The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 2 (P158364) REPORT NO.: RES33143 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF NP MODERNIZATION OF RANI JAMARA KULARIYA IRRIGATION SCHEME - PHASE 2 APPROVED ON MARCH 20, 2018 TO NEPAL WATER GLOBAL PRACTICE SOUTH ASIA REGION Regional Vice President: Hartwig Schafer Country Director: Idah Z. Pswarayi-Riddihough Regional Director: John A. Roome Country Manager: Faris H. Hadad-Zervos Practice Manager: Takuya Kamata Task Team Leader(s): Shyam KC, Purna Bahadur Chhetri The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 2 (P158364) ABBREVIATIONS AND ACRONYMS DOA Department of Agriculture DOI Department of Irrigation FA Financing Agreement IDA International Development Association MOAD Ministry of Agricultural Development MOALD (new) Ministry of Agriculture and Livestock Development MOEWRI (new) Ministry of Energy, Water Resources and Irrigation MOI Ministry of Irrigation MRJKIS2 Modernization of Rani Jamara Kulariya Irrigation Scheme – Phase 2 PAD Project Appraisal Document PDO Project Development Objective The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 2 (P158364) BASIC DATA Product Information Project ID Financing Instrument P158364 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 20-Mar-2018 31-Dec-2023 Organizations Borrower Responsible Agency Department of Irrigation,Department of Agriculture within the Recipient’s Ministry of Agriculture and Nepal Livestock Development,Department of Irrigation within the Recipient’s Ministry of Energy, Water Resources and Irrigation Project Development Objective (PDO) Original PDO The Project Development Objectives are to improve irrigation services and to promote improved farming practices for farmers in the irrigated areas of the Rani Jamara Kulariya Irrigation Scheme. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-61940 20-Mar-2018 10-May-2018 18-Jul-2018 31-Dec-2023 61.00 1.73 55.13 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 2 (P158364) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING Project Status 1. The Nepal Modernization of Rani Jamara Kulariya Irrigation Scheme – Phase 2 (MRJKIS2 or the Project) (P158364, Credit Number 6194-NP, US$66 million equivalent) was approved by the Board on March 20, 2018. The Financing Agreement (FA) was signed on May 10, 2018 and the Project became effective on July 18, 2018. The Project comprises three components: Component 1: Scheme Modernization; Component 2: Strengthening Water Users Associations/Committees and Agricultural Production Support; and Component 3: Project Management. 2. Progress towards Project Development Objective (PDO): The Project gained significant momentum since November 2019 with the new set of staff including the new Project Director at the PMU. US$ 40 million worth of contracts are under bidding process and another US$ 17 million are being prepared for tendering. Key component of the project – Component 2a (Strengthening Users Association) – is being taken up more strategically; safeguard has improved with additional staffing and the pending instruments/plans submitted to the Bank; command area protection works in Mohana River about 55% completed; and project management improved notably. In view of the progress observed, the ratings for procurement is now upgraded to “Moderately Unsatisfactory” from “Unsatisfactory”, safeguards to “Moderately Satisfactory” from “Moderately Unsatisfactory” and project management to “Moderately Satisfactory” from “Moderately Unsatisfactory”. Given these improvements, the likelihood of project achieving the Project Development Objective (PDO) within project end date of December 2023 has improved. Based on these ratings, the likelihood of the project achieving its development objectives is now upgraded to “Moderately Satisfactory”. 3. Implementation Progress: Despite recent momentum, Implementation Progress is retained as “Moderately Unsatisfactory”. The momentum gained has been slowed down due to the lockdown of the country and subsequent closing of government offices, as well as worldwide travel restriction imposed by the Covid-19 pandemic. Bid opening dates have been extended to comply with the lock down extensions by Government of Nepal. Disbursement is expected to pick up once the major contracts are awarded, and construction begins. Currently disbursement stands at about 3%. 4. For the Project to be brought back to a satisfactory status, it will be necessary to closely monitor the procurement activities related to major works and consultancies and award the contracts. This includes specifically awarding the contracts for the work on Command Area Development Package I by August 2020 (revised date, now adjusted to Covid-19 situation) and the Consultancy Services for Design Review, Construction Supervision, Quality Control, Contract Management and Safeguard Monitoring by August 2020 (revised date, now adjusted to Covid-19 situation). 5. Component 1: Irrigation Scheme Modernization: Construction work under Command Area Protection for Mohana River was progressing well with about 55% completion rate. The work is expected to resume as the Covid-19 situation eases. Rebidding for two major contracts worth US$40 million namely that for Command Area Protection works for Pathariya River Package 1 and Command Area Development Package 1 are underway. Bid closing dates have now been extended due to the COVID related lockdown, and the awards are projected to be awarded by July 2020 and August 2020, respectively. Procurement documents are being finalized for works worth approximately US$17 million which includes Pathariya River Package 2, Command Area Development Package 2 and Dhobini Khola Watershed Management. Procurement of Consultants services under QCBS for Design Review, Construction Supervision, Quality Control, Contract Management and Safeguard Monitoring for Implementation continues to be delayed. The first procurement process for the consultancy services was cancelled and a fresh EOI was floated for which the shortlisting has been forwarded to the Bank on May 4. The PMU projects to award the Consultancy services by August 2020. 6. Subcomponent 2a: Strengthening Water Users’ Association (WUAs)/Water Users’ Committee (WUCs): The Project has now hired an Institutional Development Specialist which has allowed this component to be strategized in terms of various activities under it. This includes preparing training schedule for sub-branch level WUAs; conducting trainings for 48 sub-branch The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 2 (P158364) level WUAs; preparing checklist for monitoring the present institutional status of the WUAs; and preparing formats for further data updating for WUA meeting, Irrigation Service Fee collection, labor mobilization, socio-economic profile of Sub-Branch WUAs. More importantly an overall 5 years WUA-Institutional Development Action Plan (IDAP) has been drafted, which allows the Project to advance this component more strategically to meet the PDO. 7. Subcomponent 2b: Agricultural production support: The agriculture sub-component has made good progress, with 712 farmers (36% female) reached with agricultural assets or services; 1144 (51% female) adopting improved agricultural technology and 11 % of the targeted farmers adopting improved intensified cropping promoted under the project. Key achievements until now include the support to expand and modernize banana production on a significant scale (~60 ha), the facilitation of the construction of a commercial banana ripening facility, the rapid expansion of commercial seed production (paddy and wheat) through cooperatives and the associated cleaning and storage facilities, and the training of approximately 1300 farmers, of which more than 62% were female. Rationale for Restructuring 8. The Covid-19 pandemic, which was first reported in Wuhan, China in December 2019, has spread fast across the globe unleashing a global health emergency and an unprecedented economic crisis of historic magnitude. The World Health Organization (WHO) declared the Covid-19 disease a Public Health Emergency of International Concern (PHEIC) on January 31, 2020, and a global pandemic on March 11, 2020. In Nepal, 120 cases of Covid-19 have been confirmed as of May 11, 2020, and 31 have been discharged already1. The Government of Nepal announced a national lockdown which came into effect on March 24 and is currently in force till May 18, while all international flights have been suspended till May 31. Nepal is at high risk for corona as the country is situated in between China and India (where infection rates are still rising). The virus could have serious consequences for Nepal as the country has a low Human Development Index (HDI) (0.579) with over 28 percent of the population classified as multidimensionally poor. 9. This current proposed restructuring is in response to requests from Government of Nepal to the World Bank vial their letters (a) dated April 6, 2020 requesting to add a Contingency Emergency Response Component (CERC) to the Project; and (b) dated May 10, 2020 to cancel US$ 5 million (approximately SDR 3,666,414) of the Credit, to help the Government of Nepal respond to the prevailing Covid-19 pandemic crisis that could adversely affect the country’s economy. A follow up letter via email dated May 18, 2020, was received from the Project Implementation Office, specifying that of the US$ 5 million, US$ 4.6 million would be cancelled from Component 1 and US$ 0.4 million from Component 3. II. DESCRIPTION OF PROPOSED CHANGES 10. Cancellation of Credit. The restructuring puts in record cancellation of SDR 3,666,414 of IDA Credit No. 6194-NP performed through the amendment of legal agreement signed on May 21, 2020. The changes to component costs as a result of this cancellation is reflected in Section IV of this paper. 11. Addition of CERC Component: The proposed restructuring proposes to add a CERC Component 4 to allow the Government of Nepal to reallocate project funds to support emergency response in case of a shock. This component would read as follows: (a) Component 4: Contingency Emergency Response Component (US$0 million): A zero-dollar Contingency Emergency Response Component (CERC) will only be activated and funded in case of a declared crisis that affects economy, increasing vulnerability and poverty of population. 12. In the event of an economic crisis, this CERC component, with a US$0 allocation, once triggered, is a financing mechanism available to Governments to allow rapid reallocation of uncommitted funds from Bank-financed projects toward 1 https://heoc.mohp.gov.np/ The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 2 (P158364) urgent needs in the event of a crisis or emergency to finance physical, economic and social recovery. The CERC component will be reflected in the Financing Agreement of the Original Project. Further, a CERC Annex will prepared and attached to the Project Implementation Manual (PIM) and the Environmental and Social Management Framework (ESMF) will also be revised to include reference to the CERC. 13. The audit report shall be submitted within 9 months from end of each Fiscal Year with effect from this restructuring. III. SUMMARY OF CHANGES Changed Not Changed Components and Cost ✔ Overall Risk Rating ✔ Legal Covenants ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Results Framework ✔ Loan Closing Date(s) ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursements Arrangements ✔ Disbursement Estimates ✔ Safeguard Policies Triggered ✔ EA category ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 2 (P158364) Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Component 4: Contingency 0.00 New 0.00 Emergency Response Component 1: Scheme Component 1: Scheme 52.90 Revised 48.30 Modernization Modernization Component 2: Strengthening Component 2: Strengthening Water Users Water Users 13.40 No Change Associations/Committees and 13.40 Associations/Committees and Agricultural Production Agricultural Production Support Support Component 3: Project Component 3: Project 5.50 Revised 5.10 Management Management TOTAL 71.80 66.80 OPS_DETAILEDCHANGES_SORT_TABLE SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) Risk Category Rating at Approval Current Rating Political and Governance  High  Substantial Macroeconomic  Moderate  Substantial Sector Strategies and Policies  Moderate  Moderate Technical Design of Project or Program  Moderate  Moderate Institutional Capacity for Implementation and  Substantial  Substantial Sustainability Fiduciary  Substantial  Substantial Environment and Social  Substantial  Substantial Stakeholders  Substantial  Substantial The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 2 (P158364) Other Overall  Substantial  Substantial OPS_DETAILEDCHANGES_LEGCOV_TABLE LEGAL COVENANTS Loan/Credit/TF Description Status Action The Recipient shall maintain, throughout the period of implementation of the Project, the following structures, all with a mandate, composition, staffing and resources IDA-61940 Complied with No Change acceptable to the Association: (a) the Project Steering Committee; (b) the PIO within DOI; (c) the ACIU within DOA. The Recipient shall maintain ACPs, responsible for: (a) supporting the ACIU for maintaining effective coordination with other agencies and firms engaged in agriculture development; (b) ensuring timely implementation of planned activities; (c) organizing IDA-61940 field based extension training activities; (d) providing Complied with No Change agricultural training; (e) establishing demonstrations and farmer field schools; (f) providing support in organizing and selecting farmers for training and cross learning visits; and (g) preparing and submitting monthly progress reports to ACIU. Unless the Association shall otherwise agree, the Recipient shall ensure that, except in case of unsatisfactory performance, or as required by the IDA-61940 Complied with No Change Recipient’s laws, core staff in PIO and ACIU shall not be transferred to other positions until completion of the Project. Without limitation upon the provision of Section 3.01 of this Agreement and Section I.D of this Schedule, the Recipient shall, by not later than six (6) months after the IDA-61940 Effective Date, engage an independent party, with Not complied with No Change terms of reference satisfactory to the Association, for regular independent monitoring of environmental compliance and performance of the Project. The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 2 (P158364) For the purposes of making grants under Parts B.2(a) and (b) of the Project, the Recipient shall ensure that the ACIU enters into a Grant Agreement with each Eligible Grant Recipient receiving a Competitive IDA-61940 Learning and Adaptive Research Grant or Performance- Complied with No Change Based Technology Adoption Grant (together referred as “Grants”), under terms and conditions approved by the Association, and in accordance with the Project Implementation Manual. For Emergency Expenditures under Component 4 of the Project, unless the Recipient has determined that an Eligible Crisis or Emergency has occurred, has furnished to the Association a request to include said activities in IDA-61940 the CERC Part in order to respond to said Eligible Crisis Unknown New or Emergency, and the Association has agreed with such determination, accepted said request and notified the Recipient