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 GHG Greenhouse Gas Emission HPP Hydropower Project IUFR Interim Unaudited Financial Report LMP Labor Management Procedures MDTF Multi-Donor Trust Fund MoENR Ministry of Energy and Natural Resources PIU Project Implementation Unit 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$, Millions) Net TF Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed TF-B8007 01-Mar-2022 17-Mar-2022 02-May-2022 31-Dec-2023 2.50 .84 1.66 TF-B8049 01-Mar-2022 17-Mar-2022 02-May-2022 31-Aug-2023 1.50 .33 1.17 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project Status 1. The Sustainable Hydropower Development Project (SHDP, the Project) was approved by the South Asia Regional Vice President on March 1, 2022, and became effective on May 2, 2022. The SHDP supports the Royal Government of Bhutan (RGoB)'s objective to apply its updated framework to greenfield hydropower projects in the pipeline, including the 1,125 megawatt (MW) Dorjilung Hydropower Project (DHPP), and also provides technical assistance (TA) based on gap analysis carried out on existing reports of the DHPP and the challenges and experience from recently developed or on-going hydropower projects in Bhutan. The TA is funded with a US$ 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 August 2023, both consultant teams updated and incorporated the comments on 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” was carried out by DGPC’s experts and the report is under review by the consultant. Results of the first phase investigation 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. In addition, the Bank received an approval from SARIC for US$ 300,000 additional grant on April 4, 2023, to cover (i) financing required to meet additional hardware needs of DGPC, and (ii) additional capacity building activities related to regional interconnection, and sustainable hydropower development. 9. 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. 10. Three Phases Restructurings: 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 overall restructuring of the SHDP has to be phased as follows: (i) phase 1 was the restructuring for an extension of the ESMAP grant by two months from June 30, 2023 to August 31, 2023 (completed); (ii) phase 2 is the current restructuring for the extension of the Project closing date and SARIC grant to June 30, 2024 and augmentation of the SARIC grant by US$300,000, and extension of ESMAP grant until September 30, 2023; and (iii) phase 3 will be the further extension of the ESMAP grant until June 30, 2024. 11. ESMAP Closing Date Extension: The original TF closing date for the ESMAP grant was June 30, 2023. The restructuring to extend the closing date for the ESMAP grant by two months from June 30, 2023, to August 31, 2023, was completed on June 29, 2023, as a phase 1 restructuring. The extension of the EDD of the MDTF for the ESMAP grant is currently under preparation, and once the extension of the EDD is completed, the restructuring to extend the ESMAP grant until June 30, 2024 will be processed as a phase 3 restructuring. In the meantime, through this restructuring, the closing date for ESMAP will be extended until September 30, 2024 (the maximum duration permitted by the Bank’s The World Bank Sustainable Hydropower Development Project (P174327) 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 August 31, 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. 12. SARIC Closing Date Extension: The current Project closing date and the current TF closing date for the SARIC grant is December 31, 2023. Through this restructuring, the Project closing date and SARIC grant closing date will be extended until June 30, 2024, to accommodate the completion of works by consultants and additional capacity building as explained above. 13. Additional Financing and Reallocation of Funds among Activities: While Component 2, Activity 2-4, has supported capacity building for DGPC in managing the RGoB's policy and regulatory framework for hydropower development and management, additional capacity development needs have been identified during the implementation of the Project as follows: (a) capacity development of the DGPC’s Hydropower Research and Development Center in monitoring of hydropower plant safety, geotechnical monitoring; (b) capacity building in the areas of regional integration, energy trade, and power market development (opportunities/challenges of regional energy integration and way forward for Bhutan hydro sector); (c) participation in hydropower conferences; (d) study tour to reputed hydropower companies (i.e. Hydro Tasmania and Snowy Mountain) to exchange experience in operation and maintenance of hydropower plants; and (e) capacity building in the design of hydromechanical equipment. Therefore, additional capacity building activities requested by client will be added under Component 2, Activity 2-4. 14. Furthermore, based on the detailed assessment of required hardware, software, and training, a financing gap for procuring hardware under Component 1, Activity 1-3 has been identified. In contrast, the client has assessed that Component 2, 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” is no longer required, since it has been deemed more efficient to strengthen the internal capacity required for rate variations analysis based on the international guidance and current practice rather than preparing a separate manual. Hence the budget allocation for Activities 1-3 (hardware purchase) and 2-4 (capacity building) will be updated based on an updated cost estimate for the hardware needs, additional financing from SARIC funds, and savings from Activity 2-3 (rate variation review). The World Bank Sustainable Hydropower Development Project (P174327) 15. The additional financing and restructuring will not result in additional E&S risks beyond those identified in the parent Project. As part of the additional financing process, an Additional Financing Environmental and Social Review Summary (ESRS) was developed to document the World Bank’s due diligence on potential E&S risks and impacts, and the corresponding mitigation measures. The DGPC updated the Environmental and Social Commitment Plan (ESCP) and the Stakeholder Engagement Plan (SEP) which were reviewed and cleared by the World Bank on July 28, 2023. The updated ESCP and SEP were subsequently disclosed on the DGPC website on July 27, 2023, and on the World Bank website on July 28, 2023. 16. There are no overdue audit reports for the Project. Since an advance payment was made to Designated Account (DA) in November 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 17. The Project closing date and TF closing date for SARIC grant will be extended from December 31, 2023, to June 30, 2024. TF closing date for ESMAP grant will be extended from August 31, 2023, to September 30, 2023. The disbursement grace period for TF0B8049 is reduced to two months, because of this further extension and the revised disbursement deadline date would be November 30, 2023. 18. Additional grant financing of US$ 300,000 from SARIC will be added to Component 1, Activity 1-3, to cover the financing gap for hardware and software purchase. The total allocated amount for Activity 1-3 “Project implementation, management support, and hardware purchase for DPR Update” will be increased from US$ 110,000 to US$ 410,000. 19. Activity 2-3 will be cancelled, and US$250,000 which were allocated for this activity will be reallocated to Activity 2- 4 to support additional capacity building. Total allocated amount for Activity 2-4 will be increased from US$ 400,000 to US$ 650,000. The revised Activity 2-4 will include the additional capacity development activities, including (a) capacity development of the DGPC’s Hydropower Research and Development Center in monitoring of hydropower plant safety, geotechnical monitoring; (b) capacity building in regional integration, energy trade, and power market (opportunities/challenges of regional energy integration and way forward for Bhutan hydro sector); (c) participation in hydropower conferences; (d) study tour to reputed hydropower companies (i.e. Hydro Tasmania and Snowy Mountain) to exchange experience in operation and maintenance of HPPs; and (e) capacity building in the design of hydromechanical equipment. B. Summary of Performance of E&S Risk Compliance 20. The E&S performance is Satisfactory based on the progress of implementing the E&S commitments and the following achievements to date: (a) DGPC has appointed one environmental and one social specialist from its staff to coordinate the E&S aspects of the TA. The DoE has also appointed one of its staff as its E&S focal person for the Project who works in coordination with DGPC; (b) DGPC has developed and disclosed on its website the terms of reference (ToR) for updating and completing the environmental and social assessment. DGPC conducted limited stakeholder consultations on the ToR with DoE and the Department of Environment and subsequently finalized the ToR. E&S aspects were included in the bidding documents for the ESIA and technical designs; (c) DGPC finalized the The World Bank Sustainable Hydropower Development Project (P174327) recruitment and onboarding of an international consulting firm for updating and completing the E&S assessment and planning in December 2022 following some procurement delays due to COVID 19. The firm includes Bhutanese nationals to enhance local capacity. The firm has conducted site visits and is currently finalizing the inception report and planning the next stages of the assessments; (d) DGPC has put in place an E&S Panel of Experts comprising one environment and one social member who are providing advice on E&S aspects of Dorjilung HPP preparation; and (e) DGPC, with assistance from the World Bank, developed a draft training plan to strengthen DGPC's technical expertise in the areas of the Environmental and Social Framework (ESF), environmental flows, greenhouse gas emissions estimation, as well as on social, health and safety, and E&S management systems. The training plan will be refined to ensure it responds to DGPC's needs. In addition, the World Bank has been providing ongoing capacity support to DGPC on E&S risk management, including through a recent mission in May 2023. III. SUMMARY OF CHANGES Changed Not Changed Components and Cost ✔ Loan Closing Date(s) ✔ Additional Financing Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursement Estimates ✔ Procurement ✔ Implementation Schedule ✔ Implementing Agency ✔ Project's Development Objectives ✔ Results Framework ✔ Cancellations Proposed ✔ Disbursements Arrangements ✔ Change in Overall Risk Rating ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ APA Reliance ✔ Other Change(s) ✔ The World Bank Sustainable Hydropower Development Project (P174327) Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Preparation Studies/Technical Preparation Studies/Technical Assistance for Hydropower Assistance for Hydropower Plant 2.50 Revised 2.80 Plant and Transmission Line and Transmission Line Projects Projects Capacity Building for the Capacity Building for the Sustainable Development of 1.50 No Change Sustainable Development of 1.50 Hydropower Hydropower TOTAL 4.00 4.30 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 30-Jun-2024 31-Oct-2024 TF-B8049 30-Jun-2023 31-Aug-2023 31-Oct-2023 31-Oct-2023 OPS_DETAILEDCHANGES_ADDITIONAL_FINANCING_TABLE ADDITIONAL FINANCING Source Currency Amount USD Equivalent AusAID-World Bank Partnership for USD 300,000.00 300,000.00 South Asia(PFSA) Existing Net Commitment USD Amount 4,000,000.00 Total 4,300,000.00 The World Bank Sustainable Hydropower Development Project (P174327) OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed TF-B8007-001 | Currency: USD iLap Category Sequence No: 1 Current Expenditure Category: Gds,CS,Tr,OC under Part A 2,500,000.00 0.00 2,500,000.00 100.00 100.00 Total 2,500,000.00 0.00 2,500,000.00 TF-B8049-001 | Currency: USD iLap Category Sequence No: 1 Current Expenditure Category: Gds,Tr,CS,NCS under Part B 1,500,000.00 0.00 1,500,000.00 100.00 100.00 Total 1,500,000.00 0.00 1,500,000.00 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 2024 3,100,000.00 4,300,000.00