The World Bank Malawi - Electricity Access Project (P164331) REPORT NO.: RES52698 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF MALAWI - ELECTRICITY ACCESS PROJECT APPROVED ON JUNE 20, 2019 TO REPUBLIC OF MALAWI ENERGY & EXTRACTIVES EASTERN AND SOUTHERN AFRICA Regional Vice President: Victoria Kwakwa Country Director: Nathan M. Belete Regional Director: Wendy E. Hughes Practice Manager/Manager: Julia M. Fraser Task Team Leader(s): Zhengjia Meng Kagaba Paul Mukiibi The World Bank Malawi - Electricity Access Project (P164331) ABBREVIATIONS AND ACRONYMS ESCOM Electricity Supply Corporation of Malawi Limited IDCOL Infrastructure Development Company Limited JV Joint Venture MOE Ministry of Energy OGMDF Malawi Off-Grid Market Development Fund PDO Project Development Objective PIU Project Implementation Unit The World Bank Malawi - Electricity Access Project (P164331) BASIC DATA Product Information Project ID Financing Instrument P164331 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 20-Jun-2019 30-Jun-2024 Organizations Borrower Responsible Agency Electricity Supply Corporation of Malawi, Ltd., Ministry of Ministry of Finance Energy, Ministry of Natural Resources Energy & Mining Project Development Objective (PDO) Original PDO The development objective of the project is to increase access to electricity in Malawi. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-64610 20-Jun-2019 18-Oct-2019 16-Jan-2020 30-Jun-2024 144.00 16.74 127.26 IDA-D5010 20-Jun-2019 18-Oct-2019 16-Jan-2020 30-Jun-2024 6.00 .50 5.77 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Malawi - Electricity Access Project (P164331) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING Project Status 1. The Malawi Electricity Access Project (MEAP) is composed of three components: Component 1 - on-grid electrification (US$105 million) which is being implemented by Electricity Supply Corporation of Malawi Limited (ESCOM); Component 2 - an off-grid market development fund (US$30 million including $6 million grant) which is being implemented by an appointed Fund Manager (Infrastructure Development Company (IDCOL) joint venture 1 (JV)) through Ministry of Energy (MoE); and Component 3 - technical assistance and capacity building (US$15 million). 2. MEAP was declared effective on January 16, 2020. However, there were significant delays in implementation. Two and a half years after the project's effectiveness, MEAP has yet to connect its first customer. Several factors contribute to the slow pace of progress, including: (i) leadership vacuum in ESCOM with the Chief Executive Officer (CEO) and other key positions unfilled in 2021; (ii) the project implementation unit’s (PIU’s) non-compliance to World Bank’s disbursement condition triggered by resignation of PIU staff; (iii) slow procurement of Fund Manager under Component 2 and Design and Supervision Engineer under Component 1 due to Covid-19; and (iv) lack of focus on timely project implementation. 3. Because of the implementation delays, MEAP has been rated moderately unsatisfactory in terms of its progress towards achieving project development objective (PDO) and overall implemetation progress. The project has currently disbursed 11 percent of the IDA credit. 4. Most technical and procurement issues have been resolved in the course of first nine months in 2022, bringing the project closer to activities and disbursement. MEAP implementation and disbursement are, therefore, expected to accelerate in FY23, pursuant to the predicted fulfillment of key disbursement requirements for both the on-grid (Component 1) and off-grid (Component 2) components. 5. Component 1: Grid electrification (US$105 million IDA Credit): Due to the slow procurement, ESCOM, the implementing agency, has not secured all materials and supplies required for connections. ESCOM is implemeting a set of efficiecny measures to expedidate the connection program to make up for the lost time: a. ESCOM to immediately make additional contributions of conductors, line hardware, and installation tools from its inventory to MEAP to compensate for the time lost due to slow procurement. This allows the connection activities to begin in December 2022. b. ESCOM to investigate operational efficiency by (i) utilizing smaller teams more efficiently, and (ii) increasing motorcycle use in densely populated urban areas. c. ESCOM to use a "postcode sweeping" installation strategy to group all applicants for connections in the same areas, which will reduce travel time and increase productivity. 1IDCOL JV is a joint venture between IDCOL (Infrastructure Development Company Limited) and AGA (Africa Grant Advisors). IDCOL, a Bangladesh- based non-banking infrastructure fund, is the JV's lead partner. IDCOL was founded over 25 years ago. It has since developed operational, financial, and risk management competence in establishing and managing off-grid solar portfolios and has become a key financier for the off-grid solar market, primarily in Bangladesh. IDCOL has recently expanded its advisory services for the international market to emulate its domestic success abroad. For the Malawi OGMDF, it collaborated with AGA, a boutique consultancy firm based in Nairobi, and recruited Malawians to key positions. The World Bank Malawi - Electricity Access Project (P164331) 6. These measures combined have the potential to increase the connections from 31,500 to 50,000 in the next seven months. 7. A Design and Supervision Engineer (DE) was contracted under this component: A DE is required to assist with project implementation and supervision (e.g., GIS Planning, designing, packaging and supervision support during construction as well as training). Colenco Consulting/Voyant Solution (Colenco), a Nigerian and Indian consortium, was chosen to perform the DE role through a competitive process. The DE is conducting a site survey with the assistance of the ESCOM marketing department to confirm the number of households and collect the necessary information to load the customers profiles into the ESCOM system. This would include the customer's GPS coordinates. The construction teams will connect the identified customers. The DE is expected to provide construction support to ESCOM to confirm that the required material is used, and that construction meets the required quality standards. 8. Component 2: Off-grid market development fund (US$30 million: US$24 million IDA Credit and US$6 million equivalent IDA Grant): The MoE has signed a two-year agreement with the IDCOL JV (the Fund Manager) on June 1, 2022, following the conclusion of a two-stage competitive bidding process, to establish and manage an off-grid solar market development fund. The IDCOL JV has established an office in Lilongwe and stationed the office with fund experts. The IDCOL JV is currently finalizing the fund design outlined in the POM with the assistance of the PIU and the World Bank team. The approval of the POM by the World Bank is the final disbursement condition for Component 2. 9. Component 3: Technical assistance and capacity building (US$15 million IDA Credit): The component consists of US$5million credit to ESCOM and US$10million credit to MoE. Under this component, important contracts have been signed by ESCOM and MoE. ESCOM has signed contract with DE in September 2022 with a value of about US$2 million and is in the process of recruiting a consultant to develop a GIS based distribution plan (about US$1million). MoE has signed a management contract with IDCOL with a value of US$1.9 million. A technical assistance budget of US$2 million has been allocated to IDCOL to assist off-grid solar market stakeholders for capacity building. Other committed contracts include verification agent (US$0.5 million), market awareness campaign (US$0.3 million), mini- grid feasibility study (US$1 million) and development of global tracking framework (US$0.2 million). Overall, US$6 million of TA to MoE have been committed. Reason for Restructuring 10. The Government of Malawi, in its letter dated November 25, 2022, requested the World Bank for partial cancellation of selected projects under the Malawi portfolio in support emergency operations. The partial cancellation will allow the release of funding from the slow disbursing portfolio to support emergency operations in light of the increasingly challenging macro fiscal condition the country is facing. II. DESCRIPTION OF PROPOSED CHANGES 11. Cancellations proposed: In response to the government's request for the partial cancellation of selected Malawi portfolio projects to support emergency operations. A total of $50 million of IDA credits will be cancelled from the project, thus reducing the total project financing from US$150 million to US$ 100 million. The World Bank Malawi - Electricity Access Project (P164331) 12. Components and costs: The following changes of reducing funding allocation across different project components are introduced.  Component 1 - Grid Electrification: This component’s funding will be reduced from US$105 million to $65million. The on-grid connection target will be reduced in proportionate to the funding cut. The reduction of Component 1 funding will not impact ESCOM’s (Implementing Agency) signed contracts and planned connection activities in FY23 but will decrease the end target value as per para 14.  Component 2 - Off-grid Market Development Fund: The funding for this component will be reduced from $30 million to $20 million. This component's initial design includes both an off-grid solar home system and mini-grid windows. The pre-requisite of financing mini grid is a feasibility study under Component 3 that studies 10 potential sites to identify suitable projects. However, the feasibility study only started in November 2022, and it will take at least 6 months to complete. In light of the lack of mini-grid project readiness and the urgent funding needs from the off-grid solar home system market, the funding for the project's mini-grade component (US$10 million) will be removed from the project. The feasibility study of ten mini-grid sites will continue to be funded as part of Component 3.  Component 3 - TA and Capacity Building: Considering the importance of capacity strengthening of both ESCOM and MoE PIU and improving the overall access policies, the funding for Component C will not be changed. 13. Implementing Agency: Two PIUs have been established and are fully staffed, one with ESCOM and the other with the MoE. At the time the project was approved, MoE was part of the Ministry of Natural Resources, Energy, and Mining. The Ministry of Natural Resources, Energy, and Mining was divided into three Ministries in 2020. The energy access portfolio and MEAP were passed down to the Ministry of Energy. This will be reflected in the restructuring. 14. Results Framework: The Results Framework has been updated to reflect the budget reduction. The target for on-grid (Component 1) connections has been reduced from 280,000 to 173,000 households. The target for off-grid connections (Component 2) remains unchanged at 200,000 households which is related to the off-grid solar home system, despite the cancellation of US$ 10 million. 15. Economic Analysis: Economic NPV (ENPV) (US$, EIRR (%) millions) Revised project without GHG 50.95 20.3 Revised project with GHG Low carbon shadow price (on-grid) 213.57 64 High carbon shadow price (on-grid) 385.85 143.0 The World Bank Malawi - Electricity Access Project (P164331) 16. Disbursement: The project’s disbursement has been signficantly delayed and the orginal disbursement schedule has not been met. A new disbursment schedule is presented in Section III below based on the latest estimate. III. SUMMARY OF CHANGES Changed Not Changed Implementing Agency ✔ Results Framework ✔ Components and Cost ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursements Arrangements ✔ Disbursement Estimates ✔ Economic and Financial Analysis ✔ DDO Status ✔ Project's Development Objectives ✔ PBCs ✔ Loan Closing Date(s) ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ The World Bank Malawi - Electricity Access Project (P164331) Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Other Change(s) ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_IA_TABLE IMPLEMENTING AGENCY Implementing Agency Name Type Action Electricity Supply Corporation of Malawi, Implementing No Change Ltd. Agency Ministry of Energy Implementing New Agency Ministry of Natural Resources Energy & Implementing Marked for Deletion Mining Agency OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Grid Electrification 105.00 Revised Grid Electrification 65.00 Off-grid Market Development Off-grid Market Development 30.00 Revised 20.00 Fund Fund Technical Assistance and Technical Assistance and 15.00 Revised 15.00 Capacity Building Capacity Building TOTAL 150.00 100.00 OPS_DETAILEDCHANGES_CANCELLATIONS_TABLE The World Bank Malawi - Electricity Access Project (P164331) CANCELLATIONS Value Reason Current Cancellation New Ln/Cr/Tf Status Currency Date of for Amount Amount Amount Cancellation Cancellation BORROWER' S REQUEST IDA-64610- Disburs 144,000,000.0 USD 50,000,000.00 01-Dec-2022 94,000,000.00 FOR 001 ing 0 COUNTRY REASONS IDA-D5010- Disburs XDR 4,400,000.00 0.00 4,400,000.00 001 ing OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IDA-64610-001 | Currency: USD iLap Category Sequence No: 1 Current Expenditure Category: GDs,WKs,NCS,CS,TR,OC Prt A&C.1 Prj 110,000,000.00 5,505,929.66 70,000,000.00 100.00 100 iLap Category Sequence No: 2A Current Expenditure Category: Sub-fincing subproj. & RBF Prt B.1 14,000,000.00 0.00 14,000,000.00 100.00 100.00 iLap Category Sequence No: 2B Current Expenditure Category: Subprojects under Part B.2 Prjct 10,000,000.00 0.00 0.00 100.00 0 iLap Category Sequence No: 3 Current Expenditure Category: GDs,CS,TR,OC Part C.2 Prject 10,000,000.00 1,232,865.65 10,000,000.00 100.00 100.00 Total 144,000,000.00 6,738,795.31 94,000,000.00 IDA-D5010-001 | Currency: XDR The World Bank Malawi - Electricity Access Project (P164331) iLap Category Sequence No: 1 Current Expenditure Category: GDs,WKs,NCS,CS,TR,OC Prt A&C.1 Prj 0.00 0.00 0.00 100.00 100.00 iLap Category Sequence No: 2A Current Expenditure Category: Sub-fincing subproj. & RBF Prt B.1 4,400,000.00 0.00 4,400,000.00 100.00 100.00 iLap Category Sequence No: 2B Current Expenditure Category: Subprojects under Part B.2 Prjct 0.00 0.00 0.00 100.00 100.00 iLap Category Sequence No: 3 Current Expenditure Category: GDs,CS,TR,OC Part C.2 Prject 0.00 0.00 0.00 100.00 100.00 Total 4,400,000.00 0.00 4,400,000.00 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2019 0.00 0.00 2020 14,833,650.00 2,000,000.00 2021 31,972,950.00 2,367,637.35 2022 39,685,050.00 9,573,018.42 2023 33,523,950.00 30,000,000.00 2024 27,225,150.00 30,000,000.00 2025 2,759,250.00 26,059,344.23 . The World Bank Malawi - Electricity Access Project (P164331) . Results framework COUNTRY: Malawi Malawi - Electricity Access Project Project Development Objectives(s) The development objective of the project is to increase access to electricity in Malawi. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name PBC Baseline Intermediate Targets End Target 1 The development objective of the project is to increase access to electricity in Malawi. People provided with electricity - CRI (Number) 0.00 800,000.00 1,605,000.00 Action: This indicator has been Revised People provided with access to electricity under the project by household connections (grid) - CRI 0.00 86,667.00 173,000.00 (Number) Action: This indicator has been Revised People provided with access to electricity under the project by household connections (off-grid) - 0.00 100,000.00 200,000.00 CRI (Number) PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 4 5 Grid electrification The World Bank Malawi - Electricity Access Project (P164331) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 4 5 Female headed households connected to grid electricity 0.00 20.00 30.00 (Percentage) Number of schools 0.00 250.00 500.00 connected (Number) Action: This indicator has been Revised Number of small and medium sized enterprises 0.00 250.00 500.00 connected (Number) Action: This indicator has been Revised Number of administrative buildings connected 0.00 50.00 100.00 (Number) Action: This indicator has been Revised Submission of ESCOM's annual investment plan No Yes Yes Yes Yes Yes Yes (Yes/No) Number of LED lights distributed under the 0.00 450,000.00 900,000.00 project (Number) Off-grid market development Number of off-grid solar 0.00 100,000.00 200,000.00 systems installed (Number) The World Bank Malawi - Electricity Access Project (P164331) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 4 5 Action: This indicator has been Revised Portfolio at risk (PaR30) 0.00 15.00 15.00 (Percentage) Female headed households connected to off-grid 0.00 20.00 30.00 electricity (Percentage) Technical Assistance Percentage of female technical and engineering 10.00 15.00 18.00 staff at ESCOM (Percentage) Development and Implementation of Recruitment, Leadership Development and No Yes Yes Mentoring Program targeting females in STEM fields in ESCOM (Yes/No) Technical studies for minigrids completed 0.00 5.00 10.00 (Number) Geospatial analysis and planning platform No Yes Yes established and operational (Yes/No) Response rate to GRM 0.00 90.00 100.00 complaints (Percentage) The World Bank Malawi - Electricity Access Project (P164331) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 4 5 Consumer awareness campaign for off-grid No Yes Yes market development completed (Yes/No) Lighting Global quality standards for solar home No Yes Yes systems adopted and published (Yes/No) IO Table SPACE The World Bank Malawi - Electricity Access Project (P164331)