The World Bank AFCC2/RI-Central African Backbone SOP5 (P132821) REPORT NO.: RES32055 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF AFCC2/RI-CENTRAL AFRICAN BACKBONE SOP5 APPROVED ON JULY 16, 2014 TO DEMOCRATIC REPUBLIC OF CONGO DIGITAL DEVELOPMENT AFRICA Regional Vice President: Hafez M. H. Ghanem Country Director: Jean-Christophe Carret Senior Global Practice Director: Boutheina Guermazi Practice Manager/Manager: Michel Rogy Task Team Leader: Jerome Bezzina The World Bank AFCC2/RI-Central African Backbone SOP5 (P132821) ABBREVIATIONS AND ACRONYMS ARPTC Autorité de Régulation de la Poste et des Télécommunications du Congo CAB Central African BSSackbone COPIREP Comité de Pilotage de la Réforme des Entreprises du portefeuille de l’Etat MINPORTFOLIO Ministry of Portfolio MINPTNITC Ministère des Postes, Télécommunications et Nouvelles Technologies de l’information et de la Communication SOCOF Société Congolaise d’infrastructure en Fibre Optique SCPT Société Congolaise des Postes et Télécommunication SPN Société de Patrimoine Nationale The World Bank AFCC2/RI-Central African Backbone SOP5 (P132821) Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. BASIC DATA Product Information Project ID Financing Instrument P132821 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 16-Jul-2014 31-Dec-2019 Organizations Borrower Responsible Agency Democratic Republic of Congo SOCOF - Société Congolaise de Fibre Optique Project Development Objective (PDO) Original PDO The development objective of the proposed project is to contribute to increase the geographical reach and usage of regional broadband infrastructure and to reduce the price of services so that more people in the DRC can access information and communication technology (ICT) services. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-H9810 16-Jul-2014 25-Jul-2014 22-Jan-2015 31-Dec-2019 92.10 15.21 67.69 The World Bank AFCC2/RI-Central African Backbone SOP5 (P132821) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No Note to Task Teams: End of system generated content, document is editable from here. I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project status 1. CAB5 is an IDA grant in the amount of US$ 92.1 million to the Democratic Republic of Congo (DRC), approved by the Board of Directors on 16 July 2014, made effective on 22 January 2015, and expected to be completed by 31 December 2019. 2. The rationale of the project was based on DRC’s lack of robust fiber optic backbone network at the national level, much needed for providing internet services in all regions of the country and linking it to the neighboring countries. The main component of the project is the deployment of the missing backbone links connecting the country’s most populated economic regions in the western regions (Kinshasa, Matadi, and Moanda) and the eastern and southern regions (Lubumbashi, Tenke, Kalemie, Moma, Minova, Beni, and Minova, Kisangani) of the country. The project also supports the commercialization of the new backbone capacity through a Public Private Partnership (PPP) structure and provides Technical Assistance to strengthen the line ministry (MPTNTIC) and the sector regulator (ARPTC) to improve the governance of the sector. 3. The project objective is to help extending internet services to underserved areas and facilitate competition between the broadband service providers. This will result in reduction of prices, improvement in the quality of service (internet bandwidth capacity), and increased availability of value- added services (e.g. mobile banking). 4. To achieve these results, the project is designed around three components: (i) Component A – Emergence of an Inclusive Digital Economy (US$13.20m) (ii) Component B – Construction, Management and Commercialization of the CAB5 Infrastructure through a PPP Scheme (US$71.60m) (iii) Component C – Enabling Environment and Regulatory Effectiveness ($7.30 million) 5. A midterm review mission was undertaken in DRC between March 18 and March 25 2018, that evaluated the performance of the project as moderately unsatisfactory due to a low disbursement rate of 13%. The execution rate for components A, B and C was 18%, 32% et 60% respectively. More so, the establishment of the PIU and its operating costs constituted between 65% and 100% of the yearly disbursement rate. The disbursement amounts per year are as follows: The World Bank AFCC2/RI-Central African Backbone SOP5 (P132821) 2015 2016 2017 2018 Total (USD) From 2015 to 2018 Planned 6,000,000 20,000,000 30,000,000 20,000,000 76,000,000 Actual 2,111,012 2,313,317 3,258,098 232,944 7,915,373 6. As of February 28, 2019, from the day the project was approved till today, it has incurred an exchange loss of USD 8,652,659.52. which represent the exchange fluctuation between the XDR which is the currency of the loan and the USD. This means that future planned activities should take into consideration that the 8.6 million has been loss and cannot be used for the project anymore. Approve Amount Undisbursed Total Available Exchange Amount Disbursed Amount as of Feb. 28 Loss 92,100,000.00 15,208,364.39 68,238,976.09 83,447,340.48 8,652,659.52 7. The main reason behind the low disbursement rate is that only 1 of the 4 disbursement conditions linked to project components was met. Prior to restructuring, the project included four disbursement conditions; these conditions aim to ensure that the Government of the DRC puts in place the legal, regulatory, and instructional framework necessary to achieve the PDO. 8. As currently stated in the Financing Agreement, the disbursement conditions are as follows: Cost categories Disbursement conditions Current status (2): Works for component a) The Government provides the  Not met A (4) – works and Bank with detailed terms of  The study on the terms of references equipment to the SCPT reference for the technical has been finalized and transmitted to Kinshasa-Muanda link. rehabilitation and support for the the Bank but the terms of references Kinshasa-Muanda optic fiber link. were not transmitted to the Bank yet. 1,900,000 SDR b) The Government provides the  Not met Bank with the SCPT restructuring  The final report for the restructuring schedule. of SCPT (state-owned incumbent telecom operator) has been submitted to the Government but the detailed roadmap has not yet been submitted to the Bank. (3): Works for component a) The Government has signed the  Met B (2) -construction of the Cooperation Agreement with the  The cooperation agreement with the backbone passive SPN (public shareholding SPN (public shareholding company, infrastructure in the company). SOCOF) has been signed and Kinshasa, Goma and approved by the Bank on December Lubumbashi regions. 23, 2016. b) The new ICT legal framework has  Almost met 41,100,000 SDR been adopted.  The new legal and regulatory framework acceptable for the Bank has been adopted by the two chambers: National Assembly on May The World Bank AFCC2/RI-Central African Backbone SOP5 (P132821) 7, 2018 and Senate on November 24, 2018. However, to be in effect i.e. promulgated (requirement of the Bank to guarantee effectiveness), the law remains to be signed by the Head of State. The Bank has not yet received confirmation of the signature by the Head of State. 9. The most critical disbursement conditions are related to expenditure category 3 (construction of the backbone passive infrastructure). This category also constitutes the largest proportion of the IDA grant. The delay in meeting this condition is the main reason behind the low disbursement rate till now. 10. The construction of the Kinshasa-Muanda link (Western regions) under Component 3 is a priority and would be the only operational fiber optic infrastructure between the capital city and the international landing station in Muanda. Its deployment would provide a reliable and cheaper connection to the broadband internet to Kinshasa population, and eventually from Kinshasa to other regions. Thus, the construction of this link can contribute to considerable gains to the country economy, and to the creation of direct and indirect jobs, among other benefits. 11. A contract with Taihan Fiberoptics was signed on September 1rst, 2017 to carry out the construction of the Kinshasa-Muanda link, with a delay of 15 months against forecast: this explains the difference between the disbursement rate of 13% and the engagement rate of 30%. Additional delays in the start of the works by more than three months may possibly result in a readjustment of the contract value to take into account the inflation and additional costs incurred by the company while waiting for the start of execution (as stipulated in the contract with Taihan Fiberoptics -CONTRACT N ° 001 T / CAB5 / SOCOF / DG / 01 / 09/2017). Therefore, it is envisaged that once the conditions are met, Taihan Fiberoptics’ contract will be adjusted. 12. Regarding the results framework, indicators show very limited progress toward the PDO. This is primarily because the main component of the project, i.e. the construction of the backbone network has not started yet. The mid-term review mission proposed some improvements to the definitions and values of the PDO and intermediate results indicators to align them with market trends, country circumstances, and new practices since the conception of the project in 2014. B. Rationale for restructuring of the project 13. The delays in the implementation and disbursement are due to delays in putting in effect a new telecommunications law that is acceptable to the Bank and that spurs competition, transparency and private sector investment. This law was planned as part of the project design due to its importance in helping the project achieve its objectives. 14. Three and a half years after effectiveness, a draft law was submitted and adopted by the Assembly on May 7th, 2018. However, the International Development Association (IDA) cannot consider a draft law as meeting the disbursement condition of “a new legal and regulatory framework to be adopted by the beneficiary”, as it does not offer the legal guarantee that this draft will be adopted and effective. The World Bank AFCC2/RI-Central African Backbone SOP5 (P132821) 15. To jumpstart the construction of the first link without any further delay, the task team proposed during its two missions to DRC in 2018 (see Aide memoires dated March 29, 2018 and October 1rst 2018), to split the expenditure category 3, into expenditure category 3a (construction of the western cluster in Kinshasa Region) and expenditure category 3b (construction of the eastern and southern clusters in Lubumbashi and Goma Regions). The idea was to propose new conditions for each of these two categories and rapidly launch the works on the critical Muanda-Kinshasa link (expenditure category 3a). The proposed disbursement conditions still include the promulgation of the new legal and regulatory framework for Category 3b, but only requires a high level policy directive regarding competition, and government decisions to ensure that the investments are transferred to a robust company for operating and commercializing the new backbone network. The other disbursement conditions related to expenditure category 2 remain unchanged. These conditions remain to be met but are less constraining. 16. Since the midterm review mission, the CMU and the team decided to share the proposed new conditions with the client, and offered support in the implementation without officially restructuring. The CMU wanted to make sure the client shows considerable progress in the implementation of these conditions prior to engaging into a major restructuring. As of today, the law has been passed by the two Chambers (Assembly and Senate) and sent to the president office for promulgation. The Bank has not not yet been informed that the Head of State has promulgated the law. The government has also implemented the two disbursement conditions related to the first expenditure category. Therefore, the project team, with the support of the CMU, decided to formally start the proposed restructuring process. 17. Another critical issue that needed to be tackled in this restructuring is the extension of the support to the SOCOF. SOCOF was established as a government entity that will own the backbone network built under the CAB5. SOCOF is also responsible for transferring the management of the network to a PPP structure for operating and commercializing the network after two years ending in September 2018. After this date, SOCOF was expected to be financially independent. Due to the delay in the construction, this restructuring also extends the financing of the operational expenses of the SOCOF. II. DESCRIPTION OF PROPOSED CHANGES A. Change in the Disbursement conditions and Financing Agreement 18. Splitting expenditure category 3, into category 3a (construction of the western cluster in Kinshasa Region) and category 3b (construction of the eastern and southern clusters in Lubumbashi and Goma Regions); and condition the disbursement of these categories to the following actions: a) Category 3a: I. New condition: for payments made under Category (3)(a), until and unless the Association shall have received evidence satisfactory attesting that: (i) the Cooperation Agreement has been duly signed among the parties; (ii) an arrêté of the Recipient, setting out the conditions and modalities for the establishment and operation of optical fiber telecommunication networks, has been issued by the Recipient; and (iii) the Recipient has, The World Bank AFCC2/RI-Central African Backbone SOP5 (P132821) through MINPTNITC and MINPORTFOLIO, adopted an option (concession, lease/affermage or management contract) for the PPP model for the operation and commercialization of the fiber optic network built under the Project, all in form and substance satisfactory to the Association.” b) Category 3b: I. New Condition: for payments made under Category (3)(b), until and unless the Recipient has: (i), through the SPN (Société Congolaise de Fibre Optique – SOCOF), entered into a contract with the private sector partner(s) (PPP) for the entire fiber optic network financed under the Project, in form and substance satisfactory to the Association; and (ii) submitted to the Association evidence satisfactory attesting to the promulgation by the Recipient of the ICT Enabling Legislation, in form and substance satisfactory to the Association.” B. Extension of Closing Date 19. Extension of 12 months: The construction of eastern and southern cluster in the Lubumbashi and Goma regions (Lubumbashi, Tenke, Kalemie, Moma, Minova, Beni, and Minova, Kisangani) will require 16 months to be completed, and the construction of the western cluster in the Kinshasa region (Kinshasa, Matadi, and Moanda) will require 12 months. Technical studies are almost completed for both clusters; therefore, the proposed restructuring includes an extension of 12 months to allow for the construction of these infrastructure links as well as the implementation of the PPP arrangement. The closing date will be extended to December 31, 2020. C. Reallocation of project costs within categories 20. In terms of reallocation of grant proceeds among categories, the restructuring proposes to: (a) Divide expenditure category (3) into two sub-categories: Category (3a) Works for Component B western cluster in the Kinshasa region (Kinshasa, Matadi, and Moanda); and Category (3b) Works for Component B eastern and southern cluster in the Lubumbashi and Goma regions (Lubumbashi, Tenke, Kalemie, Moma, Minova, Beni, and Minova, Kisangani). (b) To reallocate the undisbursed balance of Category (4) (Reimbursement of Advance for Project Preparation) between category 1 and category 3, to account for the fluctuation in the SDR exchange rate since the start of the project, as well as the readjustment of the contract value for the construction of the west cluster (CONTRACT N ° 001 T / CAB5 / SOCOF / DG / 01 / 09/2017). 21. As mentioned in paragraph 16 above, the project restructuring will also extend support to the SOCOF until December 31, 2020. Category before restructuring Allocation Category after Cost after before restructuring restructuring in SDR restructuring in SDR (1) Goods Works, Non-Consulting (1) Goods, non-consulting 15,308,878 services, Consultants’ Services, services, consultants’ Operating Costs, Workshops and 14,200,000 services, Operating Costs, Training for Components A, B and C Workshops and Training for components A, B and C The World Bank AFCC2/RI-Central African Backbone SOP5 (P132821) of the Project, and Works for of the Project, and works Components A2 and C of the project for components A2 and C of the Project (2) Works for component A4 of the (2) Works for component project 1,900,000 A4 of the Project 1,900,000 22. (3)(a) Works for 12,636,000 component B (2)(a) of the (3) Works for component B of the 41,100,000 Project Project (3)(b) Works for component B (2)(b) of the 29,400,000 Project (4) Refund of the Preparation (4) Refund of the 2,600,000 555,122 Advance Preparation Advance Total 59,800,000 59,800,000 D. Change in PDO Results Indicators 23. Table below summarizes the changes in the results indicators PDO indicators - Previous PDO indicators - new Changes 1 Merging two indicators: 1) Impact of World Bank Technical Assistance Impact on telecom sector of World Bank on telecom sector (composite score 1- low support through the CAB 5 project 1) new indicator impact to 5 - high impact) and (composite score: 0- No impact to 5-high 2) new targets 2) Impact on IT/ITES sector of World Bank impact) Technical Assistance (composite score: 1- low to 5 0 high impact) Access to Internet Services (number of 1) reformulation specifying that the indicator Access to Internet Services (number of 2 Mobile Internet Subscribers per 100 refers to mobile internet penetration subscribers per 100 people) people) 2) new targets 1) reformulation specifying that the indicator Retail Price of Internet Services (per Mbit/s per Retail Price of Mobile Internet Services 3 refers to mobile internet services Month, in US$) (per Mbit/s per Month, in US$) 2) new targets 1) reformulation specifying that the indicator Geographical reach of mobile services refers to mobile services and population 4 Geographical reach of mobile services (% population coverage of 3G networks) penetration 2) new targets Direct Project Beneficiaries (number of 1) reformulation [providing a more precise 5 Direct project beneficiaries (in million) subscribers served by the fiber optic definition of direct beneficiaries network of CAB5, million) 2) new targets Direct Project Females Beneficiaries Female beneficiaries (%) (percentage of subscribers served by the 1) New targets for y6, y7 fiber optic network of CAB5) The World Bank AFCC2/RI-Central African Backbone SOP5 (P132821) Intermediate indicators - Previous Intermediate indicators - New Previous indicator and changes 1) New targets based on delay of 1 Length of Fiber Optic Network Built (km) Length of Fiber Optic Network Built (km) implementation 1) New formulation to indicate that the capital Private sector investment mobilized 2 Private sector capital mobilized (USD, million) mobilized is through the PPP through the PPP (US$, million) 2) new targets Number of Manpower trained under the 3 Number of Manpower trained under the project No changes project Price of Wholesale National 4 New indicator Transmission Capacity (Mbit/s per 1) New indicator month) Total Used International Capacity 5 New Indicator 1) New indicator (Gbit/s) Impact on IT/ITES sector of World Bank To be merged with previous PDO Technical Assistance (composite score: 1- low to indicator number 1 5 0 high impact) Number of MoUs reached between DRC and neighboring countries to implement a regional Deleted interconnection regime. III. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Loan Closing Date(s) ✔ Reallocation between Disbursement Categories ✔ Institutional Arrangements ✔ Other Change(s) ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Components and Cost ✔ Cancellations Proposed ✔ Disbursements Arrangements ✔ Disbursement Estimates ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ The World Bank AFCC2/RI-Central African Backbone SOP5 (P132821) EA category ✔ Legal Covenants ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IDA-H9810 Effective 31-Dec-2019 31-Dec-2020 30-Apr-2021 OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IDA-H9810-001 | Currency: XDR iLap Category Sequence No: 1 Current Expenditure Category: G/W/NCS/CS/OC/WSHP/TR A,B,C&W A2,C 14,200,000.00 7,981,401.39 15,308,877.00 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: DISB - CIVIL WORKS COMPONENT A4 1,900,000.00 0.00 1,900,000.00 100.00 100.00 iLap Category Sequence No: 3 Current Expenditure Category: DISB - CIVIL WORKS COMPONENT B The World Bank AFCC2/RI-Central African Backbone SOP5 (P132821) 41,100,000.00 0.00 42,036,000.00 100.00 100.00 iLap Category Sequence No: 4 Current Expenditure Category: PPF REFINANCING 2,600,000.00 555,122.27 555,123.00 Total 59,800,000.00 8,536,523.66 59,800,000.00 The World Bank AFCC2/RI-Central African Backbone SOP5 (P132821) . Results framework COUNTRY: Africa AFCC2/RI-Central African Backbone SOP5 Project Development Objectives(s) The development objective of the proposed project is to contribute to increase the geographical reach and usage of regional broadband infrastructure and to reduce the price of services so that more people in the DRC can access information and communication technology (ICT) services. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 Project Development Objective Indicators Impact on Telecom sector of World Bank Technical Assistance (composite score: 1- 0.00 1.00 1.00 2.00 3.00 4.00 low impact to 5-high impact) (Number) Access to Internet Services (number of subscribers per 100 2.00 3.00 4.00 7.00 12.00 20.00 people) (Number) Wholesale national Capacity Transmission Price (per Mbit/s 2,000.00 1,800.00 1,500.00 1,000.00 500.00 200.00 per Month, in US$) (Amount(USD)) Geographical reach of mobile 25.00 27.00 30.00 35.00 42.00 50.00 services (percentage of The World Bank AFCC2/RI-Central African Backbone SOP5 (P132821) RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 population covered) (Percentage) Direct project beneficiaries 0.00 100,000.00 1,000,000.00 1,500,000.00 3,000,000.00 5,000,000.00 (Number) Female beneficiaries 0.00 20.00 30.00 40.00 49.00 2,500,000.00 (Percentage) PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 Component A - Emergence of an Inclusive Digital Economy Number of Manpower Trained under the Project (number of 0.00 0.00 20.00 40.00 80.00 100.00 people) (Number) Component B - Construction, Management and Commercialization of the CAB5 Infrastructure through a PPP Scheme Length of Fiber Optic Network 600.00 600.00 1,500.00 2,500.00 2,400.00 3,400.00 Built (km) (Kilometers) Impact on IT/ITES Sector of World Bank Technical Assistance (composite score: 1 0.00 1.00 2.00 3.00 4.00 4.00 # low impact to 5 # high impact) (Number) Private Capital Mobilized 0.00 0.00 0.00 10,000,000.00 15,000,000.00 20,000,000.00 (Amount(USD)) The World Bank AFCC2/RI-Central African Backbone SOP5 (P132821) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 Number of MoUs reached between DRC and neighboring countries to implement of a 0.00 5.00 regional interconnection Regime (Number) IO Table SPACE . 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