The World Bank KOSOVO: COMPETITIVENESS AND EXPORT READINESS PROJECT (P152881) REPORT NO.: RES58403 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF KOSOVO: COMPETITIVENESS AND EXPORT READINESS PROJECT APPROVED ON MAY 18, 2017 TO REPUBLIC OF KOSOVO FINANCE, COMPETITIVENESS AND INNOVATION EUROPE AND CENTRAL ASIA Regional Vice President: Antonella Bassani Country Director: Xiaoqing Yu Regional Director: Asad Alam Practice Manager/Manager: Mario Guadamillas Task Team Leader(s): Blerta Qerimi The World Bank KOSOVO: COMPETITIVENESS AND EXPORT READINESS PROJECT (P152881) ABBREVIATIONS AND ACRONYMS IDA International Development Association IR Intermediate Results MIET Ministry of Industry, Entrepreneurship and Trade MOFLT Ministry of Finance, Labor and Transfers PDO Project Development Objective MSME Micro Small and Medium Enterprises The World Bank KOSOVO: COMPETITIVENESS AND EXPORT READINESS PROJECT (P152881) BASIC DATA Product Information Project ID Financing Instrument P152881 Investment Project Financing Original EA Category Current EA Category Not Required (C) Not Required (C) Approval Date Current Closing Date 18-May-2017 30-Oct-2023 Organizations Borrower Responsible Agency Republic of Kosovo Project Development Objective (PDO) Original PDO To support product certification for export markets, strengthen the capacity of export-oriented firms and reduce the cost of business inspections. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-60350 18-May-2017 02-Aug-2017 18-May-2018 30-Oct-2023 13.01 9.25 3.84 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank KOSOVO: COMPETITIVENESS AND EXPORT READINESS PROJECT (P152881) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING 1. The Government of Kosovo, through the letter from Ministry of Finance, Labor, and Transfers (MFLT) dated October 25, 2023, requested the cancellation of Euro 2.28 million from Competitiveness and Export Readiness Project (CERP) which consist of largely savings under the matching grants subcomponent. Euro 0.58 million are related to savings under Category (1) Goods, non-consulting services, and consultants’ services for the Project, except for Part 1.A(ii) and Euro 1.7 million related to savings under Category 2 Part 1.A(ii) of the Project. The request for cancelation letter from the borrower was submitted to the Bank on October 25, 2023. Cancelling these funds triggers fourth restructuring of the Project. 2. The Project was restructured for the first time in June 2020 to address firms’ emerging needs in the wake of the COVID- 19 crisis. The second restructuring in September 2022 extended the Project’s original closing date of October 30, 2022, to October 30, 2023, to allow for (i) completion of the matching grants program under the sub-component 1.1 on Supporting Micro, Small, and Medium Enterprises (MSMEs) to Improve Export Readiness and (ii) implementation of the e-inspections system related activities under the sub-component 1.2 on Reforming the Business Inspections System. However, the Ministry of Industry, Entrepreneurship and Trade (MIET) did not make necessary decisions on the procurement of the e-inspections and interoperability system in time to meet the agreed milestones for implementing the system before the Project closing date. Subsequently, in March 2023 the Government counterparts and the Bank agreed to cancel this activity. This was followed by the third restructuring that cancelled Eur 2.1 million from the matching grants subcomponent. This is the fourth restructuring suggesting cancellation of additional funds in amount of Eur 2.28 million, out of which the majority are for financing the matching grants for MSMEs. One of the main reasons for cancellation of the funds relates to the challenges that the businesses have faced in implementing activities, due to the increase of prices and disruptions of supply chains, particularly related to manufacturing equipment. The MIET provided opportunity to the firms with extension of implementation timeline which resulted into additional utilization of funds, however due to challenges mentioned above the remaining funds were not fully committed. The implementation of the rest of the activities, and payment processing related to the grants scheme and consultancies at the Office of General Inspector is continuing until the project closing date. The proposed cancelation will not impact the achievement of the Project’s Development Objective (PDO) since the targets for both PDO indicators have already been met, following the a) adoption of the Law on Inspections (a Prior Action under the Public Finances and Sustainable Growth Development Policy Financing; b) establishment of the General Inspector’s Office (TA provided through the project); and c) introduction of the risk based inspections (TA provided through the project). The inspection reform related activities were coordinated with the IFC Investment Climate Project, including tracking the data pertaining to the respective indicator. The disbursements stand at 70.65 percent at the time of proposed restructuring. During the May 2023 implementation support mission, the Bank team also assessed that all, but one intermediate results (IR) indicators were likely to be met by the Project closure. During the third restructuring the intermediate indicator on “the number of inspectorates within government body” was decided to be dropped from the results framework as it will not be met by the Project closing date. There are no further changes related to indicators during this restructuring. The World Bank KOSOVO: COMPETITIVENESS AND EXPORT READINESS PROJECT (P152881) II. DESCRIPTION OF PROPOSED CHANGES 1. This Level 2 restructuring includes: 2. Revision of Project Activities and Costs. Component 1. Enhancing Business Environment and Export Readiness: Subcomponent 1.1.: Supporting Micro, Small, and Medium Enterprises (MSMEs) to improve export readiness (ii) Provision of Matching Grants– activities related to matching grants in amount Euro 1.7 million will be cancelled. Out of this amount the Government of Kosovo provided financing of Euro 0.6 million, the rest of funds Euro 1,1 million relate to activities not implemented by grant beneficiaries based on their grant proposal. Other remaining funds that are considered as savings under the Component 1 and component 2 as per the table below, in the amount Euro 580,000 are suggested to be cancelled. Respective credit proceeds in amount of EURO 2.28 million will be reprogramed under Kosovo’s International Development Association (IDA) 20 allocation. Amounts to be Expenditure Project parts cancelled category Component 1: Enhancing Business Environment and Export Readiness 2.18 Subcomponent 1.1.: Supporting Micro, Small, and Medium Enterprises (MSMEs) to improve export readiness 2.07 Subcomponent 1.1 (i) Establishment and administration of a Matching Grant Program 0.37 (1) Subcomponent 1.1 (ii) Provision of Matching Grants 1.70 (2) Subcomponent 1.2.: Reforming Business Inspections system 0.11 (1) Component 2.: Project Implementation and Coordination Support 0.10 (1) Total 2.28 III. SUMMARY OF CHANGES Changed Not Changed Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Results Framework ✔ Components and Cost ✔ The World Bank KOSOVO: COMPETITIVENESS AND EXPORT READINESS PROJECT (P152881) Loan Closing Date(s) ✔ Disbursements Arrangements ✔ Disbursement Estimates ✔ 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_CANCELLATIONS_TABLE CANCELLATIONS Value Reason Current Cancellation New Ln/Cr/Tf Status Currency Date of for Amount Amount Amount Cancellation Cancellation LOAN Disburs IDA-60350- RESTRUCTUR ing&Re EUR 12,200,000.00 2,280,000.00 25-Oct-2023 9,920,000.00 001 ING, COST paying SAVINGS OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) The World Bank KOSOVO: COMPETITIVENESS AND EXPORT READINESS PROJECT (P152881) Current Proposed IDA-60350-001 | Currency: EUR iLap Category Sequence No: 1 Current Expenditure Category: G, CS, nonCS, exc. Part 1A(ii) 1,800,000.00 1,040,235.97 1,220,000.00 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: Part 1A(ii) 10,400,000.00 7,518,389.09 8,700,000.00 100.00 100.00 Total 12,200,000.00 8,558,625.06 9,920,000.00 .