The World Bank Timor Leste Road Climate Resilience Project (P125032) REPORT NO.: RES44425 DOCUMENT OF THE WORLD BANK RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF TIMOR LESTE ROAD CLIMATE RESILIENCE PROJECT APPROVED ON MAY 17, 2011 TO DEMOCRATIC REPUBLIC OF TIMOR-LESTE TRANSPORT EAST ASIA AND PACIFIC Regional Vice President: Victoria Kwakwa Country Director: Satu Kristiina Jyrintytar Kahkonen Regional Director: Ranjit J. Lamech Practice Manager/Manager: Almud Weitz Task Team Leader(s): Rodrigo Archondo-Callao, Naoki Kakuta The World Bank Timor Leste Road Climate Resilience Project (P125032) I. BASIC DATA Product Information Project ID Financing Instrument P125032 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 17-May-2011 31-Dec-2021 Organizations Borrower Responsible Agency Democratic Republic of Timor-Leste Ministry of Public Works Project Development Objective (PDO) Original PDO The project will deliver sustainable climate resilient road infrastructure on the Dili-Ainaro corridor. Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-82900 22-Oct-2013 18-Nov-2013 04-Mar-2014 31-Dec-2020 15.00 14.44 .56 IDA-60120 27-Apr-2017 07-Jun-2017 13-Sep-2017 31-Dec-2021 35.20 9.34 27.51 IDA-53030 22-Oct-2013 18-Nov-2013 04-Mar-2014 31-Dec-2020 25.00 25.00 0 IDA-H6830 17-May-2011 06-Jul-2011 30-Aug-2011 31-Dec-2019 19.77 18.02 0 The World Bank Timor Leste Road Climate Resilience Project (P125032) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. SUMMARY OF PROJECT STATUS AND PROPOSED CHANGES A. Rationale for Restructuring and Project Status. 1. The restructuring paper seeks the approval for a Level 2 restructuring for the Timor-Leste Road Climate Resilience Project (RCRP). The project is funded through Loan IBRD-82900, Credit IDA-60120, Credit IDA-53030 and Grant IDA-H6830. The proposed restructuring is solely for the extension of the closing date of Loan IBRD-82900 from December 31, 2020 to June 30, 2021. 2. These proposed changes are made in response to the request received from the Ministry of Finance, Government of Timor-Leste dated November 9, 2020. This will be the second extension of the Loan IBRD-82900 closing date. The original closing date was December 31, 2018 that was extended when the Second Additional Financing of the project was approved on June 7, 2017 to December 31, 2020. Thus, with the proposed extension under this restructuring to June 30, 2021 the cumulative extension for Loan IBRD-82900 will be 30 months (2.5 years). 3. The objective of the Level 2 Restructuring of the RCRP (Loan IBRD-82900, Credit IDA-60120, Credit IDA-53030, and Grant IDA-H6830) is to extend the Loan IBRD-82900 closing date by six months from December 31, 2020 to June 30, 2021. The extension is required in order to facilitate the disbursement of the remaining balance to pay for retention and performance-based maintenance on Sections 3, 4, and 5. The closing dates for Credit IDA-60120 (December 31, 2021), Credit IDA-53030 (December 31, 2020), and Grant IDA-H6830 (December 31, 2019) will not be changed under this restructuring. 4. The Project Development Objective (PDO) on the project appraisal document is to “deliver sustainable climate resilient road infrastructure on the Dili-Ainaro corridor.” Both the progress towards achieving the PDO and implementation progress are currently rated as Moderately Satisfactory. As of November 19, 2020, the disbursement amounts are US$14.44 million (96% of the loan amount) for Loan IBRD-82900, US$9.34 million (27% of the credit amount) for Credit IDA-60120, US$25.0 million (100% of the credit amount) for Credit IDA-53030, and US$17.8 million (98% of the credit amount) for Grant IDA-H6830. 5. RCRP was prepared to promote the economic development along the Dili-Ainaro corridor. The project was approved on May 17, 2011 and became effective on August 30, 2011. It provides funding to upgrade the Dili-Ainaro road to national road standards and strengthen its resilience to climate change and extreme weather events. 6. The First Additional Financing to RCRP in the net amounts of US$25.0 million credit (Credit IDA-53030) and US$15.0 million (Loan IBRD-82900) was approved on October 22, 2013 to scale up the project investments associated with improving the Dili-Ainaro corridor through the upgrading of the entire corridor to national standards. The Second Additional Financing to RCRP in the net amount of US$35.2 million credit (Credit IDA-60120) was approved on April 23, 2017 to cover a financing gap and cost overruns under the project. The Second Additional Financing also amended the loan agreement for Loan IBRD-82900 on June 7, 2017 to extend the closing date to December 31, 2020. The World Bank Timor Leste Road Climate Resilience Project (P125032) 7. The project road (Dili-Ainaro road) was divided into five sections. The upgrading of Section 2 is ongoing. The upgrading of Sections 1, 3, 4, and 5 has been completed with overall good construction quality. Section 1 was handed over to the government in July 2019 and since then, the routine maintenance has been carried out by the Directorate of Roads, Bridges and Flood Control (DRBFC) through hiring a contractor. The defect liability period ended on December 23, 2018 for Section 3, November 5, 2019 for Section 4, and February 20, 2020 for Section 5. The two-year performance-based maintenance is ongoing on Sections 3, 4, and 5. The extension of the closing date of Loan IBRD- 82900 is required in order to facilitate the disbursement of the remaining balance to pay for retention and performance-based maintenance on Sections 3, 4, and 5. As of the end of October 2020, the total balance of Loan IBRD-82900 is US$ 402,283. B. Proposed Changes. 8. The proposed change under this Level 2 Restructuring is an extension to the Loan IBRD-82900 closing date by six months from December 31, 2020 to June 30, 2021. No changes are proposed for the closing dates for Credit IDA- 60120, Credit IDA-53030, and Grant IDA-H6830. 9. The RCRP Project Management and Monitoring and Evaluation ratings are currently rated Moderately Unsatisfactory. Both ratings were downgraded to Moderately Unsatisfactory in May 2019 because the government started to implement a restructuring of the staff of the Project Management Unit (PMU) in December 2018, which has left the PMU with extremely low capacity to undertake efficiently project implementation tasks, considering that the contracts of most PMU staff were not renewed. Since then, the government started gradually to recruit new staff for the PMU. To mitigate this matter, the condition of effectiveness for the Timor-Leste Branch Road Project, approved on November 26, 2019, is that the recipient shall ensure that the PMU is adequately staffed and funded throughout the implementation of the project. In 2020 the government has actively started recruiting new PMU staff and is expected that the government will finalize the hiring of all key PMU staff by the end of January 2021, when the condition of effectiveness for the Timor-Leste Branch Road Project will be fulfilled and the project implementation tasks of RCRP done by the PMU are expected to improve, which will allow to upgrade the RCRP Project Management and Monitoring and Evaluation ratings. 10. There are no overdue audits or Interim Financial Statements, and the project is compliant with all the legal covenants. No other changes are proposed as part of this restructuring. II. DETAILED CHANGES LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IBRD-82900 Effective 31-Dec-2018 31-Dec-2020 30-Jun-2021 30-Oct-2021 IDA-53030 Effective 31-Dec-2018 31-Dec-2020 The World Bank Timor Leste Road Climate Resilience Project (P125032) IDA-60120 Effective 31-Dec-2021 31-Dec-2018, 31-Dec- IDA-H6830 Closed 31-Dec-2015 2019, 29-Jun-2020