The World Bank Access to Sustainable Energy Project (P153268) REPORT NO.: 163800-PH RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF ACCESS TO SUSTAINABLE ENERGY PROJECT APPROVED ON APRIL 28, 2016 TO National Power Corporation ENERGY & EXTRACTIVES EAST ASIA AND PACIFIC Regional Vice President: Manuela V. Ferro Country Director: Ndiame Diop Regional Director: Ranjit Lamech Practice Manager/Manager: Jie Tang Task Team Leader: Feng Liu The World Bank Access to Sustainable Energy Project (P153268) ABBREVIATIONS AND ACRONYMS AAAAR Agreement Providing for the Assignment, LGU Local Government Unit Assumption, Amendment and Restatement of the EU Grant Agreement ASEP Access to Sustainable Energy Project LGUGC LGU Guarantee Corporation AWFP Annual Work and Financial Plan MW Megawatt BAC Bids and Awards Committee NCB National Competitive Bidding BG Bank Guarantee NEA National Electrification Administration BWI Bidding Window I NPC National Power Corporation COA Commission on Audit ODA Official Development Assistance DA Designated Account PAD Project Appraisal Document DBP Development Bank of the Philippines PDO Project Development Objective DD Due Diligence PDM 1 Program Development and Management 1 DOE Department of Energy PMO Project Management Office DOF Department of Finance PMU Project Management Unit EC Electric Cooperative PPM Pre-paid Metering ESMF Environment and Social Management PV Photovoltaic Framework ESSU Environment and Social Safeguards Unit PVM PV Mainstreaming EU European Union RNS Rural Network Solar FSU Fund Sourcing Unit SHS Solar Home Systems FY Fiscal Year TA Technical Assistance GA Grant Agreement between the WB and LGUGC TWG Technical Working Group GOCC Government-Owned and Controlled VA Verification Agent Corporation GPOBA Global Partnership on Output-Based Aid WB World Bank ICB International Competitive Bidding ISR Implementation Status Report The World Bank Access to Sustainable Energy Project (P153268) BASIC DATA Product Information Project ID Financing Instrument P153268 Investment Project Financing Original EA Category Current EA Category Financial Intermediary Assessment (F) Financial Intermediary Assessment (F) Approval Date Current Closing Date 28-Apr-2016 30-Sep-2021 Organizations Borrower Responsible Agency National Power Corporation National Power Corporation Project Development Objective (PDO) Original PDO The Project Development Objective (PDO) is to increase household access to solar powered electricity within select electric cooperative service areas. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed TF-A2379 28-Apr-2016 14-Jun-2016 16-Jun-2016 30-Sep-2021 21.93 1.59 20.25 TF-A2497 28-Apr-2016 14-Jun-2016 16-Jun-2016 31-Dec-2018 2.92 2.92 0 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Access to Sustainable Energy Project (P153268) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING BACKGROUND 1. This paper seeks approval to restructure Access to Sustainable Energy Project (ASEP, the Project). The restructuring seeks to: (i) extend the Project’s closing date by 12 months until September 30, 2022, to allow for completion of the remaining important activities; and (ii) a change in the Project activities and implementation arrangement to enable the National Power Corporation (NPC) to be involved directly in carrying out the distribution and installation of solar home systems (SHS) and the implementation of the photovoltaic mainstreaming program under Part 1, the development of grid-connected solar power plants and the implementation of rural network solar program under Part 2, and similarly, the installation of pre-paid meters and the implementation of pre-paid metering pilot under Part 3 of the Project; and accordingly, the inclusion of “works” in procurement and disbursement category for certain activities to be carried out directly by NPC. 2. This is the second restructuring of the Project. The first restructuring was in December 2019 to reassign the European Union (EU) grant recipient and implementation agency from Local Government Unit Guarantee Corporation (LGUGC) to NPC. The Agreement providing for the Assignment, Assumption, Amendment and Restatement of the EU Grant Agreement was signed by LGUGC, NPC, and the World Bank on December 9, 2019. A retroactive extension of the closing date of the project from October 31, 2019 to September 30, 2021 was approved by the World Bank on December 20, 2019. The cumulative extension of the project closing date will be 35 months. PROJECT STATUS 3. The Access to Sustainable Energy Project (ASEP, the Project) is a component of the Department of Energy (DOE)- EU Access to Sustainable Energy Program financed by the World Bank (WB) as administrator of the WB-EU Access to Sustainable Energy Project Trust Fund. The Project also included co-financing from the Global Partnership on Output Based Aid (GPOBA). The implementation of the GPOBA grant was completed and closed as of December 31, 2018. 4. A summary of project financing by activity at approval is provided in the table below. NPC is only responsible for the implementation of the EU Grant Agreement, which was amended and restated on December 9, 2019 to reflect changes in recipient, implementation agency, and closing date. Table 1. Project Financing at the Time of Project Approval Expenditure Component EU Grant EU Grant GPOBA Category (EUR) (USD)* Grant (USD) (1) Goods, non- Project management and other 1,018,000 1,119,800 600,000 consulting services, incremental operating costs incremental operating costs, and consultants’ services under the Project The World Bank Access to Sustainable Energy Project (P153268) (2) Grants under Component 1 (or Part 1): Photovoltaic 17,382,000 19,120,200 2,400,000 Parts 1, 2 and 3 of Mainstreaming (PVM) of solar home the Project systems (SHS) Component 2 (or Part 2): Rural Network Solar (RNS) Component 3 (or Part 3): Pre-Paid Metering (PPM) Pilot Subtotal 18,400,000 20,240,000 3,000,000 * Value at approval. Note that the USD amount changes over time due to fluctuation in exchange rate 5. The progress toward the achievement of the PDO and the overall implementation progress are rated moderately satisfactory in the latest Implementation Status and Results (ISR) Report dated July 7, 2021. NPC started as a new implementing agency without previous World Bank project experience and had to cope with the significant impact of COVID-19 pandemic on project implementation, including nearly three months of suspension of procurement due to the first Enhanced Community Quarantine from late March to early June 2020. NPC has managed to make significant progress in project procurement since the beginning of 2021, including the signing of the PVM supply contract of 30,500 SHS in April 2021, and the registration of 30,492 beneficiary households by the end August 2021. The virtual Mid-Term Review that has taken place in March 2021 concluded that the project’s development objective remained highly relevant and the project would be able to achieve its development objective and intended results, provided that the project’s closing date would be extended by 12 months. The performance of NPC is satisfactory. NPC has agreed with the Bank an action plan to complete project activities by the proposed new closing date. 6. The status of implementation by project component is as follows: o Component 1 – PVM, which supports off-grid rural electrification using SHS for a target of 40,500 households within the coverage areas of the participating electric cooperatives (ECs) in Mindanao. The implementation of this component is divided into Window 1 (W1) of 10,000 SHS and Window 2 (W2) of 30,500 SHS. W1 was successfully completed in 2019 under the management of LGUGC. W2 is under implementation by NPC. The supply contact for the 30,500 SHS valued at US$7,891,650 was signed on April 27, 2021. The first shipment of SHS reached Davao Warehouse by July 23, 2021. Two additional shipments are scheduled to be completed in September and October 2021, respectively. The expected completion of this component is in June 2022. As a mitigating measure to the slow pace of SHS installation by the vendor under W1, the installation work under W2 will be undertaken by participating ECs directly. The direct contracting with ECs on SHS installation is being finalized. The six participating ECs have been mobilized to register households for the installation of SHS since June 2020. As of August 31, 2021, the ECs had registered 30,492 member households for receiving SHS, compared with the target installation of 30,500 SHS. The main implementation risks for PVM going forward are potential delays in production and shipping internationally, as well as in installation due to potential movement restrictions to control possible future COVID19 outbreaks. NPC will proactively monitor the supply contract implementation and working closely with the DOE and the National Electrification Administration (NEA) in addressing potential issues in installation. The World Bank Access to Sustainable Energy Project (P153268) o Component 2 – RNS, which aims to increase renewable energy production via small, grid-connected solar power plants. The investment is expected to provide a total of 7 MW of new solar power generation capacity to 7 participating ECs (1 MW each). The RNS will be implemented through supply and installation contracts. Bids for 4 sites are currently under evaluation and the contracts are expected to be awarded in September 2021. The other 3 sites will be rebidded due to the lack of interested bidders during the current round of tender. The rebidding process will start in September 2021 and is expected to conclude in January 2022. The expected completion of the RNS component is in July 2022. Beside the potential COVID-19 interruptions, the main implementation risks for RNS going forward are potential delays in obtaining permits and approvals required for construction of grid-tied solar power plants. NPC is proactively addressing these risks in coordination with DOE and NEA. o Component 3 – PPM Pilot, which will install 1,000 prepaid meters at Sulu EC in Mindanao for improving collections and ultimately demonstrate a viable approach to strengthen the financial sustainability of the ECs which face significant collection challenges. The procurement of the meters will start in September 2021. The expected completion of the pilot is in August 2022, including 5 months of results monitoring. 7. Disbursement of EU grant: As of August 31, 2021, US$1.66 million EU grant was disbursed, with an undisbursed balance of US$20.01 million. Based on signed contracts and on-going procurement the estimated additional disbursement by the end of December 2021 is about US$14 million, which will bring the disbursement rate of the EU grant from current 7 percent to 72 percent. 8. Disbursement of GPOBA grant: The total GPOBA grant disbursement was US$2,922,178 at closing. The remaining balance of the US$77,822 grant was cancelled on September 13, 2019 and the Grant Account was closed. 9. Financial Management: The project is in compliance with financial management requirements and does not have an overdue audit report. 10. Safeguards: The Project is subject to the old World Bank safeguards policies and is in compliance with environment and social safeguards requirements. The Project supports installation of SHS in rural villages and the installation of small solar power plants in rural areas. The environmental and social risk is rated low. The Project Management Unit (PMU) has experienced environmental and social safeguards specialists who are regular NPC staff. The Project-level Grievance Redress Mechanism (GRM) is set up and operational. The Project has in place the following instruments: Environment and Social Safeguards Framework (ESSF) which includes Environmental and Social Management Plan (ESMP), Environmental Code of Practice, and Indigenous Peoples Plan, Abbreviated Resettlement Plan and Physical Cultural Heritage Management Plan as annexes to manage environmental and social risks and impacts. For both Components 1 and 2, the recommended environmental and social measures were satisfactorily implemented by the PMU and no major issues or grievances were observed. The Project’s environmental and social performance rating continues to be satisfactory due to the consistent safeguards due diligence which includes the diligent reporting by the ECs of their respective ESMPs and other safeguards’ plans according to the ESSF, as well as the PMU’s regular monitoring and evaluation of the ECs’ safeguards performance and GRM status. There are currently no outstanding safeguards commitments nor compliance issues in the Project. The World Bank Access to Sustainable Energy Project (P153268) 11. The Integrated Safeguards Data Sheet (ISDS) and ESSF of the project were updated and disclosed during the previous restructuring when NPC was assigned as the EU grant recipient and implementation agency. The proposed changes under this restructuring will not lead to any changes or updates of the safeguards policies and requirements thus, the ISDS and ESSF will not be further updated. 12. Risks: The risk of “Institutional Capacity for Implementation and Sustainability“ has been adjusted from substantial to moderate due to the significant implementation experience gained by NPC and broad improvement of government policies toward renewable energy. The “Other” risks were added and rated substantial to capture the potential impact of COVID19 interruptions, which will remain a significant concern in the months ahead. The overall risk remains moderate. RATIONALE FOR RESTRUCTURING 13. The restructuring to extend the closing date of the EU grant will allow the Project to fully implement its remaining activities to make up for the delays caused by the movement restrictions imposed by the government due to the COVID-19 pandemic. The Project is part of the government’s last-mile rural electrification program and focuses on the least connected and least developed Mindanao region. The results in terms of “last-mile” electrification that the Project aims to achieve remain highly relevant for the marginalized target population in remote areas of Mindanao. While the project implementation has encountered significant challenges, including the pandemic in the last 18 months, substantial progress has been made in Project implementation, including procurement and contracting. The Project is now well positioned to complete its activities provided that additional time is granted to allow for contract implementation. The government and EU are strongly supportive of completing the Project and have extended the validity period of the EU-Philippines Financing Agreement by 12 months so as to enable an extension of the End Disbursement Date of the WB-EU Access to Sustainable Energy Project Trust Fund and on that basis, allow the Project to extend its closing date for completing the remaining activities. The amendment to the EU-WB Administrative Agreement on extending the end disbursement date by 12 months from November 30, 2021 to November 30, 2022 has been agreed with the EU Delegation and is being processed for signing. - 14. It is proposed to extend the closing date of the Project by twelve months from September 30, 2021 to September 30, 2022. This will be the second extension for a cumulative extension of 35 months. The restrictions set by the EU- Philippines Financing Agreement limit the period of extension to 12 months. While the pandemic remains a chief concern for potential interruptions of the implementation going forward, it is a risk which the client has learned to manage with some and increasing success. Based on assessment of NPC and the team, all remaining activities of the Project can be completed by September 2022. 15. In addition to the proposed extension of the closing date, the team also proposes to introduce “works” in the procurement category and the disbursement table to enable the EU grant proceeds to finance for the activities to be carried out by NPC. To facilitate the project implementation progress, in addition to the participating organizations NPC would be involved directly in the distribution and installation of SHS and implementation of a program of PV mainstreaming under Component 1 of the Project, as well as in the implementation of Component 2 and Component 3 of the Project. These changes will cause the change in disbursement arrangement and reallocation of the grant proceeds. The disbursement against category 1 and 2 and output-based subsidies payment will no longer be used. A The World Bank Access to Sustainable Energy Project (P153268) new disbursement category 3 is added in the withdrawal table under the grant agreement for payment of Goods, Works, Non consulting services, Incremental Operating Costs, and Consultants’ services for project activities after the amendment. The project will use direct payment method for payment of eligible expenditures under part 1.c, 2.c, 3.c. The minimum value of application for direct payment and reimbursement is reduced to USD 50,000. II. DESCRIPTION OF PROPOSED CHANGES 16. The Restructuring is initiated following DOE/NPC request letter dated September 22, 2021, requesting for (i) extend the Project’s closing date by 12 months until September 30, 2022, to allow for completion of the remaining important activities; (ii) a change in the Project activities and implementation arrangement to enable the National Power Corporation (NPC) to be involved directly in carrying out the distribution and installation of solar home systems (SHS) and the implementation of the photovoltaic mainstreaming program under Part 1, the development of grid-connected solar power plants and the implementation of rural network solar program under Part 2, and similarly, the installation of pre-paid meters and the implementation of pre-paid metering pilot under Part 3 of the Project; and accordingly, the inclusion of “works” in procurement and disbursement category for certain activities to be carried out directly by NPC. 17. Fiduciary and Safeguards Arrangements. The Project does not have any unresolved, legal, safeguards and fiduciary compliance issues. Also, the proposed changes to the project do not alter environment and social risks and impacts nor cause changes in the safeguards policies triggered. The same fiduciary and safeguards policies, documents, and arrangements following the previous restructuring would be followed. Compliance to the specific policies and guidelines would be closely monitored by the task team. 18. Recommendation: It is recommended to approve the proposed restructuring in support of the NPC request for the extension of the closing date by twelve (12) months and for other changes in the Project activities and implementation arrangement to enable NPC to be involved directly in carrying out the distribution and installation of solar home system and the implementation of the photovoltaic mainstreaming program under Part 1, the development and grid- connected solar plants and the implementation of rural network solar program under Part 2, and similarly, the installation of pre-paid meters and the implementation of the pre-paid metering pilot under Part 3 of the Project. III. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Components and Cost ✔ The World Bank Access to Sustainable Energy Project (P153268) Loan Closing Date(s) ✔ Reallocation between Disbursement Categories ✔ Disbursements Arrangements ✔ Disbursement Estimates ✔ Overall Risk Rating ✔ Procurement ✔ Implementation Schedule ✔ Other Change(s) ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ PBCs ✔ Cancellations Proposed ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ APA Reliance ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) PV Mainstreaming 15.20 Revised PV Mainstreaming 12.20 The World Bank Access to Sustainable Energy Project (P153268) Rural Network Solar 6.90 Revised Rural Network Solar 9.80 Pre-Paid Metering 0.10 Revised Pre-Paid Metering 0.20 TOTAL 22.20 22.20 OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications 30-Sep-2019, 31- TF-A2379 Effective 31-Jul-2019 Oct-2019, 30-Sep- 30-Sep-2022 30-Sep-2022 2021 TF-A2497 Closed 30-Jun-2018 20-Oct-2019 OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed TF-A2379-001 | Currency: EUR iLap Category Sequence No: 1 Current Expenditure Category: TFA2379 GDS,NON-CS, MNGMNT FEES, CS 1,018,000.00 370,446.30 371,000.00 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: TFA2379 GRANTS UNDER PT. 1, 2 & 3 17,382,000.00 939,944.69 940,000.00 100.00 100.00 iLap Category Sequence No: 3 Current Expenditure Category: TFA2379 GDS,NON-CS, MNGMNT FEES, CS 0.00 0.00 17,089,000.00 100 Total 18,400,000.00 1,310,390.99 18,400,000.00 The World Bank Access to Sustainable Energy Project (P153268) OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2016 0.00 0.00 2017 0.00 421,517.00 2018 0.00 427,394.00 2019 0.00 2,578,718.00 2020 0.00 962,840.00 2021 0.00 14,109,531.00 2022 0.00 6,350,000.00 OPS_DETAILEDCHANGES_SORT_TABLE SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) Risk Category Rating at Approval Current Rating Political and Governance  Moderate  Moderate Macroeconomic  Low  Low Sector Strategies and Policies  Moderate  Moderate Technical Design of Project or Program  Moderate  Moderate Institutional Capacity for Implementation and  Substantial  Moderate Sustainability Fiduciary  Moderate  Moderate Environment and Social  Low  Low Stakeholders  Moderate  Moderate Other  Substantial Overall  Moderate  Moderate . The World Bank Access to Sustainable Energy Project (P153268) . Results framework COUNTRY: Philippines Access to Sustainable Energy Project Project Development Objectives(s) The Project Development Objective (PDO) is to increase household access to solar powered electricity within select electric cooperative service areas. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name PBC Baseline End Target To increase access to electricity in a sustainable manner Generation capacity of energy constructed or rehabilitated (CRI, 0.00 7.00 Megawatt) Action: This indicator has been Revised People provided with new or improved electricity service (CRI, 0.00 202,500.00 Number) Action: This indicator has been Revised PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 Project Level Intermediate Indicators The World Bank Access to Sustainable Energy Project (P153268) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 Solar home systems installed 0.00 0.00 10,000.00 25,000.00 40,500.00 (Number) Action: This indicator has been Revised Private Capital Mobilized 0.00 0.00 0.00 0.00 0.00 (Amount(USD)) Action: This indicator has been Revised Direct project beneficiaries 0.00 0.00 50,000.00 127,500.00 207,500.00 (Number) Action: This indicator has been Revised Female beneficiaries 0.00 0.00 25,000.00 63,750.00 103,750.00 (Percentage) Estimated GHG emission reduction compared to a business-as-usual 0.00 0.00 0.00 0.25 0.50 baseline (Metric ton) Action: This indicator has been Revised Villages where PV Mainstreaming is implemented with at least one 0.00 25.00 50.00 75.00 100.00 public consultation held (Percentage) Action: This indicator has been Revised The World Bank Access to Sustainable Energy Project (P153268) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 Pre-Paid Meters Installed Under 0.00 0.00 0.00 500.00 1,000.00 Pilot (Number) Action: This indicator has been Revised IO Table SPACE . The World Bank Access to Sustainable Energy Project (P153268)