60798 v1 Mexico - Hybrid Solar Thermal Project Project No. P066426 GEF Grant No. TF057033-ME Restructuring Paper Restructuring Status: Draft Restructuring Type: Last modified on date : 02/14/2011 1. Basic Information Project ID & Name P066426: MX Hybrid Solar Thermal (Agua Prieta) Country Mexico Task Team Leader Karen Bazex Sector Manager Philippe C. Benoit Country Director Gloria M. Grandolini Original Board Approval Date 10/05/2006 Original Closing Date: 10/31/2009 Current Closing Date 04/30/2011 Proposed Closing Date [if applicable] 07/31/2011 EA Category B-Partial Assessment Revised EA Category B-Partial Assessment EA Completion Date Revised EA Completion Date 2. Revised Financing Plan (US$m) Source Original Revised BORR 0.00 0.00 GEFU 49.35 49.35 ZPCO 0.00 0.00 Total 49.35 49.35 3. Borrower Organization Department Location United Mexican States - Claudia Mexico Grayeb Bayata 4. Implementing Agency Organization Department Location Comision Federal de Electricidad Mexico 5. Disbursement Estimates (US$m) Actual amount disbursed as of 11/04/2010 0.00 Fiscal Year Annual Cumulative 2010 0.00 0 Total 0 6. Policy Exceptions and Safeguard Policies Does the restructured project require any exceptions to Bank policies? N Does the restructured projects trigger any new safeguard policies? If yes, please select N from the checklist below and update ISDS accordingly before submitting the package. 7a. Project Development Objectives/Outcomes Original/Current Project Development Objectives/Outcomes The project development objective is to demonstrate and encourage replication of Integrated Solar Combined Cycle Systems (ISCCS) power generation technology in Mexico and elsewhere, thereby contributing to the reduction of global GHG emissions. 7b. Revised Project Development Objectives/Outcomes [if applicable] N/A 2 1. The proposed restructuring seeks to extend the closing date for the Mexico Hybrid Solar Thermal GEF Grant (TF057033-ME, P066426), from April 30, 2011 to July 31, 2011. 2. The objective of the Hybrid Solar Thermal Project (the Project) is to demonstrate and encourage the replication of the Integrated Solar Combined Cycle System (ISCCS) power generation technology in Mexico and elsewhere, thereby contributing to the reduction in global Green House Gas (GHG) emissions. The ISCCS technology is comprised of both the installation of a combined cycle thermal plant and a solar field. The US$49.3 million GEF grant will finance the costs associated with the installation of the solar field, while the Comisión Federal de Electricidad (CFE), the national power utility, will finance the combined cycle thermal plant and the other parts of the system. The Project is being implemented by CFE in the Municipality of Agua Prieta, in the State of Sonora, Mexico. Background 3. The Agua Prieta II Project was approved on November 22, 2006 and became effective on July 1, 2008. The Project supports the FY08-13 Country Partnership Strategy under the key areas of "Developing infrastructure and assuring energy security" and "Assuring environmental sustainability". 4. The Project has not made any disbursement since its inception due to difficulties experienced in the first two bidding processes launched in September 2006 and September 2007, respectively. Even though the capital investment ceiling proposed by CFE and authorized by the Secretary of Finance was increased by 25% for the second bidding, the amount proved to be too low in both cases. The lack of response to the initial biddings led the GEF to approve a request to reduce the generation capacity of the solar field from 31MW to the 12-15MW range to ensure that the available resources could still be used to finance the solar field component. 5. Building on the lessons learned from the previous unsuccessful attempts, CFE decided to split the bidding process into three coordinated bidding packages: (a) the supply and installation of the solar field; (b) the supply of the natural gas and steam turbines; and (c) the design, supply and integration of the combined cycle thermal plant, including the heat recovery steam generator and its integration with the solar field. In contrast, the two previous bidding processes, bundled the bid for the combined cycle plant with the solar field part. This approach has proven successful for two components; CFE signed the contract for the gas and steam turbines in January 2010 and awarded the contract for the integrator in August 2010. The new bidding process for the solar field was launched on June 10, 2010. 6. The Project's achievement of its Development Objective and Implementation Progress is rated Moderately Satisfactory. The fiduciary management system compliance is rated Satisfactory. The Project is in compliance with all of the covenants imposed by the Financing Agreement. A waiver was obtained for the submission of financial 3 statements and audit reports because the Project has not yet disbursed. There are no unresolved environmental, social or other safeguard issues affecting the Project's implementation. 7. Based on the calendar for the implementation of the Project, the Government submitted a request for an extension of the grant closing date through July 1, 2013. Rationale for the Extension 8. The proposed extension ­ shorter than the 26-month extension requested by the counterpart - is necessary to allow CFE time to complete the bidding process for the solar field. Based on the results of this bidding, the Bank will assess the additional extension time necessary for implementation, as agreed under the Grant agreement. 9. The proposed extension is justified based on the following rationale. a. The bidding for the solar field has a higher chance of success than previous bids: (i) the risks are better balanced between the different actors and (ii) the revised size of the solar field reflects current market prices. b. CFE indicated that it was highly committed to carrying out the Project through completion. Important progress has been achieved in the implementation of the thermal components of the Project, which CFE is financing. More than 20 firms registered to the bidding's website since the publication of the procurement notice in June 2010. c. The Project would represent Mexico's first application of the ISCCS concept and the fourth in the world. Therefore, successful implementation would put the country at the vanguard of developing this new renewable energy technology and could potentially have far-reaching implications for mitigating greenhouse gases globally. d. The Project is of strategic importance to Mexico and an integral part of the country's climate change agenda. It will contribute to the diversification of the energy matrix and will help increase in the share of renewable power generation. 10. If granted, this will be the third extension of the closing date of the Grant; the first was a six-month extension from October 30, 2009 to April 30, 2010 and the second was a one-year extension to April 30, 2011. 4