management PAZCIFICO represented by its Fiduciary Agent and Trust @#&OPS~Doctype~OPS^dynamics@restrhybridoperationstatus#doctemplate OPERATION STATUS Project Development Objective (DO) Original Development Objective The objectives of the Project are to improve: (i) coverage and service quality of water supply and basic sanitation in urban areas in the Municipality of Tumaco and the Municipality of Guapi; and (ii) operational efficiency of the service providers in said municipalities. Disbursement Summary (in USD million) Source of Funds Net Commitment Disbursed Balance % Disbursed IBRD 126.70 23.81 102.89 18.79 i The World Bank CO Plan PAZcifico:Water Supply and Basic Sanitation Infrastructure and Service Delivery Project (P156239) IDA -- -- -- 0 Grants -- -- -- 0 BACKGROUND INFORMATION FOR MANAGEMENT ATTENTION (THIS SECTION WILL BE AUTOMATICALLY REMOVED BY THE SYSTEM BEFORE THE PAPER IS DISCLOSED) Risks/Issues Are there any particular risks or issues associated with this restructuring that are not in the Restructuring Paper No and need to be brought to management attention? Policy Waivers Does this restructuring trigger the need for any policy waiver(s)? No @#&OPS~Doctype~OPS^dynamics@restrhybridoperationstatus#doctemplate OPERATION STATUS Project Development Objective (DO) Original Development Objective The objectives of the Project are to improve: (i) coverage and service quality of water supply and basic sanitation in urban areas in the Municipality of Tumaco and the Municipality of Guapi; and (ii) operational efficiency of the service providers in said municipalities. Disbursement Summary (in USD million) Source of Funds Net Commitment Disbursed Balance % Disbursed IBRD 126.70 23.81 102.89 18.79 IDA -- -- -- 0 Grants -- -- -- 0 Policy Waivers Does this restructuring trigger the need for any policy waiver(s)? No @#&OPS~Doctype~OPS^dynamics@restrhybridmpa#doctemplate @#&OPS~Doctype~OPS^dynamics@restrhybridmpa#doctemplate ii The World Bank CO Plan PAZcifico:Water Supply and Basic Sanitation Infrastructure and Service Delivery Project (P156239) TABLE OF CONTENTS I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING ........................................................................................1 II. DESCRIPTION OF PROPOSED CHANGES ....................................................................................................................4 III.PROPOSED CHANGES ...............................................................................................................................................10 IV. DETAILED CHANGE(S) .............................................................................................................................................10 The World Bank CO Plan PAZcifico:Water Supply and Basic Sanitation Infrastructure and Service Delivery Project (P156239) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING 1. This Restructuring Paper seeks the approval of the Country Director on a Level 2 Restructuring of the Colombia Plan Pazcifico Water Supply and Basic Sanitation Infrastructure and Service Delivery Project (P156239). This is the third restructuring of the Project and includes: (i) changing the Project Implementing Entity (IE) from the Colombian National Unit for Disaster Risk Management (Unidad Nacional de Gestion del Riesgo de Desastres - UNGRD) to the Ministry of Equality and Equity (Ministerio de Igualdad y Equidad – MIE by its Spanish acronym), and (ii) incorporating the new institutional arrangements proposed by the Borrower (Fondo Todos Somos Pazcifico – FTSP) in coordination with MIE. The proposed restructuring duly addresses the official requests submitted by the Fiduprevisora, the legal representative of FTSP, dated March 15, 2024, and by the Ministry of Finance, dated April 19, 2024. 2. The Project consists of an IBRD loan in the amount of US$126.7 million (BIRF-8649-CO), approved by the Board of Executive Directors on October 18, 2016, and became effective on May 26, 2017. The Project Development Objectives (PDO) of this operation are “to improve: (i) coverage and service quality of water supply and basic sanitation in urban areas in the Municipality of Tumaco and the Municipality of Guapi; and (ii) operational efficiency of the service providers in said municipalities.” The Project comprises four components: Component 1: “water supply and basic sanitation improvements in Guapi” (US$30.9 million), Component 2: “water supply and basic sanitation improvements in Tumaco” (US$83.4 million),; Component 3: “Capacity Building and Institutional Strengthening of Service Providers in Guapi and Tumaco” (US$5.4 million); and Component 4: “Project Management and Environmental and Social Management” (US$7.0 million). The FTSP is the Project Implementation Unit (PIU), housed in UNGRD, a government agency under the General Coordinator of the Presidency of the Republic of Colombia, until February 29, 2024. The Project’s current closing date is November 15, 2024. A. OVERALL PROJECT STATUS 3. The Project’s overall progress towards the achievement of the PDO was downgraded from Moderately Satisfactory to Unsatisfactory in May 2023. Implementation schedules presented by the FTSP remain off-track to achieve the project objectives by November 15, 2024, despite a 22-month extension granted in September 2022. To date, none of the PDO indicators have progressed. In addition to difficulties inherited from readiness at entry and the impact of the pandemic, implementation challenges include: (i) remoteness, violence and insecurity affecting the mobilization of qualified contractors, transport of material and equipment and overall cost of activities, (ii) issues with land tenure, (iii) long process of the designs clearance, (iv) recurring procurement issues, (v) inefficient institutional arrangements and important leadership turnover of the current IE, UNGRD, in the last year, (vi) costly insurance policies reducing interest in working in the region, and (vii) issues with the PIU staffing. Commitment and disbursements remain low compared to project targets, representing 29.3 percent (US$37.15M) and 18.8 percent (US$23.8M) of the loan proceeds, respectively. A withdrawal application in the amount of US$5M is likely to be submitted before the end of the fiscal year once this restructuring is approved. 4. Overall Implementation Progress (IP) has been Moderately Unsatisfactory since May 2023 due to recurrent delays in most activities. In 2023, implementation has been particularly affected by multiple delays in most administrative processes, budget and expenditure authorizations, contract signing, etc. The limited technical capacity within the PIU has also affected pre-investment (elaboration and quality control of designs) and investment processes in terms of supervision and contract management of works under execution. However, key design studies and large packages of works are currently in procurement or are about to be procured, which would help deliver a large share of activities Page 1 The World Bank CO Plan PAZcifico:Water Supply and Basic Sanitation Infrastructure and Service Delivery Project (P156239) by May 2026, or 18 months after the current closing date. A potential extension of the closing date would be considered, as mentioned in detail in paragraph 6. a. Guapi water system: Two separate contracts for the works for the first part of the system (US$4.6M) are pending signature, subject to the amendment of the contract of the supervision firm. b. Tumaco water system: Storage works are under construction (US$13M). The water treatment plant is under procurement (estimated US$12M), and procurement for the adduction pipeline (estimated US$4M) is planned to be launched in July 2024. c. Sanitation systems in Guapi and Tumaco: After various unsuccessful biddings, consultancies for the design of conventional sewerage systems must be relaunched, and TORs need to be adjusted. d. Solid waste management activities: The construction of an environmental facility aimed to process the excavation materials from the Guapi water system is being affected by a cumbersome technical clearance process. e. Institutional strengthening of the water providers: TORs for the second phase of the capacity strengthening program for the service operator in Guapi are currently being developed in close coordination with the operator and the newly elected local authorities. f. Project management: During 2023, the PIU has been successively without the Social Lead, Environmental Lead, and Financial Management Lead, and throughout without the Water and Sanitation Lead due to difficulties mentioned above with the current IE. The team is now fully operational. 5. Remedial actions by the FTSP and the office of the Colombian Vice-President (VP) have been taken to boost implementation but have had limited impact to date. Presidential Decree No. 1874 of 2022 mandated the VP to ensure the oversight and institutional coordination of activities in the Pacific region, including the national program Plan Todos Somos PAZcifico, umbrella for the present Project. Under the VP’s leadership and following a diagnostic financed by the InterAmerican Development Bank, an action plan was adopted in 2023 to simplify internal governance and decision-making. Streamlined administrative processes for budget and expenditure control and contract signature, typically under the responsibility of the General Director of the UNGRD, were considered to simplify processes significantly. At the end of 2023, a proposed regulatory modification giving the PIU Coordinator increased responsibilities and budget control and consolidating the institutional autonomy of the FTSP from UNGRD was about to be approved but was placed on hold while the change of IE was defined. However, relocating the FTSP outside UNGRD was considered a long-term option, with the current focus being on improving existing processes in the short term. Progress was made, yet bottlenecks continued to prevent the optimization strategy from yielding expected results in terms of operational efficiency. 6. A proactivity plan has been discussed with the Colombian VP and the Borrower to exit the unsatisfactory status and achieve the PDO by extending the closing date. Following an informal request for a 2.5-year extension deemed necessary to complete all planned activities, Bank management is considering extending up to the maximum legally possible, corresponding to the end of the Petro administration (August 2026). Yet, this would be conditioned to an agreement to downscale the PDO target values to account for the likely non-completion of high-risk activities (primarily on sewerage), representing about 25 percent of the project amount. The restructuring would also entail a provision to take stock a year from now to ascertain progress and, in the case of delays, shift the delayed, high-risk activities to a new operation. The latter would also allow for scale-up geographically and in substance, building on the lessons of the current Plan Pazcifico and the dialog with the Ministry of Equality and Equity (Ministerio de Igualdad y Equidad – MIE) to design the new program Agua es Vida, which is dedicated to marginalized territories. This restructuring would be processed shortly after the present one to address the broader issues, the latter being prioritized to ensure implementation continuity. Page 2 The World Bank CO Plan PAZcifico:Water Supply and Basic Sanitation Infrastructure and Service Delivery Project (P156239) 7. Fiduciary compliance and financial audit. Delays in implementation include difficult procurement processes, including long timeframes due to inefficiencies and lack of adequate capacities at the PIU level, resulting in several unsuccessful processes. There has been an agreement to increase flexibilities to facilitate processes, and the Bank is providing hands-on implementation support (HEIS) and training to address some of these difficulties. The anticipated implementation of the new arrangement is expected to enhance the efficiency of internal decision-making processes, resulting in a more streamlined operational framework and a favorable impact on the overall timeline of decision- making procedures. Regarding financial management, the Borrower has no outstanding audit reports; the reports issued as of December 31, 2022, have been satisfactory to the Bank. 8. Legal covenants. All applicable covenants have been complied with. 9. Risks. Risks have been revised, and a change is not warranted (see below for the fiduciary risk). The overall risk rating is maintained as Substantial. B. RATIONALE FOR PROJECT RESTRUCTURING 10. To turn around the Plan PAZcifico program, the GoC decided in January 2024 to change the IE from the UNGRD (and its implementing unit FTSP) to the newly created MIE (Law 2281 of January 2023). This decision increases the visibility of projects under Plan Pazcifico, prioritizing their implementation, which helps to address some of the challenges associated with the lengthy administrative processes in the current IE, whose leadership has experienced significant turnover in the last year. Following the approval of Resolution No. 0276 dated February 5, 2024, amending Resolution No. 4060 of 2015 that designated UNGRD as IE, the change became effective on March 1, 2024. The present restructuring is necessary to reflect the new implementation arrangements, and the amended Loan Agreement (LA) will have a retroactive effect as of that date. 11. The transfer to MIE will ensure a strategic alignment with the GoC agenda for the Pacific region, reconfirming the relevance of the Bank’s engagement with the Plan Todos Somos Pazcifico. The Plan Pazcifico program was created nine years ago to improve water, sanitation, transport, and energy services to the historically neglected municipalities of the Colombian Pacific coast, where the population is predominantly Afro-Colombian. The region has the highest levels of poverty and socioeconomic inequality, and many people have been displaced by the armed conflict in these departments that are facing the highest levels of violence in Colombia, associated with drug trafficking, crime, and other illegal activities that drive the regional economy. The difficulties in delivering the Project and its twin operation (Enhancing Waterway Connectivity and Water Service Provision in Colombia’s Plan Pazcifico, P156880) have become emblematic in the Government’s quest to create better opportunities in remote, lagging, conflict-affected territories and vulnerable communities, as prioritized in the 2022-2026 National Development Plan and materialized by the creation of the MIE. Moving the FTSP under the direct oversight of the Minister of MIE demonstrates the GoC’s willingness to elevate the priority given to the program, which will provide it with a high level of political visibility. 12. Assessments were conducted to evaluate the adequacy and potential risks associated with the implementation, and fiduciary arrangements were proposed for MIE to absorb the project, concluding that risks were manageable. While the arrangements were deemed acceptable by the Bank, several recommendations were made (cf. section II.B.) to reduce fiduciary risks and unnecessary inefficiencies. In addition, from the implementation perspective, the PIU provided a revised implementation plan taking into account both the potential delays linked to the effectiveness of the restructuring process and the anticipated optimized processes due to the change of IE. This plan aims to give Page 3 The World Bank CO Plan PAZcifico:Water Supply and Basic Sanitation Infrastructure and Service Delivery Project (P156239) more visibility on the implementation progress perspective during the remaining project timeframe and potential extension to ensure PDO achievement. II. DESCRIPTION OF PROPOSED CHANGES 13. The proposed restructuring involves no changes to the Project’s PDO, design, component structure, target beneficiaries, geographic coverage, or Results Framework. The changes proposed in this Restructuring Paper are exclusively intended to ensure the smooth transition of the Project to the new IE. A. Change in the Implementing Entity 14. Change of Project IE from UNGRD to MIE, following Resolution No. 0276 dated February 5, 2024, mandating MIE to take over the IE role of the FTSP and all related responsibilities previously entrusted with UNGRD. The proposed change will trigger an Amendment to the LA so that MIE replaces UNGRD as the Project IE and, consequently, reflect the required changes in institutional arrangements derived from the transfer from UNGRD to MIE. B. Change in the Institutional Arrangements 15. The implementation of the Project and all its components will be transferred to MIE and embedded in its existing organizational structure. While the overall governance of the FTSP will not change (relations with relevant ministries, technical committees, and with the fiduciary entity Fiduprevisora), MIE will absorb the PIU team that operates in the UNGRD and will integrate it into the organizational structure (see Figura 1). The function to authorize expenditures (ordenación de gasto) that was previously with the Director of the UNGRD will be managed directly by the Minister’s office through its General Director/Coordinator, who will provide all follow-up to ensure implementation of the projects under the purview of the MIE. In addition, FTSP will benefit from nine (9) key cross-cutting positions as entry points to MIE: (i) General Secretariat; (ii) Office Of Strategic Knowledge And Know-How, (iii) Information Technology Office, (iv) Internal Control Office, (v) Internal Disciplinary Control Office, (vi) Citizen Relations Office, (vii) Planning Advisory Office, (viii) Legal Office and (ix) the Equality and Equity Project Office. These positions, financed by the MIE, will provide support to the FTSP in strengthening the institutional framework and capacities. Figure 1. Proposed new institutional arrangements within MIE Page 4 The World Bank CO Plan PAZcifico:Water Supply and Basic Sanitation Infrastructure and Service Delivery Project (P156239) 16. The PIU will retain its current Project Coordinator and dedicated technical team, as well as its environmental, social, fiduciary, monitoring, and evaluation specialists. As of February 2024, the FTSP team has been fully hired. Under the proposed institutional arrangements, the Minister’s office will directly hold the Project coordinator responsible for speeding up implementation. All project documentation will be submitted directly to the Minister’s office, therefore removing a systematic review under the UNGRD arrangements, which will significantly reduce the procedural time before going forward. 17. On March 1, 2024, the PIU relocated to the new offices in the MIE. The offices have adequate space for the operation of the process evaluation commissions, which require certain conditions to maintain confidentiality, as well as adequate physical facilities for the custody and proper management of accounting and administrative support documents. Page 5 The World Bank CO Plan PAZcifico:Water Supply and Basic Sanitation Infrastructure and Service Delivery Project (P156239) Figure 2. Organigramme of the PIU 18. Despite GoC’s efforts to ensure a smooth transition, some delays are expected. Lack of experience of the MIE as a new Ministry with no execution experience and with Bank-financed operations will likely impact the speed of various processes. Several contracts at an advanced stage of procurement are awaiting signing and, therefore, are likely to be affected by the necessary delays of the change of IE, including time to process the present restructuring, such as both contracts for the first phase of the Guapi water system, its supervision, the technical assistance for institutional strengthening and the consultancy for the designs for the pilot for a sanitation condominial system in Tumaco. Flow of Funds 19. The Project will follow the established flow of funds, with the modification that the MIE will act as the authorized signature for disbursement requests. Fiduprevisora will maintain the control and administration of the designated and operating accounts (in US$ and Colombian pesos, respectively) and will make payments to consultants, suppliers, and contractors involved in project execution based on the payment authorization (ordenación de gasto) to be issued by MIE. The MIE will submit withdrawal applications based on a cash forecast covering the upcoming semester, supported by signed contracts and upon obtaining approval from the Task Team Leader. MIE should promptly address the delays in the submission of the Statement of Expenses to provide the needed documentation of expenses to the current Designated Account advance. Financial Management (FM) Page 6 The World Bank CO Plan PAZcifico:Water Supply and Basic Sanitation Infrastructure and Service Delivery Project (P156239) 20. As part of the restructuring process, in February 2024, the Bank team conducted an institutional assessment of the MIE, including FM aspects1. The FM Assessment involved: (i) a review of the adequacy of MIE’s existing financial management systems to be used for project budgeting, monitoring, accounting, and financial reporting; (ii) adequacy of the existing PIU and MIE’s staffing; (iii) flow of funds arrangements; (iv) internal control mechanisms; and (v) internal and external audit arrangements. All these aspects were assessed considering the current arrangements and FM performance, rated as Moderately Unsatisfactory, to identify immediate actions needed to resume project implementation as well as compliance with agreed FM requirements. 21. As the new IE, MIE will have the overall FM responsibility, supported by Fiduprevisora as the Project Fiduciary Agent. The following paragraphs describe MIE and Fiduprevisora’s roles and responsibilities. • MIE’s FM roles and responsibilities. MIE is subject to the country’s Public Financial Management (PFM) systems, laws, and regulations; however, Project implementation follows the FM arrangements defined in the Operating Regulations (Reglamento Operativo del Proyecto, ROP), which established the relationship, roles, and responsibilities between the IE and the Fiduprevisora. Accordingly, MIE will incorporate the current PIU - FTSP, staffed with qualified professionals for FM and Planning functions, which has been satisfactorily transferred from UNGRD to MIE. This will help keep FM processes going during the transition and minimize the learning curve. The MIE’s General Secretariat will approve UIFRS and annual financial statements and act as the authorized signature to request withdrawal of funds in Client Connection. MIE’s Planning Advisory Office will work together with the PIU in preparing, approving, and monitoring the Project’s annual operating plans (Plano Operativo Annual, POA). As a new entity, MIE is still in the process of hiring staff and putting in place all required functions to fulfill all assigned responsibilities, which would cause some delays at the beginning. Thus, it is important that MIE appoint focal points in the departments/offices that are expected to be involved in project-related tasks, mainly for approvals and authorizations. • Fiduprevisora will remain the fiduciary agent and loan recipient, with the same roles and responsibilities. Fiduprevisora, through its Vice-presidency of Fiduciary Administration, is responsible for managing funds flow, budgeting, signing of contracts for works, goods, and services (based on the selection process conducted by the MIE), and processing of payments to vendors based on the expenditure authorization (ordenación de gasto) issued by MIE. Fiduprevisora will continue to follow its internal processes, procedures, and information systems (Peoplesoft) to fulfill its assigned tasks, which generally have worked well. 22. Accounting, financial reporting, and audit. There are no changes in content and reporting deadlines for the UIFRs and the annual audited financial statements, except for MIE, which is undertaking responsibility for approval and submission based on the information provided by Fiduprevisora. The Borrower, through UNGRD (previous IE), does not have any outstanding audit reports or audit reports that are not satisfactory to the Bank. To ensure the timely submission of the 2023 financial audit, MIE needs to discuss and agree with UNGRD and external auditors the implication of the changes in implementing entity for the audit process and related audit report in compliance with audit standards. 23. The FM risk is deemed substantial and may impact project implementation. The following factors were identified: (i) current MIE’s limitation in the number of staff that may affect its capacity to adequately support project implementation, delaying approvals, payments, and reporting; (ii) lack of a well-defined plan for the transfer of FM responsibilities from UNGRD to MIE, mainly as it relates to the preparation of UIFRs and audited financial statements 1 the FM assessment was carried out consistent with the World Bank Policy framework, Bank Directive and Guidance for Investment Project Financing. Page 7 The World Bank CO Plan PAZcifico:Water Supply and Basic Sanitation Infrastructure and Service Delivery Project (P156239) for 2023 that would lead to non-compliance with reporting requirements; and (iii) formalizing and putting in place all required operational arrangements under the new IE, plus a learning curve of a new IE, would continue to cause delays affecting the execution of the 2024 POA. Proposed mitigating measures to address the above risks include the following: (i) MIE would hire and appoint the core team in the financial, planning and Internal Control Office (OCI) to ensure that entity and the PIU are fully staffed; (ii) MIE would discuss and agree with PIU, UNGRD and external auditors, as needed, on a well-defined FM transition plan as detailed in the updated FM assessment; (iii) quarterly monitoring of the POA performance during 2024; and (iv) Updating of the Project Operations Manual (POM) that must include all fiduciary requirements and procedures, and detailing Internal control system in the MIE to operate the project, among others. 24. The overall conclusion of the FM assessment is that proposed changes to the FM arrangements resulting from the change in implementing agency can be considered acceptable to the Bank, subject to the successful implementation of the above-mentioned mitigating measures further detailed in the action plan shared with MIE. Procurement 25. There have been no alterations to the procurement arrangements. However, in light of the change in the IE, the Bank conducted an assessment of the MIE in late February 2024 to evaluate its capacity to assume procurement functions for the Project. MIE, being a recently established ministry lacking prior experience in Bank procurement procedures and policies, presents a risk factor. This risk is mitigated by transferring the existing procurement capacity from UNGRD, including the Procurement Coordinator and the Project’s dedicated procurement staff, to MIE. The primary challenge lies in ensuring the sustained procurement capacity and the continuous presence of qualified procurement consultants within MIE throughout project implementation. 26. The MIE conducts its procurement activities in accordance with Law No. 80 of 1993, "On Public Administration Contracting,” utilizing the Electronic Public Procurement System (SECOP) administered by the National Agency of Public Procurement – Colombia Efficient Buying- (ANCP-CCE). This complies with the provisions outlined in Article 3 of Decree Law 4170 of 2011. MIE publishes its annual procurement plan in SECOP, operating under the regulatory framework. Under the General Secretary, MIE houses a procurement unit known as the Subdirectory for Contracting. The unit's annual procurement volume remains undetermined due to the ministry's recent establishment. However, the proposed arrangements presented by MIE demonstrate that requisite administrative, financial, and procurement independence are viable for Project implementation. 27. The Project Procurement Strategy for Development (PPSD) and Procurement Plan will undergo necessary updates by Q2FY24, adhering to the mandatory procurement prior review thresholds outlined in the World Bank Procurement Procedures, Annex I. All procurement procedures, delegations of authority, and additional approvals within MIE will be delineated in the POM, which will be updated to reflect the new implementation arrangements and internal approvals. These updates must receive Bank approval no later than 60 days after the restructuring’s effectiveness. 28. All contracts previously executed by UNGRD under the Project will be transferred to MIE, ensuring compliance with the Ministry of Finance Decrees. The Ministry and the PIU will guarantee timely subrogation of all contracts and fulfillment of contractual obligations during this transition and throughout the Project's duration. 29. The Procurement Risk is deemed substantial. Despite the transfer of the PIU team to MIE, several additional risk factors persist: (i) MIE lacks prior experience in implementing World Bank-financed Projects, thus anticipates a learning curve; (ii) centralized approvals within MIE may lead to procurement process delays; (iii) potential loss of procurement capacity Page 8 The World Bank CO Plan PAZcifico:Water Supply and Basic Sanitation Infrastructure and Service Delivery Project (P156239) during the transition due to staff turnover; and (iv) potential delays due to interaction with Ministry staff on procurement matters. 30. To address procurement risk, agreed-upon mitigation measures include: (i) adherence to Procurement Regulations for all Bank-financed procurement, coupled with training on World Bank Procurement Procedures and Policies for MIE staff involved in project implementation; (ii) establishment of a clear delegation system between the Minister and the PIU Coordinator, to be included in the POM; MIE shall not modify or waive the POM or any provision therein; (iii) assurance by MIE that the PIU maintains a procurement specialist at all times, meeting the Bank's standards for terms of reference, qualifications, and experience; and (iv) potential engagement of additional consultants with pertinent experience in water sector project procurement for specific project activities. Environmental and Social 31. Project restructuring does not imply any changes in relation to the Project´s Environmental and Social (E&S) assessment. The restructuring of the Project does not imply changes to the Environmental assessment of the Project. The environmental, health, and safety impacts will remain unchanged as the civil works and their scope will continue to be managed as previously by the PIU. Consequently, the current Environmental and Social Management Framework (ESMF) has not been objected to by the World Bank and is still applicable, the ESMF will be updated and disclosed to reflect the new institutional arrangements. Implementation capacity to comply with the relevant environmental instruments will be ensured through the PIU’s Environmental specialists who have been working on the project; the new PIU will absorb the Project’s Environmental safeguards specialists and officers, guaranteeing the adequate follow-up of the triggered E&S policies through the updating and implementation of the Project’s existing E&S management instruments, this team has demonstrated satisfactory performance, according to the results of the missions carried out in the year 2023. From a social perspective, the project has a team prepared for implementation. Instruments such as Resettlement Plans, Social Management Plans, or the Information, Participation, and Communication Plan are updated, are in the implementation process, and do not require adjustments. Environmental and Social instruments will be updated accordingly to ensure they reflect the changes in implementation arrangements and any other adjustments in project activities or timelines resulting from this restructuring, which will be reflected in the Project Operational Manual (POM). C. Change to Loan Agreement (LA) and Disbursement Letter (DL) 32. LA IBRD-8649-CO and the DL dated March 7, 2017, will be amended to reflect the above-described changes. All other provisions and attachments in these documents will remain in force and effect. Page 9 The World Bank CO Plan PAZcifico:Water Supply and Basic Sanitation Infrastructure and Service Delivery Project (P156239) @#&OPS~Doctype~OPS^dynamics@restrhybridsummarychanges#doctemplate Summary changes III.PROPOSED CHANGES Operation Information Proposed Changes Operation Information Proposed Changes Appraisal Summary No Institutional Arrangement Yes Safeguard Policies Triggered No Procurement No Disbursements Arrangements No Implementation Schedule No MFD/PCE No Loan Closing Date Extension No Clients No Reallocations No Legal Covenants No Loan Cancellations No DDO No Financial Management No Conditions No Components No Risks No Development Objective No Results No Disbursements Estimates No ISDS No Implementation Modalities No @#&OPS~Doctype~OPS^dynamics@restrhybriddetailedchanges-disclose#doctemplate IV. DETAILED CHANGE(S) COSTS & FINANCING Private Capital Facilitation Is this an MFD-Enabling Project (MFD-EP)? Is this project Private Capital Enabling (PCE)? LOANS Page 10 The World Bank CO Plan PAZcifico:Water Supply and Basic Sanitation Infrastructure and Service Delivery Project (P156239) Page 11 The World Bank CO Plan PAZcifico:Water Supply and Basic Sanitation Infrastructure and Service Delivery Project (P156239) Annex 1: Updated Financial Management section Financial Management (FM) 1. As part of the processing of the project restructuring, the FM team has carried out an assessment of the new Ministry of Equality and Equity (MIE by its Spanish acronym) as the newly designated implementing agency replacing UNGRD. The objective of the assessment was to review MIE’s existing capacity to undertake responsibility to key FM functions as provided in project documents. The review also covered a review and discussion of a transition plan from UNGRD to MIE for an orderly transfer of FM responsibility. 2. Revised FM institutional Arrangements. According to the proposed implementation arrangements for project execution, MIE will be the entity responsible for the general project implementation and will have the overall FM compliance responsibility, with the support of Fiduprevisora as the project fiduciary entity2. MIE is a new ministry created in 2023 (Law 2281 of January 4, 2023)3, who is subject to the country’s Public Financial Management (PFM) systems, laws, and regulations. Fiduprevisora will remain the fiduciary agent and loan recipient, with the same roles and responsibilities. Fiduprevisora and MIE’s detailed FM arrangements are included below. 3. Fiduciary agent – Fiduprevisora. The relation between the Fiduprevisora and the IE is governed by the Resolution 4075 of 2015, the Operating Regulations -ROP (Reglamento Operativo) approved on October 21, 2016, without any changes over this first version, and the Resolution No. 0276 dated February 5, 2024, amending Resolution No. 4060 and 4075 of 2015, with changes becoming effective on March 1, 2024 (in which the MIE is designed as IE). Fiduprevisora is responsible to manage funds flow as it relates to the administration of the Designated Account (although not the request of withdrawal applications), budgeting, accounting, and reporting project financial information to the IE, signing of contracts for works, goods, and services (based on the selection process conducted by the MIE), as well as processing payments to vendors based on the authorization (ordenación de gasto) provided by MIE. As originally designed, Fiduprevisora uses Peoplesoft information system for project budgeting and accounting; and handle loan repayment, the latter through budget allocated by the MHCP (Ministry of Finance). Fiduprevisora frames its processes in its own internal control system. The vice-presidency of fiduciary administration within Fiduprevisora is the division responsible for the fiduciary aspects of the project. Fiduprevisora reports periodically financial information to the IE, as part of its responsibilities established in the ROP. The ROP will be updated to reflect changes in the operation of fiduciary processes, with the new implementing entity -MIE (See FM action plan). 4. Staffing. The project PIU, originally established under UNGRD, has been formally transferred to MIE as of March 1, 2024. Although with some delays, the FM and Planning positions within the PIU have been filled with staff with required qualifications. The transfer of a fully staffed PIU will help keeping FM processes on going during the transition period and minimizing the learning curve within MIE. Fiduprevisora has assigned the staff, in numbers and qualifications as agreed in the Operating Regulations -ROP for the adequate fiduciary responsibilities. 5. The MIE is in the process of hiring the 744 positions authorized by Decree 10764. As it relates to the project, the Financial and Administrative Subdirectorate in the General Secretariat will be in charge of the preparation and approval of UIFRS and annual financial statements as well as of signing the withdrawal of funds in Client Connection. Currently the area has five (5) staff contracted out of the sixty-five (65) staff expected to have. MIE’s Planning Advisory Office will work together with the PIU in preparing, approving, and monitoring the Project’s annual 2 Resolution 4075 of 2015 that names Fiduprevisora as Fiduciary Entity of the Fund We are all Pazcifico (Fondo Todos Somos Pazcifico -FTSP). 3 Decree 1075 and 1074 of 2023 defined its structure and made effective its creation, the personnel plant was established by Decree 1076 of 2023 authorizing 744 jobs. 4 The Project will not finance salaries of civil servants. Page 12 The World Bank CO Plan PAZcifico:Water Supply and Basic Sanitation Infrastructure and Service Delivery Project (P156239) operating plans -POA, and it has four (4) staff out of the nine expected. The function to authorize expenditures (ordenación de gasto) that was previously with the Director of the UNGRD will be managed directly by the Minister’s office. The latter suggest a shortage in staff within MIE which could affect the timeliness of key FM tasks including the approval and authorizations of payments. 6. Planning and budgeting. The MIE, as the executing entity, will be responsible for preparing and monitoring the annual operating plan and the respective budget. The MIE is part of the General National Budget and therefore subject to budgetary controls; however, the Project budget is managed outside the government budget system because the FTSP (the borrower) was created as an autonomous trust. Consequently, project budget recording relies entirely with Fiduprevisora using its own procedures and system, PeopleSoft, providing to which MIE’s PIU has also access. Project budget execution has been consistently weak. Commitment and disbursements remain low compared to project targets, representing respectively 29.3 percent (US$37.15M) and 18.8 percent (US$23.8M) of the loan proceeds in more than seven years. Annual Operating Plan (POA) for FY2024 was no objected by the Bank on February 9, 2024, and reflects commitments of US$40,5 M for FY2024, more than the total amount committed in the entire life of the Project. This projection is challenging, considering the transition of the project during this year and the recurrent delays in most of the activities. Thus, there is need to strengthen the planning and budget process to ensure realistic projections are made considering all key factors. The execution of the POA will be periodically monitored by the Bank (see FM action plan). 7. Accounting and financial reporting. As previously mentioned, project budget, accounting and treasury functions are supported by Fiduprevisora’s information system (Peoplesoft) that allows reporting project expenditures classified by project component and sub-components, which has worked out well. Within MIE, the PIU has online access to the information system for budget monitoring, consultations, and downloading of information for the preparation of UIFRs and disbursement requests. Those UIFRs and annual financial statements will be authorized and signed by MIE’s Financial and Administrative Subdirectorate. 8. Project UIFRs. The MIE will prepare the UIFRS on a semi-annual basis within 45 days after the end of each such period; under formats agreed with the Bank and documented in the Project Operational Manual (POM). UIFRs were submitted to the Bank on a timely basis until June 30, 2023, and they were acceptable to the Bank. However, the prolonged vacancy of the FM Leader and FM Specialist positions within the PIU (recently hired), prevented the preparation and submission of the UIFRs as of December 31, 2023, which is overdue since February 15, 2024. The pending UIFRs is expected to be submitted to the Bank on April 19, 2024 (see FM action plan). 9. Internal control system. MIE’s internal control system will follow the country’s legal and institutional framework which include a regulatory framework5. As a recently created entity, the MIE’s internal control office – OCI has yet to be created. Once in place, the OCI will be responsible for periodic monitoring of the implementation/operation of the internal control system, as well as the internal audit function. According to the information provided by the MIE, the OCI is expected to be established and staffed in 2024. A well- functioning OCI is essential to support project execution by ensuring compliance with internal controls procedures. In addition, the Project operating manual will be updated to reflect MIE’s roles and responsibilities, segregation of duties for the FM processes under its responsibility, including approvals. On its side, Fiduprevisora will continue using its internal control processes and procedures, which has been audited by the entity's external and internal audit, without significant findings. 5The IC system is characterized by the Internal Control Law (law 87 of 1993), the National Internal Control System (Law 489 of 1998 and Decree 2145 of 1999), and the Standard Internal Control Model (MECI by its Spanish acronym). Page 13 The World Bank CO Plan PAZcifico:Water Supply and Basic Sanitation Infrastructure and Service Delivery Project (P156239) 10. Flow of funds. Current flow of funds arrangements will continue to be in place, with the modification that the MIE will assume the role for approving, sign and submit disbursement requests. Fiduprevisora, serving as the fiduciary agent, will maintain the control and administration of the designated and operating accounts (in USD and Colombian pesos, respectively), with no anticipated changes to the designated account6. Fiduprevisora will also retain the responsibility for making payments to consultants, suppliers, and contractors involved in project execution upon receiving the payment authorization (ordenación de gasto) from MIE. The Bank keep disbursing the loan proceeds into the Designated Account (DA), registered in Client Connection for this project. The MIE will submit withdrawal applications based on the cash flow for up to one semester, supported by signed contracts. The disbursement methods will remain unchanged, consisting of advances and reimbursement for eligible expenditures reported through Statements of Expenditure (SOEs). The MIE is required to obtain approval from the Task Team Leader before submitting a request for an advance. There will be need to register a new authorized signature for withdrawal of funds once the amendment to the legal agreement is effective (see the FM action plan). 11. While funds flow arrangements are not expected to change, it is important to note that there are significant delays with the submission of Withdrawal Applications to document the advance to the Designated Account. The last W/A was sent in December 2022 and as of the date of this assessment a balance of US$ 10 million is pending documentation. The Bank was informed that a withdrawal application for US$5M is likely to be submitted before the end of the WB fiscal year once the restructuring is approved. On that regard, it is important that the MIE’s PIU (FTSP) documents expenditures in Client Connection to proceed to a new withdrawal application. Additionally, any new disbursement should be subject an updated cash forecast based on a realistic plan. 12. External audit arrangements. The Project’s annual financial statements are audited by private audit firms under terms acceptable to the Bank. The Borrower, through UNGRD (previous IE), does not have any outstanding audit reports as of December 2022, and those have been satisfactory to the Bank. Audit frequency and due dates will remain the same, with MIE becoming the new entity in charge of the submission of annual audited financial statements. According to the Access to Information Policy for the World Bank-financed operations, the Borrower, through MIE, will disclose the audited project financial statements in the IE’s web site. Following the World Bank’s formal receipt of these statements from the Borrower, the Bank will make them available to the public in accordance with the World Bank Policy on Access to Information. On February 19, 2024, Fiduprevisora signed the contract with the audit firm BDO Audit S.A.S. BIC, which is an audit firm approved by the Bank. The audit will cover the financial statements of FY2023. The PIU expects to report the audit on time in June 2024. Considering that UNGRD was the implementing entity until February 2024, MIE will need to timely coordinate and discuss with external auditors and UNGRD the audit process. 13. Transfer of FM responsibilities from UNGRD to MIE. In accordance with Resolution No. 276 dated February 5, 2024, necessary actions for MIE to assume the role of IE of the FTSP were taken during February. Accordingly, the UNGRD, as IE, was responsible for the overall project implementation, including FM aspects (inter alia, the preparation and submission of UIFRS, annual financial statements as well authorized signature for the withdrawal of funds) until February 28, 2024. FM's operational processes, including signing of contracts and processing of payments were carried out without interruption during the transition period. As a result of this transition period, the MIE prepared a transition report, that currently is being reviewed by the UNGRD. As it relates to FM, and considering the responsibility implied in the preparation and issuance of UIFRs and annual financial statements, there is need to ensure an orderly transition process with clearly defined and agreed FM responsibilities for both entities (MIE and UNGRD). Some of the measures that need to be considered: i) preparation of an extraordinary UIFRs as of February 28, 2024, cut-off date of UNGRD's responsibilities; ii) preparation of the annual financial statements for FY 2023 (e.g. 6 Currently, de DA is open in the Banco de Bogotá, New York Agency. Page 14 The World Bank CO Plan PAZcifico:Water Supply and Basic Sanitation Infrastructure and Service Delivery Project (P156239) signed/approved by UNGRD or MIE), iii) implications for the audit review, both in terms of the report and related disclosures as well as UNGRD commitment to collaborate throughout the audit process (e.g. review of internal control findings). 14. FM performance rating. Based on the results of the FM assessment and the status of the FM Action plan agreed in the last mission, the FM performance is assessed as Moderately Unsatisfactory (MU); considering the delays in preparation of UIFRs (one already overdue), delays in the contracting of FM staff for the PIU as well as the contracting of the audit firm, the lack of submission of WA to document the DA (last WA submitted in 2022). Consequently, the information required to manage and monitor the project’s FM issues may have weaknesses in terms of timing and reliability. FM performance will be monitored quarterly. 15. FM action plan and FM-related conditions. The action plan agreed upon as a result of the assessment is described follow: Agreed Actions Responsible Timing 1. Update the Operating regulations (Reglamento Operativo) MIE Up to 120 days after the considering the adjustments to the Project processes, because (PIU -FTSP) effective date of the of the new IE (MIE) – Covenant to the Amended loan Amended loan agreement. agreement. 2. Update the Operating Manual (POM), considering the MIE Up to 90 days after the adjustments in the Project Fiduciary aspects, as well as the (PIU -FTSP) effective date of the detailed Internal control system in the MIE to support the Amended loan project, including approval flows and segregation of duties of agreement. each of the FM processes in charge of MIE – Covenant in the Amended loan agreement. 3. Staffing. Hire/appoint a core team in the financial areas and in MIE June, 2024 the Internal Control Office (OCI) of MIE. The MIE, shall ensure that entity and the PIU are fully staffed with the professionals set forth in the Project Operational Manual. 4. Planning and budgeting. Submit quarterly POA execution MIE Quarterly report to the Bank during the FY 2024. (PIU -FTSP) 5. UIFRs. According to the transition agreements, report to the MIE April 19, 2024 Bank the UIFRs as of December 31,2023. (PIU -FTSP) 6. Disbursements. Send to the Bank the updated authorized MIE Up to 10 days after the signature letter for withdrawal of funds in Client Connection. effective date of the Amended loan agreement 7. Disbursements. Submit a Withdrawal Application to document MIE Up to 30 days after the expenditures until December 2023, through Client Connection. (PIU -FTSP) effective date of the Amended loan agreement 8. Audits. According to the transition agreements, submit to the MIE June 30, 2024 Bank the Project Audited Financial Statements for the FY2023. (PIU -FTSP) 9. Transition processes report - Transfer of FM responsibilities MIE April 30, 2024 from UNGRD to MIE. Submit to the Bank the first version of (PIU -FTSP) the transition report delineating the specific actions and Page 15 The World Bank CO Plan PAZcifico:Water Supply and Basic Sanitation Infrastructure and Service Delivery Project (P156239) responsibilities of the FM aspects and considering the FM actions detailed in the FM assessment. 10. Transition processes report. Report to the Bank the status of MIE May 31, 2024 the compliance of the transition report. (PIU -FTSP) 11. Transition period. Prepare an extraordinary financial report for MIE / UNGRD May 31, 2024 the period as of February 29, 2024. (PIU -FTSP) 12. Transition period. Documentation of expenditures from MIE Up to 60 days after the January 1st to February 29, 2024. (PIU -FTSP) effective date of the Amended loan agreement Page 16