$ Report No: RES00594 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF Southern Africa Trade and Connectivity Project APPROVED ON 27-Apr-2021 TO Republic of Malawi, Republic of Mozambique Finance, Competitiveness and Innovation Eastern And Southern Africa Regional Vice President: Victoria Kwakwa Regional Director: Hassan Zaman Country Director: Franz Dees Gross Practice Manager: Consolate K. Rusagara Task Team Leader(s): Ankur Huria, Laurent Olivier Corthay, Monica Augustina Cristina Moldovan The World Bank Southern Africa Trade and Connectivity Project (P164847) ABBREVIATIONS AND ACRONYMS ANE Mozambique’s Road Authority (Administração Nacional de Estradas) ARSO African Road Safety Observatory AT Mozambique's Customs Authority (Autoridade Tributária de Moçambique) CPMM Corridor Performance Measurement and Monitoring ESMF Environmental and Social Management Framework ESRM Environment and Social Risk Management FM Financial Management GBV Gender Based Violence GM Grievance Mechanism GOM Government of Mozambique IBRD International Bank for Restructuring and Development ICT Information, Communication and Technology IDA International Development Institution IFEPOM Instituto Ferro-Portuario de Moçambique IRAP International Road Assessment Program ISR Implementation Status and Results Report MFD Maximizing Finance for Development MOU Memorandum of Understanding MPW Ministry of Public Works, Housing and Water Resources MTL Mozambique’s Ministry of Transport and Logistics MTR Mid Term Review NDCMC Nacala Development Corridor Management Committee OSBP One Stop Border Post PAD Project Appraisal Document PBC Performance Based Contract PDO Project Development Objective PIU Project Implementation Unit PPA Project Preparation Advance SATCP Southern Africa Trade and Connectivity Project SEA/SH Sexual Exploitation and Abuse/Sexual Harassment SR4S Star Rating for Schools STR Simplified Trade Regime i The World Bank Southern Africa Trade and Connectivity Project (P164847) @#&OPS~Doctype~OPS^dynamics@restrhybridbasicdata#doctemplate BASIC DATA Product Information Operation ID Operation Name P164847 Southern Africa Trade and Connectivity Project Product/Financing Instrument Geographical Identifier Investment Project Financing (IPF) Eastern and Southern Africa Approval Date Current Closing Date 27-Apr-2021 30-Jun-2027 Original EA Category Full Assessment (A) (PAD Approval Package-27 Apr 2021) Organizations Borrower Responsible Agency Fundo de Estradas, Republic of Mozambique, Ministry of Transport and Logistics, Republic of Mozambique, Ministry of Republic of Malawi, Republic of Mozambique Transport and Public Works, Republic of Malawi, Roads Authority, Republic of Malawi @#&OPS~Doctype~OPS^dynamics@restrhybridoperationstatus#doctemplate OPERATION STATUS Project Development Objective (DO) Original Development Objective The project development objective is to support Malawi and Mozambique in increasing regional trade coordination, reducing trade costs and time, developing regional value chains, and improving access to infrastructure. Disbursement Summary (in USD million) Source of Funds Net Commitment Disbursed Undisbursed % Disbursed IBRD -- -- -- 0 ii The World Bank Southern Africa Trade and Connectivity Project (P164847) IDA 349.12 71.08 278.50 20.33 Grants -- -- -- 0 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 iii The World Bank Southern Africa Trade and Connectivity Project (P164847) TABLE OF CONTENTS I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING ........................................................................................1 II. DESCRIPTION OF PROPOSED CHANGES ....................................................................................................................5 III. PROPOSED CHANGES ................................................................................................................................................5 IV. DETAILED CHANGE(S) ...............................................................................................................................................6 The World Bank Southern Africa Trade and Connectivity Project (P164847) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Introduction • This restructuring paper seeks the approval of the Country Director on a proposed level II simple restructuring of the Southern Africa Trade and Connectivity Project (SATCP, P168847), Grant Number IDA-D8030 (for Mozambique). This is the first Restructuring to the Project. The proposed restructuring for Mozambique aims to cancel US$ 119,429,314 (SDR 90,948,029) amount from IDA (International Development Association) resources for rapid deployment to another transport project. A second restructuring for Mozambique will be conducted to refocus the project on activities essential to achieving its objectives within the allocated time and budget and align selected indicators to the corporate scorecard. This will be conducted upon receipt of the government of Mozambique’s letter. B. Project Status and Rationale for Restructuring • The project, financed by an IDA grant of US$ 230 million equivalent to Mozambique, was approved in April 2021 and became effective on September 24, 2021. The overall project development objective (PDO) is to support Malawi and Mozambique in increasing regional trade coordination, reducing trade costs and time, developing regional value chains, and improving access to infrastructure. The closing date of the project is June 30, 2027. • The project is comprised of four components, as indicated in Table 1: Table 1: Project components with original costs (amounts in US$ millions equivalent) Project component Mozambique Malawi Total cost (by (US$) (US$) sub-component) (US$) Component 1: Reduce trade costs 1.1 Enabling digital trade: Development of trade ICT systems 3mn 20mn 23mn 1.2 Improving borders and their management 57mn 26mn 83mn 1.3 Strengthening trade and connectivity institutional capacity 7mn 7mn 14mn Component 2 – Strengthen regional coordination and project 18mn 18mn 36mn implementation (Of which Project Preparation Advance) (2.5mn) (1.4mn) (3.9mn) Component 3 – Strengthen value chains for regional integration 20mn 14mn 34mn Component 4 – Strengthen transport infrastructure to improve market access 4.1 Roads 110mn 57mn 167mn 4.2 Improve road safety 15mn 8mn 23mn Total cost (by country) 230mn 150mn 380mn • The most recent Implementation Status and Results (ISR) Report (November 2024) ratings Table 2: Project ratings Title Malawi Mozambique PDO Moderately Satisfactory Moderately Unsatisfactory IP Moderately Satisfactory Moderately Unsatisfactory Component 1: Reduce Trade Costs Moderately Satisfactory Moderately Unsatisfactory Component 2: Strengthen Regional Coordination Satisfactory Satisfactory Component 3: Strengthen Value Chains for Regional Moderately Satisfactory Satisfactory Integration Page 1 The World Bank Southern Africa Trade and Connectivity Project (P164847) Component 4: Strengthen Transport infrastructure Moderately Satisfactory Moderately Satisfactory Project Management Moderately Satisfactory Moderately Unsatisfactory Procurement Satisfactory Moderately Satisfactory Financial Management Moderately Satisfactory Satisfactory Safeguards Satisfactory Satisfactory • Several key PDO indicators related to the regionality of the project and value chains are showing positive trends and are on track. The project had several achievements under component 2 on regional coordination that include: (i) Signing of three pivotal regional agreements by the Presidents of Malawi, Mozambique, and Zambia on October 7, 2023; (ii) Signing of bilateral agreements/Memoranda of Understanding (MoUs) on agricultural trade, the Simplified Trade Regime (STR), and One Stop Border Posts (OSBP); (iii) Establishment of a Corridor Performance Measurement and Monitoring system (CPMM) with key transport and trade indicators published online; and (iv) Progress on the establishment and operationalization of the Nacala Development Corridor Management Committee (NDCMC) secretariat. The project also maintains an acceptable pace of implementation in Mozambique, regarding disbursement from Catalytic Funds under component 3. The project’s challenges pertain to delays in the implementation of component 4 on road rehabilitation and some activities under component 1 (reduce trade costs). However, the project is implementing the acceleration plan developed during the Mid Term Review (MTR) to speed up activity implementation. • The current disbursement in Mozambique is US$ 31.29 million (13.6 percent) from a total of US$ 230 million with approximately US$ 25.9 million in current commitments (11.2 percent) and US$ 40 million (17.3 percent) in infrastructure (laboratory rehabilitation, last mile infrastructure (LMI), and OSBPs) expected to begin construction in October 2025. With the proposed cancelation of US$ 119,429,3141 million for component 4 in this restructuring the revised project size in Mozambique would reduce to US$ 110.6 million and the project can focus on the core activities required to achieve the PDO. To this end, in March 2025 the Government of Mozambique (GoM) requested the World Bank to partially cancel the balance of IDA funds for component and to redirect such funds to a new regional transport project. • The proposed first restructuring would cancel uncommitted funds from component 4 on road rehabilitation and road safety for Mozambique (US$ 119,429,314 million). This component has been delayed, and it was deemed unlikely to be completed before the end of the project. As described in the project appraisal document (PAD) and the project’s theory of change, the roads identified through a multi-criteria analysis prior to project approval were meant to specifically promote agricultural (and other) production linked to component 3: Strengthening Value Chains for Regional Integration. The roads were expected to be constructed in the early part of the project, allowing firms and farmers from the areas served by the roads to benefit from the grant financing facility in component 3. However, the 14 matching grant recipients identified through Component 3’s competitive mechanism are not located in the vicinity of the proposed roads, since the roads were delayed and had not been built. Disbursements to the firms in component 3 are ongoing, and the relevance of the roads to the PDO in SATCP is now limited. SATCP will complete the design studies of the roads with their construction better served in a dedicated regional transport project under preparation. Given the limited capacity of the National Roads Administration (ANE) and the common challenges faced across several other road infrastructure projects administered by it, a dedicated transport corridor project provides an optimal avenue for their successful construction on time and within budget. • Upon receipt of a government letter, a second restructuring is proposed to refocus the activities and ensure completion of the project on time and within budget. This would include - 1Corresponds to 90,948,029 million SDR as indicated in the cancellation request letter from Borrower dated February 24th, 2025 and received on February 27th, 2025. Page 2 The World Bank Southern Africa Trade and Connectivity Project (P164847) a. Prioritizing connectivity for key borders with Malawi and Zambia and that link to the potential of value chains for regional trade. Due to a shortage of financing, the project will refocus on the three borders with higher traffic movements: Zobue and Caloume with Malawi, and Cassacatiza with Mozambique. These borders are key trade points, with over 5-8 times the traffic of the Milange border with Malawi. They are also highly relevant for the 14 firms selected for grant financing under component 3’s financing facility. Resettlement at the three borders is expected to cost US$ 110,000, and the GoM proposes to request these costs to be an eligible expenditure from project funds allocated for the border posts. A draft Memo to finance land expenditures (land compensation and other assistance, paid in cash) from IDA financing have been prepared, will be submitted for approval, and processed separately. The new trade infrastructure, combined with the project’s trade facilitation initiatives on digital and agricultural trade, will help reduce trade costs and time along the corridors. Additionally, the corresponding borders (Dedza and Mwanza in Malawi and Chanida in Zambia) have already been rehabilitated. The project will continue to fund the design studies for the Milange border (with Malawi, which suffered extensive flooding and requires additional funding and time for completion) and the Ponta D’Ouro border post (with South Africa). Construction will be facilitated in an appropriate future project by the WBG or other development partners. b. Cancel uncommitted funds from component 1 related to IFEPOM. This activity has been delayed. The importance of port and rail regulation to the Nacala and Beira corridors requires a revised approach due to significant developments along the corridor. A significant portion of investment in rail transportation has been undertaken by the private sector along the Nacala corridor. However, Mozambique's approach has been piecemeal, lacking a clear strategy for sharing existing public and private infrastructure, managing cross-border operations with Malawi and Zimbabwe, and involving third-party operators. IFEPOM was set up to ensure a coherent regulatory framework that serves both investment needs and modern infrastructure development. Multi-modal programs along the corridors will require a new approach to corridor evaluation to demonstrate efficiency and profitability, depending on the effective sequencing of program elements and the introduction of competition. These objectives are best served under the proposed new regional transport corridor project, which can take a more holistic approach in helping establish IFEPOM as a good practice regulator. c. Finally, the project intends to utilize the opportunity presented by the proposed restructuring to introduce relevant corporate scorecard indicators. The project will also remove the intermediate indicators linked to component 4 in Mozambique that relate to the cancelation. • The GoM has recently restructured Ministries and Agencies, moving ANE from the Ministry of Public Works, Housing and Water Resources (MPW) to the Ministry of Transport and Logistics (MTL). The project had Project Implementation Units (PIUs) at both MTL and ANE, with the latter housed in the MPW. With this change, both PIUs will now be under the MTL, strengthening the project's effectiveness and coordination by providing optimal oversight. The government is considering several options for integrating various project PIUs to ensure effective project implementation. Regardless of any proposed future changes, it is not expected that the critical staffing for the project, as outlined in the financing agreement (including fiduciary, safeguards, and other functions), will change. Project staff are expected to continue in their positions until the project ends, subject to the conditions in their contracts • Environmental and Social Risk Management (ESRM). a. The Environmental and Social performance of the project is rated as satisfactory. The project has a fully staffed PIU for ESRM at central level. This includes an Environmental and Social (E&S) specialist for MTL and four specialists for ANE: one for environmental, occupational health, and safety, one social specialist, and one GBV/SEA/SH specialist. At the provincial level, four out of six E&S safeguards officers have been recruited. The recruitment of the ANE E&S officer for Tete and the ANE social officer for Nampula is still Page 3 The World Bank Southern Africa Trade and Connectivity Project (P164847) pending, with expected completion dates by the end of April. The PIU has been adhering to the ESRM procedures outlined in the Environmental and Social Management Framework (ESMF) approved for the project to ensure compliance with applicable Safeguard Policies requirements. These include: (i) conducting E&S screening of all subprojects; (ii) preparing the required E&S instruments; (iii) enforcing requirements and obtaining necessary permits under the national E&S framework; (iv) including adequate E&S requirements in bidding processes and contracts for supervising consultants and contractors; (v) engaging with stakeholders; (vi) developing and implementing a Grievance Mechanism (GM) for the project; (vii) executing a capacity building program on E&S safeguards across institutions involved in project implementation; and (viii) reporting to the Bank on the Environmental, Social, Health, and Safety (ESHS) performance of the project, primarily through regular meetings. b. The Project's Grievance Mechanism (GM) is operational and has been widely made accessible. The established entry points for grievances include grievance boxes, e-mail, website, community leaders, and Provincial FPs for Nampula, Niassa, and Tete. The process to operationalize the green line is near completion. Grievances received have been requests for information related to the project or on matters that are not project related. These have been closed. Civil works are expected to start in the last quarter of the calendar year. ANE maintains a centralized register of complaints on all project fronts and the project will continue to provide the GRM as part of the continuous improvement process. Furthermore, the project is transitioning from the provision of third-party provider services for the treatment of GBV/SEA/SH cases to specialists who have recently been hired, who will provide support and response services to GBV/SEA/SH survivors. The project has made good progress in preparing resettlement plans to cover the different types of allocations, and in calculating the budget needed to pay the respective compensations. The borrower reiterated that no civil works will be carried out in the affected areas until compensation has been paid to the affected parties. c. The project is classified as Category A according to Safeguard Policies. The main drivers for this classification include (i) the adverse substantial to high E&S risks and impacts potentially generated by the physical investments (construction and/or rehabilitation of roads, boarder posts, buildings, agriculture infrastructure) financed by the project, which include environmental pollution, occupational and community health and safety risks, labor and working conditions related issues, involuntary resettlement and land acquisition, SEA/SH risks, and (ii) weak capacity of the PIU to ensure the project’s E&S risks are managed in a manner consistent with the Bank safeguards’ requirements. As part of the restructuring, the planned rehabilitation of roads in Mozambique will be removed from the project scope and included in a new operation currently under preparation. Despite this change, most of the planned physical investment remain. Additionally, though the PIU has now in place a full E&S team at central and provincial level, several ESRM capacity remain within the implementing agencies, which require continues hands one support from the E&S Bank team. Thus, the risk rating on E&S remains overall high and the ESRM measures in place remain relevant. • Financial Management (FM). The project's FM performance in the two PIUs remains Satisfactory. The recent FM supervision concluded that both implementing agencies have been working to ensure compliance with FM and Disbursement policies and procedures applicable to Bank-financed projects. However, the use of funds advanced to the designated accounts remains low. Therefore, the PIUs are implementing the acceleration plan as discussed in the Mid-term Review to expedite the implementation of activities, thereby accelerating the use of funds and increasing the Project's disbursement rate. There is no pending IFR or audit report under this operation. • Procurement. The procurement performance is moderately satisfactory (MS). SATCP will continue to have procurement responsibility for the implementation of the remaining activities after the reduction of $119.4 million from component 4 and the capacity of the SATCP will be retained. The procurement capacity of the SATCP Procurement Unit was assessed by the Bank as part of the implementation support mission (ISM) carried out in Page 4 The World Bank Southern Africa Trade and Connectivity Project (P164847) November 2024 and remains unchanged. The structure of the procurement function in place within the SATCP is composed with one Procurement Specialists and one Procurement assistant and have the required qualifications. Some delays in the preparation of terms of references (ToRs), evaluation of bids/proposals and weak record keeping. The risk will maintain Substantial (S). II. DESCRIPTION OF PROPOSED CHANGES • The PDO and Theory of Change for the project remain relevant and will not be changed. Additionally, there will be no change to the project closing date, procurement, FM, or implementation arrangements. • Changes to component activities and component costs. Project components will remain the same except for the cancelation of component 4 in Mozambique in this first restructuring. The change is as follows: a. Component 4: Strengthening transport infrastructure to improve market access (Revised Allocation US$ 5.6 million) Due to significant delays in implementing activities and limited relevance for achieving the PDO, the sub-component is cancelled fully except for committed and paid activities that include design studies for the roads. The implementing agency for Roads – ANE will continue to work on border posts under component 1. Table 3: Changes to component costs Mozambique (amounts in US$ millions equivalent) Original Cancelled Revised Project Components IDA funds Amount (-) allocation allocated Component 1: Reduce trade costs 67 million 67 million Component 2: Strengthening regional coordination and project implementation 18 million 18 million Component 3: Strengthening value chains for regional integration 20 million 20 million Component 4: Strengthening transport infrastructure to improve market access 119.4 125 million 5.6 million million 119.4 Total 230 million 110.6 million million @#&OPS~Doctype~OPS^dynamics@restrhybridsummarychanges#doctemplate Summary changes III. PROPOSED CHANGES Operation Information Proposed Changes Operation Information Proposed Changes Disbursements Estimates Yes Loan Cancellations Yes Components Yes Reallocations Yes Development Objective No Loan Closing Date Extension No Safeguard Policies Triggered No Financial Management No ISDS No Procurement No Page 5 The World Bank Southern Africa Trade and Connectivity Project (P164847) MFD/PCE No Institutional Arrangement No Results No Implementation Schedule No Risks No Legal Covenants No Conditions No Implementation Modalities No Disbursements Arrangements No DDO No Clients No Appraisal Summary No @#&OPS~Doctype~OPS^dynamics@restrhybriddetailedchanges-disclose#doctemplate IV. DETAILED CHANGE(S) COMPONENTS Current Current Proposed Proposed Cost Action Component Name Cost (USD) Component Name (USD) Reduce Trade Costs 120,000,000.00 No Change Reduce Trade Costs 120,000,000.00 Strengthen Regional Strengthen Regional Coordination and Project 36,000,000.00 No Change Coordination and Project 36,000,000.00 Implementation Implementation Strengthen Value Chains for Strengthen Value Chains for 34,000,000.00 No Change 34,000,000.00 Regional Integration Regional Integration Strengthen Transport Strengthen Transport Infrastructure to Improve 190,000,000.00 Revised Infrastructure to Improve 70,570,686.00 Market Access Market Access TOTAL 380,000,000.00 260,570,686.00 COSTS & FINANCING Private Capital Facilitation Is this an MFD-Enabling Project (MFD-EP)? Is this project Private Capital Enabling (PCE)? Page 6 The World Bank Southern Africa Trade and Connectivity Project (P164847) LOANS Cancellations Reason Value Loan/Credit/ Current Cancellation New for Status Currency Date of Trust Fund Amount Amount Amount Cancellati Cancellation on IDA-68700- Disbursi 52,200,000.0 XDR 0.00 52,200,000.00 001 ng 0 LOAN RESTRUCT IDA-D8030- Disbursi 159,900,000. 90,948,029.0 XDR 27-Feb-2025 68,951,971.00 URING, 001 ng 00 0 COST SAVINGS IDA-D8040- Disbursi 52,200,000.0 XDR 0.00 52,200,000.00 001 ng 0 Reallocations IDA-68700-001 Cancellations (if any): New Allocation: Currency: XDR 0.00 52,200,000.00 Financing % (Type Total) Category Expenditure Current Actuals + Proposed No. Category Allocation Committed Allocation Current Proposed 1 Gd, NCS, CS, Grants, 23,200,000.00 8,193,172.56 0.00 50.00 0.00 Tr OC (MOTPW); 2 Gd, NCS, CS, Grants, 27,900,000.00 602,833.03 0.00 50.00 0.00 Tr OC (PIE); 3 Refund of the 1,100,000.00 206.93 0.00 0.00 0.00 Preparation Advance; Total 52,200,000.00 0.00 IDA-D8030-001 Cancellations (if any): New Allocation: Currency: XDR 90,948,029.00 68,951,971.00 Financing % (Type Total) Category Expenditure Current Actuals + Proposed No. Category Allocation Committed Allocation Current Proposed 1 Gd,N/CS,InGnt,MhgG 44,800,000.00 12,024,879.98 44,800,000.00 100.00 100.00 nt,Tr,Oc see more; Page 7 The World Bank Southern Africa Trade and Connectivity Project (P164847) 2 G,W,N/CS,Tr,O 113,300,000.0 160,936.97 22,351,971.00 100.00 100.00 PT1.2bi,4.1a&4.2b 0 PIE; 3 Refund of the 1,800,000.00 541,348.88 1,800,000.00 0.00 0.00 Preparation Advance; Total 159,900,000.0 68,951,971.00 0 IDA-D8040-001 Cancellations (if any): New Allocation: Currency: XDR 0.00 52,200,000.00 Financing % (Type Total) Category Expenditure Current Actuals + Proposed No. Category Allocation Committed Allocation Current Proposed 1 G,Ncs,CS,InnGrn,Mtc 24,300,000.00 8,465,320.28 0.00 50.00 0.00 n Gr,Tr,IOC-MOTP; 2 G,Wk,NCS,CS,Trg,IOC 27,900,000.00 603,734.07 0.00 50.00 0.00 - PIE; Total 52,200,000.00 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 27-Apr-2021 30-Jun-2027 Projected Date for Full Disbursement 02-Jul-2027 Expected Disbursements (in US $) (Absolute) Original Estimation at Preparation Actual Year Revised Estimation (Approval Package – 27 Apr 2021) FY2021 232,000.00 232,000.00 0.00 FY2022 13,919,999.97 18,666,666.69 12,356,959.42 FY2023 55,679,999.97 41,903,016.54 13,615,129.44 FY2024 69,600,000.03 49,227,791.19 26,764,789.22 FY2025 80,880,000.00 40,000,000.00 18,344,722.27 Page 8 The World Bank Southern Africa Trade and Connectivity Project (P164847) FY2026 41,760,000.00 60,541,211.58 0.00 FY2027 21,653,333.30 50,000,000.00 0.00 Page 9