$ Report No: RES00295 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF Ethiopia Digital ID for Inclusion and Services Project APPROVED ON 13-Dec-2023 TO Federal Democratic Republic of Ethiopia Digital Development Eastern And Southern Africa Regional Vice President: Victoria Kwakwa Regional Director: Paul Noumba Country Director: Maryam Salim Practice Manager: Maria Isabel A. S. Neto Task Team Leader(s): Luda Bujoreanu, Jonathan Daniel Marskell The World Bank Ethiopia Digital ID for Inclusion and Services Project (P179040) ABBREVIATIONS AND ACRONYMS NIDP National ID Program PIU Project Implementation Unit PMO Prime Minister’s Office GPN General Procurement Notice PAD Project Appraisal Document GRM Grievance Redressal Mechanism IFR Interim Financial Report ICS Immigration and Citizenship Services ESF Environmental and Social Framework ESMF Environmental and Social Management Framework MOU Memorandum of Understanding The World Bank Ethiopia Digital ID for Inclusion and Services Project (P179040) @#&OPS~Doctype~OPS^dynamics@restrhybridbasicdata#doctemplate BASIC DATA Product Information Operation ID Operation Name P179040 Ethiopia Digital ID for Inclusion and Services Project Product/Financing Instrument Geographical Identifier Investment Project Financing (IPF) Ethiopia Approval Date Current Closing Date 13-Dec-2023 07-Jan-2029 Environmental and Social Risk Classification (ESRC) Substantial Organizations Borrower Responsible Agency Federal Democratic Republic of Ethiopia Prime Minister's Office @#&OPS~Doctype~OPS^dynamics@restrhybridoperationstatus#doctemplate OPERATION STATUS Project Development Objective (DO) Original Development Objective The Project Development Objective is to establish an inclusive digital ID ecosystem and improve service delivery for registered persons in Ethiopia. Disbursement Summary (in USD million) Source of Funds Net Commitment Disbursed Balance % Disbursed IBRD -- -- -- 0 i The World Bank Ethiopia Digital ID for Inclusion and Services Project (P179040) IDA 350.00 10.29 339.71 2.94 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 ii The World Bank Ethiopia Digital ID for Inclusion and Services Project (P179040) TABLE OF CONTENTS I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING ........................................................................................1 II. DESCRIPTION OF PROPOSED CHANGES ....................................................................................................................2 III. PROPOSED CHANGES ................................................................................................................................................3 IV. DETAILED CHANGE(S) ...............................................................................................................................................4 The World Bank Ethiopia Digital ID for Inclusion and Services Project (P179040) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project status 1. The Ethiopia Digital ID for Inclusion and Services Project, approved by the Board in December 2023, became effective on May 15, 2024, and implementation has had a good start. The Project Implementation Unit (PIU) housed within the National ID Program (NIDP) in the Prime Minister’s Office (PMO), is currently staffed with a Project Manager, Social and Environmental specialists. The processes of hiring a Procurement Advisor, Procurement Specialist, Financial Management Specialist and accountant are all at advanced stages are expected to be completed by September 2024. The Project’s designated account is set up, and the first withdrawal of US$10.29 million was made at the end of June 2024. The General Procurement Notice (GPN) was published, and the initial procurement plan was given no objection. The latter includes three large contracts (for an Automated Biometric Information System (ABIS), a Systems Integrator, and Super Agents), for which the draft tender documents are at advanced stages and expected to be advertised by the end of September 2024. The fiduciary arrangements are in place, there are no overdue audits and the first quarterly IFR expected is expected to submitted end of August 21, 2024. So far, the project has not experienced any issues related to ESF or GRM. 2. Subcomponent 3.1 of the Project supports mass registration and issuance of physical IDs to Ethiopian residents (US$190 million IDA) and aims to provide Fayda registration to 90 million of nationals and non-nationals, including disadvantaged groups, such as women, girls, and persons with disabilities (except for refugees and host communities, which are funded by Subcomponent 3.2). The Project is well positioned to achieve this ambitious target through four registration channels as described in the Project Appraisal Document (PAD) and detailed in the approved Project Implementation Manual (PIM). The same channels are expected to be used to issue various ID credentials. The channels are: (i) Registration partners (government agencies and state-owned enterprises1); (ii) Super agents (private companies procured through a competitive process); (iii) Fayda Centers (permanent, temporary, and mobile centers to be established and operated by NIDP); and (iv) Civil registration (registration of births by the Immigration and Citizenship Services, ICS). The registration partners and Super Agents will be paid for every successfully verified Fayda registration. The costs of Fayda Centers and civil registration will be the direct responsibility of NIDP and ICS, respectively. B. Rationale for restructuring 3. A level II restructuring is needed to update the definition of the operating costs in the Financing Agreement (FA) to enable the Project to pay incremental operating costs of the registration partners in connection with the provision of Fayda registration and credential distribution services (under Subcomponent 3.1). It is expected that at least 20 million residents will be registered by the registration partners that are government agencies and state-owned enterprises listed in the Project Implementation Manual, at a pre-agreed registration rate which varies between $1.5-$2.0 for each successfully verified registration, with an overall estimated cost of about US$ 30-40 million over the course of next few years. While this was always the intention and is already reflected in project documents, the definition of 1 The list of eligible registration partners is being finalized and expects to include the following: Financial Institutions licensed by the National Bank of Ethiopia (NBE); Ministry of Revenues; Ministry of Health; Ministry of Education; Ministry of Urban Development and Infrastructure; Ministry of Agriculture; Ethiopian Disaster Risk Management Commission; Ministry of Transport and Logistics; Ministry of Peace, Ministry of Women and Social Affairs; Ministry of Labor and Skills; Document Registration and Authentication Service; Civil Service Commission; Immigration and Citizenship Service; Ethiopian Agricultural Transformation Institute; Ethio Post; Health Insurance Agency; Municipalities; Regional/City Administration Governments and Bureaus; and Ethio Telecom. Page 1 The World Bank Ethiopia Digital ID for Inclusion and Services Project (P179040) “operating cost” in the negotiated Financing agreement does not explicitly mention it and therefore the definition needs to be updated. 4. Reimbursing of incremental operating expenses to the registration partners is part of the intended design of the Project. The rationale for using the “operating cost” category for reimbursing registration partners, instead of as a non-consulting service through competitive process, is that these are government owned agencies that will be recouping for their own human resources, physical infrastructure used, and other operating costs, and not making a profit. There are two types of reimbursement fee, which has been calculated based on the estimated costs: (i) US$2.00 per successful registration if the registration partner has independently purchased the registration kits (such as the case for EthioTelecom and Banks); and (ii) US$1.50 per successful registration if NIDP has provided the registration kits. Treating these expenses as operating costs will optimize the efficiency of operation, increase registration speed and therefore overall project impact, including in the area of improved service delivery. 5. Registration partners are expected to cover a large proportion of the population and help with meeting Project Development Objective targets (on Number of people issued with a Digital ID). They are in a better position to capitalize on the existing physical presence throughout the country and personnel already in place, including in all regions. The registration partners channel is important for the implementation of the Project for two more reasons. Firstly, since these government agencies and state-owned enterprises will not have a commercial incentive (unlike the Super Agents channel, which are private companies), they are able to more easily focus on registering and issuing digital IDs to disadvantaged and hard-to-reach populations, especially in lower population density areas as in most cases government agencies already have some sort of presence and operations there. Moreover, the registration partners are much more likely to interact with these populations, for their own purposes, such as for delivery of social protection benefits, and could do Fayda registration at the same time, as has already been tested during Fayda registration pilots. Secondly, they will use equipment and software provided by NIDP, which can then be re-used for the ongoing registration and data updates after the initial registration drive, including at Fayda Centers, after the initial mass registration, which will further strengthen the sustainability of the Project. 6. Governance of the arrangements with registration partners is strong. NIDP has prepared a standard Memorandum of Understanding (MoU) between registration partners and NIDP. The MOU template is now cleared, having benefitted from multiple rounds of reviews and inputs by the Bank team to ensure that the registration partners uphold high standards of personal data protection, including compliance with the Personal Data Protection Proclamation. The MoUs also include provisions related to the World Bank’s Anti-Corruption Guidelines, standards concept form and the registration personnel will be a subject to non-disclosure agreement. No reimbursement will be done for any registrations that occurred before the MOU is signed, with two witnesses on both sides. The MoU are expected to be signed for a period of one year (renewable upon satisfactory performance), with termination clauses for non- performance, any material breach of the terms and conditions, including for non-compliance with any of the existing laws in Ethiopia including the Digital ID Proclamation and Personal Data Protection Proclamation. II. DESCRIPTION OF PROPOSED CHANGES To better align the Financing agreement with the intended Project’s intended design, a technical amendment will be made to the FA to add to the definition of “Operating costs”: (x) reimbursement of Registration Partners’ incremental costs incurred on account of registration, issuance and distribution of physical and digital IDs to Ethiopian residents”. 7. The new definition of “Operating costs” would therefore read as follows (with addition bold and underlined): Page 2 The World Bank Ethiopia Digital ID for Inclusion and Services Project (P179040) “Operating Costs” means recurrent costs of the Project, including: (i) operation and maintenance of vehicle, repairs, fuel and spare parts; (ii) computer maintenance, including hardware, software; (iii) communication costs and shipment costs (whenever these costs are not included in the cost of goods); (iv) small office supplies; (v) rent and maintenance for office facilities; (vi) utilities and insurances; (vii) travel and per diem costs for technical staff carrying out supervisory and quality control activities; (viii) bank fees and miscellaneous; (ix) salaries of support staff for the Project, but excluding salaries of the Recipient’s civil servants and (x) reimbursement of Registration Partners’ incremental costs incurred on account of registration, issuance and distribution of physical and digital IDs to Ethiopian residents.” 8. The changes to the definition of the operating cots does not affect the Project’s scope, design, implementation arrangements, nor the risk assessments. This update will not affect financial or procurement arrangements for the project. Summary of Performance of E&S Risk Compliance 9. The Project’s ESF compliance is satisfactory. The Environmental and Social Management Framework (ESMF) and other Environmental and Social Framework (ESF) documents have been cleared and disclosed. The PIU is now staffed with Environmental and Social specialist. No ESF-related issues have been observed and no grievances have been received. Describe any E&S issues and impacts associated with the change in project design. Identify and describe any potential large scale, significant and/or irreversible impacts. None Describe any potential indirect and/or long-term impacts due to anticipated future activities in the project areas. None Describe any project alternatives (if relevant) considered to help avoid or minimize adverse impacts. N/A Describe measures taken by the borrower to address E&S policy issues. Provide an assessment of borrower capacity to plan and implement the measure described. N/A Identify key stakeholders and describe the mechanism for consultation and disclosure on E&S policies, with an emphasis of potentially affected people. N/A @#&OPS~Doctype~OPS^dynamics@restrhybridsummarychanges#doctemplate Summary changes III. PROPOSED CHANGES Page 3 The World Bank Ethiopia Digital ID for Inclusion and Services Project (P179040) Operation Information Proposed Changes Operation Information Proposed Changes Development Objective No Loan Closing Date Extension No Summary Description No Loan Cancellations No (Operation Abstract) Legal Operational Policies No Reallocations No MFD/PCE No Financial Management No Results No Procurement No Risks No Institutional Arrangement No Legal Covenants No Implementation Schedule No Conditions No Implementation Modalities No Disbursements Estimates No Disbursements Arrangements No DDO No Clients No Appraisal Summary No Components No @#&OPS~Doctype~OPS^dynamics@restrhybriddetailedchanges-disclose#doctemplate IV. DETAILED CHANGE(S) COSTS & FINANCING Private Capital Facilitation Is this an MFD-Enabling Project (MFD-EP)? Yes Last approved as part of PAD Data Sheet (Approval) on 13-Dec-2023 Is this project Private Capital Enabling (PCE)? No Last approved as part of PAD Data Sheet (Approval) on 13-Dec-2023 LOANS ENVIRONMENTAL & SOCIAL Environmental & Social Assessment Page 4 The World Bank Ethiopia Digital ID for Inclusion and Services Project (P179040) According to the E/S Specialist are there changes proposed to the operation’s design that No would impact the Bank’s E&S assessment?” Page 5