The World Bank Sustainable Hydropower Development Project (P174327) REPORT NO.: RES56681 RESTRUCTURING PAPER FOR A PROPOSED PROJECT RESTRUCTURING OF THE SUSTAINABLE HYDROPOWER DEVELOPMENT PROJECT APPROVED ON MARCH 1, 2022 TO THE 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): Fanny Kathinka Missfeldt-Ringius, Dzenan Malovic The World Bank Sustainable Hydropower Development Project (P174327) ABBREVIATIONS AND ACRONYMS CIA Cumulative Impact Assessment DA Designated Account DPR Detailed Project Report DHPP Dorjilung Hydropower Project DGPC Druk Green Power Corporation Limited DoE Department of Energy EDD End Disbursement Date ESIA Environmental and Social Impact Assessment ESF Environmental and Social Framework ESMAP Energy Sector Management Assistance Program ESMP Environmental and Social Management Plan ESP Environmental and Social Panel HPP Hydropower Project IUFR Interim Unaudited Financial Report LMP Labor Management Procedures MDTF Multi-Donor Trust Fund MoENR Ministry of Energy and Natural Resources PRP Project Review Panel RGoB Royal Government of Bhutan RP Resettlement Plan SARIC South Asia Regional Infrastructure Connectivity SEP Stakeholder Engagement Plan SHDP Sustainable Hydropower Development Project TA Technical Assistance ToR Terms of Reference 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 31-Dec-2023 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$, Millions) Net TF Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed TF-B8007 01-Mar-2022 17-Mar-2022 02-May-2022 31-Dec-2023 2.50 .84 1.66 TF-B8049 01-Mar-2022 17-Mar-2022 02-May-2022 30-Jun-2023 1.50 .33 1.17 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project Status 1. The Sustainable Hydropower Development Project (SHDP, the Project) was approved by the South Asia Regional Vice President on March 1, 2022, and became effective on May 2, 2022. The SHDP supports the Royal Government of Bhutan (RGoB)'s objective to apply its updated framework to a greenfield hydropower project in the pipeline, including the 1,125 megawatt (MW) Dorjilung Hydropower Project (DHPP), and also provides technical assistance (TA) based on gap analysis carried out on existing reports of the DHPP and the challenges and experience from recently developed or on-going hydropower projects in Bhutan. The TA is funded with a US$ 2.5 million grant from the South Asia Regional Infrastructure Connectivity (SARIC) Trust Fund (TF) 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. 2. The Project Components consist of the following: a. Component 1: Preparation Studies/Technical Assistance for Dorjilung Hydropower Plant Project (DHPP) and Transmission Lines (US$ 2.5 million, fully funded by SARIC). The component supports the preparation studies and TA to support the RGoB with preparing the DHPP 1,125MW and associated transmission lines. The support under this component includes the following activities:  Activity 1-1 a: Detailed Project Report (DPR) Update (US$ 0.87 million);  Activity 1-1 b: Additional Geotechnical Investigations (US$ 0.55 million);  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  Activity 1-3: Project implementation, management support, and hardware purchase for DPR Update (US$ 0.11 million). b. Component 2: Capacity Building for the Sustainable Development of Hydropower (US$ 1.5 million, fully funded by ESMAP Hydropower Facility). The component supports capacity building of Druk Green Power The World Bank Sustainable Hydropower Development Project (P174327) Corporation (DGPC) (implementing entity of the Project) and the Department of Energy (DoE), Ministry of Energy and Natural Resources (MoENR), the main governmental authority responsible for hydropower development in Bhutan, in managing the RGoB's policy and regulatory framework for hydropower development, and for hydropower management. The support under this component includes the following activities:  Activity 2-1: Software purchase for DPR update including power system analysis software and training (US$ 0.42 million);  Activity 2-2 a: Engineering and Dam Safety Project Review Panel (PRP) (US$ 0.34 million);  Activity 2-2 b: Environmental and Social Panel (ESP) (US$ 0.09 million);  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  Activity 2-4: Other capacity building activities (US$ 0.4 million). 3. Overall, the Project has made 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 reports have been of excellent quality. However, COVID-19 related delays have occurred and impacted the speed of procurement of the two key consulting assignments under the Project. 4. Under Component 1, two main consultants – (i) the technical advisory consultant to update of feasibility study (DPR) of DHPP, and (ii) the Environmental and Social (E&S) consultant for updating and completion of ESIA including ESMP and RAP, were recruited at the end of December 2022. Experts from both consultants carried out the first site visit in February 2023, accompanied by the DGPC team and the World Bank task team. Following the first site visit, the consultants submitted their inception reports to DGPC. The Panel of Experts (PoE) and the World Bank task team have also reviewed the reports and provided comments. In June 2023, both consultant teams are working to update and incorporate the comments of the inception reports, while further advancing their assignments. Work under both contracts is expected to be completed by March 30, 2024. 5. The work for additional geotechnical investigation associated with the DPR update has also been initiated. Based on the technical consultant’s preliminary assessment, the scope for necessary additional geotechnical investigations is limited. The investigation is divided into two phases. The first phase “geological mapping and geophysics survey” is being carried out by DGPC’s experts. This phase is expected to be finalized by the end of June 2023. Results of the first phase investigation will be reviewed by the technical consultant and PoE. It will define the scope of work for the second phase of additional geotechnical investigations. In addition, some of the required hardware has been procured. Table 1 below shows implementation timeline of major activities under Component 1. 6. Under Component 2, the four members of the Engineering and Dam Safety Project Review Panel (PRP) and the two members of the Environmental and Social Panel (ESP) have been hired. The PRP and ESP will review the work of the technical and E&S consultants. A list of required hardware and software, as well as a detailed plan for capacity building activities has been developed and some of the software has been purchased. A well-qualified project management team and a technical working group have been established at DGPC to manage the Project. Table 1: Current implementation schedule for activities under Component 1 The World Bank Sustainable Hydropower Development Project (P174327) Closing Date Closing Date of Pojrect Feb. 04. 2023 ESMAP Grant and SARIC Grant Cost # Activities 2022 2023 2024 MUSD Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Jan - Mar Apr - Jun July - Sep Oct - Dec Jan - Mar Apr - Jun July - Sep Oct - Dec Jan - Mar Apr - Jun Component 1: Preparation Studies/Technical Assistance for DHPP Hydropower Plant and Transmission Lines Technical Consultant - Scope Proposal Evaluation Implementation 1 Update of Detailed Project 0.87 and Shortlist and Contract (15 Months) Report ToR Additional Geotechnical Procurement of the activity will start after the scope is Procurement of Geotechnical 2 0.55 Investigation finalized by the Technical consultant Contractor Investigation Scope Updating of ESIA including Proposal Evaluation Implementation 3 0.97 and Shortlist CIA, RAP, and ESF Plans and Contract (15 Months) ToR B. Rationale for Restructuring 7. The Bank received a letter from RGoB on May 23, 2023, requesting (i) extension of the closing date for ESMAP grant from June 30, 2023 to June 30, 2024, (ii) extension of the closing date for SARIC grant from December 31, 2023 to June 30, 2024, and (iii) US$ 300,000 additional financing to support additional capacity building for DGPC. 8. Closing Date Extension: The current Project closing date is December 31, 2023. The current TF closing date for the ESMAP grant is June 30, 2023, and for the SARIC grant is December 31, 2023. The two key elements of the 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. The consultants have made two visits to the site, and the scope of work and timeline are now clear: the updating of DPR and ESIA will be completed by March 2024. To accommodate the time for the review the updated DPR and ESIA by DGPC, the Project’s and TFs’ closing dates will need to be extended until June 30, 2024. The extension of the closing date will also allow the client to undertake additional capacity building activities. 9. Due to the fact that (i) the ESMAP grant is being channeled through Multi-Donor Trust Fund (MDTF) which has an End Disbursement Date (EDD) of December 31, 2023; and (ii) a late receipt of the request for grant extension by the client, the restructuring of the SHDP has to be phased as follows: (i) phase 1 is the present restructuring package for an extension of the ESMAP grant by two months; (ii) phase 2 is the extension to 30 June 2024 and augmentation of the SARIC grant by US$300k; and (iii) phase 3 is the further extension of the ESMAP grant to 30 June 2024 . The extension of the EDD of the MDTF is currently under preparation. The World Bank Sustainable Hydropower Development Project (P174327) 10. Therefore, through this restructuring, the closing date for ESMAP grant will be initially extended to August 31, 2023 (the maximum duration permitted by the Bank’s RETF guideline) by reducing the withdrawal grace period of the RETF to allow continued implementation. As agreed with the Bank’s Development Finance (DFi) and Finance & Accounting (WFACS), a clearance to reducing the withdrawal grace period between the ESMAP grant and the end date of the EDD for MDTF was provided on June 23, 2023. Once the extension of the EDD for MDTF is finalized, the closing date of the ESMAP grant would be further extended to June 30, 2024. 11. Through this restructuring thus only the closing date for ESMAP grant will be extended. Extension of the closing date for SARIC grant until June 30, 2024, and US$ 300,000 additional financing to support additional capacity building for DGPC will be processed through a separate restructuring (phase 2). 12. There are no overdue audit reports for the Project. Since an advance payment was made to Designated Account (DA) in Novembers 2022, there has been no submission of withdrawal applications. This is due to a delay in procurement of the two main consultants. The due date for the next Interim Unaudited Financial Report (IUFR) is August 2023 and disbursement will be reported in this IUFR, and Statement of Expenses will be submitted along with the IUFR. II. DESCRIPTION OF PROPOSED CHANGES A. Description of Proposed Changes 13. TF closing date for ESMAP grant will be extended from June 30, 2023, to August 31, 2023. 14. The grace period for the submission of the withdrawal applications as specified in the Disbursement Letter dated March 16, 2022, will be reduced from four months to two months. Hence the new disbursement deadline date for receipt of withdrawal applications shall be October 31, 2023 for the expenses incurred under the ESMAP grant. III. SUMMARY OF CHANGES Changed Not Changed Loan Closing Date(s) ✔ Disbursement Estimates ✔ Implementation Schedule ✔ Implementing Agency ✔ Project's Development Objectives ✔ Results Framework ✔ Components and Cost ✔ Cancellations Proposed ✔ Additional Financing Proposed ✔ Reallocation between Disbursement Categories ✔ The World Bank Sustainable Hydropower Development Project (P174327) 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_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 31-Dec-2023 30-Apr-2024 TF-B8049 Effective 30-Jun-2023 31-Aug-2023 31-Oct-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 1,200,000.00 1,200,000.00 The World Bank Sustainable Hydropower Development Project (P174327) 2024 3,100,000.00 4,300,000.00