The World Bank Mozambique - Malawi Regional Interconnector Project (P164354) REPORT NO.: RES55118 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF THE MOZAMBIQUE - MALAWI REGIONAL INTERCONNECTOR PROJECT APPROVED ON SEPTEMBER 17, 2019 TO THE REPUBLIC OF MALAWI, THE REPUBLIC OF MOZAMBIQUE Energy and Extractives Global Practice Eastern and Southern Africa Region Regional Vice President: Victoria Kwakwa Country Director: Boutheina Guermazi Regional Director: Wendy E. Hughes Practice Manager: Julia M. Fraser Task Team Leaders: Zhengjia Meng, Kagaba Paul Mukiibi The World Bank Mozambique - Malawi Regional Interconnector Project (P164354) ABBREVIATIONS AND ACRONYMS EDM Electricidade de Moçambique EPC Engineering Procurement and Construction ESCOM Electricity Supply Corporation of Malawi Limited EU European Union FY Financial Year GBV Gender Based Violence GoMo Government of Mozambique KfW KfW Development Bank NTF Norwegian Trust Fund PAPs Project Affected Persons PDPs Physically Displaced Persons The World Bank Mozambique - Malawi Regional Interconnector Project (P164354) BASIC DATA Product Information Project ID Financing Instrument P164354 Investment Project Financing Original EA Category Current EA Category Full Assessment (A) Full Assessment (A) Approval Date Current Closing Date 17-Sep-2019 30-Jun-2024 Organizations Borrower Responsible Agency Ministerio da Economia e Financas,Ministry of Finance, Economic Planning and Development Project Development Objective (PDO) Original PDO The project development objective is to interconnect Malawi and Mozambique’s transmission systems to enable them to engage in bilateral and regional power trade in the Southern African Power Pool. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-64960 17-Sep-2019 18-Oct-2019 15-Jul-2020 30-Jun-2024 15.00 3.90 10.81 IDA-D5150 17-Sep-2019 03-Dec-2019 15-Jul-2020 30-Jun-2024 42.00 9.20 31.62 TF-B0941 03-Dec-2019 03-Dec-2019 15-Jul-2020 31-Dec-2023 8.00 3.27 4.73 TF-18537 05-Mar-2015 05-Mar-2015 25-Feb-2016 31-Dec-2023 5.00 3.90 1.10 The World Bank Mozambique - Malawi Regional Interconnector Project (P164354) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Mozambique - Malawi Regional Interconnector Project (P164354) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project Status 1. The Project consists of two components; (i) Component 1 – Mozambique-Malawi Power Transmission Infrastructure (US$127 million equivalent, of which the IDA grant is US$41 million for Mozambique, and IDA credit is US$13 million for Malawi) and (ii) Component 2 – Technical Assistance and Capacity Building (US$3 million equivalent, of which IDA credit is US$2 million for Malawi and IDA grant is US$1 million for Mozambique). The project is being implemented by two implementing agencies: Electricity Supply Corporation of Malawi Limited (ESCOM) for the Malawi section and Electricidade de Moçambique (EDM) for the Mozambique section. The Project is co-financed by a Norwegian Trust Fund (NTF) Grant Agreement (TF018537 and TFB0941) amounting to US$24 million, and grant financing of US$22 miilion from the Government of Germany (administered by KfW) for Mozambique; and an EU Grant of US$20 million (administered by KFW) for Malawi. 2. The Project was approved by the Board of Executive Diretors of the World Bank on September 17, 2019 and the financing for the project was declared effective on July 15, 2020. The commencement of Project implementation works experienced delays mainly due the following factors: (i) delays in the completion of the Resettlement Action Plans (RAPs) for the both countries1; (ii) delays in the set up of the institutional arrangements to jointly monitor project implementation (i.e. the Joint Project Steering Committee and Joint Project Coordination Committee); (iii) delays in recruitment of dedicated staff/consultants to monitor safeguards; and (iv) the lengthy procurement process for the EPC contractors that took almost two years. Nevertheless, over the past two years since effectiveness, the project teams have managed to complete all the key procurements and made signficant progress on RAP implementation. Disbursements are expected to significantly increase towards the end of FY23 and in FY24 as the project is expected to be commissioned in FY24. The key procurement activities that were concluded are: (a) the procurement of the tender agent to support the PIUs to prepare bidding documents for the EPC contractor work packages; (b) the procurment of the Owners Engineer2 (OE) for the supervision of the construction works; (c) the procurement of the EPC contractors for Component 1 of the project; (d) The procurement of the RAP Implementation Consultant3 to support the ESCOM and EDM PIUs; (e) The procurement of the GBV service providers for both countries to monitor GBV activities during project implementation, and (f) The procurement of the Third Party Monitor for Grievance Redress Mechanisms (GRM) during project implementation. 3. Component 1 has two sub components. Sub-components 1-A and 1-B include major works in Mozambique and Malawi respectively: (a) Sub-component 1-A includes the construction of the transmission interconnector and associated substations in Mozambique with a funding allocation of US$91.5 million (IDA grant is US$41.0 million, KfW grant is US$22 million equivalent, NTF is US$24 million, and Government of Mozambique (GoMO) contribution is US$4.5 million). 1 Completed in October 2021. 2 OE is INTEC-GOPA and the contract was signed in July 2021. 3 Consultant is Asia Consulting Services (ACE) and the contract was signed in February 2021. The World Bank Mozambique - Malawi Regional Interconnector Project (P164354) (b) Sub-component 1-B encompasses the construction of the transmission interconnector and associated substations in Malawi with a funding allocation of US$35.5 million (IDA credit is US$13.0 million, KfW grant is US$20 million equivalent, and Government of Malawi (GoMA) contribution is US$2.5 million). 4. To implement Component 1, two EPC contractors were procured. Both contractors have mobilized project staff, established camp and are working on site. EPC contracts are divided into two packages; (a) Package A – Construction of the Transmission line in Mozambique and Malawi and extension of Phombeya substation in Malawi and (ii) Package B – Construction of the Matambo Substation in Mozambique. The EPC contracts for the respective packages became effective in November and December 2021, respectively. (a) Package A: The package includes the construction of a new 400 kV transmission line section of about 142 kilometers on the Mozambican side and 76 kilometers on the Malawi side that connect to the 400 kV line feeder bay at Phombeya Substation area. An extension of Phombeya Substation by transmission line bays and reactor bays will be built. The Mozambique section also includes the construction of six special towers that will be required to cross the Zambezi River around 12 km south of the city of Tete, along an existing 220 kV line crossing. The Crossing Span is about 1.7 kilometers long. The contractor has already mobilized and set up offices, living quarters and storage areas within the project area in both countries. Ninety-five percent of the line profiling has been completed for which the design has been approved. All tower designs have been approved and Factory Acceptance Tests (FATs) are on-going. The contractor has started work on the tower foundation designs to be analyzed and approved by the OE. EDM and ESCOM will hand over the line in sections once the compensations to project affected people (PAPs) are finalized in line with the priority areas4. L&T has been carrying out detailed design work at the Phombeya substation in Malawi in the secon half of 2022, and the OE is evaluating equipment requirements. (b) Package B: This is being implemented by Sinohydro-Sepco1 JV. The Package includes the construction of a new 400 kV Matambo Substation to the west of the existing 220 kV Matambo Substation in Malawi. The new substation will have 500MVA transformers installed to step up the voltage from 220 kV to 400 kV and to connect to the existing substation via a short 220 kV transmission line link. 5. Component 2 on Technical Assistance and Capacity Building consists of two sub-components. (a) Sub-component 2-A includes Technical Assistance and Capacity Building in Mozambique (US$1 million IDA grant). This sub-component supports EDM PIU in project management, including safeguards supervision, mitigation of risks related to gender-based violence (GBV) and implementation of a Gender Action Plan. (b) Sub-component 2-B includes Technical Assistance and Capacity Building in Malawi (US$2 million IDA credit). This sub-component supports the ESCOM PIU in project management, including safeguards supervision, mitigation of GBV risks, and implementation of a Gender Action Plan. 6. Project Timeline: Although the project has slipped behind its original schedule, PIUs working with the OE and the EPC contractors have adjusted the project timeline and are committed to complete construction works including commissioning by December 2023. The new compressed schedule leaves little room for delays and necessitates close collaboration between all parties involved. The project closing date was extended from December 31, 2022 to June 30, 2024. 4 The priority sections were determined based on the complexities of resettlement and engineering requirements. The World Bank Mozambique - Malawi Regional Interconnector Project (P164354) 7. The project has been rated Satisfactory with regard to achievement of the PDO and Moderately Satisfactory with regard to the Implementation Progress. The table below shows other ratings based on the Implementation Status Report (ISR) dated December 20, 2022: Table 1: Project Ratings Project Ratings Rating Project Management Moderately Satisfactory Procurement Satisfactory FM Moderately Satisfactory Environmental safeguards Moderately Satisfactory Social safeguards – include GBV Moderately Satisfactory B. Rationale for Restructuring 8. This restructuring follows formal request of the Government of Mozambique (GoMo) to the World Bank on August 4, 2022, to reallocate funds amounting to US$976,016 equivalent from project savings to support cash compensation of PAPs. The GoMo initially provided funding for resettlement, but due to the impact of COVID-19, two tropical cyclones in 2021, and ongoing economic challenges, the GoMo is no longer able to support RAP implementation. Without the IDA funding, the resettlement process would be halted, and construction would not start and completed on time jeopardizing the achievement of PDO. As a result, financing of compensation by IDA has become critical for the timely completion of the project activities within the current timeline. This support to the Government will maximize the chances of success of the project in a very fragile environment. 9. The project registered savings amounting to US$17 million from the competitive bidding process of the EPC contractors. A request to use IDA funding for cash compensation of PAPs was approved by the World Bank Regional Vice-President (RVP) for Eastern and Southern Africa on February 13, 2023. 10. The proposed restructuring seeks to create a new disbursement category to cover RAP cash compensation costs on the Mozambique side for (i) PAPs for compensation structures; (ii) PAPs for trees and crops affected along the line; and (iii) cash allowances for Physically Displaced Persons (PDPs). The Financing Agreement does not include RAP compensation costs and as such would need to be amended to include this category of costs for disbursement under IDA financing. II. DESCRIPTION OF PROPOSED CHANGES 11. The proposed restructuring includes: (a) changes to components and costs of the project; (b) reallocations between disbursement categories; and (c) changes in the results framework. 12. Changes in Components and Costs. A new eligible activity will be introduced under Component 1 of the project to finance implementation of Resettlement Action Plan, including the total costs of cash compensation to Project Affected Persons and the restoration of their livelihoods. Financing Agreement will be amended accordingly. 13. Reallocation between Disbursement Categories. The following changes are proposed under IDA Grant – D5150-MZ: The World Bank Mozambique - Malawi Regional Interconnector Project (P164354) (a) The introduction of a new disbursement category No.3 – Cash Compensation for Resettlement Prt 1.A Project with a proposed disbursement allocation of SDR 736,0005 equivalent to cater for RAP cash compensation on the Mozambique side; (b) The reduction of funding allocation under disbursement category No.1 – GDS, WKS, NCS&CS Prt 1.A Project from SDR 29,800,000 to SDR 29,064,000. 14. Changes in the Results Framework. Two new intermediate results indicators are proposed to be included; a) Number of PAPs to be compensated – Malawi to record the number of PAPs (i.e., those losing trees and land; and those losing structures) along the Malawi section of the project. The baseline is zero and end target is 991 PAPs. b) Number of PAPs to be compensated – Mozambique to record the number of PAPs (i.e., those losing trees and land; and those losing structures) along the Mozambique section of the project. The baseline is zero and the end target is 408 PAPs. 5SDR 1 = US$1.32584 as of March 10, 2023, as per ClientConnection. The World Bank Mozambique - Malawi Regional Interconnector Project (P164354) III. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Components and Cost ✔ Reallocation between Disbursement Categories ✔ Disbursement Estimates ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ PBCs ✔ Loan Closing Date(s) ✔ Cancellations Proposed ✔ Disbursements Arrangements ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) The World Bank Mozambique - Malawi Regional Interconnector Project (P164354) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Component 1: Mozambique- Component 1: Mozambique- Malawi power transmission 127.00 Revised Malawi power transmission 127.00 infrastructure infrastructure Component 2: Technical Component 2: Technical 3.00 No Change Assistance and Capacity 3.00 Assistance and Capacity Building Building TOTAL 130.00 130.00 OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IDA-D5150-001 | Currency: XDR iLap Category Sequence No: 1 Current Expenditure Category: GDS,WKS,NCS&CS Prt 1.A Project 29,800,000.00 4,646,065.11 29,064,000.00 48.00 48.00 iLap Category Sequence No: 2 Current Expenditure Category: GD,NCS,CS,OC,TRN Prt 2.A Project 800,000.00 687,005.95 800,000.00 100.00 100.00 iLap Category Sequence No: 3 Current Expenditure Category: RAP Cash Compensation Prt 1.A Project 0.00 0.00 736,000.00 100 Total 30,600,000.00 5,333,071.06 30,600,000.00 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes The World Bank Mozambique - Malawi Regional Interconnector Project (P164354) Year Current Proposed 0000 0.00 0.00 2019 0.00 508,401.69 2020 6,000,000.00 1,012,242.08 2021 20,000,000.00 259,849.12 2022 25,000,000.00 8,915,598.95 2023 6,000,000.00 30,000,000.00 2024 0.00 16,303,908.20 . The World Bank Mozambique - Malawi Regional Interconnector Project (P164354) . Results framework COUNTRY: Eastern and Southern Africa Mozambique - Malawi Regional Interconnector Project Project Development Objectives(s) The project development objective is to interconnect Malawi and Mozambique’s transmission systems to enable them to engage in bilateral and regional power trade in the Southern African Power Pool. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name PBC Baseline End Target Wheeling capacity enabled by the project, and electricity traded between ESCOM and EDM. Wheeling capacity enabled by the project (Megawatt) 0.00 1,200.00 Increased annual electricity traded between ESCOM and EDM. 0.00 360,000.00 (Megawatt hour(MWh)) PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name PBC Baseline End Target Mozambique – Malawi Power Transmission Infrastructure Construction of the transmission line. (Kilometers) 0.00 218.00 Project implementation contracts signed and effective. (Yes/No) No Yes The World Bank Mozambique - Malawi Regional Interconnector Project (P164354) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline End Target Number of PAPs compensated - Malawi (Number) 0.00 991.00 Action: This indicator is New Number of PAPs compensated - Mozambique (Number) 0.00 408.00 Action: This indicator is New Technical Assistance and Capacity Building ESCOM Market trading unit established. (Yes/No) No Yes Citizens' grievances responded to and/or resolved within the No Yes stipulated service standards for response times. (Yes/No) Number of annual public consultation events with citizens and publicly disclosed summaries/minutes of these consultations. 0.00 2.00 (Number) Number of female staff in EDM and ESCOM trained and certified 0.00 4.00 in market trading activities as part of the project. (Number) Percentage of female technical and engineering staff at ESCOM. 10.00 15.00 (Percentage) Development and implementation of recruitment, leadership development, and mentoring program targeting females in STEM No Yes fields in ESCOM. (Yes/No) Percentage of females hired under the Young Professional 0.00 30.00 Program at EDM. (Percentage) IO Table SPACE The World Bank Mozambique - Malawi Regional Interconnector Project (P164354) . The World Bank Mozambique - Malawi Regional Interconnector Project (P164354)