The World Bank Rwanda - Energy Access and Quality Improvement Project (P172594) REPORT NO.: RES53556 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF RWANDA - ENERGY ACCESS AND QUALITY IMPROVEMENT PROJECT APPROVED ON SEPTEMBER 17, 2020 TO REPUBLIC OF RWANDA ENERGY & EXTRACTIVES EASTERN AND SOUTHERN AFRICA Regional Vice President: Victoria Kwakwa Country Director: Keith E. Hansen Regional Director: Wendy E. Hughes Practice Manager/Manager: Erik Magnus Fernstrom Task Team Leader(s): Norah Kipwola, Arun Singh, Yabei Zhang The World Bank Rwanda - Energy Access and Quality Improvement Project (P172594) ABBREVIATIONS AND ACRONYMS AFD French Development Agency BRD Development Bank of Rwanda Ci-Dev Carbon Initiative for Development CCF Clean Cooking Fund EAQIP Energy Access and Quality Improvement Project EPC Engineering, Procurement and Construction EDCL Energy Development Corporation Limited ERPA Emission Reduction Purchase Agreement ESMAP Energy Sector Management Assistance Program GoR Government of Rwanda GSA Grant Subsidiary Agreements HPP Hydropower Plant IDA International Development Association RBF Result-Based Finance REF Renewable Energy Fund RETF Recipient Executed Trust Fund The World Bank Rwanda - Energy Access and Quality Improvement Project (P172594) BASIC DATA Product Information Project ID Financing Instrument P172594 Investment Project Financing Environmental and Social Risk Classification (ESRC) Substantial Approval Date Current Closing Date 17-Sep-2020 31-Dec-2026 Organizations Borrower Responsible Agency Republic of Rwanda Project Development Objective (PDO) Original PDO Improve access to modern energy for households, enterprises, and public institutions and enhance the efficiency of electricity services in the Republic of Rwanda. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed COFN-C1890 23-Apr-2021 23-Apr-2021 23-Apr-2021 31-Dec-2025 88.00 20.17 64.60 IDA-67760 17-Sep-2020 24-Sep-2020 29-Mar-2021 31-Dec-2026 75.00 26.60 30.82 IDA-D7210 17-Sep-2020 24-Sep-2020 29-Mar-2021 31-Dec-2026 75.00 19.48 53.80 TF-B8893 28-Jun-2022 07-Oct-2022 05-Jan-2023 30-Jun-2025 .30 0 .30 TF-B8895 28-Jun-2022 07-Oct-2022 05-Jan-2023 31-Dec-2026 .40 0 .40 TF-B8896 28-Jun-2022 07-Oct-2022 05-Jan-2023 31-Dec-2026 3.15 0 3.15 TF-B3589 17-Sep-2020 24-Sep-2020 29-Mar-2021 30-Jun-2023 10.00 2.03 7.97 The World Bank Rwanda - Energy Access and Quality Improvement Project (P172594) 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. Overall implementation progress and progress towards achievement of the Project Development Objectives (PDO) have been consistently rated Satisfactory. The Energy Access and Quality Improvement Project (EAQIP) is financed by IDA (US$150 million equivalent) and co-financed by the French Development Agency (AFD, EUR 80 million) as well as a set of Trust Fund (TF) resources.1 The Project has disbursed US$ 48.10 million at a disbursement rate of 33.28% (35.25% disbursed for US$150 million IDA commitment and 14.67% disbursed for US$13.85 million TF commitment2). The Project is co-implemented by Energy Development Corporation Limited (EDCL) and Development Bank of Rwanda (BRD). 2. The implementation status of the project is as follows: a. Component 1 Increasing Access to Grid Electricity (IDA: US$90 million equivalent; AFD: EUR 78 million). This component is implemented by EDCL and includes electrification of 11 districts with joint co-financing between the World Bank and AFD. Nine districts are planned to be electrified through Engineering, Procurement and Construction (EPC) contracts and two through procurement of materials and construction by EDCL in-house teams. Out of the nine EPC districts, two are under installation stage, three are under detailed design stage, including Nyamasheke district with three large lots, and four are under contract signature stage pending legal opinion from the Ministry of Justice. Although, two EPC contractors have requested contract extensions of up to 6 months due to materials supply issues, all EPC lots are expected to be commissioned between March and December 2024. The two in-house subprojects, Rubavu and Musanze, are expected to be commissioned by June 2024. 1 The TF resources include (a) a grant of US$10 million (TF-B3589) from the Clean Cooking Fund (CCF) of the Energy Sector Management Assistance Program (ESMAP), (b) a grant of US$3.15 million (TF-B8896) provided by the Government of Denmark (GoD) through an Associated Trust Fund, Support to Energy Access and Quality Improvement Project (EAQIP) in Rwanda Single Donor Trust Fund, under the ESMAP; (c) a grant of US$0.4 million (TF-B8895) from the Hydropower Development Facility (HDF) at ESMAP, and (b) a results-based grant of US$10.51 million from the Carbon Initiative for Development (Ci-Dev) Trust Fund based on an Emission Reduction Purchase Agreement (ERPA) and a technical assistance grant of US$0.3 million grant (TF-B8893) from Ci-Dev Trust Fund. 2 The US$10.51 million ERPA from the Ci-Dev TF is not included in the TF commitment. The ERPA will be made through payments to the Government based on verified GHG Emission Reductions generated from the use of off-grid solar and more efficient cooking products installed during the period from 2021 through 2024. The World Bank Rwanda - Energy Access and Quality Improvement Project (P172594) b. Component 2 Enhancing the Efficiency of Electricity Service (IDA:US$30 million equivalent; ESMAP: US$0.4 million). This component is implemented by EDCL and will first finance a detailed feasibility study to explore the various options of adding pumped storage functionality to the Ntaruka HPP which will inform potential adjustments to the design and implementation of its rehabilitation. The feasibility study contract is at the final stage of negotiation. The implementation of installation of static voltage compensators at Shango and Rwabusoro substations are at an advanced stage and expected to be complete by December 2023. For the remaining activities, EDCL is at the various procurement stages and all activities are expected to be completed by December 2024. c. Component 3a Increasing Access to Off-Grid Electricity (IDA: US$15 million equivalent). This subcomponent is implemented by BRD and provides financing as a top-up to an existing results-based financing (RBF) window of the Renewable Energy Fund (REF, P160699) implemented by Rwanda Development Bank (BRD). BRD has signed the Grant Subsidiary Agreements (GSA) with 24 off-grid solar companies, earmarking US$31 million in RBF grants, and has so far disbursed US$18 million based on verified sales. EAQIP funds on this subcomponent will start disbursing once REF RBF window funds are exhausted. d. Component 3b Increasing access to clean cooking solutions (IDA: US$10 million equivalent; ESMAP CCF: US$7 million). This subcomponent is implemented by BRD and provides RBF subsidies to incentivize the clean cooking companies to deliver clean cooking solutions to households. BRD has signed GSAs with 19 clean cooking companies who have registered about 160,000 CC installations. e. Component 3c Increasing clean cooking access to public schools (ESMAP: US$2.85 Million). The implementation of this subcomponent has been delayed as the government proposed to only focus on LPG and electric cooking solutions due to the Government’s recent policy to phase out biomass fuel from institutional cooking. With the current budget allocation, this means that the number of beneficiary schools will have to be reduced significantly from the current target of 150. The Government is expected to send a letter to the Bank by the end of October 2023 requesting the change of scope of component 3c with a lowered target and also confirming its commitment to support the beneficiary schools, ensuring they have sufficient budget for the operational sustainability of installed clean cooking solutions. f. Component 4 Technical Assistance, Institutional Capacity Building, Implementation Support (IDA: US$5 million equivalent; ESMAP CCF: US$3 million; ESMAP: US$0.3 million; Ci-Dev: US$0.3 million, AFD: EUR 2 million). All positions have been filled except for the recruitment of one contract management specialist and two chief accountants. The three positions are put on hold until the completion of Ntaruka HPP Feasibility Study. Technical assistance and capacity building activities including component 4d on clean cooking supported by the US$3 million ESMAP CCF grant have progressed satisfactorily. B. Rationale for Restructuring 3. The US$10 million ESMAP grant (TFB03589) (US$7 million allocated for component 3b and US$3 million allocated for component 4d) was closed on June 30, 2023, with an undisbursed funding balance of US$7.97 million. The Bank received a letter from the Government on May 22, 2023, requesting the extension of the ESMAP grant closing date to December 31, 2026. However, the processing of the ESMAP grant closing date The World Bank Rwanda - Energy Access and Quality Improvement Project (P172594) extension has been constrained by the ESMAP’s parent MDTF closing date which has an End Disbursement Date (EDD) of December 31, 2023. The extension of the end disbursement date of the MDTF is currently in preparation. Once the extension of the MDTF is finalized, the retroactive extension of the ESMAP grant closing date will be processed. 4. In addition, there is a withdrawal condition in the Financing Agreement (IDA Credit Number 6776-RW and IDA Grant Number D721-RW) and in the ESMAP Grant Agreement (TB03589) that requires the ESMAP grant to be fully disbursed before the IDA credit and IDA grant accounts can be withdrawn for component 3b and component 4d. Given that the ESMAP grant closed on June 30, 2023 before full disbursement of the funds and that the requested extension has not yet been granted, the Government sent a letter to the Bank on September 29, 2023 requesting the restructuring of the Financing Agreement to remove the withdrawal condition to allow access to the IDA funds for a smooth implementation of the EAQIP clean cooking activities. It is recommended to remove the withdrawal condition as requested by the government. Otherwise, BRD will not be able to access any IDA funding to implement component 3b increasing access to clean cooking solutions and the PDO will not be achieved. II. DESCRIPTION OF PROPOSED CHANGES 5. The proposed restructuring is to (i) remove the withdrawal condition in Paragraph (c) in Section III.B.1 of Schedule 2 to the Financing Agreement (IDA Credit Number 6776-RW and IDA Grant Number D721-RW) “for payments made under Category 3(b), unless and until the Category 1 of the ESMAP Grant under the Grant Agreement has been fully disbursed” and (ii) remove the withdrawal condition in Section III.B.2 of Schedule 2 to the ESMAP Grant Agreement (TB03589) “Payments under Category 1 and 2 will be financed 100% out of the Grant, and once the Grant is fully disbursed, they will be financed out of resources available under the Financing Agreement”. III. SUMMARY OF CHANGES Changed Not Changed Disbursements Arrangements ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Results Framework ✔ Components and Cost ✔ Loan Closing Date(s) ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursement Estimates ✔ The World Bank Rwanda - Energy Access and Quality Improvement Project (P172594) Overall Risk Rating ✔ 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) .