The World Bank Clean and Efficient Energy Project (P143689) REPORT NO.: RES30540 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF CLEAN AND EFFICIENT ENERGY PROJECT APPROVED ON APRIL 24, 2015 TO OFFICE NATIONAL DE L'ELECTRICITÉ ET DE L'EAU POTABLE (ONEE) ENERGY & EXTRACTIVES MIDDLE EAST AND NORTH AFRICA Regional Vice President: Ferid Belhaj Country Director: Jesko S. Hentschel Acting Regional Director: Lucio Monari Practice Manager/Manager: Erik Magnus Fernstrom Task Team Leader: Manaf Touati The World Bank Clean and Efficient Energy Project (P143689) ABBREVIATIONS AND ACRONYMS CEEP Clean and Efficient Energy Project COVEC China Overseas Engineering Group CTF Clean Technology Fund DDO Deferred Drawdown Option EA Environmental Assessment EPC Engineering, Procurement and Construction FY Fiscal Year GWh Gigawatt Hours IBRD International Bank for Reconstruction and Development ICR Implementation Completion and Results Report IP Implementation Progress IR Intermediate Results LV Low Voltage MASEN Moroccan Agency for Sustainable Development M&E Monitoring and Evaluation MTR Mid-term Review MV Medium Voltage MW Megawatt ONEE Office National de l’Eau et de l’Electricité OPCS Operations Policy and Country Services PDO Project Development Objective PV Photo Voltaic RF Results Framework RVP Regional Vice President TF Trust Fund USD United States Dollars The World Bank Clean and Efficient Energy Project (P143689) BASIC DATA Product Information Project ID Financing Instrument P143689 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 24-Apr-2015 30-Nov-2020 Organizations Borrower Responsible Agency Office National de l'Electricité et de l'Eau potable (ONEE) Office National de l'Electricité et de l'Eau potable (ONEE) Project Development Objective (PDO) Original PDO To improve the capacity of ONEE to supply and dispatch clean electricity and to meet the demand of targeted customers more efficiently in the project area. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-85060 24-Apr-2015 02-Jul-2015 28-Oct-2015 30-Nov-2020 125.00 74.93 50.07 TF-19266 24-Apr-2015 02-Jul-2015 28-Oct-2015 30-Nov-2020 23.95 21.74 2.21 The World Bank Clean and Efficient Energy Project (P143689) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. PROJECT STATUS 1. Overall status. The Morocco Clean and Efficient Energy Project (CEEP, or the Project) was approved on April 24, 2015 for a total amount of US$148.95 million: US$125 million from the International Bank for Reconstruction and Development (IBRD) and US$23.95 million from the Clean Technology Fund (CTF). The loans became effective on October 28, 2015. 2. Progress towards PDO and IP. Progress towards achievement of the Project Development Objective (PDO) and overall Implementation Progress (IP) are both rated Moderately Satisfactory. The project has disbursed US$74.9 million of the IBRD loan (60 percent) and US$21.7 million of the CTF loan (91 percent). 3. Mid-term Review. The Mid-term Review (MTR) of the project carried out in January 2018 highlighted a general state of delay (two years in average) since effectiveness. The ONEE Acceleration Plan, developed during the mission and endorsed in February 2018, created a renewed impetus to the project. All agreed critical actions had been implemented by the client. The Government confirmed that the PDO remains relevant for contributing to a cleaner and more efficient power sector. 4. Component 1: Support to ONEE’s Solar PV Program (US$129.7 million). This component aims to finance the construction of the “Noor Tafilalet” Project, a set of three solar photovoltaic (PV) plants of 40 megawatts (MW) each located in southeastern Morocco, near the towns of Zagora, Missour and Erfoud under an Engineering, Procurement and Construction (EPC) contract. World Bank financing also encompasses a transmission line for each plant to evacuate power from the plants to the national grid. ONEE is to finance access roads separately. The EPC contract for the three plants was 75 percent complete by end July 2019. The plants’ commissioning, initially planned for the end of 2018, has been delayed by a year due to late contract effectiveness, combined with limited human and material resources mobilized by the Contractor, and recurrent quality control issues identified by ONEE. An action plan is under preparation by the EPC Contractor after a high-level meeting between the two parties. The transmission lines necessary for the evacuation of power generated by the PV plants were completed in April 2019. Access roads have been tendered in compliance with World Bank procurement and safeguards rules, for potential retroactive financing from the IBRD loan. 5. Subcomponent 1.2, which is to provide technical assistance of US$450,000 to support ONEE to enable private participation in solar PV generation in Morocco has not progressed since the energy sector reorganization in 2016 transferred responsibility for development of renewable electricity generation to another state agency, the Moroccan Agency for Sustainable Energy (MASEN). The World Bank Clean and Efficient Energy Project (P143689) 6. Component 2: Planning and Dispatching of Renewable Energies (US$5.2 million). This component is designed to cater to the increase in the share of renewables in the Moroccan power system through the establishment of a Renewable Energy dispatch center, co-located with ONEE’s existing national power system control center, to ensure optimal power dispatch and protection of the national power grid. As part of the Acceleration Plan, ONEE signed a direct contract with Siemens AG (with no objection from the Bank) in December 2018; the first phase – engineering design validation – is well advanced. The revamped dispatch center is expected to be operational by October 2020. This component also includes technical assistance to increase ONEE’s capacity to perform long-term power planning (US$ 200,000), which is under implementation. 7. Component 3: Utility Demand-side and Revenue Protection Program (US$13.13 million)1. This component aims to reduce commercial losses by reducing theft by extra high, high and medium voltage clients using digitalization and advanced technology. It also aims to incentivize customers to change their consumption behavior by installing time-of- use meters for some of ONEE’s residential clients, providing them information concerning their electricity use that would enable them to shift load from peak to off-peak periods and benefit from reducing consumption during more- expensive evening peak hours. This component also includes technical assistance to deepen and identify additional opportunities for utility-implemented energy efficiency and demand side management programs. Implementation of all activities under this component is currently on track. 8. Component 4: Technical Assistance (US$0.6 million). This component aims to strengthen the technical capacities of ONEE staff through training and technical advice, mainly in the renewable energy sector. This component has not advanced since the start of the project for the same reason as Subcomponent 1.2, i.e., the transfer of responsibility for renewable energy activities and private participation to MASEN. 9. Loan savings. The Noor Tafilalet contract award (Component 1) resulted in savings of around US$15 million. These savings are proposed to be used to finance access roads under the same component and to reinforce other components of the project, i.e.: (i) the national dispatch center; (ii) the revenue protection program; and (iii) the technical assistance. 10. Fiduciary and legal aspects. The project audit reports have been on time and were deemed satisfactory; there are no outstanding audit reports. The rating for Financial Management, Safeguards and Counterpart Funding is Satisfactory. RATIONALE FOR RESTRUCTURING 11. ONEE is implementing an updated corporate strategy focused on utility efficiency and digitalization. The proposed restructuring would align the project with this renewed strategy, and involves changes to the project components, as summarized below: a. Changes to Component 1. In the project’s initial design, ONEE was responsible for financing access roads to the three PV plants (US$4 million). Given savings identified in paragraph 8, it is proposed to have these associated facilities financed by the IBRD loan. As responsibility for the development of renewable electricity generation been transferred to MASEN (including enabling private participation in solar energy) under the 2016 energy sector reorganization, it is proposed to drop the technical assistance to support ONEE to enable private 1 The datasheet incorrectly includes the front-end fee of $0.3125 million under the cost of Component 3. The World Bank Clean and Efficient Energy Project (P143689) sector participation in solar PV generation. The Bank continues to provide support to the Government to develop private sector participation in the renewable energy through the transition from concessional to private commercial debt financing for Morocco’s upcoming renewable energy projects. b. Changes to Component 2. It is proposed to utilize some the loan savings to broaden the component’s scope from a renewable energy dispatch center co-located with ONEE’s existing national power system control center to the upgrade of the entire national dispatch center, as: (i) some of its hardware components are no longer supported or manufactured; and (ii) the current operations system is outdated. c. Changes to Component 3. It is proposed to utilize some of the savings stemming from Component 1 to support ONEE to enlarge the revenue protection program to internal distribution boxes’ meters, which constitute the grid interface between medium and low voltage segments. d. Changes to Component 4. Given the expanded scope of both Components 2 and 3, the related technical assistance needed to support implementation of these components is proposed to be expanded to utility restructuring at large, with emphasis on efficiency, modernization and digitalization. II. DESCRIPTION OF PROPOSED CHANGES 12. Change in Project Development Objective (PDO). The PDO remains relevant and a priority for the client. This restructuring paper proposes to change the PDO while keeping its original spirit unchanged by using the following updated formulation: “to support clean power generation and to improve operational efficiency of Morocco’s national power utility”. The PDO is now split into two broad objectives (clean generation and operational efficiency) instead of the initial three objectives of clean generation, dispatch, and demand side management, as operational efficiency covers both energy dispatching and demand side management. This simplified PDO would also be better aligned with the investment financing focus of the project. 13. Changes to Components and their Costs. The proposed changes are the following: a. Component 1: Support to ONEE’s Solar PV Program. Sub-component 1.2: Enabling environment for Private Participation in Distributed PV Generation is proposed to be dropped. Subcomponent 1.1 (c): Construction of the Access Roads for each of the three Solar PV plants, is proposed to be financed under the loan. The overall component cost will decrease from US$129.7 million to US$116.9 million. b. Component 2: Planning and Dispatching of Renewable Energies. The scope of Subcomponent 2.1: Renewable Energy Dispatch Center in the Project Area, is proposed to be expanded to include upgrading of the entire national load dispatch center. This change will increase the component cost from US$5.2 million to US$8 million. c. Component 3: Utility Demand-side Management and Revenue Protection Program. The scope of this component will be expanded to include internal distribution boxes’ meters, which constitute the grid interface between medium and low voltage segments. This change will increase the component cost from US$13.13 million to US$20.73 million2. 2 The datasheet incorrectly includes the front-end fee of $0.3125 million under the cost of Component 3. The World Bank Clean and Efficient Energy Project (P143689) d. Component 4: Technical Assistance. The following are proposed to be added to the scope: best practices in the management of state-of-the-art load dispatching software and hardware; and new transformational strategic sectoral perspectives including unbundling, operational efficiency, digitalization, big data and analytics, market and policy reforms, evolving regulatory frameworks, new market entrants and empowered customers. These additions will increase the component cost from US$0.6 to 3 million. 14. Change in Loan Closing Date. It is proposed to extend the closing dates of the IBRD and CTF loans from November 30, 2020 to October 31, 2022, as: (i) the PDOs remain achievable; (ii) the performance of the Borrower remains satisfactory; and (iii) the Bank and the Borrower have agreed on an action plan which is being satisfactorily implemented. This extension would ensure proper data collection on plants’ operation and performance, finalization of the new dispatch center, and the completion of the revenue protection program and the new technical assistance. Extending the CTF closing date would allow the team to produce a harmonized Implementation Completion and Results (ICR) Report for both funding sources in 2022. 15. Reallocation between Disbursement Categories. Considering the proposed changes in scope, a reallocation between disbursement categories is proposed to redistribute the financial gains from the efficient implementation of Component 1 to Components 2, 3 and 4. 16. Change in Results Framework. The Results Framework (RF) is proposed to be changed to introduce results-oriented PDO indicators and to simplify the set of Intermediate Results Indicators3. The main changes introduced for each PDO dimension are summarized below: 1. PDO1: Support clean power generation4: a. replacement of the PDO indicator from intermediate capacity (MW) to outcome generation (GWh) terms. 2. PDO2: Improve operational efficiency of Morocco’s national power utility: a. Replacement of the PDO indicator pertaining to the dispatching dimension of PDO2 from intermediate facility installation (Yes/No) to results-oriented “Displaced Fossil Fuel Energy”, which measures the savings in fossil fuels generated by a more efficient dispatching, especially renewable energies (which have zero marginal costs). b. Introduction of a PDO indicator pertaining to the demand side management dimension of PDO2 “Additional Energy Billed” (in GWh), which measures the additional energy that will be billed because of theft reduction to be introduced by Component 3. 3 The Results Framework (RF) was formally assessed by the World Bank in November 2017 ahead of the MTR. The main findings were (i) the first two PDO outcomes “supply clean electricity” and “dispatch clean electricity” are not assessed with PDO indicators but rather with Intermediate Results (IR) indicators (respectively with installed Renewable Energy (RE) capacity and establishment of the new dispatch center), and (ii) the third PDO outcome, “meet demand more efficiently”, was not assessed at all. It was recommended to enhance the RF as suggested in the proposed Restructuring Paper. 4 It is worth mentioning that clean power generation is solely solar power generation for this project. The word “clean” was kept as is mainly because the project also tackles the dispatching aspects of all clean energies (not only solar but also wind and hydro). This is in fact highlighted in the title of the project “Clean and Efficient Energy Project”. The World Bank Clean and Efficient Energy Project (P143689) All target end dates are proposed to be adjusted to reflect the new proposed closing date of October 31, 2022. The revised RF is included in the final section of this Restructuring Paper. 17. Change in Implementation Schedule and Disbursement Estimates. The project implementation schedule and related loan disbursement estimates are proposed to be modified in line with the proposed changes in components and the loan closing dates. I. SUMMARY OF CHANGES Changed Not Changed Project's Development Objectives ✔ Results Framework ✔ Components and Cost ✔ The World Bank Clean and Efficient Energy Project (P143689) Loan Closing Date(s) ✔ Reallocation between Disbursement Categories ✔ Disbursement Estimates ✔ Implementation Schedule ✔ Implementing Agency ✔ DDO Status ✔ Cancellations Proposed ✔ Disbursements Arrangements ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_PDO_TABLE PROJECT DEVELOPMENT OBJECTIVE Current PDO To improve the capacity of ONEE to supply and dispatch clean electricity and to meet the demand of targeted customers more efficiently in the project area. Proposed New PDO To support clean power generation and to improve operational efficiency of Morocco's national power utility. The World Bank Clean and Efficient Energy Project (P143689) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Component 1: Support to ONEE's Component 1: Support to 129.70 Revised 116.90 Solar PV Program ONEE's Solar PV Program Component 2: Planning and Component 2: Planning and Dispatching of Renewable 5.20 Revised Dispatching of Renewable 8.00 Energies Energies Component 3: Utility Demand- Component 3: Utility Demand- side Management and Revenue 13.45 Revised side Management and Revenue 21.05 Protection Program Protection Program Component 4: Technical Component 4: Technical 0.60 Revised 3.00 Assistance Assistance TOTAL 148.95 148.95 OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IBRD-85060 Effective 30-Nov-2020 31-Oct-2022 28-Feb-2023 TF-19266 Effective 30-Nov-2020 31-Oct-2022 28-Feb-2023 OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IBRD-85060-001 | Currency: USD iLap Category Sequence No: 1 Current Expenditure Category: G,CW,NonCS,CS under Part I.1(a) 105,300,000.00 64,590,320.48 86,613,720.00 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: G,W,NCS,CS,TR 11b,12,2,31a,3.2,4 19,387,500.00 2,980,325.46 38,073,780.00 100.00 100.00 The World Bank Clean and Efficient Energy Project (P143689) iLap Category Sequence No: 4 Current Expenditure Category: PREMIUM FOR CAPS/COLLARS 0.00 0.00 0.00 Total 124,687,500.00 67,570,645.94 124,687,500.00 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2015 0.00 0.00 2016 5,040,000.00 2,063,558.00 2017 33,570,000.00 31,811,881.00 2018 67,130,000.00 40,743,046.00 2019 16,780,000.00 21,736,820.00 2020 2,480,000.00 10,381,500.00 2021 0.00 23,000,000.00 2022 0.00 17,000,000.00 2023 0.00 2,213,195.00 . The World Bank Clean and Efficient Energy Project (P143689) . Results framework COUNTRY: Morocco Clean and Efficient Energy Project Project Development Objectives(s) To improve the capacity of ONEE to supply and dispatch clean electricity and to meet the demand of targeted customers more efficiently in the project area. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 PDO1: Support clean power generation (Action: This Objective has been Revised) Clean Energy Generation 0.00 0.00 0.00 100.00 200.00 200.00 200.00 (Gigawatt-hour (GWh)) Action: This indicator is New Generation Capacity of Renewable Energy (other 0.00 0.00 0.00 25.00 75.00 75.00 75.00 than hydropower) constructed (Megawatt) Action: This indicator has been Marked for Deletion Generation Capacity of Renewable Energy 0.00 0.00 0.00 25.00 75.00 75.00 75.00 constructed-Solar (Megawatt) The World Bank Clean and Efficient Energy Project (P143689) RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 Action: This indicator has been Marked for Deletion Direct project beneficiaries 0.00 0.00 0.00 200,000.00 412,056.00 412,056.00 412,056.00 (Number) Female beneficiaries 0.00 0.00 0.00 50.00 50.00 50.00 50.00 (Percentage) Green-House Gas (GHG) emissions avoided (Metric 0.00 0.00 0.00 40,000.00 78,018.00 78,018.00 78,018.00 ton) PDO2: Improve operational efficiency of Morocco's national power utility (Action: This Objective has been Revised) Renewable Energy dispatch system installed and No No No Yes Yes Yes Yes operational (Yes/No) Action: This indicator has been Marked for Deletion Displaced Fossil Fuel Energy 0.00 0.00 0.00 0.00 0.00 100.00 100.00 (Gigawatt-hour (GWh)) Rationale: Action: This indicator is This new platform will help ONEE maximise the integration of renewable generation through improved unit commitment and optimal economic load dispatch New strategies. Energy billed as a result of commercial losses 0.00 0.00 0.00 0.00 0.00 50.00 50.00 reduction (Gigawatt-hour (GWh)) The World Bank Clean and Efficient Energy Project (P143689) RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 Action: This indicator is New PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 Component 1: Support to ONEE's Solar PV Program Citizen Engagement - Consultation Process 0.00 2.00 2.00 2.00 3.00 3.00 3.00 (Number) Action: This indicator has been Revised Number of Solar PV Plants 0.00 0.00 0.00 3.00 3.00 3.00 3.00 commissioned (Number) Action: This indicator has been Revised Volume of direct finance leveraged through CTF 0.00 129,000,000.00 129,000,000.00 129,000,000.00 129,000,000.00 129,000,000.00 129,000,000.00 funding (Amount(USD)) Action: This indicator has been Marked for Deletion Grievances registered related to delivery of 0.00 70.00 75.00 80.00 90.00 100.00 100.00 project benefits addressed (%) (Percentage) The World Bank Clean and Efficient Energy Project (P143689) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 Action: This indicator has been Revised Grievances related to delivery of project benefits that are 0.00 0.00 0.00 0.00 0.00 0.00 100.00 addressed (number) (Number) Action: This indicator has been Marked for Deletion Benchmark study on private sector participation in Solar No No No Yes Yes Yes Yes PV projects completed. (Yes/No) Action: This indicator has been Marked for Deletion Component 2: Planning and Dispatching of Renewable Energies Lessons on operating grids with large RE shares or other topics of relevance for ONEE RE development No No No Yes Yes Yes Yes documented and applied (following training/study tours) (Yes/No) Action: This indicator has been Marked for Deletion Upgraded Dispatch Center No No No No Yes Yes Yes operational (Yes/No) The World Bank Clean and Efficient Energy Project (P143689) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 Action: This indicator is New Energy demand forecast No No No No Yes Yes Yes model acquired (Yes/No) Action: This indicator is New Component 3: Utility Demand-side Management and Revenue Protection Program Reduction of ONEE’s total electricity losses 11.50 11.50 11.50 11.25 11.00 10.75 10.75 (Percentage) Action: This indicator has been Marked for Deletion Number of clients equipped with Smart Meters 0.00 3,000.00 10,000.00 25,000.00 50,000.00 63,600.00 63,600.00 (Number) Action: This indicator has been Revised Feedback from customers with smart meters collected No No No Yes Yes Yes Yes (Yes/No) Action: This indicator has been Marked for Deletion Study on additional energy efficiency and demand-side No No No Yes Yes Yes Yes management programs completed. (Yes/No) The World Bank Clean and Efficient Energy Project (P143689) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 Action: This indicator has been Marked for Deletion Ratio of readjusted original bills for customers with 1.33 1.33 1.33 1.25 0.75 0.75 0.25 Smart Meters (Percentage) Action: This indicator has been Marked for Deletion Component 4: Technical Assistance ONEE Transformation Study No No No No No Yes Yes Completed (Yes/No) Action: This indicator is New IO Table SPACE The World Bank Clean and Efficient Energy Project (P143689)