The World Bank Earthquake Housing Reconstruction Project (P155969) REPORT NO.: RES46830 DOCUMENT OF THE WORLD BANK RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF EARTHQUAKE HOUSING RECONSTRUCTION PROJECT APPROVED ON JUNE 29, 2015 TO MINISTRY OF FINANCE URBAN, RESILIENCE AND LAND SOUTH ASIA Regional Vice President: Hartwig Schafer Country Director: Faris H. Hadad-Zervos Regional Director: John A. Roome Practice Manager/Manager: Abhas Kumar Jha Task Team Leader(s): Kamran Akbar The World Bank Earthquake Housing Reconstruction Project (P155969) I. BASIC DATA Product Information Project ID Financing Instrument P155969 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 29-Jun-2015 30-Jun-2023 Organizations Borrower Responsible Agency Ministry of Finance National Reconstruction Authority Project Development Objective (PDO) Original PDO The Project Development Objective (PDO) is to restore affected houses with multi-hazard resistant core housing units in target areas and to enhance the government's ability to improve long-term disaster resilience. Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-65300 14-Jan-2020 06-Feb-2020 06-May-2020 30-Jun-2023 200.00 103.52 103.61 IDA-61640 15-Dec-2017 21-Jan-2018 26-Feb-2018 30-Jun-2023 300.00 274.26 23.19 IDA-57060 29-Jun-2015 14-Aug-2015 28-Jan-2016 30-Jun-2023 200.00 199.70 2.48 The World Bank Earthquake Housing Reconstruction Project (P155969) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No II. SUMMARY OF PROJECT STATUS AND PROPOSED CHANGES Summary: a. The Government of Nepal established the National Reconstruction Authority (NRA) as a special purpose organization in December 2015 with overall responsibility of reconstructing infrastructure affected by 2015 Nepal earthquake. The World Bank supported NRA with US$ 700 million through three IDA Credits for the Earthquake Housing Reconstruction Project. The project is well on track to complete private housing reconstruction by December 24, 2021, the closing date for NRA. b. A large share of IDA resources is utilized for reimbursing full/partial housing grants to the Government of Nepal (GoN) only for the completed and compliant houses upon the output verification at the end of house construction. The number of IDA beneficiaries under various categories of IDA credits has changed primarily because of delays added by multiple field inspections and verification as well as delays due to COVID-19 over last 1.5 years and the conversion of eligible retrofitting grant beneficiaries to reconstruction grant beneficiaries. c. Structural Integrity Assessment (SIA) of social infrastructure was part of the project’s component 2 on Disaster Risk Management (DRM) Systems but was subsequently dropped in 2020 following GoN’s request. However, given its importance to build resilience in education and health sector infrastructure, Ministry of Finance (MoF) has requested to reinstate the activity and include government offices across Nepal in the assessment as well. d. While preparing for the closure of NRA, it was decided that all the housing reconstruction records would be transferred to concerned local governments. As the Local Government Operation Action 2074 (2017) recognizes District Coordination Committees (DCCs) as local level entity, therefore they may receive relevant NRA records. This requires amendment in the Financing Agreement to formally recognize the role of DCCs as requested by MOF. e. As per the constitution of the country and the Disaster Risk Reduction and Management Act (DRRM Act 2017), the ‘National Disaster Risk Reduction and Management Authority’ (NDRRMA) is the apex DRM institution. The Authority is expected to complete activities related to enhancing resilience in pursuance of second part of the PDO and activities being implemented under Component-2 of the project. Therefore, NDRRMA with an allocation of SDR 10 million from IDA Cr. 6530-NP is proposed to be added as additional Implementing Agency for which fiduciary risk assessment has been carried out. A. Project Status 1. Background: In response to 2015 earthquakes that severely impacted private housing and other sectors, IDA- financed Earthquake Housing Reconstruction Project (EHRP) was designed with project development objective “to restore affected houses with multi-hazard resistant core housing units in targeted areas and to enhance Government’s ability to improve long-term disaster resilience”. The original IDA credit of $200 million has been scaled-up with two successive Additional Financing of $300 million and $200 million in 2017 and 2019 to expand the number of beneficiaries under the project. The IDA-financed EHRP contributes to Government of Nepal’s Housing Reconstruction Program, where out of about 808,676 eligible household beneficiaries, 320,994 households (40%) are covered by IDA financing for multi-hazard resistant housing reconstruction. 2. The Government of Nepal established the National Reconstruction Authority (NRA) in December 2015 under an Act of Legislature-Parliament for a period of five years with a provision for one-year extension. The NRA has mandate of undertaking construction of structures affected by the earthquake and the overall responsibility of policy formulation, providing guidance, planning, coordination and oversight of the Housing Reconstruction Program. Hence, The World Bank Earthquake Housing Reconstruction Project (P155969) NRA serves as the main Implementing Agency for EHRP. The GoN has extended NRA’s tenure by one year, till December 25, 2021, to help recover from the delays caused by COVID pandemic and allow additional time to expand socio-technical assistance for owner-driven housing reconstruction to the most vulnerable beneficiary groups and ensure “no one is left behind” in reconstruction. 3. Meanwhile, as enshrined in Nepal’s constitution adopted in 2015, GoN established the National Disaster Risk Reduction and Management Authority (NDRRMA) in December 2019. The NDRRMA has the mandate of planning, managing and implementing disaster risk reduction and management related activities in coordination with concerned ministries and at all levels of the government. 4. Project Status: The project has reported substantial progress with total disbursement of $559 million (79 percent) with PDO and IP ratings as Moderately Satisfactory. A detailed update on project components is as below: 5. Component 1, Housing Reconstruction: The housing reconstruction activities, despite getting impacted last year due to COVID-19 related lockdowns and restrictions, had regained momentum until the pandemic situation started worsening again from April 2021. As of March 3, 2021, of the 854,992 eligible beneficiaries in 32 earthquake affected districts, 808,676 beneficiaries have signed Participation Agreements (PAs) to receive benefit under GoN’s Housing Reconstruction Program. Out of these registered beneficiaries, 805,280 (99.56 percent) received the first tranche of housing grant (Nepalese Rupees (NPR) 50,000), 693,486 (85.74 percent) received the second tranche (NPR 150,000) and 632,514 (78.20 percent) received the third tranche (NPR 100,000). Of 320,994 beneficiaries to be supported through IDA credits, verification and documentation requirements for 245,485 (73 percent) beneficiaries have been completed and respective disbursements have been made to the NRA. Beneficiaries are documented as IDA beneficiaries once the signed PAs and three inspections data declaring reconstructed houses as compliant with stage- wise reconstruction guideline is uploaded in the project MIS and verified by NRA’s third-party monitoring agent. Almost 49,000 (approximately 20%) household beneficiaries supported under IDA financing are women-headed households. Around 90,000 remaining IDA beneficiaries are yet to be documented under IDA credit 6530-NP that the proposed restructuring would help expedite. 6. Socio-technical Assistance: The socio-technical assistance (STA) is integral to owner-driven housing reconstruction- approach adopted by the GoN. In order to expedite the reconstruction and ensure “no one is left behind” in reconstruction, NRA recruited 755 mobile masons and 246 social mobilizers and deployed them on field in early 2020. Despite the restrictions posed by COVID-19 pandemic, the STA teams continue to deliver services while strictly following COVID-19 safety protocols. In addition to regular door-to-door technical assistance to more than 149,000 households, the teams also physically participated in reconstructing houses of the vulnerable beneficiaries. The STA teams are reconstructing more than 1,536 houses of the most vulnerable beneficiaries in coordination with communities and local governments of which 944 are complete. STA teams have facilitated tranche release to and enrollment of more than 45,000 beneficiaries. The STA teams have also facilitated digitization of around 61,000 PAs and other documents, assisted non-beneficiaries in filling appeals- which is the last option in grievance redressal, collected around 33,000 photos and information of completed houses for final inspection, and have supported almost 85,674 beneficiaries in obtaining Construction Completion Certificates from concerned local governments. 7. Component 2, Disaster Risk Management Systems: Under this component, several activities are undertaken to strengthen DRM systems at local levels and support transition from reconstruction towards resilience. Local Government Integration (LGI) is an integral activity under this component to transfer NRA’s knowledge and experience of resilient reconstruction to Local Governments (LGs) and by building capacities of elected representatives and officials of local levels of 32 earthquake affected districts on disaster-resilient development. The training of local levels on “Resilient Reconstruction and Resilient Development” focuses on disaster and climate resilience and aims at: (i) orienting local level officials and elected representatives on policies, strategies, guidelines and standards related to disaster resilience; (ii) enhancing knowledge of local government representatives on mainstreaming disaster resilience into planning, implementation and management of development programs; and (iii) institutionalizing the reconstruction and resilient development plan. The training has already been completed and was appreciated by the The World Bank Earthquake Housing Reconstruction Project (P155969) participating local governments. Altogether 1,810 participated the training including 759 elected representatives and 1,051 officials from 282 local governments of 32 earthquake affected districts- of that around 23% were women. The second sub-component under LGI is development of a reconstruction portal, which will collect and systematically store all post-Earthquake reconstruction data. The portal development firm has already submitted the inception report and is expected to complete the system development and hand over the system by October 2021. The portal will eventually be handed over to NDRRMA. The third activity under LGI is transfer of physical records together with a records management system, which includes systematic archiving of the legal and important documents generated under the private housing reconstruction program, logistics support (furniture, file cabinets, etc.) and documentation (systematic document filing) support being provided to 282 local level officials. NRA recently informed the decision to transfer the paper records to District Coordination Committees (DCCs) instead of concerned local governments owing to various reasons such as lack of space in rural municipalities that are currently operating from rented space. The proposed restructuring covers the aspect of recognizing DCCs as formal entities for receiving the handover of records by NRA. 8. Government of Nepal’s Request for Restructuring: On May 19, 2021, Government of Nepal shared a restructuring letter for EHRP along with an accompanying letter from NRA dated May 2, 2021 with the following requests: a. To accommodate beneficiaries that are declared eligible by Government of Nepal and have their documentation complete to be eligible for IDA financing, irrespective of the date of signing of the Participation Agreement. With this restructuring NRA can settle all the IDA financing without any other adjustments and provisions. Or, restructuring on beneficiary eligibility for IDA financing (Ref. Annex-I of the National Reconstruction Authority’s letter). (In this regard NRA has suggested reallocation among categories as second option) b. Resumption of the Structural Integrity Assessment (SIA) of social infrastructure (Ref. Annex-II of National Reconstruction Authority’s letter for the background and justification). c. Transfer of records to District Coordination Committees (DCCs) in addition to concerned local levels (Ref. Annex- III of National Reconstruction Authority’s letter for the background). d. Include National Disaster Risk Reduction and Management Authority (NDRRMA), Ministry of Home Affairs as additional Implementing Agency for IDA component. B. Rationale for Restructuring 9. The contours of GoN’s restructuring request have been under discussion with NRA, NDRRMA and MoF over last one year through regular monthly reviews and the March 2021 implementation review. The rationale for the proposed restructuring on the four requested amendments are as below: 10. Make resources available to accommodate maximum number of eligible beneficiaries under IDA. The IDA resources are utilized for reimbursing full/partial housing grants to the GoN only for the completed and compliant houses upon the output verification at the end of construction. Though a project restructuring was carried out in June 2020, change in number of beneficiaries has necessitated this restructuring. Due to longer than anticipated construction durations and delays added by multiple field inspections and verification layers in the initial years and added delays due to COVID-19 over last year, NRA has reported that number of eligible beneficiaries under various categories has changed. Further, during damage assessment around 27,000 beneficiaries were declared eligible for retrofitting grant of NPR 100,000 of which NPR 50,000 were released as first tranche. The retrofitting beneficiaries filed grievances to change reconstruction category from retrofitting to complete reconstruction i.e. housing grant of up to NPR 300,000. 11. As of June 15, 2021 a total of 50,356 beneficiaries were booked under Category-2 of IDA Credit 6164 for all the three tranches (NPR 300,000) whereas 61,916 beneficiaries were booked for Category-4 (2nd Tranche of NPR 150,000 and 3rd Tranche of NPR 100,000) while the first tranche was paid from Government of Nepal sources. With regards to IDA Credit 6530, for Category-2 a total of 23,697 beneficiaries were booked for 2nd and 3rd tranches with 1st tranche The World Bank Earthquake Housing Reconstruction Project (P155969) paid by GoN whereas 43,834 beneficiaries were charged to Category-4 of the said credit for the last 3rd tranche while 1st and 2nd tranches were charged to GoN. 12. With regards to request for accommodating beneficiaries that are declared eligible by Government of Nepal irrespective of the date of signing of the Participation Agreement, it has been clarified to NRA that such a change was not possible as this would require changes in applicability of retroactive financing dates. Therefore, retroactive financing amounts are also not changed. 13. A reallocation among categories for IDA Credits 6164-NP and IDA Credit 6530-NP, as proposed by NRA, will ensure that all the currently IDA eligible beneficiaries will receive housing grant before closure of NRA in December 2021. For IDA Cr. 6164 NRA suggests reallocating savings in Category 1 (Goods, Works, No-consulting Services, Consulting Services, Implementing Operating Costs, Workshops and Trainings) into housing grant categories as reflected in the proposed reallocation table. The proposed reallocation will enable NRA to release all the three tranches of NPR 300,000 to 991 additional IDA eligible beneficiaries and second (NPR 150,000) and third (NPR 100,000) to 4,246 additional IDA eligible beneficiaries. For IDA Cr. 6530, proposed restructuring will support 12,537 additional IDA eligible beneficiaries with second (NPR 150,000) and third (NPR 100,000) tranches. However, for Category 4, NRA has suggested to reduce the current allocation of SDR 60.4287 million to SDR 38 million and increase Category 1 from SDR 2.15 million to SDR 6 million. This reallocation in category 4 will reduce the number of beneficiaries for the third tranche of NPR 100,000 by 24,652 from the current target of 86,676 to 63,024. Increase in Category-1 will help cover cost of Structural Integrity Assessment and cost of transferring of records to DCCs and local governments. 14. As a result of this restructuring the total number of beneficiaries for IDA Credit 6164 Category-2 will be 57,664 whereas 66,721 will be the number of beneficiaries for Category-4. As for IDA Credit 6530, a total 60,371 and 63,024 will be booked against categories 2 and 4 respectively. 15. All beneficiaries to be booked under IDA financing will continue to follow all the rigorous internal controls and accountability measures in place such as digitized PAs, satisfactory quality inspection forms at several stages of reconstruction, bank-to-bank housing grant payment details, and above all, the verification of this information by the NRA and their third party monitoring agent. The current housing grant disbursement process will not be changed with the proposed reallocation between categories. 16. Resumption of the Structural Integrity Assessment (SIA) of social infrastructure: This activity was included as part of Component 2 of the project through the project restructuring undertaken during the processing of first additional financing in 2017. The activity was subsequently dropped during the restructuring of the project undertaken in 2020 following GoN’s request. However, given its importance to build resilience in education and health sector infrastructure and its potential of leveraging investments in resilient infrastructure in these key social sectors, it has been proposed to reintroduce this activity as per the MoF’s request. The proposed assessment will also include government offices across Nepal. 17. Transfer of records to District Coordination Committees (DCCs) in addition to concerned local levels: With reference to NRA’s submission that Local Government Operation Action 2074 (2017) recognized DCCs as local level entity/bodies to oversight and coordinate all the activities within the district municipalities, which has the responsibility of bridging the communication between local, provincial, and federal governments, the Financing Agreement can be amended to formally recognize the role of DCCs in receiving transfer of records from NRA. The DCC has sufficient number of officials as well as space to safeguard the transferred records. However, there will be provision for transferring records to the local governments willing to manage the records at local level. 18. After one-year extension of the tenure in November 2020, NRA is moving towards closure of private housing and handing over responsibilities of residual works to concerned departments and authorities by December 2021. It is important that resilience enhancement related work as well as residual activities transit to concerned legal and constitutional authority or authorities. As per constitution of the country and the DRRM Act 2017, NDRRMA is the apex DRM institution therefore it is expected to complete activities related to enhancing resilience in pursuance of The World Bank Earthquake Housing Reconstruction Project (P155969) second part of the PDO and activities being implemented under Component-2. It is proposed to include National Disaster Risk Reduction and Management Authority (NDRRMA) (Ministry of Home Affairs) as additional Implementing Agency. SDR ten million is proposed to be allocated under Category-1 for NDRRMA. The Authority will utilize this allocation for: (i) Provision of training and technical assistance on topics related to enhancing resilience in Nepal ((b) of Part 2); (ii) Provision of technical guidance for the implementation, quality assurance, analysis of survey data, and development of a disaster preparedness plan ((c) of Part 2); and (iii) Structural Integrity Assessment ((h) of Part2). NRA will be responsible for implementation of (a), (d), (e), (f) and (g) of Part2. Fiduciary Risk Assessment of NDRRMA was carried out as follows: 19. Financial Management: The Government policies, procedures and directives with respect to planning, budgeting and financial management policies, and all approved World Bank policies of the project will be applicable. Based on the risk assessment for the NDRRMA, NDRRMA has two FM staffs (Account Officer and Accountant), one Financial Management Specialist taking over for FM functions. It also has one Financial Management Analyst for budgetary operation support. The FM Specialist is on contract for 10 days in a month from June 2021 up to January 2022, and has experience of government financial management system and reporting requirement of the World Bank and provides support on overall financial management as per requirement of the government and the World Bank to the project. 20. The separate budget for government and trust fund sources has been allocated to the NDRRMA in the Government’s Red Book for FY 2021-22 under MOHA. The budgetary allocation has been changed to quarterly basis instead of trimester in FY 2021-22. The government of Nepal will pre-finance the project expenditures and the actual expenditures will be reimbursed on receipt of withdrawal to the government treasury based on approval of the financial report by the Bank. NDRRMA can also request the Bank to make direct payments to goods suppliers and service providers and to make Special Commitment payments. For reimbursement, direct payment and special commitment, the minimum value of withdrawal application will be specified in the Disbursement and Financial Information Letter. 21. Government of Nepal has made mandatory use of CGAS (Computerized Government Accounting System) in all government offices from the beginning of FY 21 in coordination with Financial Comptroller General Office (FCGO). The NDRRMA will use new Chart of Accounts prescribed by the Government for accounting the project expenses. The CGAS has features of accounting based on government chart of accounts and activities. If the expenditures are to be accounted under more than one category which is not compatible with government chart of accounts, the expenses need to be recorded using excel spreadsheet for reporting purpose. The NDRRMA will follow accounting and reporting requirement for government as per the Government procedures and reporting to World Bank as per the Financial Agreement. The monthly, quarterly and annual financial reports are to be submitted to the government as specified in Financial Procedures and Financial Accountability Act and Regulation. NDRRMA will submit the financial reports to the Bank on trimester basis (period of four months) by 45 days from the end of each trimester in the format agreed with the Bank. 22. The internal controls for the project will be based on the internal control system prescribed for the government offices in addition to the procedures prescribed in the Financial Procedures and Fiscal Accountability and other Regulations. The Treasury Controller Offices under FCGO will conduct internal audit of NDRRMA on quarterly basis and internal audit reports will be made available to Bank during review. The external audit will be conducted by the Office of the Auditor General and the annual audit report and annual audited project financial statements will be submitted to the Bank by nine months from end of each fiscal year. The FM arrangements for the EHRP (NRA) under the proposed restructuring will remain the same as per previous arrangement. Based on the FM assessment and considering NDRRMA a new institution, the FM fiduciary risk of the project is rated "substantial". 23. Procurement. The Bank’s Procurement Regulations for Investment Project Financing (IPF) Borrowers, July 2016 (as revised from time to time) and the provisions stipulated in the Financing Agreement will be applicable for the The World Bank Earthquake Housing Reconstruction Project (P155969) procurement of Goods, Works, Non- Consulting and Consulting Services under the Project. The National Disaster Risk Reduction and Management Authority (NDRRMA) will be responsible for overall procurement management of the component under which the fund is allocated to it. NDRRMA will prepare and submit procurement plan in the Systematic Tracking of Exchanges in Procurement (STEP) system. This component envisages mainly selection of consulting firms for conducting Structural Integrity Assessment (SIA) of social infrastructure (education and health sector infrastructure) and also government office buildings across Nepal. Besides this, there are small value procurement of goods, non-consulting services, works and individual consultants to support the main project activities for which procurement procedure will be followed exactly similar to that of EHRP-AF and it’s PPSD. 24. The Bank team has updated the procurement risk assessment of the NDRRMA based on its assessment for the MDTF-EHRP project. Though it’s a newly established agency of the GoN, its organizational set up and staffing has been almost completed. Considering its immense role, some additional civil servants have been deputed in NDRRMA in addition to the regular positions created. As per the proposed organizational structure, the staff tasked for procurement are proposed to be within the “Administration, Planning and Monitoring Section” headed by an under Secretary under the “Policy, Planning and Monitoring Division” headed by a joint secretary. Since NDRRMA is currently implementing the MDTF-EHRP project, in a short time, it has gained good procurement experience under the Bank Procurement Regulations. Several individual consultants including a procurement consultant are in place. The agency has prepared PPSD and procurement plan and is conducting procurement of several goods and non-consulting activities, procurement of small works and selection of individual consultants for the MDTF-EHRP project. The same organizational set up and staffing force will be working for the procurement under the proposed restructuring of the EHRP. This will help mitigate the procurement risks under the new activities. Detailed report of procurement risk assessment and mitigation measures will be finalized and uploaded in the Bank’s Procurement Risk Assessment Management System (P-RAMS). III. DETAILED CHANGES REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Current Current Actuals + Proposed Disbursement % Ln/Cr/TF Expenditure Allocation Committed Allocation (Type Total) Category Current Proposed IDA-61640- Gds,Wks,NCS,CS 001 ,IOC,Wkshp & 19,700,000.00 4,840,057.02 8,723,000.00 100.00 100.00 Currency: Trg XDR Housing Grants - 98,824,000.00 98,822,031.35 104,304,000.00 100.00 100.00 1, 2 & 3 tranche Emergency Exp for CER 0.00 0.00 0.00 100.00 100.00 component The World Bank Earthquake Housing Reconstruction Project (P155969) Housing Grants - 95,076,000.00 95,066,081.58 100,573,000.00 83.33 83.33 2, 3rd tranche Total 213,600,000.00 198,728,169.95 213,600,000.00 IDA-65300- Gds,Wks,NCS,CS 001 ,IOC,Wkshp & Currency: Trg under Parts XDR 2 (a), (d), (e), (f) 2,150,000.00 0.00 6,000,000.00 100.00 100.00 and (g) and IOC under Part 3 of the Project Housing Grants - 82,421,300.00 42,952,415.89 91,000,000.00 83.33 83.33 2 & 3 tranche Emergency Exp for CER 0.00 0.00 0.00 100.00 100.00 component Housing Grants - 60,428,700.00 30,057,663.02 38,000,000.00 33.33 33.33 3rd tranche Gds,Wks,NCS,CS ,IOC,Wkshp & Trg under Parts 2 (b), (c) and (h) 0.00 0.00 10,000,000.00 100 and IOC under Part 3 of the Project Total 145,000,000.00 73,010,078.91 145,000,000.00