The World Bank EC Guayaquil Wastewater Management Project (P151439) REPORT NO.: RES34566 DOCUMENT OF THE WORLD BANK RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF EC GUAYAQUIL WASTEWATER MANAGEMENT PROJECT APPROVED ON APRIL 22, 2015 TO EMAPAG EP WATER LATIN AMERICA AND CARIBBEAN Regional Vice President: Axel van Trotsenburg Country Director: Alberto Rodriguez Regional Director: Anna Wellenstein Practice Manager/Manager: Rita E. Cestti Task Team Leader: Jean-Martin Brault, Iris Marmanillo The World Bank EC Guayaquil Wastewater Management Project (P151439) I. BASIC DATA Product Information Project ID Financing Instrument P151439 Investment Project Financing Original EA Category Current EA Category Full Assessment (A) Full Assessment (A) Approval Date Current Closing Date 22-Apr-2015 30-Apr-2023 Organizations Borrower Responsible Agency EMAPAG EP EMAPAG-EP Project Development Objective (PDO) Original PDO The Project Development Objective (PDO) is to increase access to improved sanitation services and to reduce wastewater pollution inselected areas of the City of Guayaquil. Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-88880 29-Jun-2018 29-Nov-2018 21-Jan-2019 30-Apr-2023 233.60 0 233.60 IBRD-85050 22-Apr-2015 29-Jun-2015 15-Sep-2015 30-Dec-2020 102.50 82.82 19.68 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. SUMMARY OF PROJECT STATUS AND PROPOSED CHANGES The World Bank EC Guayaquil Wastewater Management Project (P151439) PROJECT STATUS * Project ratings are Satisfactory (S) for PDO and Moderately Satisfactory (MS) for Implementation Progress, and all other ratings are either S (Procurement, FM, Project Management, M&E and Counterpart Funding) or MS (Overall Safeguards). In addition, there are no outstanding audit reports or audit reports which are not satisfactory to the Bank. * The last two supervision missions confirmed good overall project implementation progress, namely continued satisfactory implementation of the Parent Project's 4 sanitation building blocks, with some delays being observed with the main activity under the AF. * Under the Parent Project, the following sanitation building blocks are being implemented, i.e. (i) networks and household connections financed 100% by the original loan, (ii) the Pradera-Esclusas force main (línea de impulsion) financed 100% by the EIB; (iii) the La Pradera pumping station financed 100% by the original loan; and (iv) the Las Esclusas wastewater treatment plant (WWTP) co-financed with the EIB. Specific progress on these building blocks include: (i) Networks and household connections: the Chala sewerage network rehabilitation contract stands at 90% physical progress; the network expansion contract of Cisne 2 started in February 2019 and stands at 10% physical progress; and 3 intra-domiciliary connections contracts (Guasmo 2 y 3, as well as La Chala - lots 1 and 2) are ready to be launched between July and September 2019, for a total of about 20,000 new connections. For the latter, the estimated completion date are expected to go beyond the current closing date for the original loan, i.e. December 30, 2020, thus requiring an extension; (ii) La Pradera-Esclusas force main: this contract is considerably delayed, at just over 18% progress. Although this contract is financed 100% by the EIB, it is critical for the functioning of the whole sanitation system, given that it is required to be operational before the commissioning and operation of the WWTP and pumping station can start. Additionally, the corresponding supervision contract is being financed by the World Bank; (iii) La Pradera pumping station: the construction contract stands at 93% physical progress and is expected to be completed by August 2019. Nevertheless, tests and commissioning will only be able to start once the La Pradera- Esclusas force main is completed. This will result in a one year delay before this particular contract can be legally closed, and EMAPAG is currently evaluating the best way to proceed; and (iv) Las Esclusas WWTP: the construction contract now stands at 48% physical progress, with slight delays compared with the original planning. Similar to the La Pradera pumping station, the WWTP will not be able to be fully operational without the completion of the Pradera-Esclusas force main, and this contract will have to be put on hold until the latter is completed (expected in September 2020). The commissioning phase and start of operation would therefore have to be pushed until September 2021, just after the current closing date of December 30, 2020, this requiring an extension. *As for activities under the Additional Financing (AF), the main issue is the cancellation of the procurement process for the construction of the Los Merinos WWTP for which the Bank's no objection was communicated to EMAPAG on July 9, 2019. Close follow up and support is being provided to EMAPAG to launch a new process in a timely manner. The World Bank EC Guayaquil Wastewater Management Project (P151439) *As of June 2019, disbursements stand at 80.8% of the original loan (or 25% when considering the additional loan), and an additional US$18 million are planned to be disbursed over the course of the next fiscal year. CHANGES AND RATIONALE This restructuring aims to: (1) extend the current closing date of the Original Loan (IBRD 85050) of December 30, 2020, by one year, i.e. to December 30, 2021 to allow works under the Parent Project to be fully completed, commissioned and brought into operation; and (2) proceed to the reallocation of funds between disbursement categories, and merging disbursement categories for both the original and additional loans. (1) - Extension of closing date of Original Loan by one year. As mentioned in the Project Status above, the La Pradera force main construction contract (financed by the EIB), as well as the Chala household connection installation contracts are not on track to be completed by the current closing date of the original loan because of delays in procurement. More specifically: - La Pradera force main: Since the pumping station and WWTP cannot go fully operational without the La Pradera force main being installed and commissioned, these former contracts will have to be put on hold until the latter is completed, and there is thus a risk that the completion of the commissioning phase and the start of operation for both the pumping station and WWTP will be pushed until just after the current closing date of December 30, 2020. Current estimates indicate that the force main contract will end in August 2020, date at which could start the commissioning of both the pumping station and WWTP, but EMAPAG estimates tha t the assets would only be operational in July 2021. - Household connections: procurement of the installation of just over 14,000 household sewage connections will start shortly, and it is estimated that the completion of these contracts will go over the current closing date of December 30, 2020, until October 2021. *This extension will allow EMAPAG to complete the commissioning phase of key project sanitation building blocks, as well as provide additional security against potential future delays, keeping in mind that the Pradera force main and Chala household connections contracts have yet to be launched. Although it was requested during the preparation of the AF to match the two loans’ closing dates, the original loan closing date was in the end only extended by just under one year from December 31, 2019 to December 30, 2020. Given the progress at the time, a one year extension had been deemed sufficient to complete the works, but delays in the procurement of certain contracts, particularly the one that is financed 100% by the EIB on which we now depend to complete our part of the program, now require another extension. If an extension is not granted, it is likely that EMAPAG will not be able to disburse 100% of the original loan, although it is estimated that this amount could be relatively small (less than 1 million USD). The official request for this extension came to the Bank on January 23, 2019 (see attached). *If the closing date is extended, EMAPAG would need to continue to pay biannual commitment fees on the undisbursed balance, but since this balance would not be significant and rapidly spent after the extended closing date, the implications would be minimal. No other charges will be incurred other than the interests on the disbursed amounts, but this is independent of whether the loan is extended or not. (2) - Reallocation of funds between disbursement categories and creation of new merged category for both the original and additional loans. As mentioned above, there are certain activities as part of the broader EMAPAG program that are financed or co- financed by the EIB, namely (i) the construction of the Pradera force main financed 100% by the EIB, and (ii) the construction of the Esclusas WWTP. Because the financial bids for the force main came back at a higher price than The World Bank EC Guayaquil Wastewater Management Project (P151439) estimated, EMAPAG had originally requested to increase the IBRD’s part in the WWTP construction contract so that the EIB can continue to finance the force main contract at 100%, requiring a reallocation of approximately $6.5m between disbursement categories 2 and 3. Nevertheless, discussions during the last missions led to the request being refined to joining categories 1 through 3 under one unique category to simplify disbursements and build in flexibility in view of the numerous works contracts to be put in place in the coming year. The official request for this reallocation/merging of categories is included in the last mission's Aide-Memoire (June 18-20, 2019 supervision mission). To make sure these arrangements are consistent between the original and additional loans, the same merged category for categories 1 to 3 will also be created for the additional loan, as requested by EMAPAG in the Aide-Memoire. II. DETAILED CHANGES LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IBRD-85050 Effective 31-Dec-2019 30-Dec-2020 30-Dec-2021 30-Apr-2022 IBRD-88880 Effective 30-Apr-2023 30-Apr-2023 30-Aug-2023 REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Current Current Actuals + Proposed Disbursement % Ln/Cr/TF Expenditure Allocation Committed Allocation (Type Total) Category Current Proposed IBRD- CW, NCS, CS - 85050-001 Parts 1, 2, 3(a)(i) 6,300,000.00 2,985,594.99 26,201,882.05 100.00 100.00 Currency: and 3(b) USD CW, NCS, CS - Part 2 until June 33,500,000.00 19,522,529.19 19,522,529.19 100.00 100.00 30, 2019 CW, NCS - Part 3(a)(i) until June 50,750,000.00 45,457,099.97 45,457,099.97 100.00 100 30, 2019 The World Bank EC Guayaquil Wastewater Management Project (P151439) CS - Part 3(b) until June 30, 7,750,000.00 7,118,488.79 7,118,488.79 100.00 100.00 2019 GO, CW, NCS, 4,200,000.00 1,120,472.29 4,200,000.00 100.00 100.00 CS, TR - Part 4 PREMIUM FOR 0.00 0.00 0.00 CAPS/COLLARS Total 102,500,000.00 76,204,185.23 102,500,000.00 IBRD- CW, NCS, CS - 14,100,000.00 0.00 231,400,000.00 100.00 100 88880-001 Part 1 and 3 Currency: Intentionally left USD 217,300,000.00 0.00 0.00 100.00 100 blank GO, CW, NCS, 2,200,000.00 0.00 2,200,000.00 100.00 100 CS, TR - Part 4 Total 233,600,000.00 0.00 233,600,000.00