The World Bank DRC Urban Water Supply Project (P091092) REPORT NO.: RES37522 DOCUMENT OF THE WORLD BANK RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF DRC URBAN WATER SUPPLY PROJECT APPROVED ON DECEMBER 18, 2008 TO MINISTRY OF FINANCE WATER AFRICA Regional Vice President: Hafez M. H. Ghanem Country Director: Jean-Christophe Carret Senior Global Practice Director: Jennifer J. Sara Practice Manager/Manager: Yogita Mumssen Task Team Leader: Pierre Francois-Xavier Boulenger, Rebecca Jean Gilsdorf The World Bank DRC Urban Water Supply Project (P091092) I. BASIC DATA Product Information Project ID Financing Instrument P091092 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 18-Dec-2008 30-Jun-2019 Organizations Borrower Responsible Agency COPIREP,REGIDESO,REGIDESO,Democratic Republic of Ministry of Finance Congo, Represented by the Ministry of Finance Project Development Objective (PDO) Original PDO The project objective is to increase sustainable access to water in selected urban areas and the efficiency of REGIDESO. Current PDO The revised PDO is to increase access to sustainable water services in selected urban areas, and to improve the operational performances and viability of the Project Implementing Entity. Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-D1020 25-Feb-2016 18-Mar-2016 16-Sep-2016 30-Jun-2019 166.00 64.42 101.32 IDA-H4350 18-Dec-2008 19-Jan-2009 03-Nov-2009 31-Dec-2018 190.00 191.27 0 TF-92105 09-Jun-2008 13-Jun-2008 13-Jun-2008 30-Jun-2009 .07 .07 0 The World Bank DRC Urban Water Supply Project (P091092) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. SUMMARY OF PROJECT STATUS AND PROPOSED CHANGES Summary of Project Status and Proposed Changes 1. The purpose of this Restructuring Paper is to seek your approval for an extension of the closing date of the Urban Water Supply (PEMU) Project (P091092) in the Democratic Republic of the Congo (DRC) by 12 months, from June 30, 2019 to June 30, 2020. With this 12-month extension, the cumulative extension for the Additional Financing (AF) will total 18 months, given a previous 6-month extension of the AF provided through a restructuring that took place in December, 2018. The grant of the parent project has been fully disbursed and was closed on December 31, 2018. 2. To date, the project (parent and AF together) has disbursed US$255.7 million, against a total project budget of US$356 million (71.6 percent disbursed). The disbursement rate has increased over the past months as significant infrastructure works have been completed and additional procured materials have arrived. Thus, during FY19, a total of US$32.2 million has been disbursed so far and should reach US$40.6 million by June 30, as per the last supervision mission (June 2019) projections. The project is in compliance with World Bank fiduciary requirements and has no overdue audit reports or outstanding audit issues. The project is also in compliance with the World Bank safeguard policies and remains rated Moderately Satisfactory on that front. The scope of the project will not be changed as part of this restructuring. Project Status 3. The PEMU parent project was approved by the Board on December 18, 2008, and became effective on November 3, 2009, with an original closing date of March 31, 2014. The AF was approved by the Board on February 25, 2016, became effective on September 16, 2016, and had an original closing date of December 31, 2018. The AF closing date was extended in December 2018. 4. The PDO is to increase access to sustainable water services in selected urban areas, and to improve the operational performance and viability of the Project Implementing Entity. At present, the likelihood of fully achieving the PDO is rated as Moderately Unsatisfactory, primarily due to the lack of progress under Component B, whereas Component A has been progressing well. 5. Component A: Water Supply Services in Major Urban Centers (US$233.9 million, cumulative for parent and AF). More than 1.8 million additional people have gained access to water under the project, which represents 72.8 percent of the target number for beneficiaries. Additionally, 50,050 new household connections have been installed (68 percent of the target), 405 new public taps have been constructed (90 percent of the target), and an additional production of 64,000 m3/day is being supplied to the network (92.8 percent of the target). 6. Component B: Sector reform, capacity building and improved governance (US$122.1 million, parent and AF combined). The PDO level indicator for this component is the cost recovery rate for the Project Implementing Entity, the national water utility, REGIDESO (Régie de Distribution d’eau de la République Démocratique du Congo). The target for the cost recovery rate is 104, but at present, the rate is only 80, which is actually lower than the baseline value of 85. This low, and declining, performance is heavily linked to current staff costs (given the existing very advantageous collective agreement for REGIDESO’s staff) and government arrears, totaling an estimated US$185 million, which represents around 1.5 years of the turnover of REGIDESO. Further, the intermediate results indicators have shown limited progress to date on this part of the PDO. The World Bank DRC Urban Water Supply Project (P091092) 7. However, REGIDESO has started a program to address the high rate of inactive connections in Kinshasa (largely due to lack of water supply and non-payment due to poor quality service), by supporting households in getting reconnected and offering installment payment plans to handle their debt. Given increased water supply availability and network improvements leading to improved quality of service, households are being encouraged to re-connect. The preliminary results of this work are positive, with 2,659 of the 9,565 households visited agreeing to pay their bill and reconnect (27.8 percent re-activation). An additional 1,725 households were found to still have an active connection and are now being billed regularly (18 percent of those contacted). Addressing the large number of existing inactive connections (nearly 75,000 former customers, with debts totaling over US$30 million) will go a long way in improving REGIDESO’s operational performance and will indirectly benefit: (i) the rate of non-revenue water (as some existing water users will begin receiving a bill); (ii) the number of staff per 1,000 connections (as the number of active connections will increase though the size of the staff will remain unchanged); and (iii) the proportion of billed water (in volume or billings) that are “Instances Official,” i.e., government connections. All of these on-going improvements will support the attainment of the second part of the PDO (linked to Component B). Proposed Changes 8. The Ministry of Finance issued a letter on March 15, 2019 requesting a restructuring of the project to extend its closing date by 18 months up to December 31, 2020. The extension was requested to allow time to complete Phase 1 (110,000 m3/day) of the new Water Treatment Plant (WTP) of Ozone and for emergency works at N’djili’s WTP to secure the site, implement additional flood protection measures, and replace critical infrastructure. After further discussions between the World Bank and the Client, it was agreed that an extension to June 30, 2020, was sufficient at this stage. 9. The proposed extension for the project closing date will provide more time to implement the following key activities and reforms that were envisioned under and are currently part of the project, specifically: (i) intensification of social connections (i.e., partially subsidized household water connections) in all three targeted urban centers (anticipated 102,500 additional connections [139% of target] reaching 3,462,630 beneficiaries in total [133% of PDO target for component A]); (ii) additional network expansion and rehabilitation (laying pipes already purchased under the project, financing new pumps for Lubumbashi, rehabilitation of N’djili pumping station in Kinshasa) to secure the reliability of water supply in both locations; (iii) start of Phase 1 of the Ozone Water Treatment Plant (WTP) in Kinshasa and finance studies for Phases 2 and 3 (before transferring the remaining construction to the Kinshasa Urban Development Project (PDMRUK)) to enable additional daily production of 330,000 m3/day upon completion; (iv) undertaking of additional technical studies for storage and networks in Kinshasa (to be constructed under PDMRUK)); (v) improving commercial (and therefore, financial) performances of REGIDESO through the implementation of mobile bill pay options to scale up the current pilot and the expansion of the program to address inactive connections will be expanded to cover all inactive connections in Kinshasa; (vi) undertaking a study to inform the piloting of institutional reform in two provinces (Kongo Central and Bandundu), as proposed by the institutional reform study financed under the project, to enable and promote Private Sector Participation as envisaged in the new water law; and (vii) undertake studies to inform/support reforms to be included in a Development Policy Operation under discussion, including possible support to the revision of the REGIDESO staffing agreement (i.e., the collective convention). Studies under (iii) and (iv) will support activities to be implemented under the PDMRUK Project, currently under preparation. 10. The social connection program implemented under Component A to address inactive connections and other key activities will indirectly benefit a number of other indicators of Component B, including: the rate of inactive connections per city (expected to drop to 28.5 percent, against target of 20 percent), metering distribution rate (expected to rise to 89.3 percent, against the targeted 90 percent), and number of staff per 1,000 active connections (expected to drop to 6.9 percent, against the targeted 9.6). 11. The project team confirms that World Bank’s requirements under World Bank Directive for Investment Project Financing (IPF) are met. The proposed extension is going to support implementation of remaining key project activities The World Bank DRC Urban Water Supply Project (P091092) that will enhance the achievement of the PDO. With the extension, the PDO remains achievable, and the World Bank and the Borrower agree on actions that will be undertaken by the Borrower to complete the project. II. DETAILED CHANGES LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IDA-D1020 Effective 31-Dec-2018 30-Jun-2019 30-Jun-2020 30-Oct-2020 31-Dec-2015, 15- IDA-H4350 Closed 31-Mar-2014 Mar-2016, 31-Dec- 2018 TF-92105 Closed 30-Jun-2009 28-Dec-2009