$ Report No: RES00683 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF DOMINICA GEOTHERMAL RISK MITIGATION PROJECT APPROVED ON MARCH 18, 2019 TO THE COMMONWEALTH OF DOMINICA Energy and Extractives Global Practice Latin America and Caribbean Region Regional Vice President: Carlos Felipe Jaramillo Regional Director: Maria Marcela Silva Country Director: Lilia Burunciuc Practice Manager: Gabriela Elizondo Azuela Task Team Leader: Nguyet Anh Pham The World Bank Dominica Geothermal Risk Mitigation Project (P162149) ABBREVIATIONS AND ACRONYMS ARAP Abbreviated Resettlement Action Plan CTF Clean Technology Fund DGDC Dominica Geothermal Development Company Ltd DGRMII Dominica Geothermal Risk Mitigation II project E&S Environmental and Social FCDO Foreign Commonwealth Development Office FM Financial Management GPP Geothermal power plant IDA International Development Association M&E Monitoring and Evaluation OE Owner’s Engineer PDO Project development objectives SIDS DOCK Small Island Developing States DOCK STEP Systematic Tracking of Exchange in Procurement The World Bank Dominica Geothermal Risk Mitigation Project (P162149) @#&OPS~Doctype~OPS^dynamics@restrhybridbasicdata#doctemplate BASIC DATA Product Information Operation ID Operation Name P162149 Dominica Geothermal Risk Mitigation Project Product/Financing Instrument Geographical Identifier Investment Project Financing (IPF) Dominica Approval Date Current Closing Date 18-Mar-2019 28-Feb-2026 Original EA Category Full Assessment (A) (PAD Approval Package-18 Mar 2019) Organizations Borrower Responsible Agency The Commonwealth of Dominica Dominica Geothermal Development Company @#&OPS~Doctype~OPS^dynamics@restrhybridoperationstatus#doctemplate OPERATION STATUS Project Development Objective (DO) Original Development Objective The objective of the proposed Project is to help: a) diversify the domestic power generation mix in Dominica by integrating clean, renewable geothermal energy; and b) demonstrate the potential of larger development of the geothermal resource. Disbursement Summary (in USD million) Source of Funds Net Commitment Disbursed Undisbursed % Disbursed IBRD -- -- -- 0 IDA 16.25 8.02 8.40 48.85 i The World Bank Dominica Geothermal Risk Mitigation Project (P162149) Grants 21.95 18.95 3.00 86.33 Policy Waivers Does this restructuring trigger the need for any policy waiver(s)? No @#&OPS~Doctype~OPS^dynamics@restrhybridmpa#doctemplate @#&OPS~Doctype~OPS^dynamics@restrhybridmpa#doctemplate ii The World Bank Dominica Geothermal Risk Mitigation Project (P162149) TABLE OF CONTENTS I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING ........................................................................................1 II. DESCRIPTION OF PROPOSED CHANGES ....................................................................................................................4 III. PROPOSED CHANGES ................................................................................................................................................4 IV. DETAILED CHANGE(S) ...............................................................................................................................................4 The World Bank Dominica Geothermal Risk Mitigation Project (P162149) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING 1. This Restructuring Paper seeks the approval of the World Bank Country Director to cancel from the Dominica Geothermal Risk Mitigation Project, an amount of SDR 5,725,190.84 from Credit No. 6376-DM, and US$3 million from the Clean Technology Fund (CTF) grant (TF0A9533). If approved, this will be the fourth restructuring1 of the project. A. Project Background 2. The project was approved by the Bank’s Board of Executive Directors on March 18, 2019, and became effective on February 28, 2020. The project’s total financing at approval was US$51.45 million equivalent, which included (a) an IDA credit in the amount of SDR 12.3 million (US$17.2 million equivalent), (b) an Foreign Commonwealth Development Office (FCDO-formerly DFID) grant in the amount of US$10 million, (c) a Small Island Developing States DOCK facility (SIDS DOCK) grant in the amount of US$2 million, (d) CTF grant in the amount of US$9.953 million, (e) a New Zealand Ministry of Foreign Affairs grant in parallel financing in the amount of US$2.0 million, and (f) Counterpart funding in the amount of US$10.3 million. The project’s closing date is February 28, 2026. 3. The project comprises three components, namely (i) Development of domestic geothermal power generation capacity (ii) Contingent financing in aid of additional drilling, and (iii) technical assistance and project implementation support. The Dominica Geothermal Development Company Ltd (DGDC) is the project implementing agency. B. Project Status 4. Progress toward achievement of its project development objectives (PDO) is rated Satisfactory as of the Implementation Status and Results Report of November 2024. Although none of five PDO indicators have been achieved yet, critical progress has been recorded toward the three key indicators related to the development of the geothermal energy generation enabled by the project. After long delays, implementation of the geothermal power plant (GPP) serving domestic demand, financed by a private investor, was launched in December 2023 and is moving toward its commissioning planned in January 2026. 5. The Overall Implementation Progress was downgraded to Moderately Unsatisfactory due to similarly rated performance of Components 1 and 3 of the project, procurement, monitoring and evaluation (M&E), and lagging progress on intermediate results indicators. Additionally, the IDA Credit has not disbursed since December 2023. Further performance details are provided below. 6. Component 1: Development of domestic geothermal power generation capacity. Implementation of the component has been completed. The drilling of the two geothermal wells (one for production and other for reinjection) under the Component was finalized in March 2023. The tests of the wells were completed in April 2023, confirming that both the wells meet the expected capacity results. The drilling success eliminated the upstream geothermal resource risks to the planned geothermal power plant (GPP) to be developed with private capital by ensuring critically needed reinjection capacity and adequate geothermal resource to increase the GPP capacity from 7 MW to 10 MW as intended. Nevertheless, the component’s performance is rated as Moderately Unsatisfactory 1 The first restructuring approved in December 2020 extended the closing date of the project by 11 months; the second restructuring approved in May 2021 extended the project closing date by a year till May 31, 2022; and the third restructuring approved in February 2022 expanded the scope of Components 1 and 3 to include drilling of two additional geothermal wells and technical studies respectively, and relocation of financing between the three components to accommodate the revised scope of work. Page 1 The World Bank Dominica Geothermal Risk Mitigation Project (P162149) due to the issue with ineligible expenditures in two main contracts for the drilling work as described in para. 9 below. 7. Component 2: Contingent financing in aid of additional drilling. After the project’s third restructuring, US$6 million out of US$9million under this component was released to co-finance the additional drilling of the reinjection well under Component 1. The remaining US$3 million grant is contingent to support future drilling in case the geothermal resource after the additional drilling falls below acceptable level. Given the success in the drilling program under Component 1 which secures sufficient reinjection and production capacity for the DGPP, no further activity is anticipated under this component by the project closing date. 8. Component 3: Technical assistance and Project Implementation Support.2 All planned activities except one are in advanced status. The results of this technical assistance were critical in enabling completion of the drilling program and of the approval of the Dominica Geothermal Risk Mitigation II (DGRMII) project. However, the component’s performance is rated as Moderately Unsatisfactory due to the issue with ineligible expenditures in the advisory contract for the drilling program, which has been substantially completed but remains open to support the audit of it and two other contracts under Component 1. All technical assistance that supported DGDC to prepare environmental and social instruments, and a procurement strategy for the transmission lines and substations financed under the DGRMII project3, were completed and closed. The Owner’s Engineer (OE) for the transmission network investment supported DGDC to complete technical design, specifications, bid preparation and evaluation for the advance procurement of the major contract under DGRMII project and has been providing technical supervision of the contract after its award in October 2024. The OE service is expected to continue until the fundings under the proposed Additional Financing for DGRMII project having been mobilized. Further, the contract for technical and financial audit of three drilling related contracts has been under execution with final deliverables due in March 2025. The only pending activity is a preliminary feasibility study for direct use of geothermal energy. The study is under consideration to be cancelled under DGRM due to low commitment by the private developer at this stage and moved to DGRMII for implementation at a later stage. 9. Financial Management (FM). The project’s FM performance is rated Moderately Satisfactory. Adequate FM arrangements are maintained. All Interim Financial Reports and audit reports are submitted in a timely manner and accepted by the Bank. The project implementing agency is required to strengthen its internal controls to address the weakness of contract overpayment, which resulted in the issuance of a qualified audit opinions for the audit covering the period to June 30, 2023, and June 30, 2024. As of January 31, 2025, XDR 5.942 million (equivalent to US$7.743 million) (48.3 percent) of Credit is disbursed and US$18.953 million (100 percent) of total grants are disbursed. No disbursement was authorized since December 2023 due to the ineligible expenditure issue as presented below. 10. An independent auditor’s review of the project reports for the period from July 1, 2022, to June 30, 2023, received by the Bank on December 30, 2023, revealed that DGDC paid its contractors and consultants above the contracted amounts for three contracts under Components 1 and 3, prior to appropriate amendments to contracts being completed. The Bank review of the interim financial reports from July 1, 2023, to December 31, 2023, also identified additional payments made above the contract value. These additional payments were also confirmed by the auditors in their June 30, 2024, audit report. These payments in the total amount of US$1.923 million under IDA 2 The original name of Component 3 as “Technical Assistance for advancing large geothermal power plant to development status and soliciting private sector investment” was changed to the current name to align with the activities under the component proposed in the third restructuring in 2022. 3 The Project’s third restructuring allowed new technical assistance under Component 3 for preparation of investment in transmission network improvement that is necessary to connect the GPP to the national grid, the financing of which eventually is covered under DGRMII project. Page 2 The World Bank Dominica Geothermal Risk Mitigation Project (P162149) Credit 63760 and three Trust Funds (TF A9532, TF A9533, and TF A9545 were declared ineligible by the Bank in its letter to the Government of Commonwealth of Dominica (GOCD) of April 2, 2024, and requested refund of the said expenditures. It was agreed that a technical and financial audit of the three affected contracts would be carried out to assess all variations made in the scope of the original contracts to help DGDC define the final contract value for expanded scope, with supporting documentation for Bank’s review and to inform contract amendments, before closing the contracts. An auditor was contracted in December 2024 and the audit initiated in January 2025. A draft report is anticipated in February 2025 and the final report in March 2025. The results of the audit will inform the Bank and the GoCD on the potential next steps to resolve the issue of ineligible expenditures. 11. Procurement. Procurement performance is downgraded to Moderately Unsatisfactory due to the DGDC's inability to manage contracts effectively and adhere to fundamental procurement principles such as the management of contract amendments. Data in Systematic Tracking of Exchange in Procurement (STEP) is incomplete and inconsistent making post procurement reviews difficult to implement. An action plan has been agreed to address the identified procurement weaknesses with strong oversight from the Bank. 12. Monitoring and Evaluation (M&E). The Project M&E performance is rated Moderately Unsatisfactory on account of lapses in contract management reflected in earlier sections. 13. Environmental and Social (E&S). The E&S performance is Satisfactory. Regular Environmental Health and Safety monitoring is being conducted at the private DGPP construction sites by DGDC and their E&S supervision consultant. The implementation of the Abbreviated Resettlement Action Plan (ARAP) is completed for all twenty- five affected properties, owned by twenty-four Project Affected People. Under Component 3, the draft Environmental and Social Impact Assessment with the Environmental and Social Management Plan, draft Stakeholder Engagement Plan, draft Labor Management Procedures and draft ARAP for the DGRMII are prepared, consulted with stakeholders and disclosed by both DGDC and the Bank. The project has an active Grievance Redress Mechanism and to date, 48 grievances are recorded in the Grievance Registry since 2017. As of December 2024, 44 grievances have been resolved, and four are being processed. C. Rationale for the Restructuring 14. The GOCD via its letter to the Bank dated December 16, 2024, received by the Bank on December 18, 2024, requested for cancellation of SDR 5,520,906.07 from IDA Credit 6376-DM from Category 1 and SDR 204,284.77 from Category 2. Additionally, it requested cancellation of US$3 million grant from Category 1 of the CTF TF0A9533. The cancellations are being requested since the new transmission network connecting the GPP to the national grid is funded under the DGRMII project, which was approved in January 2024. Therefore, the IDA Credit allocated to this activity under the Project is no longer required and can be released to meet the other development priorities of GoCD4. With no further drilling of geothermal wells anticipated in the Project lifetime, the remaining CTF contingent grant under Component 2 will also not be expended. The proposed cancellation will not impact implementation of on-going or remaining activities under the project. 4 The GOCD's third restructuring request included plans for a follow-up project restructuring to use the remaining IDA funds under Component 1 of the project for financing the transmission network. However, studies financed under Component 3 of the project revealed that the remaining IDA funds for this project were insufficient to cover the entire transmission network costs. Consequently, it was decided that these costs would be financed under the recently approved DGRMII. Page 3 The World Bank Dominica Geothermal Risk Mitigation Project (P162149) II. DESCRIPTION OF PROPOSED CHANGES 15. The following changes are proposed with this restructuring: (a) Cancellation of SDR 5,725,190.84, including: (i) SDR 5,520,906.07 from Category 1 and (ii) SDR 204,284.77 from Category 2 of IDA Credit 6376-DM. (b) Cancellation of US$3 million from Category 1 of the CTF grant TF0A9533. (c) Adjustment in the disbursement forecast in accordance with the proposed cancellation. 16. The revised allocations to the respective disbursement categories of IDA Credit 6376-DM and CTF TFA9533 as well as the revised disbursement projections are indicated in Section IV of the Datasheet. @#&OPS~Doctype~OPS^dynamics@restrhybridsummarychanges#doctemplate Summary changes III. PROPOSED CHANGES Operation Information Proposed Changes Operation Information Proposed Changes Implementation Modalities Yes Loan Cancellations Yes Disbursements Estimates Yes Reallocations Yes Appraisal Summary Yes Loan Closing Date Extension No Development Objective No Financial Management No Safeguard Policies Triggered No Procurement No ISDS No Institutional Arrangement No MFD/PCE No Implementation Schedule No Results No Risks No Legal Covenants No Conditions No Disbursements Arrangements No DDO No Clients No Components No @#&OPS~Doctype~OPS^dynamics@restrhybriddetailedchanges-disclose#doctemplate IV. DETAILED CHANGE(S) Page 4 The World Bank Dominica Geothermal Risk Mitigation Project (P162149) COSTS & FINANCING Private Capital Facilitation Is this an MFD-Enabling Project (MFD-EP)? Is this project Private Capital Enabling (PCE)? LOANS Cancellations Reason Value Loan/Credit/ Current Cancellation New for Status Currency Date of Trust Fund Amount Amount Amount Cancellati Cancellation on LOAN RESTRUCT IDA-63760- Disbursi 12,300,000.0 XDR 5,725,190.84 18-Dec-2024 6,574,809.16 URING, 001 ng 0 COST SAVINGS Fully TF-A9531- Disburs USD 2,000,000.00 0.00 2,000,000.00 001 ed TF-A9532- Disbursi USD 953,000.00 0.00 953,000.00 001 ng LOAN RESTRUCT TF-A9533- Disbursi USD 9,000,000.00 3,000,000.00 18-Dec-2024 6,000,000.00 URING, 001 ng COST SAVINGS Fully TF-A9545- 10,000,000.0 Disburs USD 0.00 10,000,000.00 001 0 ed Reallocations IDA-63760-001 Cancellations (if any): New Allocation: Currency: XDR 5,725,190.84 6,574,809.16 Category Expenditure Current Actuals + Proposed Financing % No. Category Allocation Committed Allocation (Type Total) Page 5 The World Bank Dominica Geothermal Risk Mitigation Project (P162149) Current Proposed 1 GO, CW, NCS, CS, OP 10,514,000.00 4,420,574.85 4,993,093.93 100.00 100.00 & TR - Part 1; 2 GO, CW, NCS, CS, OP 1,786,000.00 1,052,236.32 1,581,715.23 100.00 100.00 & TR - Part 3; 3 Eligible Expenditures 0.00 0.00 0.00 100.00 0.00 for the CERP; 4 Complementary 0.00 0.00 0.00 100.00 0.00 Financing Cat DDO; Total 12,300,000.00 6,574,809.16 TF-A9531-001 Cancellations (if any): New Allocation: Currency: USD 0.00 2,000,000.00 Financing % (Type Total) Category Expenditure Current Actuals + Proposed No. Category Allocation Committed Allocation Current Proposed 1 GO, CW, NCS, CS - 2,000,000.00 2,000,000.00 0.00 100.00 0.00 Part 1; Total 2,000,000.00 0.00 TF-A9532-001 Cancellations (if any): New Allocation: Currency: USD 0.00 953,000.00 Financing % (Type Total) Category Expenditure Current Actuals + Proposed No. Category Allocation Committed Allocation Current Proposed 1 GO, CW, NCS, CS, OP, 0.00 0.00 0.00 100.00 0.00 TR - Part 2; 2 GO, CW, NCS, CS, OP, 953,000.00 953,000.00 953,000.00 100.00 0.00 TR - Part 3; Total 953,000.00 953,000.00 TF-A9533-001 Cancellations (if any): New Allocation: Currency: USD 3,000,000.00 6,000,000.00 Financing % (Type Total) Category Expenditure Current Actuals + Proposed No. Category Allocation Committed Allocation Current Proposed 1 GO, CW, NCS, CS, OP, 3,000,000.00 0.00 0.00 100.00 0.00 TR - Part 2; 2 GO, CW, NCS, CS, OP, 0.00 0.00 0.00 100.00 0.00 TR - Part 3; Page 6 The World Bank Dominica Geothermal Risk Mitigation Project (P162149) 3 GO, CW, NCS, CS, OP, 6,000,000.00 5,603,430.09 6,000,000.00 100.00 100.00 TR - Part 1; Total 9,000,000.00 6,000,000.00 TF-A9545-001 Cancellations (if any): New Allocation: Currency: USD 0.00 10,000,000.00 Financing % (Type Total) Category Expenditure Current Actuals + Proposed No. Category Allocation Committed Allocation Current Proposed 1 GO, CW, NCS, CS, OP, 10,000,000.00 10,000,000.00 0.00 100.00 0.00 TR - Part 1; Total 10,000,000.00 0.00 DISBURSEMENTS Operation Dates & Projection Details Reasons to change the full Disbursement date and/or the projection Restructuring Implementation Start Date Operation Closing Date 18-Mar-2019 28-Feb-2026 Projected Date for Full Disbursement 01-Jan-2026 Expected Disbursements (in US $) (Absolute) Original Estimation at Preparation Actual Year Revised Estimation (Approval Package – 18 Mar 2019) FY2019 48,265.20 0.00 0.00 FY2020 556,710.30 0.00 0.00 FY2021 731,604.00 2,000,000.00 2,000,000.00 FY2022 1,151,193.90 1,242,679.75 1,242,679.75 FY2023 1,750,659.00 24,938,525.21 24,938,525.21 FY2024 2,602,606.20 -1,206,531.00 -1,206,531.00 FY2025 3,432,573.30 834,673.86 0.00 FY2026 2,026,388.10 0.00 0.00 Page 7