The World Bank Second Urban Infrastructure Project (P132386) REPORT NO.: RES57096 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF SECOND URBAN INFRASTRUCTURE PROJECT APPROVED ON MAY 22, 2014 TO UKRAINE WATER EUROPE AND CENTRAL ASIA Regional Vice President: Antonella Bassani Country Director: Arup Banerji Regional Director: Sameh Naguib Wahba Tadros Practice Manager/Manager: Winston Yu Task Team Leader(s): Ivaylo Hristov Kolev, Stjepan Gabric The World Bank Second Urban Infrastructure Project (P132386) ABBREVIATIONS AND ACRONYMS CERC Contingent Emergency Response Component CPMU Central Project Management Unit CTF Clean Technology Fund GoU Government of Ukraine IBRD International Bank for Reconstruction and Development ISCB Institutional Strengthening and Capacity Building ISR Implementation Status and Results Report MoF Ministry of Finance MS Moderately Satisfactory MU Moderately Unsatisfactory PDO Project Development Objectives RPMU Regional Project Management Unit WB World Bank The World Bank Second Urban Infrastructure Project (P132386) Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. BASIC DATA Product Information Project ID Financing Instrument P132386 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 22-May-2014 30-Jun-2023 Organizations Borrower Responsible Agency Ukraine Project Development Objective (PDO) Original PDO The project development objective (PDO) is to improve the quality and efficiency of water, wastewater, and solid waste services in selected cities in Ukraine. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-83910 22-May-2014 26-May-2014 21-Nov-2014 30-Jun-2023 277.10 172.25 104.84 TF-17112 22-May-2014 26-May-2014 21-Nov-2014 30-Jun-2023 49.47 31.12 18.35 The World Bank Second Urban Infrastructure Project (P132386) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No Note to Task Teams: End of system generated content, document is editable from here. I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING The World Bank Second Urban Infrastructure Project (P132386) 1. This restructuring seeks to extend the UIP2 loan closing date (LCD) of June 30, 2023 with 12 (twelve) months until June 30, 2024 and reallocate a small portion of fund between subprojects under Component 1 of the Second Urban Infrastructure Project (UIP2) in Ukraine. 2. The UIP2 was approved by the Bank's Board of Directors on May 22, 2014 in the amount of US$350 million (IBRD Loan: US$300 million; Clean Technology Fund (CTF) Loan: US$50 million), and became effective on November 31, 2014. Following two partial cancellations of funds (processed in June 2018 and in June 2020), IBRD loan amount is now set as US$277.1 million and the CTF amount is US$49.47 million, bringing to the total UIP2 project amount to US$326.57 million. 3. On February 24, 2022 the Government of Ukraine (GoU) declared a state of emergency, as a result of Russian Federation invasion of Ukraine. This had significant impact on project implementation activities and disrupted implementation of most of the ongoing UIP2 subprojects, which remained on hold for months, with few of the contracts had to be terminated due to the ongoing force majeure situation. Furthermore, in November 2022, the GoU decided to merge the Ministry for Communities and Territories Development of Ukraine and the Ministry of Infrastructure Development of Ukraine and create the Ministry for Communities, Territories and Infrastructure Development of Ukraine (MCTID). As a result of this merger, international investment projects like UIP2 ended up being put on hold, due to the required approval of changes to the budget code of the new ministry by the National Parliament of Ukraine (Rada), which was only completed in February 2023. A new UIP2 project coordinator – deputy minister of MCTID, was appointed in March 2023, while the project payments resumed only in May 2023, which led to more than 6 months of additional implementation delays. 4. In line with the discussions on UIP2 implementation challenges, because of the Russian invasion of Ukraine and ongoing Martial Law in the country, as well as the new emergency needs, UPI2 was restructured in August 2022 with Contingent Emergency Response Component (CERC) added. A CERC activation letter was received on October 25, 2022 from the Ministry of Finance (MoF) of Ukraine and the Bank activated UIP2 CERC on November 7, 2022 for an amount of US$56,829,250.00. UIP2 CERC is supporting 8 municipal companies (water supply and sewerage company in Kherson city was added after CERC activation) in Brovary, Kharkiv, Kherson, Kremenchuk, Mykolaiv and Zhytomyr, which operations have been significantly affected by the Russia’s invasion of Ukraine (but where equipment and some small works can be relatively safely carried out) to purchase water, wastewater, district heating and solid waste equipment and restore/improve communal services. These companies will be supported by the UIP2 CPMU to purchase the necessary equipment; the municipal authorities in these cities will install it at their own expense to ensure access to critical communal services. 5. The Project Development Objective (PDO), as amended to include CERC-related activities in mid-June 2022, is to improve the quality and efficiency of water, wastewater, and solid waste services in selected cities in Ukraine and address specific emergency communal services needs affected by the war. 6. UIP2 CERC restructuring was completed in beginning of June 2023 to finalize the introduction of CERC (following its activation in November 2022), revise the PDO and update all relevant result indicators to capture the impact of the approved emergency investments. The World Bank Second Urban Infrastructure Project (P132386) 7. PDO remains relevant and there is progress towards achieving project results. However, both PDO and IP ratings are rated Moderately Unsatisfactory (MU) since disbursements are only at US$201.9 million (62 percent) with LCD being June 30, 2023. The most to date implementation status of UIP2 is presented below: a) Component 1 – Infrastructure Investment (Total cost: US$208.3 million IBRD and US$49.5 million CTF, of which US$195.9 million has been disbursed). Activities under this component supported around 80 water supply, wastewater collection and treatment as well as solid waste management sub-projects in the 10 participating cities. The Russia’s invasion in late February 2022 has led to a complete stop of all ongoing works with international and local contractors abandoning construction sites, however works have been resumed last year and are ongoing now with local contractors. b) Component 2 – Institutional building (Total cost: US$7 million IBRD, of which US$3.7 million has been disbursed). With the ongoing armed conflict and shifting priorities the Bank did agree to reallocate some of the money to CERC. However, some funds have been allocated to the preparation of a damage and needs assessment for the water sector, which is ongoing. c) Component 3 – Project Management and Supervision (Total cost: US$5 million IBRD, of which US$2.3 million has been disbursed). The Central Project Management Unit (CPMU) performance and coordination with Regional Project Management Units (RPMUs) continues to improve, almost all staff is back in Kyiv providing important UIP2 implementation support to ministries, municipalities and utilities involved in the project. d) Component 4 – Contingent Emergency Response Component (CERC, Total cost: US$56.8 million IBRD, no disbursements to date). CERC final restructuring was completed in mid-June 2023. Currently, there are nineteen contracts on the total amount of US$24 million signed by utility companies – participants of the CERC component, and disbursement under CERC is expected to start this month. 8. Performance of the implementing entities in terms of fiduciary, safeguards, and monitoring and evaluation are summarized as follows: a) Fiduciary Performance. The current financial management rating of the Project is Moderately Satisfactory (MS), and there are no outstanding audits under the Project. All audit and financial management reports have been submitted despite the ongoing war and found to be acceptable to the Bank. The procurement rating is at Satisfactory level. b) Safeguards Performance. The current environmental and social safeguards rating is Moderately Satisfactory. All ESMPs have been cleared by the Bank and publicly consulted and disclosed. Abbreviated Resettlement Action Plan for Kharkiv Solid Waste and Kharkiv Water subprojects have been cleared by the Bank, publicly disclosed and consulted upon. The Grievance Redress Mechanism log is submitted as part of the Quarterly Project Progress Report. 9. The rationale for the proposed twelve months extension is to allow the participating utilities to complete the ongoing works that are well advanced and critical for Water Supply and Sanitation (WSS) services in the areas of UIP2 interventions as well as to deliver emergency materials, equipment, and machinery for assisting the provision of WSS, solid waste and district heating services in Brovary, Kharkiv, Kherson, Kremenchuk, Mykolaiv and Zhytomyr under UIP2 CERC. Out of the total UIP2 project amount of US$326.6 million, around US$260 million are already committed and by the end of the month with the progress of UIP2 CERC implementation this will increase to 95 percent. The remaining around US$16 million are planned to support existing projects price indexations and/or purchase of emergency equipment and will be implemented by the new loan closing date. 10. The Project remains strategically relevant for Ukraine. The WSS utilities the UIP2 is supporting are critical for ensuring access to WSS services to the population, in particular, the poor living in apartment buildings. UIP2 CERC is focused on making sure there are critical materials, equipment, and machinery (like water and dump trucks) to carry on vital communal services while civil infrastructure continues to suffer as a result on ongoing Russia’s invasion of Ukraine. The World Bank Second Urban Infrastructure Project (P132386) II. DESCRIPTION OF PROPOSED CHANGES 11. In line with the status and rational in the previous section and in response to the Borrower’s official request of June 16, 2023, this Restructuring Paper seeks approval to proceed with: a) Extension of the IBRD loan and CTF loan closing date for 12 months – from June 30, 2023, to June 30, 2024, allowing for the full implementation of all ongoing contracts and ensuring the full implementation of the CERC. It will enable the Project to achieve the PDO and results indicators as amended during the mid-June 2022 restructuring to account for the CERC introduction. b) Reallocation of funds from Component 1: Urban Infrastructure Improvement: (i) Reduce Category 2-e by US$ 190,000.00 for utility company "Novovolynskvodokanal"; (ii) Increase category 1-d by US$190,000.00 for “JSC "Kyivvodokanal"; this will also change the percentages of IBRD/CTF funding for the utility from 81.5%/18.5% to 81.8%/18.2% This reallocation of US$190,000 from utility company "Novovolynskvodokanal" to JSC "Kyivvodokanal" will allow for making the last payment for already completed works. 12. Project disbursement projections will be adjusted accordingly to reflect the extension of the closing date and proposed reallocation of funds between the disbursement categories. Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. III. SUMMARY OF CHANGES Changed Not Changed Loan Closing Date(s) ✔ Reallocation between Disbursement Categories ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Results Framework ✔ Components and Cost ✔ Cancellations Proposed ✔ Disbursements Arrangements ✔ Disbursement Estimates ✔ The World Bank Second Urban Infrastructure Project (P132386) Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications 31-Oct-2022, 30-Jun- IBRD-83910 Effective 31-Oct-2020 30-Jun-2024 30-Oct-2024 2023 31-Oct-2022, 30-Jun- TF-17112 Effective 31-Oct-2020 30-Jun-2024 30-Oct-2024 2023 OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IBRD-83910-001 | Currency: USD iLap Category Sequence No: 1-A Current Expenditure Category: G,W,Non-CS,CS for P1 Donetsk UC The World Bank Second Urban Infrastructure Project (P132386) 0.00 0.00 0.00 81.50 81.50 iLap Category Sequence No: 1-B Current Expenditure Category: G,W,Non-CS,CS for P1 Kharkiv UC 24,902,625.00 12,534,304.68 24,902,625.00 81.50 81.50 iLap Category Sequence No: 1-C Current Expenditure Category: G,W,Non-CS,CS for P1 Kharkiv Waste Mgt UC 41,630,050.46 39,214,131.16 41,630,050.46 76.48 76.48 iLap Category Sequence No: 1-D Current Expenditure Category: G,W,Non-CS,CS for P1 Kyiv UC 9,264,000.00 8,018,682.19 9,454,000.00 81.50 81.8 iLap Category Sequence No: 1-E Current Expenditure Category: G,W,Non-CS,CS for P1 Kirovohrad UC 38,544,452.80 26,322,687.40 38,544,452.80 78.04 78.04 iLap Category Sequence No: 1-F Current Expenditure Category: G,W,Non-CS,CS for P1 Ternopil UC 23,892,726.00 17,543,972.39 23,892,726.00 82.15 82.15 iLap Category Sequence No: 1-G Current Expenditure Category: G,W,Non-CS,CS for P1 Zhytomyr UC 35,801,083.00 23,406,468.25 35,801,083.00 74.08 74.08 iLap Category Sequence No: 1-H Current Expenditure Category: G,W,Non-CS,CS for P1 Vinnytsia UC 15,952,640.84 6,183,849.06 15,952,640.84 99.23 99.23 iLap Category Sequence No: 2-A Current Expenditure Category: G,W,Non-CS,CS for P1 Kramatorsk UC 343,000.00 343,000.00 343,000.00 100.00 100.00 iLap Category Sequence No: 2-B Current Expenditure Category: G,W,Non-CS,CS for P1 Kolomiya UC 3,092,250.00 2,417,672.40 3,092,250.00 100.00 100.00 iLap Category Sequence No: 2-C Current Expenditure Category: G,W,Non-CS,CS for P1 Ivano-Frankivsk UC The World Bank Second Urban Infrastructure Project (P132386) 0.00 0.00 0.00 100.00 100.00 iLap Category Sequence No: 2-D Current Expenditure Category: G,W,Non-CS,CS for P1 Cherkasy UC 12,309,000.00 9,115,174.10 12,309,000.00 100.00 100.00 iLap Category Sequence No: 2-E Current Expenditure Category: G,W,Non-CS,CS for P1 Novovolynsk UC 5,985,000.00 5,696,559.48 5,795,000.00 100.00 100.00 iLap Category Sequence No: 2-F Current Expenditure Category: G,W,Non-CS,CS for P1 Chuguiv UC 0.00 0.00 0.00 100.00 100.00 iLap Category Sequence No: 3 Current Expenditure Category: G,W,Non-CS,CS for Parts 2 & 3 7,800,000.00 5,088,252.46 7,800,000.00 100.00 100.00 iLap Category Sequence No: 5 Current Expenditure Category: Interest Rate Cap & Collar Premium 0.00 0.00 0.00 iLap Category Sequence No: 6 Current Expenditure Category: UNALLOCATED 0.00 0.00 0.00 iLap Category Sequence No: 7 Current Expenditure Category: Emergency Expenditures under Part 4 0.00 0.00 0.00 100.00 100.00 iLap Category Sequence No: 7-A Current Expenditure Category: EE for P4 Zhytomyrvodokanal UC 2,116,683.00 0.00 2,116,683.00 100.00 100.00 iLap Category Sequence No: 7-B Current Expenditure Category: EE for P4 Brovaryteplovodoenergia UC 3,138,275.00 0.00 3,138,275.00 100.00 100.00 iLap Category Sequence No: 7-C Current Expenditure Category: EE for P4 Mykolaivvodokanal UC The World Bank Second Urban Infrastructure Project (P132386) 4,274,518.66 0.00 4,274,518.66 100.00 100.00 iLap Category Sequence No: 7-D Current Expenditure Category: EE for P4 Mykolaivcomuntrans UC 4,306,418.06 0.00 4,306,418.06 100.00 100.00 iLap Category Sequence No: 7-E Current Expenditure Category: EE for P4 Mykolaivoblteploenergo UC 2,052,194.28 0.00 2,052,194.28 100.00 100.00 iLap Category Sequence No: 7-F Current Expenditure Category: EE for P4 Kremenchukvodokanal UC 1,937,846.00 0.00 1,937,846.00 100.00 100.00 iLap Category Sequence No: 7-G Current Expenditure Category: EE for P4 Kherson WSS UC 5,339,345.00 0.00 5,339,345.00 100.00 100.00 iLap Category Sequence No: 7-H Current Expenditure Category: EE for P4 Kharkivski Teplovi merezhi UC 33,663,970.00 0.00 33,663,970.00 100.00 100.00 iLap Category Sequence No: FEF Current Expenditure Category: FRONT END FEE 750,000.00 750,000.00 750,000.00 Total 277,096,078.10 156,634,753.57 277,096,078.10 TF-17112-001 | Currency: USD iLap Category Sequence No: 1-A Current Expenditure Category: G,W,Non-CS,CS for P1 Donetsk UC 0.00 0.00 0.00 18.50 18.50 iLap Category Sequence No: 1-B Current Expenditure Category: G,W,Non-CS,CS for P1 Kharkiv UC 5,651,675.00 2,843,299.54 5,651,675.00 18.50 18.50 The World Bank Second Urban Infrastructure Project (P132386) iLap Category Sequence No: 1-C Current Expenditure Category: G,W,Non-CS,CS for P1 Kharkiv Waste Mgt UC 12,803,440.91 8,306,977.19 12,803,440.91 23.52 23.52 iLap Category Sequence No: 1-D Current Expenditure Category: G,W,Non-CS,CS for P1 Kyiv UC 2,103,000.00 1,820,627.56 2,103,000.00 18.50 18.2 iLap Category Sequence No: 1-E Current Expenditure Category: G,W,Non-CS,CS for P1 Kirovohrad UC 10,844,789.20 5,924,037.90 10,844,789.20 21.96 21.96 iLap Category Sequence No: 1-F Current Expenditure Category: G,W,Non-CS,CS for P1 Ternopil UC 5,191,274.00 3,864,263.50 5,191,274.00 17.85 17.85 iLap Category Sequence No: 1-G Current Expenditure Category: G,W,Non-CS,CS for P1 Zhytomyr UC 12,529,217.00 5,315,538.52 12,529,217.00 25.92 25.92 iLap Category Sequence No: 1-H Current Expenditure Category: G,W,Non-CS,CS for P1 Vinnytisa UC 123,269.16 79,441.57 123,269.16 0.77 0.77 iLap Category Sequence No: 2 Current Expenditure Category: UNALLOCATED 0.00 0.00 0.00 iLap Category Sequence No: FEF Current Expenditure Category: FRONT END FEE 225,000.00 225,000.00 225,000.00 Total 49,471,665.27 28,379,185.78 49,471,665.27 .