RESTRUCTURING DATA SHEET EAST ASIA AND PACIFIC PG: Rural Communications Project (P107782) Papua New Guinea EACNF Report No: RES12738 Basic Information Project ID: P107782 Lending Instrument: Specific Investment Loan Regional Vice President: Axel van Trotsenburg Current EA Category: Partial Assessment (B) Country Director: Franz R. Drees-Gross Original EA Category: Partial Assessment (B) Senior Global Practice Pierre Guislain Original Approval Date: 22-Jul-2010 Director: Practice Manager/ Randeep Sudan Current Closing Date: 31-Aug-2015 Manager: Team Leader: Natasha Beschorner Borrower: Department of Treasury Responsible Agency: National ICT Authority (NICTA) Restructuring Type Form Type: Full Restructuring Paper Decision Authority: RVP Decision Restructuring Level: Level 2 Explanation of Approval The restructuring Authority: proposes a 2 year extension of Project closing date, thus will require RVP approval. There are no changes to the PDO. Financing ( as of 25-Jul-2014 ) Key Dates Project Ln/Cr/TF Status Approval Date Signing Date Effectiveness Original Revised Date Closing Date Closing Date P107782 IDA-47910 Effective 22-Jul-2010 09-Aug-2010 07-Mar-2011 31-Aug-2015 31-Aug-2015 Disbursements (in Millions) Project Ln/Cr/TF Status Currency Original Revised Cancelled Disbursed Undisbursed % Disbursed P107782 IDA-47910 Effective XDR 10.00 10.00 0.00 1.05 8.95 11 Policy Waivers Does the project depart from the CAS in content or in other significant respects? No Does the project require any policy waiver(s)? No A. Summary of Proposed Changes The purpose of this restructuring paper is to support the introduction of the following changes to the Papua New Guinea Rural Communications Project (IDA credit 4791-PG) under a level 2 restructuring: (1) officially transfer Project management from the Department of Communication and Information (DCI) to the National ICT Authority (NICTA); (2) reallocate Credit proceeds between category 1 and 2 to reflect additional demand for policy and regulatory advisory services; (3) redefine scope of the second Universal Access Scheme (UAS) Demonstration Project for the provision of Internet; and (4) extend the Project closing date for 2 years to August 31, 2017. Change in Implementing Agency Yes Change in Project's Development Objectives No Change in Results Framework Yes Change in Safeguard Policies Triggered No Change of EA category No Other Changes to Safeguards No Change in Legal Covenants No Change in Loan Closing Date(s) Yes Cancellations Proposed No Change to Financing Plan No Change in Disbursement Arrangements Yes Reallocation between Disbursement Categories Yes Change in Disbursement Estimates Yes Change to Components and Cost Yes Change in Institutional Arrangements Yes Change in Financial Management Yes Change in Procurement Yes Change in Implementation Schedule Yes Other Change(s) No Appraisal Summary Change in Economic and Financial Analysis No Appraisal Summary Change in Technical Analysis Yes Appraisal Summary Change in Social Analysis No Appraisal Summary Change in Environmental Analysis No Appraisal Summary Change in Risk Assessment No B. Project Status Implementation progress was extremely slow in the first three years after Board approval. The delays were largely due to: (1) poor Project management and weak fiduciary capacity of the implementing agency (DCI) in both procurement and FM; (2) lack of coordinationbetween DCI and NICTA, the sector regulator and main beneficiary of Project-supported activities; and (3) challenges associated with the Government of Papua New Guinea’s own systems for procurement reviews and clearances. Given intensified technical and fiduciary support by the Bank team over the past 12 months, implementation progress has improved. The first level 2 restructuring was approved on June 17, 2013, to expand the scope of the UAS demonstration projects to include all four regions of PNG, instead of restricting geographic focus to Chimbu and East Sepik, as originally scoped. The Project implementation unit has been physically relocated from DCI to NICTA to improve inter-agency coordination. Several technical assistance consultancies for NICTA (regulatory) and DCI (policy) have been contracted, and are moving forward in a satisfactory manner. On May 16, 2014 the contract for the first UAS demonstration project for the provision of voice services (US$7,055,304) was signed between the Independent State of PNG and Digicel (PNG) Limited. As a result, over 50 percent of Project funds have now been committed. While the disbursement rate was still at 6 percent as of June 22, 2014, this is now expected to accelerate through end-2014 with the implementation of the UAS demonstration project. The rescoping of the second UAS demonstration project has progressed, and bidding is expected to be launched by 3Q 2014. C. Proposed Changes Change in Implementing Agency Implementing Agency Name Type Action National ICT Authority (NICTA) Implementing Agency New Development Objective/Results Project Development Objectives Original PDO The objective of the project is to improve access to telecommunications infrastructure and services in rural and remote areas of PNG. Change in Project's Development Objectives Change in Results Framework Explanation NICTA with advisory assistance from the World Bank conducted a re-scoping exercise for the second UAS demonstration project for Internet, given the time that has elapsed since the project was prepared, and taking into account rapid developments of PNG's ICT sector in the past few years. As a result, Part 2: UAS Demonstration Projects of the Financing Agreement is requested to be amended as follows to allow flexibility in the option that would be undertaken: current: carrying out of a Demonstration Project for the establishment of Internet points of presence in about sixty (60) district centers in major geographic region of the Recipient’s territory for the operation of internet cafes by subcontractors. revised: carrying out of a Demonstration Project for improved internet access in targeted district centres in major geographic regions of the Recipient's territory As a consequence, one of the project intermediate indicator is proposed to be revised as follows: Current: Increased percentage of 89 district centers with public Internet access points Revised: Increased percentage of 89 district centers with Internet access Financing Change in Loan Closing Date(s) Explanation: The Government has requested the extension of the Project closing date for 24 months from August 31, 2015 (current) to August 31, 2017. Justification for supporting the Government's request include: a. the need to ensure that the UAS demonstration projects that explicitly target underserved and unserved rural communities can be implemented in time to achieve the Project’s development objectives, and to reflect changes in technology and telecoms market development in PNG; b. the need to provide additional technical and advisory support to NICTA and DCI, in light of changing market conditions and evolving trends in universal access; c. the recognition of proactive measures taken by the Government to improve Project management, including transfer of implementing agency and progress in hiring of a procurement advisor for enhance procurement capacity; d. the assessment of the updated procurement plan as realistic and achievable within the extension period; and e. confirmation that the relevant Operational Policy (OP) 10.00 conditions have been met, namely that: “the Closing Date is not extended: (a) for Projects subject to suspension of disbursements, except for items exempted from suspension; or (b) for any financing to a borrower with any outstanding audit reports or with audit reports which are not satisfactory to the Bank, unless the borrower and the Bank have agreed on actions to address the deficiencies.” Loan No. Status Original Closing Current Closing Proposed Closing Previous Closing Date Date Date Date(s) 47910 Effective 31-Aug-2015 31-Aug-2015 31-Aug-2017 Change in Disbursement Arrangements Explanation The Trust Account and Designated Account for the Project are currently with DCI, and will be transferred to NICTA. Reallocations Explanation: The Government has requested the following changes to the allocation of the credit proceeds. Justifications to support these changes are to: (1) respond to demands for the provision of additional advisory services for DCI and NICTA; and (2) to reflect the realities of costs associated with Project Management. Ln/Cr/TF Currency Current Proposed Disbursement % (Type Category of Total) Expenditure Current Proposed Current Proposed IDA-47910 XDR IDA 47910- 1,000,000.00 1,769,600.00 100.00 100.00 GDs,CS, Trng&IOC IDA 47910- 9,000,000.00 8,230,400.00 100.00 100.00 Subsidy Payments Designated 0.00 0.00 Account Total: 10,000,000.00 10,000,000.00 Change in Disbursement Estimates Explanation Reallities of disbursement estimates will be reflected once the Restructuring package has been approved taking into account very slow disbursements during the first 3 years of Project implementation. Improved disbursements are expected in the coming months, given that the first UAS demonstration project in the amount of US$7.05 million was signed on May 16, 2014, and has committed close to 50% of the total credit. Currently, the preparation of the second UAS demonstration project (US$5million) is progressing and is expected to be launched by 3Q 2014, and start disbursing in 2015. Fiscal Year Current (USD) Proposed (USD) 2011 1,254,257.88 24,756.03 2012 2,046,420.76 53,996.05 2013 1,980,407.16 91,610.76 2014 2,706,556.44 248,865.16 2015 1,848,380.04 5,842,201.15 2016 66,013.57 3,637,347.82 Total: 9,902,035.85 9,898,776.97 Components Change to Components and Cost Explanation The components are proposed to be restructured to: (1) Redefine scope of the second Universal Access Scheme (UAS) Demonstration Project for the provision of internet, (2) provide additional support for the ICT policy and regulatory framework; and (3) separate project management from the original component 3 and support Project coordination, procurement and financial management for NICTA. Part 1: Technical Assistance for NICTA - the total cost of this component has been increased to incorporate additional advisory assistance for NICTA, given the evolution of the ICT market and regulatory priorities. The scope of this advisory assistance is directly relevant to supporting improved (rural) access and affordability of ICT services, and will cover issues including: regulatory capacity building (phase 2), spectrum management, numbering, number portability and licensing; economic regulation; and content/broadcasting regulations. Part 2: UAS Demonstration Projects - The scope of the UAS demonstration Project for Internet access has been updated, given the time that has elapsed since the Project was prepared, and taking into account the developments in PNG's ICT sector in the past few years. Part 3: Technical Assistance for DCI - This component will finance a second phase of policy-related advisory services, based on the outputs from analytical and advisory services provided in 2012-2013. The scope of work will include the following: (a) update of the national ICT policy, including stakeholder consultations and inter-agency coordination mechanisms, and support for implementation; (b) advice on national and government chief information officer functions and responsibilities; (c) capacity building for DCI and other ministry/agency staff as appropriate. Part 4: Project Management - This component has been separated from the original component 3 and will support Project coordination, procurement and financial management for NICTA. Existing contracts of the PIU consultants will be transferred from DCI to NICTA until contract expiration. Current Component Name Proposed Component Name Current Cost Proposed Cost Action (US $M) (US $M) Technical Assistance for 1.00 1.60 Revised NICTA UAS Demonstration 13.50 12.10 Revised Projects Project Management Technical Assistance for 0.50 0.80 Revised DCI Project Management 0.50 New Total: 15.00 15.00 Other Changes Change in Institutional Arrangements Explanation The Government has requested the transfer of implementing agency from DCI to NICTA. The justification for supporting the Government's request is as follows: NICTA is an existing implementing entity for the Project as formalized in the Project Agreement signed between PANGTEL (predecessor agency to NICTA) and the Association on August 9, 2010. On and from the Succession Date, the obligations of PANGTEL were transferred to and vested in NICTA. NICTA was subsequently established on October 29th 2010. NICTA is the main beneficiary of Project activities of Part 2: UAS Demonstration Project, which had accounted for 90% of the total credit (82% under the restructured Project). It is important to have the PIU and the UAS Secretariat physically, functionally and administratively located under the same umbrella, especially considering the weak institutional capacity of DCI as evidenced during the first 3 years of the Project. Change in Financial Management Explanation No changes to the FM arrangements are currently being proposed as part of the restructuring. Existing contracts of the FM consultant will be transferred from DCI to NICTA until contract expiration. NICTA has requested to maintain current arrangements of submission of both Project Audits and Entity Audits under the Project management of NICTA. The following associated action items have been agreed to transfer Project accounts from DCI to NICTA: (1) Bank Account. The bank account for the Trust Account and Designated Account is currently with DCI, and will be transferred to NICTA; (2) Financial Reporting. DCI and NICTA will ensure the accounts are reflected in the appropriate entity, and that issues in accounts, audits and IFRs with the different basis of accounting between DCI (cash) and NICTA (accrual) are addressed; (3) Counterpart funds. Currently the counterpart funding for the Project is included in the PNG Public Investment Program (PIP) and Budget under DCI. As at this restructuring, NICTA is already coordinating with the Department of Treasury to make a submission before the Government deadline for the GoPNG budget appropriation of the counterpart funds required for 2015 and onwards to be made to NICTA. Also NICTA is coordinating with the Department of Treasury, Department of Finance and DCI to transfer the balance of the counterpart funds already provided from DCI to NICTA. (4) Contractual Requirements. NICTA and DCI will ensure all legal issues are addressed for the transfer, including applicable consultant contracts and transfer of assets. (5) Taxation. NICTA will be registering for a goods and services tax (GST) number for the Project and submit GST returns; and (6) Retaining of Records. NICTA will ensure that the Project records of DCI are still maintained and available as per the Financing Agreement which requires records to be maintained and available for up to 2 years after the Project closes. Change in Procurement Explanation No changes to the procurement thresholds are currently being proposed as part of the restructuring. However, to address the weak capacity in procurement, NICTA is in the process of hiring a part-time Procurement Advisor within the PIU. The PIU will be structured as follows under NICTA management, and under direct supervision by the Director of Economic and Consumer Affairs of NICTA. Additionally, NICTA has modified the contract of existing consultants that have assisted NICTA in the preparation of the UAS rules and regulations to provide additional services, including assistance in the following areas: (1) preparation of the bidding documents for the second UAS demonstration Project for internet (US$5 million); and (2) advice to the UAS Secretariat on determination of UAS Levy for 2015 based on benchmarking analysis. An updated Procurement Plan has been prepared, taking account of the proposed restructuring. Change in Implementation Schedule Explanation Given the delays experienced during first three years of the Project the Government has requested the extension of the Project closing date for 24 months from August 31, 2015 (current) to August 31, 2017. Justification for supporting the Government's request include: (a) the need to ensure that the UAS demonstration projects that explicitly target underserved and unserved rural communities can be implemented in time to achieve the Project’s development objectives, and to reflect changes in technology and telecoms market development in PNG; (b) the need to provide additional technical and advisory support to NICTA and DCI, in light of changing market conditions and evolving trends in universal access. Appraisal Summary Appraisal Summary Change in Technical Analysis Explanation Part 1: Technical Assistance for NICTA (original US$1.0 million, restructured US$1.6 million) The total cost of this component has been increased to incorporate additional advisory assistance for NICTA, given the evolution of the ICT market and regulatory priorities. The scope of this advisory assistance is directly relevant to supporting improved (rural) access and affordability of ICT services, and will cover the following issues: (1) Regulatory Capacity Building (Phase 2). The Project will continue to support the institutional strengthening and capacity building of NICTA through the provision of specialist economic, financial, legal and technical advisory services. (2) Spectrum management, numbering, number portability and licensing. This component will assist NICTA with the review and updating of the National Numbering Plan, undertake cost benefit analysis of pre-selection and number portability, support the development of a pre-selection and number portability implementation plan for PNG, and support the development of a numbering fee structure for PNG. (3) Economic Regulation. This component will assist NICTA with its ongoing economic regulatory responsibilities, including but not limited to: wholesale regulation (including interconnection, cost modelling), customer protection and retail pricing regulation, dispute resolution, consumer protection, and a review of existing instruments, rules and determinations, as appropriate, under the Act; and (4) Content/broadcasting regulations. This component will help NICTA provide advice on the preparation of these content regulations (programming requirements, local content, ownership and control) that will provide the direction for content development and broadcasting in PNG. Part 2: UAS Demonstration Projects (Original US$13.5 million, restructured US$12.1 million): Re-scoping. The scope of the UAS demonstration Project for Internet access has been updated, given the time that has elapsed since the Project was prepared, and taking into account the developments in PNG's ICT sector in the past few years.NICTA and the World Bank team have reviewed and have undertaken consultations with ICT service providers on the following issues: (a) the extent and quality of connectivity generally, including fixed, mobile access, terrestrial and satellite backbone networks, availability of Internet access in the originally targeted 60 district centres; (b) the nature and extent of public access Internet service provision (public and private sector) in district centres, and operator plans for network expansion in the medium-term; and (c) likely costs and implementation arrangements for the component, in view of these developments. The detailed report is available in the Project files. The approach proposed under the Project recognizes these broader constraints, and offers a feasible shorter- term solution to address the pressing communications needs of the poorest communities, while at the same time building capacity in NICTA for effective utilization of universal access funds and, through component 1, addressing regulatory barriers to more widespread Internet access. Accordingly, the revised UAS demonstration project for Internet will finance the following: (a) Mobile Broadband Expansion. New build and/or network upgrade from 2G to 3G + in unserved rural areas. Coupled with commercial rollout around major urban areas supported directly by the private sector, this investment will help to bring broadband Internet to the majority of the PNG population within a 1-2 year period; and (b) Community Internet centres. Located at eight PNG post-primary schools in district centres. This component will also support user skills development, and facilitate access to teaching and learning materials. It also supports outreach to the wider community to familiarize users with the Internet and associated information resources. Part 3: Technical Assistance for DCI (original US$0.9 million, including project management; revised US$0.8 million for DCI TA) DCI is seeking to hire additional staff to strengthen its ICT policy mandate. This component will finance a second phase of policy-related advisory services, based on the outputs from analytical and advisory services provided in 2012-2013. The scope of work will include the following: (a) update of the national ICT policy, including stakeholder consultations and inter-agency coordination mechanisms, and support for implementation; (b) advice on national and government chief information officer functions and responsibilities; (c) capacity building for DCI and other ministry/agency staff as appropriate.