Document of The World Bank FOR OFFICIAL USE ONLY Report No: 60367-MW RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF INFRASTRUCTURE SERVICES PROJECT GRANT June 27, 2006 TO THE REPUBLIC OF MALAWI October 4, 2011 Water and Urban Unit Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. ABBREVIATIONS AND ACRONYMS ESCOM Electricity Supply Corporation of Malawi, Ltd. GOM Government of Malawi ICT Information and Communication Technology IDA International Development Agency ISP Infrastructure Services Project MACRA Malawi Communication Regulatory Authority MEPD Ministry of Economic Planning and Development MIWD Ministry of Irrigation and Water Development MLGRD Ministry of Local Government and Rural Development MoF Ministry of Finance MW Megawatt MRTTP Ministry of Road and Transport PAD Project Appraisal Document PCU Project Coordination Unit PDO Project Development Objectives PMU Project Management Unit RP Restructuring Paper RWB Regional Water Board NRA National Road Authority WUA Water Users Association Regional Vice President: ObiageObiageli Katryn Ezekwesili Country Director: Kundhavi Kadiresan Sector Director: Jamal Saghir Sector Manager: Junaid Kamal Ahmad Task Team Leader: Mathewos Woldu ii MALAWI INFRASTRUCTURE SERVICES PROJECT CONTENTS Page A. SUMMARY ................................................................................................................................ 1 B. PROJECT STATUS.................................................................................................................... 1 C. PROPOSED CHANGES ............................................................................................................ 3 ANNEXES ANNEX 1: RESULTS FRAMEWORK AND MONITORING ARRANGEMENTS .......................... 6 ANNEX 2: REALLOCATION OF PROCEEDS ................................................................................ 10 ANNEX 3: ACTION PLAN ................................................................................................................ 11 ANNEX 4: REVISED IMPLEMENTATION SCHEDULE ............................................................... 14 iii MALAWI INFRASTRUCTURE SERVICES PROJECT Project Data Sheet Restructuring Status: Draft Restructuring Type: Level 1 Last modified on date : September 14, 2011 1. Basic Information Project ID & Name P057761: Malawi Infrastructure Services SIM Country Malawi Task Team Leader Mathewos Woldu Sector Manager/Director Junaid Kamal Ahmad Country Director Kundhavi Kadiresan Original Board Approval Date 06/27/2006 Original Closing Date: 11/30/2011 Current Closing Date 11/30/2011 Proposed Closing Date [if applicable] 06/30/2012 EA Category B-Partial Assessment Revised EA Category B-Partial Assessment- EA Completion Date 02/20/2006 Revised EA Completion Date 2. Revised Financing Plan (US$m) Source Original Revised BORROWER 1.30 1.30 IDA GRANT 40.00 40.00 Total 41.30 41.30 3. Borrower Organization Department Location Republic of Malawi Malawi 4. Implementing Agency Organization Department Location Ministry of Economic Planning Malawi and Development iv 5. Disbursement Estimates (US$m) Actual amount disbursed as of 09/14/2011 18.09 Fiscal Year Annual Cumulative 2010 3.33 12.85 2011 2.60 15.45 2012 16.55 32.00 2013 8.00 40.00 6. Policy Exceptions and Safeguard Policies Does the restructured project require any exceptions to Bank policies? N Does the restructured project trigger any new safeguard policies? If yes, please select from N the checklist below and update ISDS accordingly before submitting the package. 7a. Project Development Objectives/Outcomes Original/Current Project Development Objectives/Outcomes To improve household welfare and strengthen economic growth in market centers and surrounding rural areas within the Project Area through the provision of core infrastructure services. 7b. Revised Project Development Objectives/Outcomes [if applicable] To improve access to basic infrastructure services in target areas. v INFRASTRUCTURE SERVICES PROJECT RESTRUCTURING PAPER A. SUMMARY 1. This restructuring paper seeks the approval of the Board of Executive Directors for a Level One restructuring to modify the project’s Development Objective (DO) to increase measurability and reduce the scope of works, revise some results indicators and adjust targets. The project components have not changed. The changes involve the scope in the Project Appraisal Document (PAD) but the description in the Financing Agreement remains the same. The revision of the Results Framework is shown in Table 1 of Annex 1. 2. The Infrastructure Services Project (ISP) aims to support the Government of Malawi’s efforts to improve household welfare and strengthen economic growth by providing coordinated infrastructure services necessary for expanding economic and social activities. The project provides core infrastructure services in about thirty market centers along the five economic corridors along the country’s main road system. In order to achieve this objective, the project: (a) finances coordinated investments in roads, water supply and sanitation, electricity, and telecommunications; and (b) assists the Government in developing a coordinated approach to planning and implementing infrastructure development in these areas. The population that the project is likely to affect directly (those living in the market centers) is about 160,000. In addition, the feeder roads that the project will construct are likely to have an even larger impact as they will bring the market centers within closer access to people living in the hinterlands. 3. The project experienced major delays from the start; effectiveness was delayed by almost nine months and implementation began only three years into effectiveness. Major delays in implementation and the consequent high cost overruns are largely attributed to the lack of project readiness for implementation at approval. Most of the preparatory works for major infrastructure works (i.e. technical design) that should have been already completed during project preparation were instead carried out during the implementation phase of the project. The basis for the project’s cost estimates and allocation of funds among various infrastructure components was the initial feasibility study completed in April 2006. However, once technical designs were completed, it became clear that the total investment costs of the proposed infrastructure packages for the original 30 market centers far exceeded the original project cost estimates and funds allocated. In view of this significant gap, the Government proposed to make adjustments in the project by reducing the scope of infrastructure activities to match available funds. B. PROJECT STATUS 4. This IDA Grant of US$40 million equivalent was approved on June 27, 2006 and declared effective on March 1, 2007. The original closing date is November 30, 2011. Overall implementation faced significant challenges. In February 2010, a multi-sectoral Bank team including procurement and environmental specialists carried out a comprehensive review of project implementation, and identified major shortcomings. 1 Subsequently, a joint Government-Bank team examined all aspects of project implementation and concluded that the project faces significant challenges. The main findings were: (a) actual implementation of the infrastructure works had not begun after 3.5 years due to major delays in completion of technical designs (only 25% of the grant had been disbursed), (b) procurement capacity of implementing agencies, and project coordination, management and oversight are weak, and (c) the project faced major cost overrun in civil works largely due to under-estimation of the cost of infrastructure investments (e.g. 80% increase in roads, 30% increase in water supply and sanitation and 25% for electricity components). Consequently, the Bank team downgraded the project’s overall implementation progress (IP) and progress towards achievement of PDO to unsatisfactory. 5. With only 18 months left until the grant closing date, the Bank team considered two options: cancellation or restructuring. After thorough consultations within the Bank and with the Government, a decision was made to substantively restructure the project, while maintaining the original approach of delivering integrated infrastructure services. The proposed change is a Level One restructuring that entails modifications in the project’s development objectives and corresponding modifications in project scope; and changes in results indicators to increase measurability/specificity and alignment of the targets. Other proposed changes involve reallocation of grant proceeds and a new grant closing date. 6. In light of the Government decision to proceed with restructuring, and with a view to turn-around the project, in July, 2010, a Government-Bank team agreed on a detailed Action Plan for each of the project components with completion dates (see Annex 3). The key actions relate to: (a) reducing the scope of the infrastructure components of the project in line with available funds; (b) steps to speed up procurement processing and contract signature; (c) preparing a revised procurement and implementation plan; and (d) strengthening the implementing agencies’ and the Project Coordination Unit’s capacity in procurement and contract processing and supervision. 7. The project has shown marked progress in the past 12 months. As of June 2011, the implementing agencies have successfully completed the following actions: (a) awarded contracts for the supply and installation of electrical equipment valued at US$ 2.03 million; installation will start in July, 2011 for completion in February, 2012; (b) mobilized contractors to site and commenced construction of water supply and sanitation facilities in six market centers; and signed contracts for construction in additional four market centers for a total contract value of US$ 7.65 million; and (c) began works on roads upgrading, rehabilitation and maintenance in two corridors and mobilized contractors to begin work in additional two corridors for a total contract amount of US$ 12.32 million; construction is scheduled to start in July and expected to be completed in February, 2012. In total, to date, the project has committed US$ 22.00 million in new contracts and has disbursed 35% and committed 60% of the original grant which is a significant progress. An estimated disbursement of US$ 4.0 million is expected in the next three months as partial payment for the supply of electrical equipment, and advance 2 payment for civil works and consultancy contracts in electricity, roads and water supply and sanitation facilities. 8. Effective collaboration and renewed commitment of the Government, implementing agencies, and strong technical and procurement support from the Bank, was instrumental in finding practical way forward and this is starting to pay off. To date, the project has made the following progress. Under the Information Communication Technology Component, the project has established 8 Public Internet Access Centers (PIACs) with about 24,000 beneficiaries, and has established 1,224 public phones throughout the eight districts participating in the project. On the electricity component, 15 public institutions (schools, health centers, police posts) were connected to the national grid, while construction works have commenced on water supply and sanitation in six market centers. 9. Based on the above tangible progress, as of November 2010, the project ratings for progress towards achievement of DO and implementation progress have been upgraded from “unsatisfactory� to “moderately satisfactory�. Most of the contractual challenges facing the project have now been resolved, and the project is expected to be completed within the period of the proposed closing date of June 2012. The strong Government commitment to implement the agreed action plan and a closer implementation support by the Bank team will significantly enhance the likelihood of the project to be completed within the period of the proposed extension. C. PROPOSED CHANGES 10. The proposed change is a Level One restructuring that entails modifications in the Project Development Objectives. Other proposed changes involve modifications in results indicators and targets, reallocation of grant proceeds and new grant closing date. 11. Project Development Objectives (DO). The original PDO is: “to improve household welfare and strengthen economic growth in Market Centers and surrounding rural areas within the Project Area through the provision of core infrastructure services�. To increase measurability, the proposed revised PDO is “to improve access to basic infrastructure services in target areas�. The proposed change in PDO is to modify the original high level objectives and to ensure better accountability. Changes in indicators and targets are also being introduced. The revision of the Results Framework is shown in Table 1 of Annex 1. 12. As part of the proposed formal project restructuring, the Government has also requested the Bank’s approval for the following changes: (i) extend the Grant closing date by seven months from November 30, 2011 to June, 2012 to enable the project to achieve its targets, and (ii) reallocate US$ 3.90 million currently available under the unallocated category of the grant towards mainly infrastructure and capacity building components of the project (the original amount allocated and the proposed reallocation of funds is provided in Annex 2. The proposed closing date extension of only seven months is justified as most of the difficult technical and procurement related issues have been 3 resolved, and tendering, processing and contract signature for major civil works contracts and consultancies have been completed. 13. Components. The project components have not changed. The changes involve the scope in the Project Appraisal Document (PAD) but the description in the Financing Agreement remains the same. The proposed changes are summarized below: o Electricity Component (US$ 3.83 million vs. US$4.11 million). The provision of electricity to 26 market centers instead of the initial 30 market centers by: (i) constructing 65.9 km of high voltage electricity lines; (ii) installing 29.6 km of low voltage lines instead of the original 96km; (iii) putting transformers with a capacity of 1,700kVA instead of 6,200kVA; and (iv) supplying power to 1,326 consumers instead of 4,975 consumers. o Roads Component (US$16.53 million vs. US$17.09 million). The construction in 30 market centers of: (i) 48.2 km (reduced from 79.4 km) of secondary and tertiary roads with low volume sealed standard; (ii) 46.1km (reduced from 91 km) of rehabilitation of secondary and tertiary roads; (iii) 272.4 km (reduced from 350 km) of hand reshaping of district roads. o Water Supply and Sanitation Component (US$9.91 million vs. US$10.56 million). The new scope proposes to limit the construction of water supply and sanitation facilities to only 10 market centers instead of the original 30 market centers. However, through other interventions, the Government has funded water supply and sanitation facilities in additional eight market centers. o Information and Communication Technology (ICT) Component (US$1.50 million vs. US$ 1.50 million). There is no proposed reallocation or reduction in scope. o Institutional Strengthening and Capacity Building Component (US$ 2.65 million vs. US$ 5.07million). There is no reduction in scope. 14. Reallocation. The proposed change involves reallocation of the unallocated amount currently available under the of the grant to fill in the financing gap essentially in infrastructure components and consultancies, and to sustain operations of the project up to the new closing date. The original and proposed reallocation by category of expenditures is provided in Annex 2. 15. Closing Date. The Government proposes to extend the grant closing date by seven months, from November 30, 2011 to June 30, 2012. The proposed extension is necessary in view of the overall delay in project implementation and to accommodate the delay in road construction works which will not start until the onset of the rainy season in June. 16. Implementation Schedule. The Government has prepared a revised implementation schedule (see Annex 4) to complete the infrastructure works that have 4 been recently launched and complete the project within the period of extension. To speed up implementation progress, the Bank has agreed to allocate more than average supervision budget for a multi-sectoral mission and closer implementation support. 5 Annex 1: Results Framework and Monitoring Arrangements MALAWI – Infrastructure Services Project (Grant No. H242-MAI) Table 1. Results Framework and Monitoring Arrangements Revisions to the Results Framework Comments/ Rational for Change PDO Current (PAD) Proposed To improve household welfare and strengthen To improve access to basic infrastructure services in target Improved attribution of economic growth in Market Centers and surrounding areas. project results and removal of rural areas within the Project Area through the high level goals from PDO. provision of core infrastructure services. PDO Indicators Current (PAD) Proposed change 1. Number of Small and Medium Enterprises with access Electricity: To increase measurability to infrastructure services. Core indicator: People provided with access to electricity and specificity of indicators. under the project by household connections (number). Number of social institutions (clinics, schools, police Telecommunication Services: posts, etc.) with access to infrastructure services. People provided with access to public phone services. Proportion of the population with access to Water and Sanitation Services: infrastructure services. Core indicator: People in urban areas with access to “Improved Water Sources� under the project. Core indicator: People with access to “Improved Sanitation� under the project (number) Transport: Core indicator: Share of rural population with access to an all season road. Direct Project beneficiaries. (number) Female project beneficiaries. (%) 6 Intermediate Results Indicators Current (PAD) Proposed change To increase measurability Planned project investments are implemented and Core indicator: Average interruption frequency per year in the and specificity of indicators monitored according to an agreed timetable. project area. per components. Number of well-functioning water associations Core indicator: Number of community electricity connections and local utility operators. under the project. Number of road providers (DAs, contractors, Core indicator: Transmission and distribution lines constructed/ suppliers, etc.) trained and operational. rehabilitated under the project. Number of district level staff trained in Public telephone booths and phone kiosks erected and environmental management. operational Small-scale multipurpose community tele-centers established that provide public access to the internet. Public institutions with access to improved water services. Core indicator: New piped household water connections resulting from the project intervention. Core indicator: Piped household water connections affected by rehabilitation works undertaken under the project. Core indicator: Improved community water points constructed or rehabilitated under the project. Core indicator: Water utilities the project is supporting. Core indicator: Other water service providers the project is supporting. Distribution network rehabilitated/ constructed. Sanitation facilities: Public latrines constructed. People accessing toilet facilities at the market centre. Core indicator: Secondary and Tertiary Roads rehabilitated, rural. Core indicator: Feeder Roads maintained/rehabilitated, rural. Core indicator: People trained under the project. Community Contractors. Planning and Management (MTPW, MLG&RD, RA, District Assemblies and Area executive committees). 7 Table 2. Revised Results Framework and Monitoring Project Development Objective (PDO): To improve household welfare and strengthen economic growth in market centers and surrounding rural areas within the Project Area through the provision of core infrastructure services Revised Project Development Objective: To improve access to basic infrastructure services in target areas Cumulative Target D=Dropped Values Core C=Continue Unit of Baseline PDO Level Results Indicators* N= New Measure (2006) Data Source/ Responsibility for R=Revised 2011 2012 Frequency Methodology Data Collection Electricity: Number of people provided with access to electricity under the R number 98 450 460 Quarterly/ Progress ESCOM/DoE project by household connections. Annually Reports Telecommunication Services: Number of people provided with R number 550,800 573,300 573,300 Quarterly/ Progress MACRA/MICE access to public phone services. Annually Reports Water and Sanitation Services: Number of people with access to “Improved Water Sources� under R number 0 71,142 76,310 Quarterly/ Progress MoIWD//RWB the Project Annually Reports Number of people with access to Quarterly/ Progress MoIWD//RWB “Improved Sanitation� under the R number 0 7,700 9,700 Annually Reports Project Roads : R % 45% 65% 75% Semi-annual Progress Road Authority Proportion of rural population Reports with access to an all season road. Progress PMU & Number of direct Project C number Implementing beneficiaries 30,000 50,000 90,000 Semi-annual Reports agencies PMU & Proportion of female project R % 51% 51% 51% Semi-annual Progress Implementing beneficiaries (percentage) Reports agencies 8 INTERMEDIATE RESULTS Electricity Component Number of Public institutions Field Data; ESCOM, PMU and (schools, health centres etc) C number 15 18 20 Monthly/ Progress reports DOE connected to the national grid under Annually the Project. Core indicator: Number of Quarterly/ ESCOM,, PMU; Field Data households connected to electricity C number 82 285 468 Annually DOE Progress reports under the Project Telecommunication component Number of public telephone booths established R number 1,224 1,274 1,274 Quarterly Progress Reports MACRA/MICE Number of Public Internet Access Centers (PIACs) established R number 6 8 10 Quarterly Progress Reports MACRA/MICE Water Supply &Sanitation Component Number of Improved community Quarterly; Project progress RWB, PMU, water points C number 0 60 1,251 annual MIWD constructed/rehabilitated under the Project Number of Public latrines C number 0 11 13 Quarterly; Project progress constructed in the market centers Quarterly; annual annual Road Component Kilometers of secondary and tertiary C km 0 75 94 Quarterly; Project progress RA/MLGRD, roads rehabilitatedl2l. annual MT&PW Kilometer of feeder Roads C km 0 217 272 Quarterly; Project progress RA/MLGRD, rehabilitated and maintained annual MT&PW Capacity Building Component Number of people trained under the R Number 770 835 905 Quarterly; Project progress RA/MLGRD, project annual MT&PW 1 It is assumed that 20 households will draw water from a communal water point translating to 1,800 people to benefit from the 15 community points 2 Secondary and Tertiary Roads 9 Annex 2: Reallocation of Proceeds MALAWI – Infrastructure Services Project (Grant No. H242-MAI) 1. Proceeds for Malawi, Infrastructure Services Project (Grant No. H242-MAI), P057761 will be reallocated as follow: Allocation % of Financing Category of Expenditure (SDR) Current Revised Current Revised (1) Goods 0.32 0.52 100% 100% (2) Works 16.90 17.26 100% 100% (3) Consultants’ Services and 4.24 4.88 100% 100% audits (4) Training 0.95 1.16 100% 100% (5) Operating Costs 0.48 1.65 100% 100% (6) Subprojects under Part B 0.83 0.83 100% 100% of the Project (7) Refund of Project 1.10 1.10 Section 2.07 Section 2.07 Preparation Advances of General of General Conditions Conditions (8) Unallocated 2.58 -- - Total 27.40 27.40 10 Annex 3: Action Plan MALAWI: Infrastructure Services Project (Grant No. H242-MAI) Key Issues, Agreed Actions and Expected Completion Date A. Electricity Component Issues Agreed Action Completion Status as of June, 2011 Date Contract ESCOM estimate a reduction of the August, 2010 between cost for steps 2&3 of the consultancy ESCOM and contract from US$ 621,015 to US$ SMEC 336,302 International for SMEC to submit a revised proposal, Sep 28 -Oct the Design and renegotiate, sign minutes, and initial 26, 2010 Construction addendum. Supervision Submits initialed addendum & signed Oct 27 - Nov minutes to the Bank for review & 10, 2010 clearance, internal processing in ESCOM & GoM ESCOM and SMEC shall sign the Nov 15, 2010 Contract signed in addendum to the contract. December 2010 and cleared by the Bank. Bid Documents, Finalize the bid documents after July, 2010 Bidding incorporating TTL’s comments Process, Advertise the Bids, track the bidding Aug 1- Oct 8, Completed tendering Contract process, open, evaluate the bids and 2010 process for the supply & Negotiations submit evaluation reports to the Bank installation of electricial and Award. equipment in November 2010; Internal Processing within ESCOM Oct 22 -Nov Delivery of equipment and GoM, Contract negotiations and 29, 2010 expected in June; award installation will start in July 2011 and completion is expected in February 2012. Project ESCOM’s core Project Management November Team established & in Implementation Team in place 2010 place since November Arrangements ESCOM Supervision Engineers, Nov 08, 2010 November 2010 Environmental & Procurement Specialists Reporting SMEC & ESCOM Staff submit Monthly Report submitted in Requirements monthly progress reports to the November 2010. during the ESCOM Project Manager. Construction ESCOM submits quarterly reports to Quarterly First report submitted in phase the PMU & the Bank. November 2010 11 B. Roads Component Agree Action Action By Estimated Actual RA/DPW Completion Date Completion Date Identify Field Engineers with necessary RA/ DPW November 30, November 30, logistic support for exercising oversight 2010 2010 during Implementation Phase Scope revision and revised cost RA October 25, 2010 December 15, estimates for Zomba Phalombe Mulanje 2010 and Cape Maclear Mangochi Corridors Issuing IFB for three corridors Bangula PMU/RA October 20-22, January 15, 2011 Tengani, Ntechu Neno and Rumphi 2010 Chitipas Issuing IFB for Zomba Phalombe PMU/RA November 1 2010 February 12, 2011 Mulanje and Cape Maclear Mangochi Corridors Complete negotiations and submit draft RA October 29, 2010 March 20, 2011 contract of hiring EMC Jatula as supervision consultant Issue RFP for supervision consultancy RA November 4, 2010 November 12, on balance corridors 2010 Submit revised Implementation Plan RA/PMU October 19, 2010 November 15, 2010 Submit revised procurement plan RA/PMU October 19, 2010 April 20, 2011 Plan Contract/ project Management PMU January 31, 2011 January 12, 2011 Training for selected PMU/RA staff Verify social impact of works in RA October 25, 2010 November 15, Tengani 2011 12 C. Water Supply and Sanitation Agreed Action All Regional Water Boards (CRWB, NRWB, SRWB) Planned Actual Completion Completion Date Date Submit Bid evaluation Report for Bank review October 20, 2010 January 12, 2011 Finalize Bid evaluate and finalize Recruitment November 15, 2010 March 12, 2011 of contractor including signing of contract Formal submission of details of staff including October 22,2010 November 20, 2010 profiles designated for the project including profiles submit consultant evaluation report for Bank October 22,2010 December 12, 2010 review Submit supervision consultant profile, and re- October 22, 2010 February 12, 2011 negotiated financial proposal finalizing recruitment of the supervision November 15, 2010 January 12, 2011 consultant and send contract for Bank review submit TOR and EOI & Finalize September 15, October 15, 2011 advertisement for Utility operator 2011 recruitment of the utility operator September , 2011 October 15, 2011 13 Annex 4: Revised Implementation Schedule (April, 2011 to April, 2012) MALAWI: Infrastructure Services Project (Grant No. H242-MAI) Component/Period April May June July August September October November December January February March April May J ICT Component Establishment of Public Internet (Jali and Ntcheu sites) Battery Power Back Up Public Telephones Sensitization Monitoring and Evaluation Electrification Water Supply and Sanitation Roads Institutional Strengthening and Capacity Building * * Training for Water User Associations and Recruitment of Local Utility Operators 14