$ Report No: RES00303 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF Kosovo Water Security and Canal Protection Project APPROVED ON SEPTEMBER 30, 2016 TO Republic of Kosovo Water Europe And Central Asia September 23, 2024 Regional Vice President: Antonella Bassani Regional Director: Sameh Naguib Wahba Tadros Country Director: Xiaoqing Yu Practice Manager: Winston Yu Task Team Leader(s): Trandelina Baraku The World Bank Kosovo Water Security and Canal Protection Project (P133829) ABBREVIATIONS AND ACRONYMS Iber-Lepenc Canal ILC Project Development Objective PDO Supervisory Control and Data Acquisition SCADA Water Security and Canal Protection WSCP The World Bank Kosovo Water Security and Canal Protection Project (P133829) @#&OPS~Doctype~OPS^dynamics@restrhybridbasicdata#doctemplate BASIC DATA Product Information Operation ID Operation Name P133829 Kosovo Water Security and Canal Protection Project Product/Financing Instrument Geographical Identifier Investment Project Financing (IPF) Kosovo Approval Date Current Closing Date 30-Sep-2016 31-Oct-2024 Original EA Category Partial Assessment (B) (PAD Approval Package-30 Sep 2016) Organizations Borrower Responsible Agency Republic of Kosovo Hydro Economic Iber-Lepenc JSC, Ministry of Economy @#&OPS~Doctype~OPS^dynamics@restrhybridoperationstatus#doctemplate OPERATION STATUS Project Development Objective (DO) Original Development Objective The objective of the Project is to contribute to restoring the Iber Canal to its original capacity to improve water resource management for various canal water users in Central Kosovo. Disbursement Summary (in USD million) Source of Funds Net Commitment Disbursed Undisbursed % Disbursed IBRD -- -- -- 0 i The World Bank Kosovo Water Security and Canal Protection Project (P133829) IDA 16.99 12.88 4.22 75.83 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 Kosovo Water Security and Canal Protection Project (P133829) TABLE OF CONTENTS I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING ........................................................................................1 II. DESCRIPTION OF PROPOSED CHANGES ....................................................................................................................3 III. PROPOSED CHANGES ................................................................................................................................................3 IV. DETAILED CHANGE(S) ...............................................................................................................................................4 The World Bank Kosovo Water Security and Canal Protection Project (P133829) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING 1. Background. The EUR 22 million IDA credit for Kosovo Water Security and Canal Protection Project (P133829) was approved by the World Bank Board of Executive Directors on September 16, 2016 and became effective on June 26, 2017. The Project Development Objective (PDO) is to contribute to restoring the Iber Canal to its original capacity to improve water resource management for various canal users in Central Kosovo. 2. The Project has three components: i. Component 1 ‘Infrastructure Rehabilitation and Modernization’ to finance main Iber canal rehabilitation works for re-establishing the Iber canal transit capacity, enabling it closure for maintenance, and strengthening the canal structural safety against extreme events; ii. Component 2 ‘Water Resources Protection and Management’ to finance works for water resources protection and management, increase the water management system operational efficiency, including installation of Supervisory Control and Data Acquisition (SCADA) system, and protect the canal ambient water quality against renewed or accidental pollution and other man-made disruptions; and iii. Component 3 ‘Project Management, Coordination, Monitoring and Evaluation’. 3. The Project was initially restructured on February 22, 2022, based on Client’s request to process the partial cancellation of EUR 6.64 million of the IDA funds under Component 2 dedicated to construction of Mihaliqi dam and to extend the project closing date by 18 months, from April 30, 2022 to October 31, 2022, to complete activities under Component 1. The second restructuring, processed in July 12, 2023, extended the project closing date for additional 12 months from October 31, 2023 to October 31, 2024, to enable completion of the contract for the main canal rehabilitation under Component 1. 4. Project status. The Project was rated Moderately Unsatisfactory for a long period of time, due to slow implementation pace and, consequently, low disbursement of the Project funds. This was mainly caused by poor performance of the originally selected contractor in charge of the main canal rehabilitation works, forcing the client to terminate the original contract and re-tender the remaining works, with the second contract for main canal rehabilitation signed on May 15, 2023. The Project started progressing steadily since termination of the contract with the underperforming contractor and selection of another Contractor to complete the main canal rehabilitation works. The disbursement reached 70.8 percent in July 2024 (as compared with just 38 percent disbursed in May 2023 prior to the second contractor was brought to the Project) while all remaining amount of the IDA credit is fully committed. Consequently, both PDO and overall Implementation Progress (IP) ratings have been Moderately Satisfactory for the last 12 months. However, despite of the remarkable progress achieved on the completion of physical works under main canal rehabilitation during last year, the delays with supply of critical equipment (water bypass pumps) impacted the contract implementation pace and hampered the possibility to complete the rehabilitation of the main canal by the current Project closing date of October 31, 2024 (see Rational for the extension for more details). As the rehabilitation works in the canal are still ongoing, the PDO indicators remain at the baseline levels and only one out of five Intermediate Result Indicators (IRIs) was achieved so far. 5. Rationale for the extension. The proposed eight-month extension of the closing date from October 31, 2024, to June 30, 2025, will allow sufficient time for the completion of the rehabilitation of the main canal and, as such, successfully perform all activities with respect to Component. Since May 2023, the civil works on canal rehabilitation have progressed well. Seven out of nine kilometers (km) of the open canal have been already repaired with new concrete lining and insulation. Seventy percent of all the aqueducts have been repaired, while the buffer reservoir and the retaining walls have been completed and more than 50 percent of distribution boxes have been installed. Works in the trapezoidal canal type were completed on August 31, 2024. However, the rehabilitation of the rectangular canal type, which requires the lateral bypass, cannot be completed by the current Project closing date due to the above-mentioned delays in the supply Page 1 The World Bank Kosovo Water Security and Canal Protection Project (P133829) of the by-pass pumps that are needed to divert and keep water running to enable uninterrupted supply of water used for the cooling tower of Kosovo B power plant producing 98 percent of the electricity in Kosovo, while the rehabilitation works on the rectangular canal type are ongoing. The water by-pass pumps have been delivered to the Project site and are in use as of the end of July 2024, and the works on rectangular canal have started and are currently at 70%. All other works that do not require water diversion shall be completed by the end of October 2024. 6. The Bank Team had assessed two options in relation to the remining works under the rehabilitation of the main canal, as described below: Option 1. Closing the Project at the current closing date of October 31, 2024, assuming that the Client (Iber Lepenci Company, ILC) would take over the implementation of the remaining works from its own funds. While activities under Component 2 will be fully completed by the current Project closing date of October 31, 2024, the physical progress with the completion of the main canal rehabilitation civil works under Component 1 will reach only 70 percent, and the total disbursement of the IDA credit funds would be at 90 percent, leaving about EUR 1.5 million undisbursed. It also should be noted that, despite of the high level of the IDA credit to be disbursed, the PDO would not be achieved, since, to meet the PDO indicators’ targets, all canal rehabilitation works need to be fully completed. Under this scenario, ILC will have to execute completion of the remaining works using their own funding. According to the Bank Fiduciary team, as ILC is a Public Company that has to follow the Public Procurement Law, the company would need to seek a waiver (exemption) from the Public Procurement Law for signing an extension to the existing contract for the remaining works beyond October 31, 2024 with the existing contractor. In case the waiver would not be obtained, ILC would need to retender for the remaining works, and this would lead to further delays in completion of the works and impact the overall quality of the original investments supported by the Project, as building standards and quality may differ between contractors. The Bank Safeguard team is also concerned that the lack of Bank’s close supervision on Environment and Social (E&S) safeguards for the remaining works might jeopardize the final E&S rating. The Bank Legal team has also advised that IDA’s legal remedies would be very difficult to apply, and that would increase the reputational risk coming from any shortfall in the Project completion. Option 2. An eight-month extension of project closing date from October 24, 2024 to June 30, 2025, to enable completion of the main canal rehabilitation in full, with support of the IDA financing and under continued Bank supervision. By the current Project closing date of October 31, 2024, all activities under Component 2 will be fully completed, including the SCADA contract that shall improve the water-resource management capacity of the Iber Lepenci Company and reduce water losses. However, as the full rehabilitation of the main canal will go beyond the current Project closing date and will involve civil works financed under Component 1 and the contract supervision/monitoring, including E&S, under Component 3, both Components 1 and 3 need to be extended for eight-months, from October 31, 2024 to June 30, 2025, to enable 100 percent completion of the main canal rehabilitation works under the Project, full disbursement of the IDA credit funds, and achievement of targets of all PDO indicators. The duration of the proposed extension is deemed by the schedule of the remaining rehabilitation works. While discussing the duration of the potential extension, the Bank task team has reached out to the Client (ILC) and contractor to optimize the contract schedule and verified the sufficiency of the proposed eight-month extension, with the contract implementation plan discussed with and confirmed by the contractor, verified by the technical supervision firm, and endorsed by the government. 7. Exit Strategy: The Bank task team had agreed with the Client that this will be the final extension of the Project’s closing date. Additionally, the Bank team proposes the following exit strategy to ensure fulfillment of the Project’s objectives within the newly established timeframe: a. The Bank team will continue to closely follow up the progress of civil works on site with the site supervisor on a weekly basis, and Page 2 The World Bank Kosovo Water Security and Canal Protection Project (P133829) b. In case the Bank team notices any slippage from the agreed plan for completion of works by June 30, 2025, the Bank team will request the Client to seek from the contractor to mobilize additional labor teams on site and consider introduction of the works through additional shifts, including night shifts. c. The Client has also confirmed, with an official email from the Client (ILC) dated September 02, 2024, that in case the works are not completed by June 30, 2025, they will consider all legal ways to complete the works according to the standards of the World Bank. This will trigger the need: - To seek a waiver in the Public Procurement Regulatory Commission so Iber Lepenci company can continue implementing the remaining of works with the same contractor or - Tender publicly for the remaining of the works. II. DESCRIPTION OF PROPOSED CHANGES Proposed Changes. 8. Following up the official letter of the Ministry of Finance of June 28, 2024, this restructuring proposes extension of Project closing date for eight months, from October 31, 2024, to June 30, 2025, as laid out in the Option 2 above. There will be no changes to the PDO, composition of the Project components, institutional arrangements, and safeguard policies. The Project implementation schedule, disbursement estimates, and the indicators end-target dates will be adjusted to reflect the revised Project closing date. 9. The Project financial Management arrangements, including planning and budgeting, accounting, financial reporting, internal controls, and disbursement, are adequate and acceptable to the World Bank. There are no outstanding audits for this Project. Project Procurement is rated Moderately Satisfactory. Environmental category will remain unchanged, and overall Safeguards rating of the Project is Satisfactory. @#&OPS~Doctype~OPS^dynamics@restrhybridsummarychanges#doctemplate Summary changes III. PROPOSED CHANGES Operation Information Proposed Changes Operation Information Proposed Changes Disbursements Estimates Yes Loan Closing Date Extension Yes Development Objective No Implementation Schedule Yes Safeguard Policies Triggered No Loan Cancellations No ISDS No Reallocations No MFD/PCE No Financial Management No Results No Procurement No Risks No Institutional Arrangement No Legal Covenants No Conditions No Page 3 The World Bank Kosovo Water Security and Canal Protection Project (P133829) Implementation Modalities 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)? Is this project Private Capital Enabling (PCE)? LOANS Loan Closing Original Revised Proposed Proposed Deadline Loan/Credit/Trust Status Closing Closing(s) Closing for Withdrawal Fund Applications IDA-59020-001 Effective 30-Apr-2022 31-Oct-2024 30-Jun-2025 30-Oct-2025 DISBURSEMENTS Operation Dates & Projection Details Reasons to change the full Disbursement date and/or the projection Restructuring, Change in Pace of Implementation Implementation Start Date Operation Closing Date 30-Sep-2016 31-Oct-2024 Projected Date for Full Disbursement 31-Oct-2025 Page 4 The World Bank Kosovo Water Security and Canal Protection Project (P133829) Expected Disbursements (in US $) (Absolute) Original Estimation at Preparation Actual Year Revised Estimation (Approval Package – 30 Sep 2016) FY2017 1,110,000.00 0.00 0.00 FY2018 4,460,000.04 611,850.00 611,850.00 FY2019 6,690,000.00 226,480.00 226,480.00 FY2020 6,690,000.00 684,616.74 684,616.74 FY2021 4,460,000.04 3,105,143.05 3,105,143.05 FY2022 1,120,000.00 1,495,822.12 1,495,822.12 FY2023 0.00 1,801,455.68 1,801,455.68 FY2024 0.00 3,725,399.09 3,725,399.09 FY2025 0.00 762,200.00 1,231,003.73 FY2026 0.00 0.00 0.00 Page 5