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The World BankElectricity Sector Development Project (P119737)

REPORT NO.: RES33074

RESTRUCTURING PAPER

ON A

PROPOSED PROJECT RESTRUCTURING

OF

ELECTRICITY SECTOR DEVELOPMENT PROJECT

APPROVED ON JUNE 30, 2011

TO

REPUBLIC OF UGANDA

Energy & Extractives Global practice

Africa Region

Regional Vice President: Makhtar Diop Country Director: Diarietou Gaye

Senior Global Practice Director: Riccardo PulitiPractice Manager/Manager: Sudeshna Ghosh Banerjee

Task Team Leader: Raihan Elahi, Mbuso Gwafila

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ABBREVIATIONS AND ACRONYMS

CD Country DirectorEA Environmental AssessmentESDP Electricity Sector Development ProjectESIA Environmental and Social Impact AssessmentGoU Government of UgandaIDA International Development AssociationIP Implementation ProgressISR Implementation Status and Results Report kV kilovoltMEMD Ministry of Energy and Mineral DevelopmentMoFPED Ministry of Finance, Planning and Economic DevelopmentMS Moderately SatisfactoryMU Moderately UnsatisfactoryNGO Non-governmental OrganizationPAP Project Affected PersonPDO Project Development ObjectivePMU Project Management UnitPSIC Power Sector Information CenterRAP Resettlement Action PlanSCADA Supervisory, Control and Data AcquisitionUETCL Uganda Electricity Transmission Company LimitedSDR Special Drawing RightsTA Technical AssistanceU UnsatisfactoryUSD United States Dollars


BASIC DATA

Product Information

Project ID Financing Instrument

P119737 Investment Project Financing

Original EA Category Current EA Category

Approval Date Current Closing Date

30-Jun-2011 31-Jan-2019

Organizations

Borrower Responsible Agency

Republic of Uganda Uganda Electricity Transmission Company Limited

Project Development Objective (PDO)

Original PDOThe project development objective is to improve the reliability of and increase the access to electricity supply in the southwestregion of UgandaOPS_TABLE_PDO_CURRENTPDOSummary Status of Financing

Ln/Cr/Tf Approval Signing Effectiveness ClosingNet

Commitment Disbursed Undisbursed

IDA-49880 30-Jun-2011 02-Sep-2011 23-Oct-2012 31-Jan-2019 120.00 49.23 55.89

Policy Waiver(s)

Does this restructuring trigger the need for any policy waiver(s)?No


I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING

The proposed restructuring of the Uganda Electricity Sector Development Project (ESDP) seeks to: (i) cancel approximately SDR25.37 million (US$41.08 million); and (ii) reallocating SDR24,655 (US$39,922.25) within categories to finance the recently recruited safeguards officers at the Ministry of Energy and Mineral Development. The restructuring paper elaborates on the background of the project, performance so far, as well as reasons for cancellation.

a) Project BackgroundESDP was approved in June 2011 and aims to improve the reliability of and increase the access to electricity supply in the southwest region of Uganda. The project consists of four components: (A) construction of the new 220 kV Kawanda-Masaka transmission line and associated substations; (B) technical assistance to the Uganda Electricity Transmission Company Limited (UETCL); (C) Community support projects and technical assistance to the Ministry of Energy and Mineral Development (MEMD); and (D) Social risk management.

The original project closing date was February 28, 2017. The first restructuring was completed in January 2017, which entailed the extension the project closing date by 12 months from February 28, 2017 to February 28, 2018. The second restructuring was completed in June 2017. to utilize the savings realized under Component A and the funds that were previously unallocated. The second restructuring entailed the following changes: (i) extension of the project closing date by eleven months, from February 28, 2018 to January 31, 2019; (ii) strengthening of the project results by supporting priority investments using the savings under Component A and previously unallocated funds; (iii) addition of a new social safeguards risk management component that focuses on gender based violence prevention and child protection under the IDA financed energy portfolio; (v) update the project risk ratings; and (vi) revision of the project results framework to reflect the proposed changes. The investments under (ii) above were not intended to change original envisaged project benefits and outcomes, but to improve the operational performance of the Kawanda-Masaka transmission line. At project design, the cost for Component A was estimated at about US$95 million, excluding taxes/duties and compensation payments. During bidding, savings of nearly US$43 million were realized, which were reallocated to finance the additional activities included during the second project restructuring.

The project was originally assigned an EA Category A because of the associated large land-take and involuntary resettlement. The EA category was maintained during the first and second restructuring of the project, since there was no reduction in the project’s environmental/social impacts.

b) Project PerformanceThe disbursement rate stands at 46.8 percent. Progress towards achieving the project development objective (PDO) and implementation progress are rated Moderately Unsatisfactory (MU) and Unsatisfactory (U) respectively in the last Implementation Status and Results Report (ISR) of May 4, 2018. The proposed cancellation will improve the disbursement rating of the project to the extent that it is expected to be about 100 percent at project closure.


The PDO rating was downgraded from Moderately Satisfactory (MS) to Moderately Unsatisfactory (MU) because of the delays in completing the Kawanda-Masaka transmission line project, on which the PDO is mainly premised. The delays were mainly due to challenges in acquiring the right of way (RoW) for the transmission line. While some of these challenges were due to project affected persons (PAPs) rejecting the land values prepared by UETCL, the main challenge has typically been the unavailability and slow release of counterpart funds for RoW and compensation payments by the Ministry of Finance, Planning and Economic Development (MoFPED). The Bank has engaged both UETCL and MoFPED to ensure speedy completion of any pending compensation payments, and in any event to compete all compensation payments prior to the project closing date (January 31, 2019).

The implementation progress (IP) rating was downgraded from MS to Unsatisfactory (U) because of the slow progress in the implementation of the Kawanda-Masaka transmission line. Even though construction works have now been completed, the project is 20 months behind schedule. The project has also experienced major lapses in the management of social safeguards, especially land acquisition and compensation payments, which exacerbated the implementation delays. A case of forced access, using police escort, into a PAPs’ land without compensation has been recorded under the project. The Bank communicated formally to MoFPED, MEMD, and UETCL that works should not resume until the matter had been resolved to the satisfaction of the Bank. The pending compensation payment cases may drag on until after the project closing date and suitable arrangements (for example, escrow account) will have to be made to ensure alignment with Bank safeguard policies.

Due the MU and U ratings for PDO and IP respectively, the project has been in problem status for 1.6 months, i.e. since the last ISR of May 4, 2018. Table 1 shows implementation status of the ESDP as at end-May 2018.

In addition to safeguard challenges, the project has also faced procurement delays by the implementing agencies and insufficient contract/project management skills. Specifically, such limited capacity has resulted in slow implementation of the additional activities that were included as part of the second restructuring to utilize the savings realized during the procurement of Component A activities and the previously unallocated funds These activities include (i) Supply and installation of UETCL’s SCADA upgrade equipment and (ii) all activities associated with the proposed 220kV Hoima-Kinyara transmission line and can no longer be implemented within the remaining project timeframe of about seven months.


Table 1. ESDP implementation status as at end-May 2018

Component Description Status (as at end-May 2018)

AllocationSDR

million

AllocationUS$ million

Disbursement

A Works, goods, consultancy services, training and operations costs (Parts A1-6 and B) implemented by UETCL

Kawanda-Masaka transmission line - 100 percent complete Kawanda substation - 100 percent

complete Masaka/Mbarara substation - 100 percent

complete All capacity building procurements and

hiring of PMU staff financed by the project have been completed.

67.38 109.12 41.4%

B Technical assistance to MEMD and community support projects.

All procurement activities have been completed

Completion of peri-urban grid extension works is expected by October 2018r 2017, The final report for the review of power

sector reforms report was submitted in December 2017, and the Masaka street and market lighting

works were completed in September 2017.

5.61 9.09 74.0%

C Unallocated - -D Social risk

managementThe consultant/NGO contract was signed in February 2018. Works are ongoing and the second stakeholder workshop will be conducted on June 28, 2018. Inception stage payment has already been made but still to reflect in the system. The activity is scheduled to complete on December 31, 2018.

1.12 1.79 0

Total 74.1 120 46.8%

c) Rationale for RestructuringThe GoU has therefore formally requested the Bank to drop some activities from the project and cancel approximately SDR25.37 million. This is equivalent to approximately US$41.07 million, using the SDR/USD exchange rate at negotiations.

The funds being cancelled/reallocated are from the savings realized from the bidding process of Component A and the previously unallocated project funds. Some activities that were included under Component A during the second restructuring cannot be completed within the remaining project timeframe. These include: (i) supply and installation of SCADA upgrade equipment and (ii) Design and preparation of bid documents for the proposed Hoima-Kinyara transmission line and Nkenda substation equipment. The funds associated with these activities, approximately SDR4,816,500 (USD7,800,000 equivalent) have been proposed for cancellation as they cannot be utilized within the remaining project timeframe.


Some funds were also set aside for possible funding of the proposed 220kV Hoima-Kinyara transmission line and upgrade of Nkenda substation, as these were pending completion of the environmental and social audit of the Kinyara sugar factory. The Kinyara sugar factory is an associated facility of the proposed 220kV Hoima-Kinyara transmission line. The environmental and social audit of Kinyara sugar factory highlighted significant areas of non-compliance with the World Bank Performance Standards. On the basis these findings, the Bank is unable to finance the proposed 220kV Hoima-Kinyara transmission line. These funds, approximately SDR 20,585,645 (USD33,332,218.60 equivalent), are also being cancelled as they cannot be utilized before the project closing date. Hence, the proposed cancellation of SDR25.37 million, which excludes the SDR24,655 that has been reallocated to finance recently recruited safeguards specialists under project Category B.

The reallocation of SDR24, 655 from Category 1 to Category 2 is to fill the funding gap due to the recent recruitment of two safeguards officers (social and environment) to support the completion of the safeguards issues under both UETCL and MEMD’s components.

The proposed changes will not affect the PDO, the PDO level indicators, or the intermediate indicators. The ESDP PDO, which is to is to improve the reliability of and increase the access to electricity supply in the southwest region of Uganda, is based on the successful completion of the Kawanda-Masaka transmission line and associated substations at Kawanda, Masaka, and Mbarara. The results framework is based primarily on the original project activities and two of the activities that were included as part of the second restructuring (i) construction and the 220 kV Bujagali line bays and (ii) the social risk management component. The results framework will remain unchanged.

The EA category A is maintained because the current restructuring does not change the project’s environmental/social impacts.

Details of the activities/funds being cancelled/reallocated are included as Attachment 1. The project results framework is included as Attachment 2.

Table 2. Proposed cancellation and reallocation of funds

CurrentAllocation

ProposedReallocation/ Cancellation

Proposed newAllocations

Category

SDR(Million)

USD1

(Million)SDR

(Million)USD

(Million)SDR

(Million)USD

(Million)(1) Works, goods, consultants' services, Training and Operating Costs under Part A.1, A.2, A.3, A.4, A.5, A.6 and B of the Project 67.38 109.12 25.39 41.13 41.98 67.98(2) Works, goods, consultants' services, Training and Operating Costs under Part C of the Project 5.611 9.09 (.0247) (0.040) 5.64 9.13

1 The original XDR/USD exchange rate of 1.6194 has been used for the entire table.


(3) Goods, consultants' services and Training under Part D of the Project 1.11 1.79 - - 1.11 1.80Unallocated - - - - - -TOTAL AMOUNT 74.10 120.00 25.37 41.09 48.73 78.91

II. DESCRIPTION OF PROPOSED CHANGESThe proposed restructuring entails: (i) cancellation of approximately SDR25.37 million (US$41.08 million) from project Category 1; and (ii) reallocating SDR24,655 (US$39,922.25) from Category 1 to Category 2 to finance the recently recruited safeguards officers at the MEMD.

This is the third restructuring. The first restructuring entailed an extension of the project closing date by twelve months from February 28, 2017 to February 28, 2018. The second restructuring entailed: (i) extension of the project closing date by 11 months, from February 28, 2018 to January 31, 2019; (ii) strengthening of the project results by supporting priority investments using the savings that had been realized under Component A; (iii) adding a new social safeguards risk management component that focuses on gender based violence prevention and child protection; (v) updating the project risk ratings; and (vi) revising the project results framework to reflect the above changes.

The new activities included during the second restructuring to strengthen the project results under Component A include: (i) construction of the 220kV Bujagali transmission line bays and (ii) Upgrade of UETCL’s SCADA system. Some funds were also set aside under Component A for possible financing of the proposed 220kV Hoima-Kinyara transmission line and upgrade to Nkenda substation, pending completion the environmental and social audit of the Kinyara sugar factory, an associated facility of the Hoima-Kinyara transmission line. This restructuring is a response from the GoU to cancel funds that associated with the (i) the upgrade of UETCL’s SCADA system and (ii) the proposed 220kV Hoima-Kinyara transmission line and upgrade of Nkenda substation. These activities can no longer be completed before the project closing date on January 31, 2019.

There are no changes to the results framework. The activities from second restructuring that had a bearing on the results framework are the (i) construction and the 220 kV Bujagali line bays and (ii) the social risk management component. Since these are being maintained, as well as all the original project components, there is no change to the results framework.

The proposed changes will have no associated environmental and social impacts since the restructuring involves only the cancellation and reallocation of funds.

III. SUMMARY OF CHANGES

Changed Not Changed

Change in Components and Cost ✔


Cancellations Proposed ✔

Reallocation between Disbursement Categories ✔

Change in Disbursement Estimates ✔

Change in Implementing Agency ✔

Change in DDO Status ✔

Change in Project's Development Objectives ✔

Change in Results Framework ✔

Change in Loan Closing Date(s) ✔

Change in Disbursements Arrangements ✔

Change in Overall Risk Rating ✔

Change in Safeguard Policies Triggered ✔

Change of EA category ✔

Change in Legal Covenants ✔

Change in Institutional Arrangements ✔

Change in Financial Management ✔

Change in Procurement ✔

Change in Implementation Schedule ✔

Other Change(s) ✔

Change in Economic and Financial Analysis ✔

Change in Technical Analysis ✔

Change in Social Analysis ✔

Change in Environmental Analysis ✔

IV. DETAILED CHANGE(S)

OPS_DETAILEDCHANGES_COMPONENTS_TABLE

COMPONENTS

Current Component Name

Current Cost

(US$M)Action Proposed

Component NameProposed

Cost (US$M)

A. Construction of a 220 kV Kawanda-Masaka Transmission 109.92 Revised A. Construction of a 220 kV

Kawanda-Masaka Transmission 67.98


line and associated substation works

line and associated substation works

B. (i) TA to UETCL: Support in Project Implementation (Construction Supervision) for Kawanda-Masaka Transmission Line

3.90 No Change

B. (i) TA to UETCL: Support in Project Implementation (Construction Supervision) for Kawanda-Masaka Transmission Line

3.90

B (ii) (a) TA to UETCL: Preparation of Feasibility Study for the 132 kV Lira-Gulu-Nebbi-Arua Transmission Line

1.60 No Change

B (ii) (a) TA to UETCL: Preparation of Feasibility Study for the 132 kV Lira-Gulu-Nebbi-Arua Transmission Line

1.60

B (iii) TA to UETCL: Capacity building of UETCL 0.30 No Change B (iii) TA to UETCL: Capacity

building of UETCL 0.30

B (iv) TA to UETCL: Assistance to the PMU 0.90 No Change B (iv) TA to UETCL: Assistance

to the PMU 0.90

C. Community Support Projects and Technical Assistance to MEMD (i) Peri-Urban Electrification: Investment

7.20 No Change

C. Community Support Projects and Technical Assistance to MEMD (i) Peri-Urban Electrification: Investment

7.20

(ii) Peri-Urban Electrification - Consultancy 0.20 No Change (ii) Peri-Urban Electrification -

Consultancy 0.20

(iii) Street and Market Lighting at Masaka Municipality - Investment

1.40 No Change(iii) Street and Market Lighting at Masaka Municipality - Investment

1.40

(iv) Street and Market Lighting at Masaka Municipality - Consultancy

0.10 No Change(iv) Street and Market Lighting at Masaka Municipality - Consultancy

0.10

(v) Development of Power Sector Information Center (PSIC) - Consultancy to Design and Establish PSIC

0.70 No Change

(v) Development of Power Sector Information Center (PSIC) - Consultancy to Design and Establish PSIC

0.70

(vii) Review of Power Sector Reforms 0.60 No Change (vii) Review of Power Sector

Reforms 0.60

(viii) Support for the Energy Sector Working Group 0.60 No Change (viii) Support for the Energy

Sector Working Group 0.60

(ix) TA to EPD/MEMD 0.60 No Change (ix) TA to EPD/MEMD 0.60

(x) Training and Capacity Building for MEMD 0.30 No Change (x) Training and Capacity

Building for MEMD 0.30

B (ii) (b) - TA to UETCL: Preparation of ESIA/RAP for the 132 KV Lira-Gulu-Nebbi-Arua Transmission Line

0.90 No Change

B (ii) (b) - TA to UETCL: Preparation of ESIA/RAP for the 132 KV Lira-Gulu-Nebbi-Arua Transmission Line

0.90


Social safeguard risk management support 1.50 No Change Social safeguard risk

management support 1.50

Construction of two 220kV transmission line bays at Bujagali 5.70 No Change

Construction of two 220kV transmission line bays at Bujagali

5.70

Upgrade of UETCL's SCADA System 9.18 Revised Upgrade of UETCL's SCADA

System 1.38

Review of the designs of the proposed Hoima-Kinyara transmission line and upgrade of Nkenda substation

2.00 Revised

Review of the designs of the proposed Hoima-Kinyara transmission line and upgrade of Nkenda substation

0.00

TOTAL 147.60 95.86

OPS_DETAILEDCHANGES_CANCELLATIONS_TABLE

CANCELLATIONS

Ln/Cr/Tf Status Currency Current Amount

Cancellation Amount

Value Date of

Cancellation

New Amount

Reason for

Cancellation

IDA-49880-001

Disbursing XDR 74,100,000.00 25,377,490.00 26-Jun-2018 48,722,510.00

BORROWER'S REQUEST

FOR COUNTRY REASONS

OPS_DETAILEDCHANGES_REALLOCATION _TABLE

REALLOCATION BETWEEN DISBURSEMENT CATEGORIES

Current Allocation Actuals + Committed Proposed Allocation Financing %(Type Total)

Current Proposed

IDA-49880-001 | Currency: XDR

iLap Category Sequence No: 1 Current Expenditure Category: Wrks, Gds, Cons, Tr & Op (A.1-6 &B)

67,381,849.00 27,902,590.86 41,979,704.00 100.00 100.00

iLap Category Sequence No: 2 Current Expenditure Category: Wrks, Gds, Cons, Tr & Op (Part C)

5,611,932.00 4,153,833.33 5,636,587.00 100.00 100.00


iLap Category Sequence No: 3 Current Expenditure Category: UNALLOCATED

0.00 0.00 0.00

iLap Category Sequence No: 4 Current Expenditure Category: Gds, CS & Trg Part D

1,106,219.00 0.00 1,106,219.00 100.00 100.00

Total 74,100,000.00 32,056,424.19 48,722,510.00

OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE

DISBURSEMENT ESTIMATES

Change in Disbursement EstimatesYes

Year Current Proposed

2012 0.00 0.00

2013 2,403,475.00 0.00

2014 0.00 0.00

2015 10,586,990.66 0.00

2016 21,628,438.09 0.00

2017 85,381,096.25 15,000,000.00

2018 0.00 26,555,702.00

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