The World Bank Kenya: Off-grid Solar Access Project for Underserved Counties (P160009) REPORT NO.: RES58458 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF KENYA: OFF-GRID SOLAR ACCESS PROJECT FOR UNDERSERVED COUNTIES APPROVED ON JULY 26, 2017 TO THE REPUBLIC OF KENYA ENERGY & EXTRACTIVES GLOBAL PRACTICE EASTERN AND SOUTHERN AFRICA REGION 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): Aisha Abdulaziz Mahmoud, Johannes C. Exel The World Bank Kenya: Off-grid Solar Access Project for Underserved Counties (P160009) ABBREVIATIONS AND ACRONYMS CCS Clean Cooking Solutions ESIA Environmental and Social Impact FIM Facilities Implementation Manual FM Financial Management KOSAP Kenya Off-Grid Solar Access Project for Underserved Counties MOEP Ministry of Energy and Petroleum NEMA National Environmental Management Authority NT National Treasury PCU Project Coordination Unit PDO Project Development Objective RBF Results-Based Financing RFB Request for Bids RFP Request for Proposals SHS Solar Home Systems The World Bank Kenya: Off-grid Solar Access Project for Underserved Counties (P160009) BASIC DATA Product Information Project ID Financing Instrument P160009 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 26-Jul-2017 31-May-2025 Organizations Borrower Responsible Agency The National Treasury Project Development Objective (PDO) Original PDO The Project Development Objective is to increase access to modern energy services in underserved counties of Kenya OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-61350 26-Jul-2017 05-Sep-2017 08-Mar-2018 31-May-2025 150.00 43.18 101.42 TF-A7796 01-Jun-2018 01-Aug-2018 01-Aug-2018 31-Oct-2025 3.97 .01 3.96 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Kenya: Off-grid Solar Access Project for Underserved Counties (P160009) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING 1. The Kenya Off-Grid Solar Access Project for Underserved Counties (KOSAP, P160009) is a US$150 million project approved by the World Bank Board on July 26, 2017. It became effective on March 8, 2018, and is under implementation, with a closing date of May 31, 2025. The Project Development Objective (PDO) is to increase access to modern energy services in underserved counties of Kenya. The Project is being implemented by the Ministry of Energy and Petroleum (MOEP), Kenya Power and Lighting Company and Rural Electrification and Renewable Energy Corporation. Implementation Progress 2. The PDO rating and Implementation Progress rating are both Moderately Satisfactory. The PDO remains relevant and aligned with the Government’s targets of ensuring universal access and providing reliable energy supply to support the development of the country. To date, 164,156 households have been provided with electricity access and clean cooking solutions against the target of 310,000 households. The project is on track to further accelerate progress in establishing new connections over the remaining implementation period, towards meeting the target of 1,272,525 people. Key implementation milestones have been met. Further, the Ministry of Energy and Petroleum (MOEP) has also implemented activities to enhance implementation effectiveness and ensure the program remains on track. Below is the implementation status by component: 3. (a) Component 1: Mini grids for Community Facilities, Enterprises, and Households valued at US$71.67 million were launched on August 29, 2023, and are closing on December 8, 2023. Contracting and kick-off for these installations is planned by March 31, 2024. (b) Component 2: Stand-alone Solar Systems and Clean Cooking Solutions for Households. The Facilities Implementation Manual (FIM) for allocation of Results-Based Financing (RBF) grants has been updated. RBF allocations have been increased to about 25% for Solar Home Systems (SHS) and 50 percent for Clean Cooking Solutions (CCS), compared to about 15 percent of total operational costs in the previous project implementation period. (c) Component 3: Standalone solar systems and solar water pumps for community facilities. The Request for Bids (RFB) for this last set of major contracts valued at US$19.71 million will be launched by December 15, 2023. (d) Component 4: Major activities such as extension of the contract for the facilities manager responsible for implementation of component 2 and launching of Request for Proposals (RFP) for consumer education for components 1, 2 and 3 have been completed. 4. Disbursement performance has improved and current stands at US$43.18 million (30 percent), having increased from US$38.38 million (26 percent) in June 2023. . Disbursements for FY24 are anticipated to increase further by US$15.0 million, driven by advance payments on US$90 million in major works contracts (components 1 and 3), and implementation of the RBF grant facility (component 2). The World Bank Kenya: Off-grid Solar Access Project for Underserved Counties (P160009) 5. Project management, financial management and procurement aspects of the project are rated Moderately Satisfactory (MS), while the monitoring & evaluation rating, and environmental & social safeguards rating of the Project are both Satisfactory. 6. There are no outstanding audit or interim financial reports under the project. 7. Restructurings: The first restructuring was undertaken in June 2023, with a notice to the borrower issued on June 26, 2023. The restructuring majorly focused on (i) Extension of the project closing date to May 31, 2025; (ii) Cancellation of the US$30 million debt facility under component 2, and reallocation of Financing proceeds between disbursement categories; (iii) Reduction of scope and budget under component 3; and (iv) Increase of budget under components 1 and 4, and utilization of cost savings from component 2 and component 3. Rationale for Restructuring: 8. July 7, 2022, the World Bank received a formal letter from the National Treasury (NT), dated July 4, 2022; Reference No. NT/PDMO/RMD 62/240 ‘C’ (39), requesting an extension of the project closing date by two years, to June 30, 2025. The proposed deadline for withdrawal applications under the extension would be September 30, 2025. On May 9, 2023, the World Bank received a second letter from NT, Reference No. NT/PDMO/RMD 62/240 ‘C’ (42), requesting reallocation of funds between withdrawal categories, and extension of the project by 23 months from June 30, 2023, till May 31,2025. The letter included budget allocation by component, in line with the reallocation of funds between withdrawal categories. This proposed restructuring is the second restructuring of the project, seeking approval for a Level II restructuring, to update the cost by component, for components 1, 2. 3 and 4 to align them with the reallocation of funds between withdrawal categories a requested in the restructuring letter. There are no additional changes to the project. II. DESCRIPTION OF PROPOSED CHANGES 9. The budget allocation by component has been changed as follows: (a) Component 1: Mini grids for Community Facilities, Enterprises, and Households:(Cost $40.00 M) has increased to $78.00 million. (b) Component 2: Stand-alone Solar Systems and Clean Cooking Solutions for Households:(Cost $48.00 M) has decreased to US$15.70 million. (c) Component 3: Stand-alone Solar Systems and Solar Water Pumps for Community Facilities:(Cost $40.00 M) has decreased to US$21.30 million. (d) Component 4: Implementation Support and Capacity Building:(Cost $22.00 M) has increased to US$35.00 million. The World Bank Kenya: Off-grid Solar Access Project for Underserved Counties (P160009) III. SUMMARY OF CHANGES Changed Not Changed Components and Cost ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Results Framework ✔ Loan Closing Date(s) ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursements Arrangements ✔ Disbursement Estimates ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) The World Bank Kenya: Off-grid Solar Access Project for Underserved Counties (P160009) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Component 1: Mini-grids for Component 1: Mini-grids for Community Facilities, 40.00 Revised Community Facilities, 78.00 Enterprises, and Households Enterprises, and Households Component 2: Stand-alone Component 2: Stand-alone Solar Solar Systems and Clean Systems and Clean Cooking 48.00 Revised 15.70 Cooking Solutions for Solutions for Households Households Component 3: Stand-alone Solar Component 3: Stand-alone Systems and Solar Water Pumps 40.00 Revised Solar Systems and Solar Water 21.30 for Community Facilities Pumps for Community Facilities Component 4: Implementation Component 4: Implementation 22.00 Revised 35.00 Support and Capacity Building Support and Capacity Building TOTAL 150.00 150.00 .