The World Bank Vanuatu Climate Resilient Transport Project (P167382) REPORT NO.: RES54948 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF VANUATU CLIMATE RESILIENT TRANSPORT PROJECT APPROVED ON JANUARY 23, 2020 TO REPUBLIC OF VANUATU TRANSPORT EAST ASIA AND PACIFIC Regional Vice President: Manuela V. Ferro Country Director: Stephen N. Ndegwa Regional Director: Ranjit J. Lamech Practice Manager/Manager: Benedictus Eijbergen Task Team Leader(s): Fiona J Collin, Bowen Wang The World Bank Vanuatu Climate Resilient Transport Project (P167382) ABBREVIATIONS AND ACRONYMS Additional Financing AF Financing Agreement FA Government of Vanuatu GoV International Development Association IDA Moderately Satisfactory MS Project Development Objective PDO Project Preparation Advance PPA Systematic Tracking of Exchanges in Procurement STEP Vanuatu Climate Resilient Transport Project VCRTP Withdrawal Application WA The World Bank Vanuatu Climate Resilient Transport Project (P167382) BASIC DATA Product Information Project ID Financing Instrument P167382 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 23-Jan-2020 31-Dec-2025 Organizations Borrower Responsible Agency Republic of Vanuatu Project Development Objective (PDO) Original PDO To improve the climate resilience of the Recipient's road network, with emphasis on the selected project road, and in the event of an Eligible Crisis or Emergency, to provide an immediate response to the Eligible Crisis or Emergency. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-69990 10-Dec-2021 25-Feb-2022 28-Jun-2022 31-Dec-2025 38.30 0 36.17 IDA-D9260 10-Dec-2021 25-Feb-2022 28-Jun-2022 31-Dec-2025 8.50 4.96 3.11 IDA-65310 23-Jan-2020 14-Feb-2020 06-Mar-2020 31-Dec-2025 35.50 4.18 29.26 IDA-D5500 23-Jan-2020 14-Feb-2020 06-Mar-2020 31-Dec-2025 30.50 3.73 26.44 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Vanuatu Climate Resilient Transport Project (P167382) iv The World Bank Vanuatu Climate Resilient Transport Project (P167382) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING 1. The Vanuatu Climate Resilient Transport Project (VCRTP) was approved by the World Bank Board of Executive Directors on January 23, 2020, with financing from the International Development Association (IDA) of US$66.00 million (IDA Credit 65310-VU, IDA Grant D5500). The project was declared effective on March 6, 2020. An Additional Financing (AF) to the project was approved on December 10, 2021, and declared effective on January 31, 2022, with a total amount of US$46.80 million (IDA Credit 69990-VU, IDA Grant D9260). 2. The Project Development Objective (PDO) is to improve the climate resilience of the Recipient's road network, with emphasis on the selected project road, and in the event of an Eligible Crisis or Emergency, to provide an immediate response to the Eligible Crisis or Emergency. 3. Progress towards achievement of the PDO and implementation progress of VCRTP were rated Moderately Satisfactory (MS) in the latest ISR dated on March 20, 2023, due to slower than expected implementation progress. The Mid-Term Review of the project, carried out between May 29 - June 2, 2023, found the PDO can be achieved by the project closing date and recommended to retain the MS ratings. As of June 30, 2023, the project has disbursed about US$13 million (12 percent) of the US$112.8 million IDA Financing. On December 19, 2022, the Government of Vanuatu (GoV) and the selected contractor signed the first major civil work contract covering work packages for 11 bridges and 2 box culverts. Works have not commenced pending the clearance of the Contractor's Environmental and Social Management Plan by the Supervision Consultant, as of June 30, 2023. There are two more work packages under the project, which are under preparation. The bidding process for work package #2 is expected to commence in July of 2023. There are no overdue audits under the project. Context for the Proposed Restructuring 4. During project preparation, a Project Preparation Advance (PPA) loan (IDA V2530) was established in February 2019 to assist the recipient, GoV, with financing project preparation expenses. An advance in amount of VUV 30 million (SDR 820,000) was made to the Designated Account in December 2019. Although the recipient implemented and paid for preparatory activities eligible under the PPA, it did not submit a withdrawal application (WA) against the PPA prior to the date of the PPA Refinancing, March 6, 2020, when the IDA Credit 65310-VU was declared effective. The PPA was closed and the VUV30 million (SDR 820,000) advance was entirely refinanced under IDA Credit 65310 as Category 3 'Refund of Preparation Advance'. The balance of this funding remains unutilized in Category 3 of the IDA Credit 65310-VU. An interest in total amount of SDR 362.72 for the PPA advance between December 2019 and March 2020 was charged as disbursed amount under Category 3. 5. In October 2020, seven months after the closure of the PPA loan, the recipient submitted WA#2 under IDA Credit 65310 valued at US$266,147.54 (equivalent to VUV 29,944,260). Among the submitted expenses in WA#2, US$222,020 (VUV 25,340,202) was used for project preparation activities between May and December of 2019, which should have been withdrawn against the PPA. These activities were eligible for the PPA financing but were not claimed when the PPA loan was open. After the withdrawal was completed, it was discovered that the US$222,020 (VUV 25,340,202) is ineligible for IDA Credit 65310-VU as per the Financing Agreement (FA). 6. The Task Team undertook thorough due diligence of the withdrawal. The full list of invoiced expenses of US$222,020 (VUV 25,340,202) under WA#2 is appended to this Restructuring Paper. There are in total seventeen expenses claimed under the Credit that should have been withdrawn under the PPA, including three expenses for the payment to a consulting firm and fourteen expenses for the payment to individual consultants. Due diligence confirmed that the 1 The World Bank Vanuatu Climate Resilient Transport Project (P167382) expenses would have met all criteria for eligibility under the PPA financing had a suitable withdrawal been made against the PPA prior to the Refinancing Date. These consulting services were entered into the World Bank’s system for Systematic Tracking of Exchanges in Procurement (STEP), approved for inclusion in the PPA Procurement Plan, and procured in accordance with World Bank Procurement Regulations. Rationale for Restructuring 7. On November 14, 2022, the World Bank received an official request from the GoV through a letter to the World Bank Country Director for Papua New Guinea and Pacific Islands to (i) amend the FA to allow for retroactive financing of VUV 25,340,202 for the project preparation activities through WA#2; and (ii) reallocate the unutilized balance of Category 3, ‘Refund of the Preparation Advance’ to Category 1 'Goods, works, non-consulting services, and consulting services, training, and operating costs for Part 1,2 and 3 of the Project'. 8. The GoV’s request for restructuring would allow withdrawal of the funds under the Credit to finance the project preparation expenses up to the amount of VUV 25,340,202 to fund expenses that were eligible for the PPA financing but were inadvertently withdrawn against the Credit. In addition, the reallocation requested by GoV is necessary to allow the funds held under Category 3 to be utilized to fund project activities. II. DESCRIPTION OF PROPOSED CHANGES 9. In response to the request by GoV, the proposed changes under this restructuring include: a) An amendment to the Financing Agreement for Credit 65310-VU allowing retroactive financing of SDR 180,000 for activities that are eligible under existing project description. (The proposed retroactive financing amount of SDR180,000 includes a safe margin for forex fluctuation for VUV 25,340,202); and b) Reallocation between disbursement categories to reallocate the undisbursed amount of SDR 819,637.28 under Category 3 ‘Refund of Preparation Advance’ of IDA Credit 6531-VU to Category 1 ‘Goods, works, non- consulting services, and consulting services, training, and operating costs for Part 1,2 and 3 of the Project’. 10. Due diligence has been conducted by the World Bank legal and fiduciary (financial management and procurement) team to ensure that the expenses that would eligible under the proposed retroactive financing would meet all other requirements to be eligible under the Financing Agreement for Credit 6531-VU. 11. The proposed retroactive financing is aligned with other relevant conditions for retroactive financing as per the World Bank Investment Project Financing Directive. Specifically, a) the expenditures were incurred within the scope of the project and related to the PDO; b) the total amount of retroactive financing, SDR 180,000 accounts for 0.37 percent of total IDA financing amount of SDR 48.2 million, which is less than 20 percent ceiling for retroactive financing; and c) the expenses were incurred between May and December 2019, within 12 months of signing of the FA on February 14, 2020. 2 The World Bank Vanuatu Climate Resilient Transport Project (P167382) 12. The procured activities to be covered by the proposed retroactive financing are within the original scope of the Environment and Social assessment for the project. III. SUMMARY OF CHANGES Changed Not Changed Reallocation between Disbursement Categories ✔ Other Change(s) ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Results Framework ✔ Components and Cost ✔ Loan Closing Date(s) ✔ Cancellations Proposed ✔ Disbursements Arrangements ✔ Disbursement Estimates ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ 3 The World Bank Vanuatu Climate Resilient Transport Project (P167382) IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IDA-65310-001 | Currency: XDR iLap Category Sequence No: 1 Current Expenditure Category: Gds Wrks NCS CS Tng OC Pt1-3 25,080,000.00 1,190,281.20 25,899,637.28 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: Emergency Expenditures under Pt 4 0.00 0.00 0.00 100.00 100.00 iLap Category Sequence No: 3 Current Expenditure Category: PPF REFINANCING 820,000.00 362.72 362.72 Total 25,900,000.00 1,190,643.92 25,900,000.00 . Click here to enter text.