The World Bank Kosovo Water Security and Canal Protection Project (P133829) REPORT NO.: RES57060 DOCUMENT OF THE WORLD BANK RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF KOSOVO WATER SECURITY AND CANAL PROTECTION PROJECT APPROVED ON SEPTEMBER 30, 2016 TO REPUBLIC OF KOSOVO WATER EUROPE AND CENTRAL ASIA Regional Vice President: Antonella Bassani Country Director: Xiaoqing Yu Regional Director: Sameh Naguib Wahba Tadros Practice Manager/Manager: Winston Yu Task Team Leader(s): Trandelina Baraku The World Bank Kosovo Water Security and Canal Protection Project (P133829) I. BASIC DATA Product Information Project ID Financing Instrument P133829 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 30-Sep-2016 31-Oct-2023 Organizations Borrower Responsible Agency Republic of Kosovo Hydro Economic Iber-Lepenc JSC,Ministry of Economy Project Development Objective (PDO) Original PDO The objective of the Project is to contribute to restoring the Iber Canal to its original capacity to improve water resource management for various canal water users in Central Kosovo. Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-59020 30-Sep-2016 27-Jan-2017 26-Jun-2017 31-Oct-2023 16.99 7.93 9.06 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No II. SUMMARY OF PROJECT STATUS AND PROPOSED CHANGES The World Bank Kosovo Water Security and Canal Protection Project (P133829) Background. The Water Security and Canal Protection (WSCP) Project was approved on September 30, 2016 and became effective on June 26, 2017. The project was restructured on February 22, 2022, based on the Government's request to cancel funds dedicated to the construction of the Mihaliqi dam (due to insufficient project funds to cover the entire construction) and to extend of the project implementation period by 18 months. As part of the restructuring, the team also revised the Project Development Objective (PDO) Indicator and Intermediate Result Indicators to reflect changes in the scope of activities. Project Status. Due to delays and overall slow implementation, described further in the text, the project was rated Moderately Unsatisfactory both for the implementation Progress (IP) as well as for the Project Development Objective (PDO) for a prolonged period of time. However, as of the beginning of this calendar year, substantial progress was evidenced and with the last Implementation Status and Results Report (ISR) archived on May 19, 2023, the rating for Implementation Progress was upgraded to Moderately Satisfactory. The implementation progress is considered to be back on track since the retendering and signing of the contract for canal rehabilitation works were successfully completed and works resumed on May 22, 2023. Also, the Client has signed a contract for Supervision Engineering on June 8, 2023 and the Supervisor is already on site. At present none of the PDO indicators are achieved, nevertheless, they are both achievable with the proposed extension. On June 7, 2023, the Ministry of Finance sent a request for extension of the closing date of the project for an additional 12 months, to October 31, 2024, to allow for completion of works. This allowed the PDO to be upgraded to Moderately Satisfactory in the ISR which was archived on June 18, 2023. As of June 26, 2023, 46,66% of the loan has been disbursed and the remaining Project financing will be fully utilized, for the abovementioned works contract and other ongoing project costs. The Project's financial management arrangements remain adequate in terms of staff and effectiveness. No significant audit and internal controls issues have been reported. There are no pending audits at the time of project restructuring. Rationale for Extension of Closing Date. The extension will allow sufficient time for full completion of activities with respect to Component 1: Infrastructure Rehabilitation and Modernization which were delayed due to several reasons. The implementation delays were initially mainly due to the slow commencement of work and eventually exacerbated by the COVID-19 pandemic (e.g. access to labor and materials). In addition, the Contractor was slow to mobilize i. e. the contract for rehabilitation works of the Iber Lepenci Canal was signed on June 2, 2020 but works only started on September 9, 2020. Following this, given the extremely slow pace of rehabilitation works in the canal, the Iber Lepenci Company (Client) decided to terminate the contract on July 5, 2022. The Notice of Termination was sent after the Client had twice sent the Notice to Correct to the Contractor, after which no improvements were observed. The Client is still in the process of collecting the “Performance Guarantee” and ”Advance Payment Guarantee”. It is assumed that such guarantees will be collected within the project’s civil works implementation timeline. The other component, development of a SCADA (Supervisory Control and Data Acquisition) system of monitoring is progressing well and is expected to be fully completed by the end of August 2023. The SCADA contract shall enable Iber Lepenci Company better manage water resources in their system. After the rehabilitation works contract termination, the Client prepared Bidding documents for the remaining works in the canal. Cost estimates showed that due to price increase, there might be a budget shortage to cover all the remaining works so the decision was with the Client to either provide additional funds and tender the entire remaining works or tender the highest priority works with the funds available under the project. This decision has been pending for six months due to a lack of Executive Management in the Iber Lepenci Company. The new Chief Executive Officer was selected on December 2022. The Client then decided to issue the tender for the priority works, which was The World Bank Kosovo Water Security and Canal Protection Project (P133829) successfully completed and contract was signed on May 15, 2023. The budget under the Project for this contract was Euro 9,674,442.00 while the contract signed is Euro 12,875,191.63. The difference of Euro 3,200,744.6 will be covered by the internal budget of the Iber Lepenci Company. The works started on May 22, 2023. According to the work schedule of the contractor, the extension of closing date will allow the works to be completed by October 31, 2024. The Client has put the revised project implementation plan in place and is planning to continue with the remaining (nonpriority) rehabilitation works using their own internal annual budget. The Client has also hired a Supervision Company to monitor the performance of the Contractor and dedicated 6 engineers to help the PIU in monitoring the performance of the Contractor. The Bank team shall continue to meet on a weekly basis with the Client and also on a monthly basis with the Contractor and the Supervisor. III. DETAILED CHANGES LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IDA-59020 Effective 30-Apr-2022 31-Oct-2023 31-Oct-2024 28-Feb-2025