The World Bank Honduras Tropical Cyclones Eta and Iota Emergency Recovery Project (P175977) REPORT NO.: RES48591 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF HONDURAS TROPICAL CYCLONES ETA AND IOTA EMERGENCY RECOVERY PROJECT APPROVED ON DECEMBER 18, 2020 TO THE REPUBLIC OF HONDURAS URBAN, RESILIENCE AND LAND GLOBAL PRACTICE LATIN AMERICA AND CARIBBEAN REGION Regional Vice President: Carlos Felipe Jaramillo Country Director: Michel Kerf Regional Director: Anna Wellenstein Practice Manager/Manager: David N. Sislen Task Team Leader(s): Eduardo Ereno Blanchet The World Bank Honduras Tropical Cyclones Eta and Iota Emergency Recovery Project (P175977) ABBREVIATIONS AND ACRONYMS COVID-19 Coronavirus Disease 2019 E&S Environmental and Social ESF Environmental and Social Framework FM Financial Management GoH Government of Honduras GRM Grievance Redress Mechanism IPF Investment Project Financing M&E Monitoring and Evaluation PDO Project Development Objective PIU Project Implementation Unit BASIC DATA Product Information Project ID Financing Instrument P175977 Investment Project Financing Environmental and Social Risk Classification (ESRC) High Approval Date Current Closing Date 18-Dec-2020 31-Dec-2026 Organizations Borrower Responsible Agency SEDECOAS (Secretaría de Desarrollo Comunitario, Agua y Republic of Honduras Saneamiento) Project Development Objective (PDO) Original PDO The Project Development Objective is to support Honduras' response and recovery needs and strengthen institutional capacity to manage a resilient and inclusive recovery and reconstruction. OPS_TABLE_PDO_CURRENTPDO The World Bank Honduras Tropical Cyclones Eta and Iota Emergency Recovery Project (P175977) Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-68220 18-Dec-2020 08-Mar-2021 04-Jun-2021 31-Dec-2026 150.00 15.64 134.36 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Introduction 1. This Restructuring Paper seeks the decision of the Country Director to restructure the Honduras Tropical Cyclones Eta and Iota Emergency Recovery Project (P175977) to: (i) reallocate amounts between Disbursement Categories and (ii) modify component costs. Specifically, the Government of Honduras (GoH) requested an increase in the Project’s Component 1 cost and related Disbursement Category 1 from US$10 million to US$17.3 million to allow an increase in financing of emergency relief and response expenditures. This increase will be offset with an equivalent decrease in Component 2 costs. B. Background 2. The Project was approved by the World Bank Board of Executive Directors on December 18, 2020, signed on March 8, 2021, and became effective on June 4, 2021. The Project Development Objective (PDO) is to support Honduras' response and recovery needs and strengthen institutional capacity to manage a resilient and inclusive recovery and reconstruction. The total Project cost is US$150 million and consists of three components: (a) Component 1: Emergency relief, response and public health and safety operations (US$10 million). This component finances expenditures incurred in undertaking the immediate relief and response measures to anticipate, alleviate, and mitigate the impacts of the cyclones on the population, and public safety actions in the wake of the cyclones. (b) Component 2: Resilient rehabilitation and reconstruction of public and community infrastructure and resumption of public services (US$129 million). This component finances the technical preparation (including works requirements, specifications, designs or drawings, etc.), and implementation of urgent repairs as well as resilient rehabilitation and reconstruction of high priority public and community The World Bank Honduras Tropical Cyclones Eta and Iota Emergency Recovery Project (P175977) infrastructure, including the cost of temporary relocation and survey or design activities needed for high priority facilities requiring new construction. (c) Component 3: Institutional support to the Government recovery and reconstruction program (US$11 million). This component finances the costs of the Project Implementing Unit’s (PIU) and other operational costs, including, inter alia, project management, procurement, contract management, public outreach and dissemination, financial management (FM) activities, technical audits, compliance monitoring of construction activities, oversight of compliance with social and environmental standards, oversight of compliance with social inclusion targets, monitoring and evaluation (M&E) activities, and a Grievance Redress Mechanism (GRM). C. Status of implementation 3. The Project became effective on June 4, 2021 and has focused since then on the creation of the PIU, the reimbursement of emergency expenditures, the finalization of the environmental and social (E&S) framework instruments and the launch of the first public tender for schools reconstruction. There has been significant progress towards the establishment of the PIU, which now counts with a Program General Coordinator, a Technical Coordinator, an environmental specialist, a social specialist, a disbursement assistant, and a schools repairs assistant. An office for the PIU has been identified and is expected to be available in February 2022. Moreover, the Bank has been providing hands on implementation support with a procurement consultant, an operations consultant, two structural engineers (including one based in Tegucigalpa) as well as two E&S consultants to support the PIU. The Task Team provided the No Objection to the 2021 Annual Operative Plan on June 24, 2021 and to the Procurement Plan on July 29, 2021. Also, a first reimbursement package for a total of about US$11.5 million for emergency activities under Component 1 was disbursed in two tranches on September 10 and November 17, 2021, after appropriate due diligence was performed by the Task Team on the activities’ documentation. Regarding E&S aspects, the Task Team is currently reviewing the final drafts of the following ESF instruments, after having provided extended support to their preparation: i) Stakeholder Engagement Plan; ii) Involuntary Resettlement Framework; iii) Labor Management Procedures; and iv) Environment and Social Management Framework, and they are expected to be finalized by January 2022. Finally, regarding the actual reconstruction works, the PIU launched a first tender for the repairs of eight schools with minor damages in November 2021, with an E&S plan approved by the Regional Safeguards Adviser (as the Environmental and Social Management Plan was not yet finalized). The PIU is also working on the preparation of 3 additional packages of 48 schools’ repairs, as well as the identification of the first water infrastructure repairs. 4. Overall, the Project has been progressing relatively well, despite a compound context of a pandemic and a major disaster. The Project has disbursed US$15.6 million to date. Progress towards achievement of PDO and Implementation Progress, FM and procurement performance were all rated Satisfactory while environmental and social standards performance was rated Moderately Satisfactory in the last Implementation Status and Results Report dated September 28, 2021. Actual reconstruction activities should ramp up as the PIU staff continues to grow. Nevertheless, the upcoming change of Government administration, as a result of the November 28, 2021 general elections, is expected to slightly affect the project since no new contract can be signed and no new tender can be launched until the new Government is in place in February 2022. D. Rationale for Restructuring The World Bank Honduras Tropical Cyclones Eta and Iota Emergency Recovery Project (P175977) 5. In a letter dated November 26, 2021, the GoH requested a project restructuring to address needs that have emerged during early implementation. The Project was processed under emergency procedures in accordance with paragraph 12 of Section III of the Bank Policy on Investment Project Financing (IPF). Due to the emergency nature of preparation, the allocation of disbursement categories and component costs were identified based on preliminary information. The actual demand for financing of emergency relief and response expenditures to address the impact of the storms’ emergency has expanded way above the original amount foreseen under Component 1. The restructuring would allow to assign additional resources to help mitigate the risk of fiscal gap arising from the storms’ emergency expenditures during 2021. These expenditures are expected to be financed under Component 1 subject to confirmation of their eligibility for retroactive financing as per Bank procedures and within the 40 percent retroactive financing limit established for the Project and following the Bank’s due diligence. 6. More specifically, the allocation under Component 1 is proposed to be increased to retroactively finance additional emergency goods purchased by the Government to attend to the needs of the displaced population in the wake of the tropical cyclones. These goods are only eligible under Component 1, therefore they cannot be financed under Component 2. The Project’s original provisions allocated US$10 million to Component 1 and the GoH requested an increase of the allocation to US$17.3 million, to allow financing of an additional US$7.3 million which they have identified as eligible emergency goods expenditures. The activities to be financed are the Development and Social Inclusion Secretariat (Secretaría de Desarrollo e Inclusion Social)’s emergency goods expenses and are expected to have been incurred within the eligible period as per the Financing Agreement. The activities are aligned with the PDO of the Project which is to support Honduras' response and recovery needs. Therefore, the proposed changes will not have an impact on the achievement of the PDO and related results framework nor significantly change the scope of the originally planned activities. Finally, there are no new risks related to the change in components costs. II. DESCRIPTION OF PROPOSED CHANGES 7. Key changes in this restructuring include: (i) modifying the allocation of Components 1 and 2, by increasing the cost of Component 1 and decreasing the cost of Component 2; and (ii) adjusting the allocation for Disbursement Categories 1 and 2. A. Components and Costs 8. Changes to Component 1 and Component 2 costs. An estimated increase of US$7.3 million is proposed for Component 1, from US$10 million to US$ 17.3 million as well as a corresponding decrease in Component 2 costs from US$129 million to US$ 121.7 million. The increase in Component 1 costs will be to reimburse additional emergency expenses. There will be no adjustments to the scope or number of items eligible for financing under Components 1 or 2, therefore, this restructuring will not impact the original results framework. The shift in resources accounts for less than six percent of Component 2 resources. B. Disbursement Categories The World Bank Honduras Tropical Cyclones Eta and Iota Emergency Recovery Project (P175977) 9. Reallocation between Disbursement Categories. In order to reflect the increase in financing of eligible expenditures, the amount allocated under Category 1 will increase from US$10 million to US$17.3 million. As a result, the amount allocated under Category 2 will be reduced from US$129 million to US$ 121.7 million. III. SUMMARY OF CHANGES Changed Not Changed Components and Cost ✔ Reallocation between Disbursement Categories ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Results Framework ✔ Loan Closing Date(s) ✔ Cancellations Proposed ✔ Disbursements Arrangements ✔ Disbursement Estimates ✔ 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 ✔ The World Bank Honduras Tropical Cyclones Eta and Iota Emergency Recovery Project (P175977) IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Component 1: Emergency relief, Component 1: Emergency response and public health and 10.00 Revised relief, response and public 17.30 safety operations health and safety operations Component 2: Resilient Component 2: Resilient rehabilitation and reconstruction rehabilitation and of public and community 129.00 Revised reconstruction of public and 121.70 infrastructure and resumption of community infrastructure and public services resumption of public services Component 3: Institutional Component 3: Institutional support to the Government support to the Government 11.00 No Change 11.00 recovery and reconstruction recovery and reconstruction program program TOTAL 150.00 150.00 OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IDA-68220-001 | Currency: USD iLap Category Sequence No: 1 Current Expenditure Category: GO,CW,NCS,CS,OP under Part 1 10,000,000.00 11,273,242.61 17,300,000.00 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: GO,CW,NCS,CS,TR,OP under Part 2 129,000,000.00 0.00 121,700,000.00 100.00 100.00 iLap Category Sequence No: 3 Current Expenditure Category: GO,NCS,CS,TR,OP under Part 3 The World Bank Honduras Tropical Cyclones Eta and Iota Emergency Recovery Project (P175977) 11,000,000.00 0.00 11,000,000.00 100.00 100.00 Total 150,000,000.00 11,273,242.61 150,000,000.00 .