$ Report No: RES00060 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF Power Efficiency and Reliability Improvement Project (PERIP) APPROVED ON 28-Sep-2017 TO Republic of Mozambique Energy & Extractives Eastern And Southern Africa Regional Vice President: Victoria Kwakwa Regional Director: Wendy E. Hughes Country Director: Zviripayi Idah Pswarayi Riddihough Practice Manager: Erik Magnus Fernstrom Task Team Leader(s): Samuel Oguah The World Bank Power Efficiency and Reliability Improvement Project (PERIP) (P158249) ABBREVIATIONS AND ACRONYMS ARENE Energy Regulatory Authority (Autoridade Reguladora de Energia) DA Designated Account EDM Electricity of Mozambique (Electricidade de Moçambique) ERP Enterprise Resource Planning EU European Union FCV Fragility, Conflict, and Violence FM Financial Management GBV Gender-Based Violence GDP Gross Domestic Product GoM Government of Mozambique GPN Good Practice Note ICT Information and Communication Technology IFR Interim Financial Report IGEPE Institute for Management of Government Shares (Instituto de Gestão das Participações do Estado) IPF Investment Project Financing IPP Independent Power Producer KPI Key Performance Indicator LRP Loss Reduction Plan LV Low Voltage M&E Monitoring and Evaluation MEF Ministry of Economy and Finance (Ministério da Economia e Finanças) MEFA Mozambique Energy For All MIREME Ministry of Mineral Resources and Energy (Ministério de Recursos Minerais e Energia) MV Medium Voltage O&M Operations and Maintenance OPEX Operational Expenditure PDO Project Development Objective PERIP Power Efficiency and Reliability Improvement Project PIM Project Implementation Manual PIU Project Implementation Unit SEA Sexual Exploitation and Abuse STEP Systematic Tracking of Exchanges in Procurement WBG World Bank Group The World Bank Power Efficiency and Reliability Improvement Project (PERIP) (P158249) @#&OPS~Doctype~OPS^dynamics@restrhybridbasicdata#doctemplate BASIC DATA Product Information Operation ID Operation Name Power Efficiency and Reliability Improvement Project P158249 (PERIP) Product/Financing Instrument Geographical Identifier Investment Project Financing (IPF) Mozambique Approval Date Current Closing Date 28-Sep-2017 30-Apr-2024 Original EA Category Current EA Category Partial Assessment (B) (PAD Approval Package-28 Sep 2017) Organizations Borrower Responsible Agency Electricidade de Moçambique (EdM), Ministry of Mineral Republic of Mozambique Resources and Energy @#&OPS~Doctype~OPS^dynamics@restrhybridoperationstatus#doctemplate OPERATION STATUS Project Development Objective (DO) Original Development Objective The Project Development Objective (PDO) is to improve the operational capacity of the electricity network in the project areas and the operational efficiency of EDM. Disbursement Summary (in USD million) Source of Funds Net Commitment Disbursed Balance % Disbursed IBRD -- -- -- 0 i The World Bank Power Efficiency and Reliability Improvement Project (PERIP) (P158249) IDA 150.00 133.43 16.57 88.95 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 Project Development Objective (PDO) is to improve the operational capacity of the electricity network in the project areas and the operational efficiency of EDM. Disbursement Summary (in USD million) Source of Funds Net Commitment Disbursed Balance % Disbursed IBRD -- -- -- 0 IDA 150.00 133.43 16.57 88.95 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 Power Efficiency and Reliability Improvement Project (PERIP) (P158249) The World Bank Power Efficiency and Reliability Improvement Project (PERIP) (P158249) TABLE OF CONTENTS I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING ........................................................................................1 II. DESCRIPTION OF PROPOSED CHANGES ....................................................................................................................4 III.PROPOSED CHANGES .................................................................................................................................................5 IV. DETAILED CHANGE(S) ...............................................................................................................................................5 The World Bank Power Efficiency and Reliability Improvement Project (PERIP) (P158249) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING 1. The proposed Level Two restructuring is to extend the project closing date by five (5) months from April 30, 2024 to September 30, 2024. The proposed restructuring will be the fourth of the project, and third extension resulting in a cumulative extension of 21 months from the first closing date of December 30, 2022. The requested extension will allow additional time for full completion of outstanding works in a satisfactory manner. A. Overview 2. The Power Efficiency and Reliability Improvement Project (PERIP – P158249), financed through an IDA grant in the amount of US$ 150 million (D238MZ), was approved on September 28, 2017. It reached effectiveness on June 7, 2018. The Project Development Objective (PDO) is to improve the operational capacity of the electricity network in the project areas and the operational efficiency of Electricidade de Moçambique, E.P. (EDM). The project has three components, namely : (a) rehabilitation and upgrade of network infrastructure; (b) enhancement of the operational and commercial performance of EDM; and (c) capacity building and implementation support. The implementing agencies are the Ministry of Mineral Resources and Energy (Ministério dos Recursos Minerais e Energia - MIREME, and the EDM. 3. After approval, the project faced a slow start with limited capacity in the project implementation unit (PIU) which significantly delayed procurement. EDM strengthened the PIU with additional staff and the pace of implementation improved. However, the commencement of major contracts coincided with lockdowns associated with the COVID-19 pandemic which delayed the start of construction. Once construction started, initial gaps in contract management and delays in delivery of materials to site caused further delays. Overall pace of implementation improved as EDM resolved constraining factors and put in place additional resources for better project management. 4. The project was first restructured on February 14, 2021 as part of an emergency response to the COVID-19 pandemic by the Government of Mozambique (GoM) who requested support to pay for electricity supplied to health facilities and vulnerable households when the government announced an exemption to ease the economic strain on consumers. The first restructuring included (i) revising the list of eligible expenses under the project to include recurring costs for a limited period to pay for electricity consumed by health facilities and other critical public institutions; (ii) re- allocating savings from procurement of five contracts under Component 1 of the project to cover an agreed work program; and (iii) increasing the allocation for Components 2 and 3. The second project restructuring, which was approved in December 2022, was to extend the closing date for the project by nine (9) months from December 30, 2022 to September 29, 2023 to allow completion of all project activities. The project closing date was again extended by seven (7) months to April 30, 2024 following further delays through a third restructuring. B. Status 5. Even though the project has made progress, further delays have hampered finalization of all activities before the closing date of April 30, 2024. Investments already completed under the project are translating into tangible results as EDM has recorded year-on-year reductions in losses over the past two years (1.3% and 1.8%) for the first time over the past seven years. These investments are also central to supporting the financial viability of the sector in light of the government’s ambitious Energia para Todos (Energy for all) program as it allows EDM to integrate new customers fully into its commercial processes, thereby controlling commercial losses. Page 1 The World Bank Power Efficiency and Reliability Improvement Project (PERIP) (P158249) 6. The project has met its development objectives as defined in the results framework, but outstanding activities are necessary to maximize the project’s benefits. and, in some cases, critical to ensure full usage of investments made under the project. The project has disbursed US$19.1 million over the fiscal year 24, with an undisbursed amount of USD 12.06 million. The implementing agency estimates additional disbursements of US$ 8 million by June 30, 2024 of which US$ 2 million has already been submitted. 7. Component 1 – Rehabilitation and Upgrade of Network Infrastructure (IDA US$ 87.0 million): Component 1 comprises five contracts under five lots and includes substation works, transmission lines and distribution lines in eight cities. Rehabilitation and upgrade of substations and transmission and distribution lines executed under this component have a direct impact in EDM’s capacity to deliver reliable electricity services, and therefore, contribute to the national Energia para Todos program. During the last technical visit the week of April 19, 2024, the WB team visited sites around Maputo (SE2, SE5, SE7, SE11) and the Mocuba Substation to ascertain works. Implementation progress is as follows: Lot 1 – 95% (against 90% in Dec 2023); Lot 2 – 98% (against 97% in Dec 2023); Lot 3 – 85% (against 84% in Dec 2023); Lot 4 and Lot 5 – 100%). Nine out of 12 substations under Lot 1 (Installation of additional Power Transformers to achieve redundancy in Lichinga and Maputo cities - US$20.1 million) are completed or about to be completed by April 30, 2024. The remaining three, SE2, SE5, and SE7, are expected to be finalized by June and September 2024, respectvely. Two out of three substations under Lot 3 (Power Compensation, Power System Protection and Control in three substations of central and northern region - US$ 6.4 million) will be completed by April 30, 2024, while the last, Mocuba is scheduled to be finished in June 2024. Under Lot 2 (Reinforcement of 66kV Transmission Lines and Underground cable in Maputo and Matola - US$ 15.6 million), 10 out of 12 lines and underground cables under are completed. Line SE11 – SE5 is expected to be completed by June 2024, and SE1 – SE 5 by May 2024. Difficulties to grant power outages in cities, delays in delivery of equipment, and lack of personnel have impacted the finalization of the activities under this component. 8. Component 2 – Enhancement of EDM Operational and Commercial Operations (IDA US$ 41 million): Activities under component 2 aim to improve EDM’s operational efficiencies, through upgrades in management systems, process reengineering and the revenue protection program. All activities under subcomponent 2.1 (Organizational Restructuring, Process Reengineering, and Capacity Building) are completed. A biometric attendance control and proof of life system was commissioned in August 2023. A new call center has been commissioned and is in full service since October 2023. Under subcomponent 2.2 (Consolidation of SIGEM), all activities have been completed but there are outstanding glitches with the customer management system (CMS) that EDM is working with the supplier to resolve as part of the handover process. On subcomponent 2.3 (Revenue Protection Program), there is a contract under implementation for the incorporation of the pre-payment module (PPM) into the CMS. EDM reversed an earlier decision not to implement this activity due to concerns related to the CMS stabilization and activation of the PPM is now scheduled for April 29, 2024. This is the last activity under this component and will be followed by a three month hand-over period. Implementation of the pre- payment module is key to keep up with the integration of new customers under Programa Nacional de Energia para Todos. Under the same subcomponent, a Geographical Information System has been installed, and EDM is currently implementing a pilot exercise with 7,000 customers. Under sub-component 2.4 (Upgrade of Information Systems), two out of three supply and install contracts are concluded and outstanding one is the final phases of data migration with all invoices paid. 9. Component 3 – Capacity Building and Implementation Support (US$ 11 million equivalent): Both EDM and MIREME have effectively used the funds under this component to receive technical assistance under this project as well as to support preparation of its electrification project also financed by the World Bank. On Sub-Component 3.1 (US$ 3.0 million), managed by MIREME, all activities have been concluded. On sub-component 3.2 (US$ 8.0 million), managed by Page 2 The World Bank Power Efficiency and Reliability Improvement Project (PERIP) (P158249) EDM, a training program for EDM staff has been implemented. The training program draws from a skill management plan developed by EDM and covers topics related to project management, system maintenance and operation, power system protection, overhead line design, amongst others. Upon completion of the program, the project will exceed its target included in the results framework. 10. Environmental and Social (E&S) Safeguards: Safeguards performance is rated Moderately Satisfactory. While a few challenges remain relating to adherence to occupational health and safety (OHS) requisites, there has been progress across multiple project sites. There are two pending issues that need to be addressed by the implementing agency. First, outstanding medical certificates for all six workers that have been injured at various stages of implementation are still being prepared by medical institutions. Five (5) of the six (6) workers have returned to work while the sixth continues to recover. The certificates will determine the need for compensation payments if any of the injuries have resulted in permanent disabilities and are required to close out the Environmental and Social Incident Reporting Toolkit (ESIRT). Second, an external audit of compensation processes as mandated in the resettlment action plan. There was no physical resettlement under the project but cash compensation for economic losses during construction. While there are no concerns of significant irregularities, the external audit is required to confirm that due process was followed by EDM. Terms of reference were cleared by the Bank and a firm has been identified to undertake the audit. The World Bank safeguards team will continue monitoring the implementation of the audit until completion. 11. Financial Management: The financial management (FM) performance rating is Moderately Satisfactory. The project’s FM arrangements remain acceptable to the Bank. Both project implementing agencies have been submitting the audit reports on regular basis. The audit report for the fiscal year ended December 31, 2023 is due June 30, 2024 expedited procurement is underway to carry out the audits. Auditors have expressed unqualified opinions for the prior previous fiscal years and no significant issues were raised in the management letters. C. Rationale for restructuring 12. The proposed restructuring is to extend the closing date of the project financing agreement to from April 30, 2024 to September 30, 2024, a five month extension, to give additional time for completion of the delayed activities and cancel unused funds. Work has been progressing steadily on site, but activities will not be completed by the current closing date due to the following: a. A combination of limited duration of outages and poor contractor performance: EDM has significantly increased the number of outages granted to allow contractors to work but the duration remains limited in order to minimize service disruption. On the other hand, the contractors are unable to maximize work during these outages because personnel on the ground is limited; a result of difficulties obtaining work permits from immigration services and minimizing the idle time (when there are no outages) of its staff. This has pushed out completion of the final substation works to September 2024. b. Delayed delivery of material from late change orders: EDM was compelled to realign part of a transmission line when negotiations with a project affected person failed resulting in the need for two new towers. The towers are expected in-country in May, 2024 to complete a 0.5km segment of the line. 13. The associated financing commitments are limited to labor costs for three (3) contracts and estimated at approximately $260,000 (out of $87 million). 81% these outstanding works are in contained environments (substations where access is strictly controlled) and the nature of safeguards risk is related to occupational health and safety (OHS) for which there have been no ESIRT incidents. Page 3 The World Bank Power Efficiency and Reliability Improvement Project (PERIP) (P158249) 14. The requested extension will allow: a. Completion of the remaining civil and electrical works associated with the SE5, SE2 and Mocuba substations, installation of two towers between CTM and SE6, and completion of cable works between SE1-SE5 with Government funds and implementation of the outstanding works in accordance with the Contractor’s Environmental and Social Management Plan (C-ESMP) approved by the World Bank; b. Longer period to monitor performance and impact of the new prepayment module under Component 2 of the project; c. Submission of medical certificates of health for six (6) persons injured at various stages of project implementation to close the ESIRT processes; d. Completion of an external audit of the compensation process to confirm that due process was followed by EDM; e. Completion of the project audit report for the fiscal year ending on December 31, 2023; f. Full documentation of outstanding balances under the designated account (DA) of MIREME and refund to the Bank within the grace period. 15. The request for the project extension is justified considering the facts that: (i) the PDO is still relevant, in line with the government’s priorities, and has been achieved as per the results framework; (ii) the outstanding activities are likely to be completed to maximize investments; and (iii) the project is not subject to suspension. 16. Close supervision will be provided by the team both in-country and through bi-monthly missions. An action plan has also been agreed with the implementing agency. II. DESCRIPTION OF PROPOSED CHANGES 17. Extension of grant closing date: The project closing date will be extended from April 30, 2024 to September 30, 2024 to allow completion of the remaining project activities. 18. Result framework. There will be no change to the PDO or intermediate indicators. The end dates of various indicators have been updated to account for implementation delays and to reflect the new closing date of September 30, 2024. These revised dates are consistent with the updated implementation schedule for the project reviewed as part of this restructuring. 19. Disbursement Estimates. Disbursement projections for the project will be updated to reflect the new closing date. Page 4 The World Bank Power Efficiency and Reliability Improvement Project (PERIP) (P158249) @#&OPS~Doctype~OPS^dynamics@restrhybridsummarychanges#doctemplate Summary changes III.PROPOSED CHANGES Operation Information Proposed Changes Operation Information Proposed Changes Disbursements Estimates Yes Implementation Schedule Yes Appraisal Summary No Loan Closing Date Extension Yes Safeguard Policies Triggered No Reallocations Yes Disbursements Arrangements No Procurement No MFD/PCE No Institutional Arrangement No Clients No Loan Cancellations No Legal Covenants No Financial Management No DDO No Conditions No Components No Risks No Development Objective No Results 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 5 The World Bank Power Efficiency and Reliability Improvement Project (PERIP) (P158249) Loan Closing Original Revised Proposed Proposed Deadline Loan/Credit/Trust Status Closing Closing(s) Closing for Withdrawal Fund Applications IDA-D2380-001 Closed 30-Dec-2022 30-Apr-2024 30-Sep-2024 30-Jan-2025 Reallocations IDA-D2380-001 Cancellations (if any): New Allocation: Currency: XDR 0.00 106,600,000.00 Financing % (Type Total) Category Expenditure Current Actuals + Proposed No. Category Allocation Committed Allocation Current Proposed 1 Gds,Tr,CS Part 3(a); 1,345,709.60 1,345,709.60 1,345,710.00 100.00 100.00 2 Gs,W,NCS,OC,Tr,CS 89,814,290.40 81,659,141.35 89,835,510.00 100.00 100.00 P1,2,3(b); 3 PPF REFINANCING; 1,440,000.00 449,957.30 449,958.00 100.00 100.00 4 ADMINISTRATIVE 14,000,000.00 14,968,821.99 14,968,822.00 100.00 100.00 COSTS; Total 106,600,000.00 106,600,000.00 DISBURSEMENTS Operation Dates & Projection Details To change the full Disbursement date and/or the projection, select one or more reasons below: Fiscal Year Absolute Cumulative FY2018 30,009.11 30,009.11 FY2019 3,546,300.02 3,576,309.13 FY2020 14,160,773.95 17,737,083.08 FY2021 30,446,050.92 48,183,134.00 FY2022 21,530,971.07 69,714,105.07 FY2023 43,233,337.17 112,947,442.24 Page 6