$ Report No: RES00658 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF Mozambique Urban Sanitation Project APPROVED ON 22-May-2019 TO THE REPUBLIC OF MOZAMBIQUE Water Eastern And Southern Africa Regional Vice President: Victoria Kwakwa Regional Director: Iain G. Shuker Country Director: Zviripayi Idah Pswarayi Riddihough Practice Manager: Francis Ghesquiere Task Team Leader(s): Jaime Palalane, Paulo Jorge Temba Sithoe The World Bank Mozambique Urban Sanitation Project (P161777) ABBREVIATIONS AND ACRONYMS AIAS Administration of Water and Sanitation Infrastructure (Administração de Infraestruturas de Água e Saneamento) CERC Contingent Emergency Response Component COVID-19 Coronavirus Disease 2019 DNAAS National Directorate for Water Supply and Sanitation (Direcção Nacional de Abastecimento de Água e Saneamento) ESMS Environmental and Social Management Systems E&S Environmental and Social FSTP Fecal Sludge Treatment Plant GBV Gender-Based Violence GoM Government of Mozambique GRM Grievance Redress Mechanism IDA International Development Association PDO Project Development Objective PIU Project Implementation Unit SDR Special Drawing Rights WWTP Wastewater Treatment Plant The World Bank Mozambique Urban Sanitation Project (P161777) @#&OPS~Doctype~OPS^dynamics@restrhybridbasicdata#doctemplate BASIC DATA Product Information Operation ID Operation Name P161777 Mozambique Urban Sanitation Project Product/Financing Instrument Geographical Identifier Investment Project Financing (IPF) Mozambique Approval Date Current Closing Date 22-May-2019 30-Sep-2025 Original EA Category Full Assessment (A) (PAD Approval Package-22 May 2019) Organizations Borrower Responsible Agency Administração de Infraestruturas de Água e Saneamento (AIAS), Ministry of Economy and Finance Ministry of Health, National Directorate of Water Supply and Sanitation (DNAAS) @#&OPS~Doctype~OPS^dynamics@restrhybridoperationstatus#doctemplate OPERATION STATUS Project Development Objective (DO) Current Development Objective To increase access to safely managed sanitation services and strengthen municipal sanitation service delivery capacity in selected cities; and to provide immediate and effective response to an eligible crisis or emergency. Disbursement Summary (in USD million) Source of Funds Net Commitment Disbursed Undisbursed % Disbursed IBRD -- -- -- 0 i The World Bank Mozambique Urban Sanitation Project (P161777) IDA 154.27 118.71 40.78 74.43 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 Mozambique Urban Sanitation Project (P161777) 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 Mozambique Urban Sanitation Project (P161777) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project Description 1. The Mozambique Urban Sanitation Project (MUSP) is the first in a series of projects aimed at increasing access to sanitation services in urban areas of Mozambique. The project was approved on 22 May 2019, signed on 21 June 2019 and declared effective on 27 September 2019. The project is fully financed by the International Development Association (IDA) with an initial amount of Special Drawing rights (SDR) 82.9 million (equivalent to US$ 115 million). An additional financing of SDR 35.4 million (US$50 million equivalent) was approved on 9 December 2021, signed on 27 December 2021 and declared effective on 17 March 2022. The project closing date is September 30, 2025. 2. The Project Development Objective (PDO) is to increase access to safely managed sanitation services, strengthen municipal capacity to provide sanitation services in selected cities, and provide an immediate and effective response to an eligible crisis or emergency. The project has five components: Component 1 - Priority Sewerage Investments; Component 2 - Onsite Sanitation Investments; Component 3 - Municipal Sanitation Service Improvements; Component 4 - Technical Assistance and Project Management Support; and Component 5 - Emergency Response. Component 1 is being implemented by the Administration of Water and Sanitation Infrastructure (Administração de Infraestruturas de Água e Saneamento, AIAS) and Components 2, 3 and 5 by the National Directorate of Water Supply and Sanitation (Direcção Nacional de Abastecimento de Água e Saneamento, DNAAS). The project was restructured in March 2024 to adjust the scope of the project to fit the remaining budget and schedule, and to make an initial reallocation of US$1.5 million of the Contingent Emergency Response Component (CERC) balance from DNAAS to reduce the project's financing gap for infrastructure investments. B. Overall Status 3. The overall implementation of the project is progressing well in relation to its objectives. Currently, all six main works contracts have been signed and five are under implementation. The current disbursement rate is at 73 percent and 97 percent of the project’s funds are committed. Two of the Project Development Objectives (PDO) were met, specifically the objectives of: (i) strengthening municipal sanitation service delivery capacity, with all five project cities having operational sanitation entities that comply with Government regulatory framework, and municipal sanitation bylaws approved and published; and (ii) to provide an immediate and effective response to an eligible crisis or emergency, with 163,748 students provided with access to improved school sanitation facilities (112 percent of the end target). Progress is being observed in the main PDO of increasing access to safely managed sanitation services 16,750 people served (16 percent of the final target). Given the acceleration trend of the project, the rating for implementation progress and progress towards the PDO was upgraded to Satisfactory in October 2024. 4. The project has acceptable fiduciary arrangements. The implementing agencies continue to adhere to and comply with the Bank's procurement rules. The overall procurement performance is rated Satisfactory, supported by the completion of the main works contracts and recent improvements in procurement procedures, including the quality of bidding documents and reports. The current procurement arrangements and associated capacity is found to be adequate for the on-going and remaining Project activities. The implementing agencies continue to maintain Financial Management (FM) arrangements acceptable to the Bank and to submit interim financial reports of acceptable quality and on time. To improve FM practices, the Implementing Agencies are in the process of introducing accounting software to upgrade from the current use of Excel spreadsheets for accounting purposes, which is not considered good practice. Reflecting this shortcoming, the project's FM rating is Moderate Satisfactory (MS). 5. Safeguards are in place and considered adequate for the required risk assessment and mitigation. The project continues to comply with the Environmental and Social Safeguards requirements established in the Financial Agreement, supported by regular reporting and monthly meetings between the Bank and the Project Implementation Page 1 The World Bank Mozambique Urban Sanitation Project (P161777) Units (PIU). The PIUs at AIAS and DNAAS continue to function as a single team, supported by environmental and social (E&S) specialists. The establishment of Environmental and Social Management Systems (ESMS) at the municipal level are underway. Capacity building is taking place to ensure that activities are adequately implemented at the community level. The Grievance Redress Mechanism (GRM) is fully operational with 197 complaints received, of which 97 per cent have been closed and 3 per cent are under investigation. Third party monitoring has been mobilized, and its first report supports the strengthening of the project's E&S practices. C. Rationale for restructuring 6. The primary reason for the restructuring is to increase the funds allocated to cover resettlement costs of the project, particularly for the full implementation of the Tete’s Fecal Sludge Treatment Plant (FSTP) Resettlement Action Plan (RAP). The approved funds for compensation were exhausted with the implementation of the RAPs for Maputo and Quelimane works. Currently, there is a shortfall of US$ 508,701.52 to cover the resettlement costs of the project, particularly for the full implementation of the Tete FSTP RAP. The implementation of Tete RAP increased to US$ 748,993.16 to cover adjustments made to the rights framework and compensation methodologies. The project should be restructured to increase the allocation to category 5 (resettlement costs) in US$520,000, including contingences. 7. This restructuring should also reflect the agreed transfer of US$4.8 million from the COVID-19 CERC balance from category 4 (emergency expenditure) to categories 1 and 2 (infrastructure investment) as documented in the Aide Memoir of the October 2024 Implementation Support Mission. The CERC component was closed on 31 December 2023. The Project Implementation Unit (PIU) submitted the CERC Closure Report on 18 April 2024, which was favorably reviewed by the Bank. The implementation of the Ministry of Health's CERC activities was completed with a balance of USD 4.8 million. Considering that the CERC funds come from the project, the Government requested during the last mission that the balance be reallocated within the project to finance the activities of components 1 and 2, which were reduced in scope at the time of the activation of the CERC component. II. DESCRIPTION OF PROPOSED CHANGES 8. The project will keep the current five components, with changes to the budget allocation for three components as detailed below. 9. Component 1: Priority sewerage investments (increased to US$65.90 million equivalent; previous allocation US$63.50 million equivalent). The objective of this component is to increase access to safely managed sanitation through decentralized treatment. The additional US$ 2.4 million will be allocated to the construction of the Quelimane Wastewater Treatment Plant (WWTP) and sewerage network upgrades works to strengthen the planned interventions including the covering on missing items during the design assessed as critical. 10. Component 2: Onsite sanitation investments in Quelimane and Tete (increased to US$42.96 million equivalent; previous allocation US$40.56 million equivalent). The objective of this component is to increase access to safely managed sanitation through onsite sanitation facilities, and complementary transport services to treatment FSTP for safe treatment and disposal of the fecal sludge. The additional US$ 2.40 million will be used to support the full implementation of the Tete FSTP RAP (US$ 0.52 million), and to respond to the increasing demand for improved household toilets being constructed in Tete (US$ 1.88 million). 11. Component 3: Municipal sanitation service improvements (US$11 million equivalent) will remain unchanged. This component provides performance-based grants to finance improvements in sanitation services in the cities of Maputo, Beira, Nampula, Tete and Quelimane. Page 2 The World Bank Mozambique Urban Sanitation Project (P161777) 12. Component 4: Technical Assistance and Project Management Support (US$16.50 million equivalent) will remain unchanged. This component is financing technical assistance to support national institutional strengthening and project management as foreseen in the original project design, institutional development support, including water sector reforms and the sector-wide Gender-based Violence (GBV) Prevention Strategy. 13. Component 5: Contingent Emergency Response Component (decreased to US$28.64 million equivalent; previous allocation was US$33.44 million equivalent). This component financed the upgrading of school sanitation facilities in 95 schools to enable pupils to return safely to class following the health and hygiene restrictions imposed by the COVID-19 pandemic. It also financed the purchase of health protection equipment, consumables and medicines for the prevention and treatment of the COVID-19 pandemic. There was an initial balance of CERC funds in the DNAAS account of US$1,559, which was reallocated to Component 2 in the last restructuring from March 2024. This restructuring reallocates the balance of CERC funds of US$4.8 million in the MISAU account. 14. Reallocations. The reallocation of the US$4,800,000 requires a reallocation between disbursement categories, moving SDR4,047,413 equivalent. Table 1 describes the reallocation in US$ and Section IV in XDR. The reallocation will take place under the IDA-D4750 grant with no changes for the AF grant IDA-D9330. Table 1 – Summary of proposed reallocations between disbursement categories Reallocation value (US$) Disbursement Description Resettlement Additional category Total for Tete FSTP works 1 Goods, works, non-consulting services, consulting services, Training and Incremental Operating Costs for Parts 1 and -520,000 +2,924,000 +2,404,000 4(d) of the Project 2 Goods, works, non-consulting services, consulting services, Training and Incremental Operating Costs for Parts 2, 4(a), +1,876,000 +1,876,000 4(b) and 4(c) and 4(d) of the Project 3 Performance-based Grants under Part 3 of the Project 4 Emergency Expenditures under Part 5 of the Project -4,800,000 -4,800,000 5 Resettlement Expenditures for Part 1 of the Project +520,000 +520,000 6 Refund of Preparation Advance @#&OPS~Doctype~OPS^dynamics@restrhybridsummarychanges#doctemplate Summary changes III. PROPOSED CHANGES Operation Information Proposed Changes Operation Information Proposed Changes Development Objective No Reallocations Yes Safeguard Policies Triggered No Loan Closing Date Extension No ISDS No Loan Cancellations No MFD/PCE No Financial Management No Results No Procurement No Risks No Institutional Arrangement No Page 3 The World Bank Mozambique Urban Sanitation Project (P161777) 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)? Is this project Private Capital Enabling (PCE)? LOANS Reallocations IDA-D4750-001 Cancellations (if any): New Allocation: Currency: XDR 0.00 0.00 Financing % (Type Total) Category Expenditure Current Actuals + Proposed No. Category Allocation Committed Allocation Current Proposed 1 GD,WK,NCS,CS,TR 41,880,000.00 26,766,102.88 43,708,944.00 100.00 100.00 INCR OC PRT 1&4D; 2 GD,WK,NCS,CS,TR ICR 7,023,091.00 6,015,794.65 8,450,337.00 100.00 100.00 OC P 2,4A,4B&4C; 3 Perfrmance-based 7,930,000.00 4,764,340.33 7,930,000.00 100.00 100.00 Grants undr prt 3; Page 4 The World Bank Mozambique Urban Sanitation Project (P161777) 4 Emrgncy expndtures 24,036,909.00 13,098,943.18 20,385,107.00 100.00 100.00 udr prt 5 Projec; 5 Restlment 580,000.00 569,451.43 975,612.00 100.00 100.00 expndtures prt 1 of Proje; 6 Refund of 1,450,000.00 483,504.57 1,450,000.00 0.00 100.00 Preparation advance; Total 82,900,000.00 82,900,000.00 IDA-D9330-001 Cancellations (if any): New Allocation: Currency: XDR 0.00 0.00 Financing % (Type Total) Category Expenditure Current Actuals + Proposed No. Category Allocation Committed Allocation Current Proposed 1 GD,WK,NCS,CS,TR 4,602,000.00 0.00 4,602,000.00 100.00 100.00 INCR OC PRT 1&4D; 2 GD,WK,NCS,CS,TR ICR 29,736,000.00 12,292,448.99 29,736,000.00 100.00 100.00 OC P 2,4A,4B&4C; 3 Perfrmance-based 0.00 0.00 0.00 100.00 100.00 Grants undr prt 3; 4 Emrgncy expndtures 0.00 0.00 0.00 100.00 100.00 udr prt 5 Projec; 5 Land Expenditure for 1,062,000.00 797,251.87 1,062,000.00 100.00 100.00 part 1; Total 35,400,000.00 35,400,000.00 Page 5