The World Bank Kosovo Water Security and Canal Protection Project (P133829) REPORT NO.: RES44937 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF KOSOVO WATER SECURITY AND CANAL PROTECTION PROJECT APPROVED ON SEPTEMBER 30, 2016 TO REPUBLIC OF KOSOVO February 22, 2022 WATER GLOBAL PRACTICE EUROPE AND CENTRAL ASIA Regional Vice President: Anna M. Bjerde Country Director: Linda Van Gelder Regional Director: Steven N. Schonberger Practice Manager/Manager: Winston Yu Task Team Leader(s): Trandelina Baraku, Regassa Ensermu Namara, Zhimin Mao The World Bank Kosovo Water Security and Canal Protection Project (P133829) ABBREVIATIONS AND ACRONYMS Fostering and Levering Opportunities for Water Security FLOWS Iber-Lepenc Canal ILC Ministry of Finance, Labor and Transfers MoFLT Project Development Objective PDO Supervisory Control and Data Acquisition SCADA Water Security and Canal Protection WSCP The World Bank Kosovo Water Security and Canal Protection Project (P133829) BASIC DATA Product Information Project ID Financing Instrument P133829 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 30-Sep-2016 30-Apr-2022 Organizations Borrower Responsible Agency Republic of Kosovo Hydro Economic Iber-Lepenc JSC,Ministry of Economy Project Development Objective (PDO) Original PDO The objective of the Project is to contribute to restoring the Iber Canal to its original capacity to improve water resource management for various canal water users in Central Kosovo. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-59020 30-Sep-2016 27-Jan-2017 26-Jun-2017 30-Apr-2022 24.50 5.38 19.65 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Kosovo Water Security and Canal Protection Project (P133829) The World Bank Kosovo Water Security and Canal Protection Project (P133829) PROJECT STATUS AND RATIONALE FOR RESTRUCTURING 1. This Restructuring Paper proposes to: (i) extend the project closing date by 18 months, (ii) cancel the construction of the Mihaliqi reservoir and the remaining allocated funds, (iii) revise the results framework to reflect changes in the scope of activities to ensure the achievement of PDO, (iv) revise the implementation schedule and disbursement estimates, and (v) adjust project components and costs. Project Status 2. The project is financed by an IDA credit of $24.54 million which will benefit utilities, industries and farmers within the Iber-Lepenc (IL) canal basin. This is the first restructuring of the project, which responds to the formal request received from the Ministry of Finance, Labor and Transfers (MoFLT) on October 26, 2021 to extend the project closing date by 18 months and remove the construction of the Mihaliqi reservoir. A follow up request was sent on February 2, 2022 to cancel the remaining funds associated with Mihaliqi reservoir construction. 3. The project was approved by the Board on September 30, 2016. The Project Development Objective is to contribute to restoring the Iber Canal to its original capacity to improve water resource management for various canal water users in Central Kosovo. Central Kosovo, including the capital Pristina, depends almost entirely on the IL Canal to meet its water needs. The canal is a multipurpose water conveyance system, supplying water for energy production, mining, industrial, agricultural, and household uses. There are limited secondary sources of water for the canal users so that an interruption of service would have a significant impact on the overall economy of Kosovo. It is the single source of drinking water supply to the populations of central Kosovo. 4. The project is currently scheduled to close on April 30,2022. As of February 18, 2022, 21.49% (US$ 5.38 million) of the total credit amount of US$ 24.54 million has been disbursed and commitement is at 57.7% (US$ 14.2 million). While the installation of the Supervisory Control and Data Acqusition (SCADA) system and rehabilitation of the canal has picked up after several months of delay, the rehabilitation of the canal is progressing at a slower pace. The construction of Mihaliqi reservoir will not be completed before the project closing date and faced considerable financing gap. 5. Progress towards achievement of the PDO is rated as “Moderately Unsatisfactory”. This was downgraded in the latest Implementation Status and Results Report (ISR) since the PDO outcome indicator related to construction of the Mihailiq reservoir cannot be achieved as the works have been substantially delayed and the government requested its construction be cancelled from the project activities. Implementation Progress has been rated “Moderately Unsatisfactory” since April 2019 due to significant delays in procurement and implementation of key project activities. 6. With the cancellation of the construction of the Mihailiq reservoir and the adjustments to the project’s Result Framework, it is expected that the PDO remains achievable. The first part of the PDO “restoring the Iber Canal to its original capacity for various canal water users in Central Kosovo” will be achieved through physical works in rehabilitation of the canal under Component 1 (currently under implementation). The construction of the Mihaliqi reservoir would have contributed to improving the reliability of bulk water supply. However, it does not impact the PDO which focuses on the ‘restoration of the canal capacity’. Accordingly, the original PDO indicator and target for the canal-flow capacity has been retained. The restoration works made slow progress mainly due to the COVID 19 pandemic, and has picked up recently. The contractor has prepred a new activity plan which indicates that all works shall be completed before the new project closing date. This plan has been reviewed by the technical assitance consultant and the Bank, and has been adopted by the Recipient. The second part of the PDO , i.e. “… to improve The World Bank Kosovo Water Security and Canal Protection Project (P133829) water resources management for various canal water users in central Kosovo” will be achieved through equipment installation and civil works planned under Component 2 which protects canal against various pollution sources and improves the operational efficiency of the Gozivoda-Iber system. Implementation progress of this component is almost completed hence the achievement of this part of the PDO will also not be impacted by the cancellation of the Mihaliqi construction. The origianl PDO indicator associated with the construction of the Mihaliqi reservoir will be removed. The intermediate result indicator “Improved canal water quality with regard to turbidity (NTU percentage reduction)” will replace the original PDO indicator to measure the improvement of water resources management. 7. Below is a more detailed description of project activities and their current status: 8. Component 1: Infrastructure Rehabilitation and Modernization (Categories: Civil Works; Euro 10.5 million), which involves re-establishing the transit capacity of the Iber Canal, enabling the closure of the canal for maintenance (through developing a buffer reservoir at Mihaliqi), strengthening the canal's structural safety against extreme events, and enhancing the Gazivoda dam safety. The specific activities involved are:  Carrying out small works for Gazivoda dam safety, and canal repair and increased stability for protection against renewed physical damage from landslides and unstable soils, and  Technical assistance was planned for conducting feasibility studies for construction of the new balancing reservoir in Mihaliqi and developing the final design and preparing tender dossier for procurement of the construction of Mihaliqi reservoir. Works contract was planned for constructing a new balancing and emergency reservoir along the canal in the Mihaliqi area (in Vushtrri municipality) for short-term water storage to bridge peak water demand and to enable continuation of water supply to the users during the temporary outages for canal repair, or during extreme events that disrupt the canal flow. Monitoring the construction works during implementation was also going to be part of the same technical assistance 9. The contract for the Main Canal Rehabilitation Works was signed on May 22, 2020 and works cannot be completed by the current closing date of the project due to substantial implementation delays. The implementation delays are mainly due to the restrictions induced by the COVID-19 pandemic and slow commencement of works by the Contractor. The physical works on canal rehabilitation have started on September 9, 2020. The physical works on canal rehabilitation have started on September 9, 2020 and works are progressing at a slower pace than anticipated. The current physical progress of works completion rate is at 17%. The Contractor has submitted a new work schedule that shows physical work progress plans for the coming months. This revised schedule was reviewed and accepted by the Recipient. According to the revised schedule, all planned works shall be completed by October 2023. 10. There were significant delays in the contracting of the new balancing and emergency reservoir along the canal at Mihaliqi. It is now confirmed that the construction of this reservoir cannot be completed within the current official closing date nor the extended project closing date. In adition, according to the completed design work, there is significant financing gap to undertake the construction work. The government of RoK communicated to the Bank that there is no financial resources to close identified financing gap and they no longer consider Mihaliqi reservoir construction a priority. Thus, the government of RoK decided to cancel the construction of Mihaliqi reservoir and the associated funding allocation. 11. Component 2: Water Resources Protection and Management (Categories: Civil Works and Equipment; Euro 9.8 million): Implement water resources protection and management measures to increase the Gazivoda-Iber system The World Bank Kosovo Water Security and Canal Protection Project (P133829) operational efficiency and to protect canal ambient water quality, including:  Carrying out works (such as selective fencing and covering of certain canal sections) to protect the canal against renewed pollution, accidental pollution and other threats and man-made disruptions. These activities are well underway.  Installing equipment for better management of gates and regulation of water flows, as well as for water monitoring (for the main Iber Canal and for its secondary delivery system), including provisions for remote monitoring and controlling of related structures. This is achieved by establishing SCADA system. 12. Activities related to the establishment of the SCADA system were generally progressing well despite the works interruption from mid-March to July, 2020 due to COVID-19 pandemic. Works have resumed in August, 2020 and currently over 99% of the contract has been implemented and over 95% of the contract value has been disbursed. The contractor is expected to finalize all works and complete handover by end of April 2022. 13. On the fiduciary aspect, the performance rating for procurement activities has been revised down to moderately satisfactory due to the reported significant delays in procurement activity. The latest Interim Financial Reports prepared and submitted were acceptable and were received on time. There are no overdue audit reports. The project has adequate funds flow arrangements. No issues are reported by the auditor on the project financial statements. On the safeguard side the situation remains acceptable. The team has organized community consultations and awareness raising in four different municipalities ahead of publication of the tender for canal works, in order to keep the community well informed. No physical displacement is anticipated under this project. Table 1. Summary of Key Remaining Activities and Their Expected Completion Dates Key activities Current Status Current Expected Completion Date Main Canal Contract signed, currently 17% of works completed October 31,2023 Rehabilitation Works and 12% of works certified and paid Establishment of the 98% of contract implemented April 30, 2022 SCADA system Preparation and Technical documentation completed; ESIA and RAP The government construction of Mihaliqi completed. Tendering completed and bids are under requested cancelation Reservoir evaluation. of the construction of the reservoir as well as the remaining allocated funding. 14. Rationale for Extension . The proposed closing date extension by eighteen months and revision of scope of works will enhance the prospects of achieving the PDO. The rehabilitation works for main canal (contract signed on June 2, 2020) is significantly delayed (i.e., while more than 50% of the contract time has elapsed, the work completion rate is at only 17%) and cannot be completed by current project closing date due to a host of reasons including: (i) the effect of Covid19 pandemic, which forced the contractor to withdraw machinery and staff from site, (ii) unfavorable weather conditions such as long raining periods in fall and an early winter, and (iii) failure of the contractor to expeditiously commence works by bringing the required heavy equipment and completing earth The World Bank Kosovo Water Security and Canal Protection Project (P133829) works. Thus, the government has asked for 18-months extension of project’s closing date. With a new work schedule, closer supervision from the Recipient and the supervising consultant, the team believes that the contract can be completed within this time extension. The new work schedule, which was reviewed by the Supervision Engineer and accepted by the Recipient specifies completion of all the work in aqueducts and retaining walls within six months and completion of canal works within 14 months. The revised schedule allows for potential two to three months delay in construction work due to winter season, which is permitted by local legislation. 15. Rationale for cancellation of the construction of Mihaliqi reservoir. As stated earlier, the contracting of the preparation for Mihaliqi reservoir technical documentation faced substantial delays which pushed the completion of reservoir construction beyond current project closing date. In addition, the completed tendering documentation indicated that additional financial resources are needed beyond the original cost estimation at appraisal. The government communicated to the Bank that they no longer consider the construction of the reservoir a priority and can not find additional resources to close the financing gap. Thus, on Feburary 2, 2022, the Ministry of Finance submitted a request to drop the the construction of Mihaliqi from Component 1 and cancel the associated funds for construction. I. DESCRIPTION OF PROPOSED CHANGES 16. The following changes are proposed to circumvent the problem of financing gap and the shortage of time to effectively complete the project: 17. Components and Cost. Component 1(b) will be revised to: (i) remove the activity related to the construction of the Mihaliqi reservoir; and (ii) include only the technical assistance for the preparation of the technical documentation of the Mihaliqi reservoir. The withdrawal table will be revised accordingly. The remaining undisbursed balance of EUR 6,637,573.44 shall be cancelled from the total initial allocation of EUR 7 million as part of the funding has been spent on the preparation of reservoir technical documentation. 18. Results Framework. Revision of the Results Framework to reflect the adjustments made to the scope of activities under Mihaliqi reservoir component of the project. The PDO level indicator related to Mihaliqi reservoir construction, “Maximum continuous duration in days for closing the canal after constructing new water storage for preventative maintenance or for repair amid having an extreme event” is dropped. The Intermediate Results Indicator associated with Mihaliqi reservoir ”Improved canal water quality with regard to turbidity replaces the dropped original PDO indicator and is adjusted to reflect the updated scope of activities. Namely, the target for this indicator will be adjusted to 50% instead of 100% because without the reservoir the Recipient is not able to close the canal and release water from reservoir in times of high turbidity. The 50% improvement is expected to be achieved through the canal rehabilitation work. 19. Disbursement estimates are revised to allow for alignment with the adjusted scope of activities. There is no reallocation between categories. 20. Extension of project closing date. The project closing date will be extended by 18 months from April 30, 2022 to October 31, 2023, to allow for completion of ongoing project activites that remain to be financed by the project. The World Bank Kosovo Water Security and Canal Protection Project (P133829) II. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Components and Cost ✔ Loan Closing Date(s) ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursement Estimates ✔ Implementation Schedule ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ PBCs ✔ Disbursements Arrangements ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) The World Bank Kosovo Water Security and Canal Protection Project (P133829) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Component 1: Infrastructure Component 1: Infrastructure 11.71 No Change Rehabilitation and 11.71 Rehabilitation and Modernization Modernization Component 2: Water Component 2: Water Resources 10.93 Revised Resources Protection and 3.27 Protection and Management Management Component 3: Project Component 3: Project Management, Coordination, 1.90 No Change Management, Coordination, 1.90 Monitoring and Evaluation Monitoring and Evaluation TOTAL 24.54 16.88 OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IDA-59020 Effective 30-Apr-2022 31-Oct-2023 29-Feb-2024 OPS_DETAILEDCHANGES_CANCELLATIONS_TABLE CANCELLATIONS Value Reason Current Cancellation New Ln/Cr/Tf Status Currency Date of for Amount Amount Amount Cancellation Cancellation BORROWER' Disburs S REQUEST IDA-59020- ing&Re EUR 22,000,000.00 6,637,573.44 22-Dec-2021 15,362,426.56 FOR 001 paying COUNTRY REASONS OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed The World Bank Kosovo Water Security and Canal Protection Project (P133829) IDA-59020-001 | Currency: EUR iLap Category Sequence No: 1 Current Expenditure Category: G, W, non-CS, CS, IOC Part 1(b) 7,000,000.00 362,426.56 362,426.56 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: G,W,non-CS,CS all oth.parts, IOC,TR 15,000,000.00 4,163,569.52 15,000,000.00 100.00 100.00 Total 22,000,000.00 4,525,996.08 15,362,426.56 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2017 0.00 0.00 2018 611,850.00 611,850.00 2019 3,453,700.02 226,480.00 2020 5,798,000.01 1,968,687.13 2021 6,690,000.00 1,920,782.87 2022 7,976,450.05 6,500,000.00 2023 0.00 5,000,000.00 . The World Bank Kosovo Water Security and Canal Protection Project (P133829) . Results framework COUNTRY: Kosovo Kosovo Water Security and Canal Protection Project Project Development Objectives(s) The objective of the Project is to contribute to restoring the Iber Canal to its original capacity to improve water resource management for various canal water users in Central Kosovo. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 4 PDO Increased canal-flow capacity, averaged over the bottleneck 0.00 0.00 0.00 0.00 1.00 1.50 points along the canal. (m3/s increment) (Number) Maximum continuous duration in days for closing the canal after constructing new water storage for preventative 0.00 0.00 0.00 0.00 8.00 8.00 maintenance or for repair amid having an extreme event (number of days) (Days) Action: This indicator has been Marked for Deletion Improved canal water quality with regard to turbidity (NTU 0.00 50.00 percentage reduction) (Percentage) The World Bank Kosovo Water Security and Canal Protection Project (P133829) RESULT_FRAME_TBL_PDO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 4 Action: This indicator is New PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 4 Component 1: Infrastructure Rehabilitation and Modernization Length of the canal sections with improved lining 0.00 0.00 4.00 9.00 9.00 9.00 (Kilometers) Number of government staff trained efficiently on using 0.00 0.00 0.00 0.00 0.00 6.00 SCADA (Number) Component 2: Water Resources Protection and Management The Gazivoda dam safety plans prepared and adopted No No Yes Yes Yes Yes (Yes/No) Improved canal water quality with regard to turbidity (NTU 0.00 0.00 0.00 0.00 50.00 100.00 percentage reduction) (Percentage) Action: This indicator has been Marked for Deletion Component 3: Project Management, Coordination, Monitoring and Evaluation The World Bank Kosovo Water Security and Canal Protection Project (P133829) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 4 Direct project beneficiaries 0.00 0.00 100,000.00 200,000.00 400,000.00 500,000.00 (Number) Female beneficiaries 0.00 50.00 50.00 50.00 50.00 50.00 (Percentage) Grievances responded and/or resolved within stipulated 0.00 50.00 100.00 100.00 100.00 100.00 service standards for response (Percentage) IO Table SPACE The World Bank Kosovo Water Security and Canal Protection Project (P133829)