Document of The World Bank FOR OFFICIAL USE ONLY Report No: PAD3298 INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT PAPER ON A PROPOSED ADDITIONAL GRANT IN THE AMOUNT OF SDR 54.2 MILLION (US$75.0 MILLION EQUIVALENT) FROM THE IDA CRISIS RESPONSE WINDOW TO THE REPUBLIC OF MOZAMBIQUE FOR THE WATER SERVICES AND INSTITUTIONAL SUPPORT II PROJECT June 3, 2019 Water Global Practice Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective April 30, 2019}) Currency Unit = New Mozambique Metical (MZM) US$1 = MZN 62.55 US$1 = SDR 0.72162568 FISCAL YEAR January 1 - December 31 Regional Vice President: Hafez M. H. Ghanem Country Director: Mark R. Lundell Senior Global Practice Director: Jennifer Sara Practice Manager: Catherine Signe Tovey Task Team Leaders: Lizmara Kirchner, Odete Duarte Muximpua ABBREVIATIONS AND ACRONYMS AF Additional Financing ARAP Abbreviated Resettlement Action Plan AURA Water regulatory Authority (Autoridade Reguladora de Água) CERC Contingency Emergency Response Component CO2 Carbon Dioxide CPF Country Partnership Framework CRA Water Regulatory Council (Conselho de Regulação de Águas) (now AURA) CRW Crisis Response Window DALY Disability-adjusted Life Years DNAAS National Directorate of Water Supply and Sanitation DRIVE Development-Related Infrastructure Vehicle ERR Economic Rate of Return ESIA Environmental and Social Impact Assessment ESMF Environmental and Social Management Framework ESMP Environmental and Social Management Plan ESU Environmental and Social Unit FIPAG Water Supply Asset Holding and Investment Fund (Fundo de Investimento e Património do Abastecimento de Água) FM Financial Management FY Fiscal Year GBV Gender-based Violence/ GDP Gross Domestic Product GHG Greenhouse Gas GoM Government of Mozambique GRM Grievance Redress Mechanism GRS Grievance Redress System DSCR Debt-service Coverage Ratio IBRD International Bank for Reconstruction and Development IDA International Development Association IFR Interim Financial Report IP Implementation Progress IPF Investment Project Financing IRM Immediate Response Mechanism ISR Implementation Status and Report MZN New Mozambique Metical NPV Net Present Value OCHA United Nations Office of Coordination for Humanitarian Affairs PAP Project Affected Person PDNA Post Disaster Needs Assessment PDO Project Development Objectives PPSD Project Procurement Strategy for Development PPZ Partial Protection Zone RAP/ Resettlement Action Plan RPF Resettlement Policy Framework SCD Systemic Country Diagnosis SDR Special Drawing Rights SEA Sexual Exploitation and Abuse UNICEF United Nations International Children’s Emergency Fund WASH Water, Sanitation and Hygiene WASIS Water Services and Institutional Support WHO World Health Organization YLL Years of Life Lost Mozambique MZ –Additional Financing - Water Services and Institutional Support II Project TABLE OF CONTENTS I. BACKGROUND AND RATIONALE FOR ADDITIONAL FINANCING ........................................ 7 II. DESCRIPTION OF ADDITIONAL FINANCING .................................................................... 13 III. KEY RISKS ..................................................................................................................... 18 IV. APPRAISAL SUMMARY .................................................................................................. 19 V. WORLD BANK GRIEVANCE REDRESS .............................................................................. 28 VI. SUMMARY TABLE OF CHANGES .................................................................................... 29 VII. DETAILED CHANGE(S).................................................................................................... 29 VIII. RESULTS FRAMEWORK AND MONITORING ................................................................. 387 ANNEX 1 - ECONOMIC ANALISYS .......................................................................................... 51 ANNEX 2 - SAFEGUARDS ACTION PLAN ................................................................................ 58 ANNEX 3 - PROJECT ORIGINAL AND REVISED RESULTS FRAMEWORK .................................... 59 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) BASIC INFORMATION – PARENT (Water Services & Institutional Support II - P149377) Country Product Line Team Leader(s) Mozambique IBRD/IDA Lizmara Kirchner Project ID Financing Instrument Resp CC Req CC Practice Area (Lead) P149377 Investment Project GWA01 (9389) AFCS2 (5547) Water Financing Implementing Agency: FIPAG ADD_FIN_TBL1 Is this a regionally tagged project? Bank/IFC Collaboration No Original Environmental Approval Date Closing Date Current EA Category Assessment Category 29-Mar-2016 31-Oct-2022 Partial Assessment (B) Partial Assessment (B) Financing & Implementation Modalities Parent [ ] Multiphase Programmatic Approach [MPA] [ ] Contingent Emergency Response Component (CERC) [ ] Series of Projects (SOP) [ ] Fragile State(s) [ ] Disbursement-Linked Indicators (DLIs) [ ] Small State(s) [ ] Financial Intermediaries (FI) [ ] Fragile within a Non-fragile Country [ ] Project-Based Guarantee [ ] Conflict [ ] Deferred Drawdown [ ] Responding to Natural or Man-made disaster [ ] Alternate Procurement Arrangements (APA) Development Objective(s) Page 1 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) The objectives of the Project are to: (i) Increase water service coverage in key cities of Mozambique's territory; (ii) Strengthen the institutional and regulatory capacity for water supply services in the northern, central and southern regions of Mozambique's territory; and (iii) Support Mozambique to respond promptly and effectively to an Eligible Crisis or Emergency. Ratings (from Parent ISR) RATING_DRAFT_Y ES Implementation 28-Dec-2016 22-Jun-2017 28-Dec-2017 19-Apr-2018 02-Dec-2018 Progress towards achievement of S S S S S PDO Overall Implementation S S S S S Progress (IP) Overall Safeguards Rating S S S S S Overall Risk M M M M M BASIC INFORMATION – ADDITIONAL FINANCING (MZ - Additional Financing - Water Services and Institutional Support II - P165463) ADDFIN_TABLE Urgent Need or Capacity Project ID Project Name Additional Financing Type Constraints P165463 MZ - Additional Financing - Scale Up Yes Water Services and Institutional Support II Financing instrument Product line Approval Date Investment Project IBRD/IDA 14-Jun-2019 Financing Projected Date of Full Bank/IFC Collaboration Disbursement 28-Mar-2025 No Is this a regionally tagged project? Page 2 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) No Financing & Implementation Modalities Child [ ] Series of Projects (SOP) [✓] Fragile State(s) [ ] Disbursement-Linked Indicators (DLIs) [ ] Small State(s) [ ] Financial Intermediaries (FI) [ ] Fragile within a Non-fragile Country [ ] Project-Based Guarantee [ ] Conflict [ ] Deferred Drawdown [✓] Responding to Natural or Man-made disaster [ ] Alternate Procurement Arrangements (APA) [✓] Contingent Emergency Response Component (CERC) Disbursement Summary (from Parent ISR) Net Source of Funds Total Disbursed Remaining Balance Disbursed Commitments IBRD % IDA 90.00 16.34 74.69 18 % Grants % PROJECT FINANCING DATA – ADDITIONAL FINANCING (MZ - Additional Financing - Water Services and Institutional Support II - P165463) PROJECT FINANCING DATA (US$, Millions) SUMMARY -NewFi n1 SUMMARY (Total Financing) Proposed Additional Total Proposed Current Financing Financing Financing Total Project Cost 90.00 109.80 199.80 Total Financing 90.00 109.80 199.80 of which IBRD/IDA 90.00 75.00 165.00 Financing Gap 0.00 0.00 0.00 Page 3 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) DETAILS - Additional Financing NewFinEnh1 World Bank Group Financing International Development Association (IDA) 75.00 IDA Grant 75.00 Non-World Bank Group Financing Counterpart Funding 8.80 Borrower/Recipient 8.80 Other Sources 26.00 NETHERLANDS: Min. of Foreign Affairs / Min. of Dev. Coop. 26.00 IDA Resources (in US$, Millions) Credit Amount Grant Amount Guarantee Amount Total Amount Crisis Response Window (CRW) 0.00 75.00 0.00 75.00 Total 0.00 75.00 0.00 75.00 COMPLIANCE Policy Does the project depart from the CPF in content or in other significant respects? [ ] Yes [ ✔ ] No Does the project require any other Policy waiver(s)? [ ] Yes [ ✔ ] No INSTITUTIONAL DATA Practice Area (Lead) Water Contributing Practice Areas Page 4 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) Climate Change and Disaster Screening This operation has been screened for short and long-term climate change and disaster risks Gender Tag Does the project plan to undertake any of the following? a. Analysis to identify Project-relevant gaps between males and females, especially in light of country gaps identified through SCD and CPF Yes b. Specific action(s) to address the gender gaps identified in (a) and/or to improve women or men's empowerment Yes c. Include Indicators in results framework to monitor outcomes from actions identified in (b) Yes PROJECT TEAM Bank Staff Name Role Specialization Unit Team Leader (ADM Sr. Water Supply and Lizmara Kirchner GWA01 Responsible) Sanitation Specialist Water Supply and Sanitation Odete Duarte Muximpua Team Leader GWA01 Specialist Procurement Specialist (ADM Antonio Laquene Chamuco Procurement Specialist GGOPF Responsible) Financial Management Financial Management Eldio Venancio Mapoissa GGOAC Specialist (ADM Responsible) Specialist Social Specialist (ADM Eden Gabriel Vieira Dava Social Specialist GSU20 Responsible) Environmental Specialist (ADM Paulo Jorge Temba Sithoe Environmental Specialist GENA3 Responsible) Ai-Ju Huang Team Member Sr. Operations Officer GWAGS Christian Borja-Vega Team Member Sr. Economist GWA04 George Ferreira Da Silva Team Member Finance Officer WFACS Jose C. Janeiro Team Member Senior Finance Officer WFACS Page 5 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) Maria Isabel Nhassengo- Team Member Procurement Assistant AFCS2 Massingue Minerva S. Espinosa- Team Member Program Assistant GWA01 Apurada Sean Christopher Nelson Team Member Climate Change Specialist GWAGS Sofia De Abreu Ferreira Counsel Senior Counsel LEGEN Teofilo Domingos Munjovo Team Member Team Assistant AFCS2 Extended Team Name Title Organization Location Elisabeth Sherwood Financial Analyst Washington Florian Heiser Environmental Engineer Page 6 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) I. BACKGROUND AND RATIONALE FOR ADDITIONAL FINANCING A. Introduction 1. This Project Paper seeks the approval of the Executive Directors to provide an additional grant in the amount of US$75 million equivalent to the Republic of Mozambique for the Water Services and Institutional Support Project II (WASIS II) (P149377). The proposed additional financing (AF) will cover the water supply reconstruction and recovery investments in the cities and towns affected by cyclone Idai, the replenishment of funds used for the Immediate Response Mechanism (IRM), and the costs associated with scaling up of investments under the original financing. The proposed AF is funded from two sources: (i) IDA in the amount of US$75 million from the IDA Crisis Response Window (CRW), and (ii) the Development-Related Infrastructure Vehicle (DRIVE) Program from the Government of the Netherlands in the amount of US$26 million. 2. The AF will enable the Government of Mozambique (GoM) to: (i) rehabilitate critical infrastructure damaged by cyclone Idai and restore the basic water supply services in the affected areas (Beira, Dondo, Tete, Moatize, Quelimane, Nampula, Mocuba and surrounding towns), including the replenishment of the funds used from the original WASIS II Project, as part of the IRM; (ii) scale-up the project activities to include water supply treatment transmission and distribution systems in the city of Nacala with co-financing from the Government of the Netherlands, and thus increase the impact of the original project; and (iii) achieve the project development objectives (PDO) of the original project by covering the financing gap and support the rehabilitation and expansion of water production and distribution in the cities of Tete and Moatize. Institutional development and project management support will also be provided under the AF. 3. A restructuring of the original project will be executed with the following proposed changes: (i) modify the results framework by adjusting selected targets to reflect the scaled-up investments for reconstruction and recovery in the cyclone affected areas; (ii) extend the closing date of the original financing from October 31, 2022 to October 31, 2024 to allow sufficient time for completion of planned activities under the AF and achievement of the PDO; (iii) adjustments to component costs and reallocation of project funds to reflect the reduced cost of Component 3. 4. Alignment with the Country Partnership Framework (CPF). The AF is aligned to the Mozambique CPF 2017-2021,1 namely Focus Area 2, Investing in Human Capital, where priority is given to reducing the incidence of water and sanitation-related diseases by providing improved access to water and sanitation services to an additional 1.1 million people living in peri-urban areas and small towns (Objective 7). The project interventions will help to reduce the prevalence of water-borne and diarrheal diseases attributable to limited access to clean water supply in low-income communities. The expected benefits from the project will contribute to reduction on child stunting, cholera epidemics and chronic diarrhea outbreaks, and child mortality in those cities. 5. Cyclone Idai and subsequent flooding and landslides affected Malawi, Mozambique and Zimbabwe over the period of March 4–17, 2019, with severe repercussions on an already fragile part of southern Africa and raising the prospects of significant cross-border impacts. The cyclone has affected around two million people across the three countries and left a trail of destruction with many people dead, missing or displaced, as well as crops and livestock lost, and critical infrastructure destroyed. Regional effects are already being felt through trade disruptions, disease outbreaks and rising outmigration. Notably, the cyclone’s impact on the important Beira trade corridor interrupted supplies of essential goods such as fuel, wheat and fertilizers, affecting already volatile prices and exchange rates (particularly in Zimbabwe), and impacting trade revenue. The Beira corridor 1 Report No. 104733-MZ, March 30, 2017. Page 7 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) is a trading route for countries including Malawi, Zambia and Zimbabwe that links hinterland countries to the ocean through the port of Beira. 6. Cyclone winds and floods destroyed or damaged critical infrastructure such as roads and bridges, as well as buildings in Beira used to facilitate trade, such as warehouses. The scale of the cyclone and cumulative effects from preceding shocks on an already fragile region could also lead to rising outmigration—to illustrate, about 0.5 million Zimbabweans migrated to neighboring countries as a direct consequence of the droughts in 2002 and 2004, and historical evidence suggests that this is likely to cause severe socioeconomic strain in receiving countries. With the Ministry of Health in Mozambique declaring a cholera outbreak on March 27 and over 4,000 cases of cholera recorded along the corridor as of May 1, 2019, a coordinated regional effort to control the spread of diseases is critical. Mounting an effective response and addressing the spillover effects of this crisis requires an integrated regional intervention from the World Bank. This operation is part of the World Bank’s broader regional package which comprises a set of operations totaling some US$700 million in IDA resources – including up to US$545 million from the IDA CRW – to support cyclone response in Malawi, Mozambique and Zimbabwe. B. Rationale for Crisis Response Window 7. The original financing targets cities that were greatly affected by cyclones Idai and Kenneth,2 rendering the proposed interventions even more critical. The AF will finance water supply investments in the cities of Tete and Moatize that have been affected by cyclone Idai, extend project activities to the city of Nacala with co-financing from the Government of the Netherlands, and replenish funds that are being used for the immediate response to cyclone Idai in the cities of Beira, Dondo, Tete, Moatize, Quelimane, Nampula and Mocuba. IDA funding is needed to support the recovery and reconstruction efforts in those cities and expand the investment program to Nacala, to address deficiencies in infrastructure and increase water service coverage to a large number of low-income residents. 8. From March 10 to 23, 2019, Mozambique was hard-hit by cyclone Idai with heavy rains (more than 200 mm in 24 hours), winds (180 to 220 km/h) and flooding in the Central and Northern regions of the country, more specifically in the river basins of (i) Buzi, Pungue (where Beira and Dondo cities are); (ii) Zambezi (where Tete, Moatize and Quelimane cities are); and (iii) Licungo (where Mocuba is). Nampula and Nacala cities suffered from urban flooding and erosion. As a result, on March 19, 2019, the GoM declared a national emergency, triggering major emergency response interventions. On April 25, 2019, cyclone Kenneth hit the Northern Region of the country, resulting in both river and urban flooding in Cabo Delgado Province, where Pemba City is located. 9. As of May 2, 2019, over 1.7 million people were affected and 644 killed, while 275,000 houses were either partially or totally destroyed. The initial cost of the damages in the central region is estimated to be around US$773 million, or 6.3 percent of Mozambique’s gross domestic product (GDP). Based on the modelled damages by the World Bank’s Disaster Risk Management Team, the infrastructure sector is the hardest hit. The damages negatively impact people’s livelihoods, housing, as well as social infrastructure and overall agriculture production, and encompass large public infrastructure, including key national roads, water supply, sanitation and drainage systems, irrigation infrastructure, and energy transmission grids. 2 Beira, Dondo, Pemba, Tete and Moatize. Page 8 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) Table 1 - Estimate of capital damages by sector (in US$ millions)3 Modelled Reported & Modelled Residential Non-Residential Total Infrastructure Agriculture Buildings Buildings US$178 US$149 US$188 Us$141-US$258 US$656-US$773 10. These devastating events seriously affected six of Mozambique’s eleven provinces (Sofala, Zambezia, Manica, Nampula, Tete and Cabo Delgado), which account for 72 percent of the country’s population. They also host the poorest populations in the country, with particularly high poverty levels in Zambezia and Nampula. All the project target cities are among the affected urban settlements and are at high risk of cholera and acute diarrhea outbreak, due to poor sanitation which is exacerbated by the current floods and damaged water supply infrastructure. The poor residents of the peri-urban areas are the most affected. 11. Following the declaration of a national emergency, on April 5, 2019 the GoM requested the World Bank to assist in addressing the urgent rehabilitation, reconstruction, and preservation of damaged infrastructure. The World Bank responded by supporting the GoM in addressing the most urgent and immediate needs through the activation of the Contingency Emergency Response Component (CERC) in the original project, to help restore water supply access in the critical areas. In addition to the original project, CERCs were triggered for the Integrated Feeder Road Development Project (P158231) as well as the Agriculture and Natural Resources Landscape Management Project (P149620). 12. The Water Sanitation and Hygiene (WASH) cluster led by the National Directorate of Water Supply and Sanitation (DNAAS) with support from United Nations International Children’s Emergency Fund (UNICEF) is providing support with household water treatment, vaccination and sanitation and hygiene promotion in the affected areas. However, the scale of destruction and reconstruction needs far outweighs the resources that are currently available, particularly with respect to potable water supply access in peri-urban areas. Moreover, with the current financial crisis it is unlikely that the GoM will be able to attract sufficient external financing for investments that target vulnerable low-income residents. The IDA/CRW-AF will provide urgent support to Government efforts in improving public health and facilitate the process of restoring basic productive capacities and public services through the rehabilitation of critical water infrastructure and services. It will also help catalyze the water sector investments by leveraging additional resources from partners who value IDA technical and financial assessments of the associated investment projects, such as the DRIVE program. C. Original financing objectives, design and performance 13. The Mozambique WASIS II was approved by the Board on March 29, 2016 and became effective on April 19, 2017. The project is designed to expand water service provision in targeted cities and support policy reforms in the urban water sector. The five components of the project focus specifically on supporting water systems serving the cities of Pemba, Beira and Dondo, Tete and Moatize in the northern and central regions of the country, and the poor residents of Maputo with a connections program. These are: (1) rehabilitation and expansion of water supply production and distribution; (2) institutional development to support project management, elaboration of detailed engineering designs and construction supervision as well as the establishment of three regional utilities under the existing delegated management framework; (3) piped-water 3 The estimates reflect only the cost of replacement and do not include the cost of build back better, for the impact of Cyclone Idai. Page 9 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) connections for low-income households through output-based payments to utilities; (4) contingency emergency response component for disaster recovery needs; and (5) capacity building and operational support to strengthen financial regulatory for the Water Regulatory Council (Conselho de Regulação de Águas, CRA.)4 Components 1, 2, 3 and 4 are being implemented by the Water Supply Asset Holding and Investment Fund (Fundo de Investimento e Património do Abastecimento de Água, FIPAG). Component 5 is implemented by CRA. 14. The project was prepared and appraised for a total amount of US$146 million for water infrastructure investments and institutional strengthening support for five target cities of Pemba, Beira, Dondo, Tete and Moatize. However, due to the financing limitations within the IDA-17 envelope, US$90 million5 was allocated from IDA-17. The remaining US$56 million represented the financing gap for undertaking the planned investments for network expansions in Tete and Moatize. The GoM agreed that investments in Tete and Moatize will not commence until this financing gap is filled, and that the project would be restructured to realign the activities if the financing gap did not materialize. 15. The project is on track towards achieving its development objectives. Although the project experienced initial delays in effectiveness and contracting mainly due to the need for review of all the project’s procurement processes by the Administrative Tribunal. Progress towards achievement of PDO and overall implementation progress (IP) have been rated satisfactory since credit effectiveness. Overall safeguards, financial management (FM) and procurement have also been rated satisfactory. As of April 2019, 18 percent of the total credit have been disbursed and 35 percent of the project funds committed. Another 15 percent of the credit are expected to be contracted by July 2019, placing the project on track to achieve the projected disbursement rate of 25 percent and commitment of 50 percent by the end of fiscal year 2019. Most of the project activities are advancing satisfactorily, except for: (i) the creation of the three regional water utilities due to fiscal concerns triggered by the macro-economic decline as well as reforms undertaken in the public sector with regards to public enterprises; and (ii) the planned output-based household connections for low-income households in Component 3, which have been delayed as a result of a severe drought affecting the southern region of the country. Despite these delays, the project outcome indicators are still on track to being achieved, as evident by the project’s adherence to the planned disbursement schedule. A large portion of the works have been contracted, and the finalization of the detailed engineering designs and bidding documents for the remaining works are at advanced stages of preparation and expected to be launched by August 2019. A summary of progress on each of the project components is presented below. 16. Component 1 – Rehabilitation and Expansion of Water Supply Production and Distribution (original cost US$116.1 million, of which US$66.5 from IDA original financing). This component aims to increase production capacity in the three systems serving the cities of (i) Pemba; (ii) Beira and Dondo; and (iii) Tete and Moatize;6 as well as the rehabilitation and expansion of water supply distribution networks in those cities. In Pemba, the activities related to water production are advancing well. The rehabilitation and expansion of the wellfields is complete, and the construction of the transmission main has started. In addition, the design for the expansion of the water treatment plant is expected to be completed by July 2019, with works planned to start in January 2020. In Beira, the construction works for the water supply network that serves both the city of Beira and Dondo initiated in March 2019, and the design of the rehabilitation works for the water treatment plant is expected to be completed by July 2019. 4 Recently changed to Water Regulatory Authority (Autoridade Reguladora de Água, AURA) through the Decree 08/2019 of February 18, 2019. 5 US$66.5 million in credit and US$23.5 million in grant. 6 Investments in Tete and Moatize to be undertaken once the financing gap was covered. Page 10 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) 17. Component 2 – Institutional Support (original cost US$18.9 million, of which US$12.5 from IDA original financing). The institutional development support includes technical assistance and operational support for the decentralization of FIPAG operations through the establishment of three regional utilities, as well as actions intended to improve overall operational efficiency and project management support, which includes technical assistance for the design and supervision of the works’ packages under the project. The establishment of the three regional utilities will allow for a return to the adequate functioning of the sector’s delegated management framework and will also allow for better economies of scale at the regional level and bringing the decision- making closer to the water consumers, which will better enable improvements in levels and quality of the water supply service being provided. It is a legal covenant under the project that has not yet been complied with. 18. The process is pending approval from the Ministry of Finance since 2016 given the reform process that is ongoing in the public sector with regards to state owned enterprises as well as public institutes and funds. Following discussions with FIPAG and the Ministry of Public Works, Housing and Water Resources (MoPHRH), there was an agreement on undertaking a review to confirm whether FIPAG’s denomination as a Fund is adequate given the new legal framework for Public Institutes and Funds. The new legal framework has provisions that, if applied, would severely limit FIPAG’s financial and administrative autonomy and negatively impact the sector’s future sustainability. FIPAG is currently undertaking consultations with sector agencies on the proposed reform to register FIPAG into a full-service provider (investments and operations), with three corporatized regional subsidiaries that would be responsible for operation at the decentralized level. Despite the delays in creating the regional utilities, FIPAG is advancing key activities planned under this component, including contracted engineering design services and construction supervision for all ongoing works as well as technical assistance to improve the overall commercial and operational efficiency of its existing regional departments. On the latter, FIPAG is focusing on actions that can improve its overall collection efficiency – which is seen as critical for improved financial sustainability. In addition, two advisors (investment planning and procurement) have been engaged under this component to enhance overall project management capacity within FIPAG’s team. 19. Component 3 – Output-Based Payments for Low-Income Household Connections (US$6 million from IDA original financing). This component builds on the successful experience of output-based payments implemented in WASIS-I (P104566) and aims at increasing access to piped water connections for low income households in Maputo and in other cities of the central and northern regions. Under this component, output- based grant payments are to be provided to regional utilities/departments to cover the costs of connection in low-income households. Implementation has been delayed due to reduced water availability resulting from the prolonged drought in the southern region which affected the water source for Maputo. Consequently, the GoM introduced water supply restrictions and suspended any network extensions. FIPAG is actively working with the Maputo Regional Water Utility (AdeM) to survey potential households that could benefit from the subsidy while acknowledging that no connections will be made until the Corumana water supply system is operational.7 20. Component 4: Contingent Emergency Response Component (CERC) (zero from original financing revised to US$10 million from IDA original financing). This component was designed to support potential disaster- recovery needs in FIPAG water systems by providing immediate response to an eligible crisis or emergency. The component was activated on April 18, 2019, with US$10 million allocated to it to provide immediate support to the disaster recovery of the Idai Cyclone. This includes support for rehabilitation and repairs to water supply systems of affected cities and incremental operating costs resulting from the emergency crisis and 7 Under construction financed by the Greater Maputo Water Supply Expansion Project (P125120), operation to start by July 2020. Page 11 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) reconstruction activities. FIPAG, with funding from this component coordinated with support from other donors, was able to quickly restore temporary water supply services in Beira, Dondo, Quelimane and Tete. The procurement packages for emergency works and replacement of equipment damaged during the cyclone in Beira and Dondo will be launched by mid-June 2019 using simplified procedures. 21. Component 5 – Capacity Building and Operational Support to CRA (US$5 million from IDA original financing). The objective of this component is to expand quality-of-service and financial regulatory mechanisms for urban water supply in Mozambique, including a detailed impact evaluation to measure and assess outcomes related to the project’s institutional and infrastructure investments. The support to CRA is progressing well. CRA advanced procurement packages that aim at developing the information systems and regulatory mechanisms for service delivery in urban centers across the country. Moreover, CRA is collaborating with Emory University in the design of an impact evaluation that will evaluate the effects of safe urban water supply on any acute and chronic health outcomes, such as enteric pathogen infections, environmental enteric dysfunction, gut microbiome composition, or growth faltering in young children. The project is providing some complementary funding to enhance the water quality aspects of this evaluation. This research is particularly relevant to Mozambique, as water coverage in Mozambique is among the lowest in the sub-Saharan Africa region and as 27 percent of stunting in Mozambique is attributed to unimproved water and sanitation.8 22. Overall safeguard compliance is satisfactory. Compliance with World Bank environmental and social safeguards Environmental Assessment OP/BP 4.01 and Involuntary Resettlement OP/BP 4.12 is rated satisfactory. FIPAG has been implementing all the project activities in accordance with the project’s Resettlement Policy Framework (RPF), the Environmental and Social Management Framework (ESMF) and the Environmental and Social Management Plan (ESMP). 23. Procurement compliance is satisfactory. The project teams in the implementing agencies include qualified and experienced procurement specialists who have access to appropriate tools and knowledge that enable them to carry out their functions effectively. The latest procurement review carried out in March 2019 was satisfactory, and it was noted that all the main procurement processes have been finalized. The AF will trigger the adoption of the World Bank’s Procurement Regulations for Investment Project Financing (IPF) Borrowers and these will also apply to all remaining procurement activities under the original financing. 24. Financial management performance is satisfactory. With respect to the project’s financial management (FM) performance, the latest FM review, rated the FM performance as satisfactory. The latest project audited financial statements of CRA and FIPAG were submitted to the World Bank within six months after the end of the fiscal year, in accordance with the legal agreement, and the auditors expressed unqualified opinions on the project financial statements of CRA and FIPAG. No major FM issues were raised in the project audit reports and management letters submitted to date. 25. Compliance with Legal Covenants. As discussed in paragraphs 18 and 19 above, the covenant on creation of the Regional Water Utilities has not been complied with given the ongoing reform process in the public sector with regards to state owned enterprises as well as public institutes and funds. Therefore, in order to allow to take into consideration the recent changes this date has been revised to November 30, 2020. 26. In addition, FIPAG’s water sales and revenues have been constrained in the past few years by macroeconomic shocks and persistent droughts. In spite of these challenges, the Government has shown 8Danaei, G.; Andrews, K. G.; Sudfeld, C. R.; Fink, G.; McCoy, D. C.; Peet, E.; Sania, A.; Smith Fawzi, M. C.; Ezzati, M.; Fawzi, W. W., Risk Factors for Childhood Stunting in 137 Developing Countries: A Comparative Risk Assessment Analysis at Global, Regional, and Country Levels. PLoS Med 2016, 13, (11), e1002164. PMID 27802277; PMC5089547. Page 12 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) commitment to the financial sustainability of FIPAG by regularly increasing tariffs, and as a result, FIPAG has been able to comply with the covenant on full cost recovery, which requires that tariffs shall be sufficient to cover (i) operating expenses; (ii) depreciation; and (iii) the cost of capital. However, FIPAG was not able to comply with the financial covenants on debt-service coverage. Component 2 will support activities focused on improving operational efficiency and collections. Therefore, assuming regular tariff increases of 10 and 15 percent (lower than the increases approved in the past 2 years); tight cost controls that limit increases in operating expenses to five percent per year; and increases in client receivables of no more than 10 percent of billings each year – FIPAG would be able to meet a DSCR of 1.5 in 2024, which is when repayment obligations for three World Bank projects begin. II. RATIONALE AND DESCRIPTION OF ADDITIONAL FINANCING A. Rationale for the Additional Financing 27. The original financing is targeting the cities that have been greatly affected by cyclones Idai and Kenneth rendering the planned interventions even more critical. The AF will finance water supply investments in the cities of Tete and Moatize that have been affected by cyclone Idai, extend project activities to the city of Nacala with co-financing from the Government of the Netherlands, and replenish funds being used for the immediate response to cyclone Idai for Beira, Dondo, Quelimane, Nampula and Mocuba. IDA funding is needed to support the recovery and reconstruction efforts in those cities and expand the investment program to Nacala, to address deficiencies in infrastructure and increase water service coverage to a large number of low-income residents. The PDOs of the project will remain unchanged. 28. The AF instrument governed by paragraph 28 of the World Bank IPF Policy is the preferred mechanism for the project, as it permits additional or expanded activities that would scale-up the project’s impact and development effectiveness in the context of the post emergency recovery and reconstruction. There are significant cost-effectiveness gains in implementing the proposed activities as part of the ongoing operation, building on implementation arrangements already in place. The scale-up can be accommodated in the context of the original project. The IDA financing for this project would be provided under the CRW to mitigate the impacts of the humanitarian crisis resulting from cyclones Idai and Kenneth. 29. Water production and distribution in Tete and Moatize. The combined population of the two cities is approximately 263,000. Both cities are experiencing rapid economic growth due to extended development in the mining industry. Water supply in Tete and Moatize is served by three water systems operated by FIPAG. Before cyclone Idai, service coverage was around 80 percent of the population, supplying an average of 19 hours per day. Both cities have been badly hit by heavy rains and floods from the Revubue and Zambezi rivers during cyclone Idai, damaging the existing wellfields and parts of the network. 30. The damages caused by the recent cyclone Idai have placed tremendous pressure on the existing water production and distribution systems with potential adverse impacts on service standards. Groundwater studies have confirmed that the water source9 is sufficient to meet existing needs and projected demands10, but points to the additional investment requirements for restoring and expanding the production and treatment facilities, and distribution system. It is also critical to secure water supply to Moatize where the source has reached its 9Located in Tete and Nhartanda. medium-term (10 years) demand for water is projected to be around 55,000 m3 per day. This includes 20,000 planned new 10 The connections and a significant increase in commercial and industrial customers (to around 20 percent of the total demand). Page 13 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) capacity. These investments, combined with new distribution centers and network rehabilitation and expansions, will enable FIPAG to improve coverage of household connections, reestablish reliable supply of water to industrial and commercial customers, and improve service standards as well as the resilience to climate-induced extreme weather events of the water supply infrastructure and services. 31. Water supply rehabilitation and expansion to Nacala. Nacala is one of the fastest growing cities in Mozambique. Recent industrial developments in Nacala port have triggered significant urban influx and economic activities, putting additional pressure on the strained water supply system and highlighting the need to address climate change impacts. The water is sourced from the recently rehabilitated Nacala Dam. The heavy rains and localized floods during cyclones Idai and Kenneth have caused erosion and damaged some critical sections of the system, including the 30-year-old treatment plant and transmission main, which were already in an advanced stage of degradation. The existing intake and transmission systems also suffer from frequent breakdown and high losses11 from aging and dilapidated pipes and equipment. Thus, urgent rehabilitation is needed in both the treatment plant and the transmission main to improve the efficiency and quality of water supply to Nacala. 32. The proposed investments in Nacala will help restore and expand the storage capacity of the city’s water supply system from 9,150 to 17,400 m3 and improve reliability and quality of services. Since most of the poor live in peri-urban areas in Nacala that are particularly affected by water shortages, this increase in water supply will enhance their participation, particularly women, in local economic activities. Overall, an additional 80,000 people are expected to benefit from the improved water supply in Nacala. 33. Co-financing Nacala investments with the Government of the Netherlands. The AF will help leverage additional resources to finance the planned investments in Nacala. The IDA/CRW-AF will cover 50 percent of the cost of project investments with the other 50 percent to be financed by the Government of Netherlands under the DRIVE Program. The Government of the Netherlands has already approved and signed an agreement with FIPAG to finance their share of the investments in Nacala. 34. Another important factor to consider is that Mozambique is one of the African countries most vulnerable to climate change. Poverty, weak institutional development, and frequent extreme weather events make Mozambique especially vulnerable. Climate-related hazards such as droughts, floods, and cyclones are occurring with increasing frequency. Central Mozambique is projected to experience recurrent agricultural losses as a result of droughts, floods, and uncontrolled bush fires. The densely populated coastal lowlands will be increasingly affected by severe erosion, saltwater intrusion, loss of vital infrastructure, and the spread of diseases such as malaria, cholera, and influenza. Changing rainfall patterns will lead to a decrease of soil water recharge, affecting groundwater resources and the water table in wells. Reduction of Mozambique’s transboundary river flows will decrease the availability of surface water.12 By improving and expanding access to water supply services—in terms of service reliability, water quality, number of connections to the water network, and number of functioning wellfields—the project will increase the resilience of the targeted cities to droughts, cyclones, and other extreme weather events. B. Description of the Additional Financing 35. Component 1: Rehabilitation and Expansion of Water Supply Production and Distribution (total cost US$163.9 million – US$26 million from DRIVE, US$8.8 counterpart funds and US$129.1 million from IDA, of 11 30 percent. 12 Source: Climate Change Profile: Mozambique (https://reliefweb.int/report/mozambique/climate-change-profile-mozambique). Page 14 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) which US$68.6 million from AF). Component 1 will: (i) continue to support the ongoing and planned investments in Beira, Dondo, Pemba; (ii) finance investments in Tete and Moatize; and (iii) scale up investments in Nacala and other cities affected by cyclone Idai (Nampula, Quelimane and Mocuba). These investments will enable the GoM to provide services to a large number of low-income residents in the largest urban areas in the country and to reconstruct part of the damaged water supply infrastructure by cyclone Idai and Kenneth. These activities will increase the supply of water and make services more reliable, thus increasing the beneficiaries’ resilience to droughts and other extreme weather events. Counterpart funds will be used to cover costs of resettlement and are estimated to be in the order of US$8.8 million. 36. Water supply production and distribution in Tete and Moatize, and replenishment of the IRM funds to finance emergency works in Idai affected areas. The nature and scope of the investments related to increased water production and distribution under Subcomponent 1a and 1b for Tete and Moatize remain unchanged as appraised in the original financing. Specifically, the investments will focus on: 1- a) increasing water production from 44,000 m3 per day to 55,000 m3 per day in these cities through expansion and refurbishment of the wellfields, existing intake, water treatment facilities, 26 km of transmission mains and associated pump stations; and 1 - b) increasing service coverage in the distribution system in Tete and Moatize through construction of two new distribution centers and rehabilitate existing ones to increase water storage through groundwater reservoir (making the water supply more resilient to droughts), construction of 150 km of water supply networks, installation of district meters and control valves, and installation of approximately 20,000 new household meters and related materials for domestic connections. These activities were informed by technical diagnostics and studies and energy efficient concept designs were completed for key infrastructure elements, taking into account the current and expected impacts of climate change. The IRM funds will finance localized works and equipment in Nampula, Quelimane and Mocuba cities affected by Idai, to restore services in some critical neighborhoods. 37. Component 1 will be scaled up to include new investments in Nacala. These investments are aimed at restoring the water supply production and distribution capacity, as well as enhance the system resilience to climate related events. The Government of the Netherlands will co-finance 50 percent of the costs of the project activities in Nacala. Specifically, this component will be modified to include: i. Subcomponent 1a: a. Electromechanical equipment for the existing raw water intake that was built at the time the Nacala Dam was rehabilitated, along with 2 km of raw water transmission main from the intake to the water treatment plant. b. Expansion and refurbishment of the water treatment plant (to replace the old one) with treatment capacity of 25,000 m3/day, including the associated electromechanical equipment, pumping stations and a 400 m3 reservoir. c. Construction of a 33 km transmission main (to replace the old one) with associated booster stations, rehabilitation of existing reservoirs. ii. Subcomponent 1b: d. Rehabilitation and construction of distribution centers. e. Rehabilitation and expansion of 165 km of distribution network. f. Provision of equipment comprising installation of district meters and pressure control valves within existing pipelines and telemetry systems; and g. provision of new household meters and associated materials for domestic connections. Page 15 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) 38. All activities financed under Component 1, including those of the original financing, will make the existing water supply system more reliable and increase its resilience to extreme weather events. In addition, the energy efficient detailed engineering designs will incorporate aspects to improve these systems’ overall resilience to drought and floods. 39. Component 2: Institutional Support (US$18.9 million from IDA, of which US$6.4 million from the AF). This component will cover the financing gap of US$6.4 million from the original project and utilize the resources to cover operating costs, in addition to the costs related to project management, supervision of contracts under Component 1, audits, training and various technical studies as needed, as well as implementation of environmental and social safeguards. This component will also continue to support activities originally planned under this component, such as the establishment, for the regional water utilities, of: (i) service policies and procedures (including aspects related to citizen engagement, gender and disability considerations, and complaints handling/recourse mechanisms) of corporate governance structures, and (ii) corporate governance structures, policy and procedures, including human resources issues associated with skills/professional development and equal opportunity/gender policies, and asset management systems and indirect non-revenue water reduction programs. This component and the activities to be financed will be flexible and responsive to the needs/demands of the newly created regional departments/utilities. 40. Under this component, the project will also allocate funds for a small pilot to provide performance-based grants to finance service improvement activities for the FIPAG’s regional departments/utilities as part of the technical assistance support.13 The grants will be linked to achievement of a minimum set of indicators (institutional, operational and financial) on a performance scorecard agreed between each regional department/utility and FIPAG. 41. The regional departments/utilities will utilize the grants to finance operation and maintenance works, equipment and logistical support, and other assets and tools needed to improve service delivery. It is expected that these funds will be used to improve service quality and collection efficiency. Improved operation and maintenance will further raise customer satisfaction (thus further contributing to billing revenue) and contribute toward reliable and sustainable water supply services. This will in turn make the water supply sector and its customers more resilient to extreme weather events. The grant can also be used to, on a declining basis, cover financing gaps between the cost of delivering water supply services and the revenues collected. In addition, this component will finance necessary support to allow for FIPAG and the Regional Utilities to further build resilience to floods and droughts in their operations, such as emergency preparedness plans and equipment. 42. Component 3: Output-Based Payments for Low-Income Household Connections (US$2 million from IDA original financing). This component aims at increasing access to piped-water connections for low-income households in the cities of the central and northern regions of the Recipient by providing Output-Based Payments to the Regional Utilities to support the provision of water services to the poor households by facilitating the uptake of connections for low-income households through grant payments to reimburse the costs of Eligible Connections. Given the limited availability of resources, the overall scope of this component has been reduced and the total amount from the original financing has been reduced. FIPAG will prioritize the implementation of this component for the secondary cities (i.e., other than Maputo), where there is a higher number of vulnerable households. Moreover, this component will support FIPAG to structure tariffs and establish mechanisms to improve poverty targeting for low-income customers to ensure sustainability of the 13Initially this mechanism will be used to provide incentives for improved performance of FIPAG’s regional departments. Once the Regional Utilities are created they will continue to receive support under this same mechanism. Page 16 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) proposed interventions, including related studies and hiring of the Independent Verification Agent. 43. The costs by component, for the original financing and for the proposed AF are presented in Table 2 below. The funding allocated to the contingent emergency response (Component 4 of the AF) was crucial to the response and recovery efforts in the wake of cyclone Idai.14 Table 2 - Estimated Project Costs (US$ Million)15 Of which Of which Of Which Total Original Original IDA Revised IDA Additional Total Revised Of which Project Components Additional Original Counterpart Project Costs Financing Financing* Cost** Project Costs DRIVE Financing (IDA) Financing (IDA) Funds 1: Rehabilitation and Expansion of Water Supply Production and Distribution 108.8 66.5 56.5 107.4 163.9 68.6 60.5 26.0 8.8 2: Institutional Support 18.9 12.5 12.5 6.4 18.9 6.4 12.5 - - 3: Output-Based Payments for Low-Income Households Connections 6.0 6.0 6.0 (4.0) 2.0 - 2.0 - - 4: Contingent Emergency Response - - 10.0 - 10.0 - 10.0 - - 5: Capacity Building & Operational Support to CRA 5.0 5.0 5.0 - 5.0 - 5.0 - - Contingencies 7.3 - - (7.3) - - - - - TOTAL PROJECT COSTS 146.0 90.0 90.0 102.5 199.8 75.0 90.0 26.0 8.8 * Reallocation of funds as a result of triggering the CERC component. ** Financing gap, total works in Nacala and changes needed to accommodate emergency response costs. 44. The financing allocation by source, for the original financing and for the proposed AF is presented in Table 3 below. Table 3- Project Financing Allocation (US$ Million) Source Original AF Total CRW/IDA 90.0 75.0 165.0 The Government of the Netherlands (DRIVE program) 0.0 26.0 26.0 Counterpart Funds 0.0 8.8 8.8 Total Project Cost 90.0 101.0 199.8 45. The project implementation arrangements remain unchanged. Components 1, 2, 3 and 4 of the project will continue to be implemented by FIPAG, the asset-holding agency responsible for investments in urban water supply in the largest cities in the country. Component 5 is implemented by CRA, the water regulator. Project disbursement categories remain unchanged, and disbursement estimates have been updated. C. Other Proposed Changes 46. Extension of the project closing date. To allow sufficient time for completion of all planned activities under the AF, the closing date of the Original Financing is proposed to be extended from October 31, 2022 to October 31, 2024. 14 Component 4 was activated on April 18, 2019 (with US$10 million being allocated to it) to provide immediate support to the disaster recovery of cyclone Idai. This includes support for rehabilitation and repairs to water supply systems of affected cities and incremental operating costs resulting from the emergency crisis and reconstruction activities. 15 Total additional cost and total revised project costs include the co-financing from the DRIVE Program. Page 17 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) 47. Results Framework. The results framework has been amended to reflect the additional activities in relation to the post-cyclone reconstruction and service expansion. The targets for selected indicators have been updated accordingly. A new outcome indicator related to the CERC has also been introduced. 48. Reallocation of funds of the original financing to reflect the revised cost allocations among the components according to Table 2 above. 49. Change in Procurement. The project will change from the World Bank procurement guidelines of January 2011, revised in July 2014; and will adopt the World Bank’s Procurement Regulations dated July 2016, revised November 2017 and August 2018. III. KEY RISKS 50. The overall risk for the proposed AF is rated as Moderate. This is consistent with the overall project risk at the of approval of the parent credit as well as the last Implementation Status and Report (ISR) ratings. 51. The risks related technical design, institutional capacity for implementation, fiduciary and environmental and social, all remain moderate. These ratings reflect the implementation progress of the Original Financing which was prepared thoroughly and built on the successes and lessons learned of the previous project in the project design. Government continues to demonstrate strong ownership and commitment towards the PDO, as well as leadership on advancing institutional reforms to strengthen the capacity of the implementation agencies. The other risks related to the natural disasters also remain moderate. This risk was informed by the recently cyclones and FIPAG response to the emergency using the CERC and other internal resources to reestablish the operations. 52. Political and governance risk is rated substantial. This risk has been modified from moderate to substantial, in view of the country’s recent gradual decline of governance effectiveness. This country risk reaches into most aspects of public service delivery, at both national and local levels. Further, the frequent shortage of potable water in the main cities has become a political issue, with political leaders at all levels, media and civil society taking a keen interest in the solutions to address the water problems in the country. Although, FIPAG is a corporate entity, entrenched political interests often impede decision-making when it comes to capital projects and operations. These risks will, to some extent, be mitigated by building broad public support for the project – as public pressure to improve the credibility of government is high, and there is currently greater scrutiny of public sector performance. Further, the project will support institutional strengthening of FIPAG, including on corporate governance. 53. Macroeconomic risk is high. Macroeconomic rating has been modified from Moderate to High to reflect the worsening macroeconomic conditions following project approval and into implementation. GDP growth decelerated to 3.7 percent in 2017, down from 3.8 percent in 2016 and well below the 7 percent GDP growth achieved on average between 2011 and 2015. Debt level remain high and central government domestic debt levels have increased due to budget financing needs.16 Although macroeconomic conditions in the country are gradually improving, the prevailing tight fiscal space and the impacts of the recent cyclones in the northern and central regions, as well as the prolonged drought in the southern region of the country may undermine the achievement of the project objectives, especially if it leads to a reduction in the availability of counterpart funds or high inflation. These risks have been mitigated in the following ways: (i) requirement for counterpart funds is limited to resettlement compensation costs which are expected to be minor – relating mainly to cash 16 World Bank Mozambique Country Update, April 2018. Page 18 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) compensation for temporary disruption of businesses activities during construction of water supply infrastructure under Component 1; and (ii) substantial price contingencies have been included in the final project cost estimates. 54. Sector strategies and policy risks are rated as substantial. The planned reforms for FIPAG decentralization and the establishment of the regional water utilities is taking longer than anticipated, in part due to the current macroeconomic conditions and tight fiscal space. The establishment of the regional entities is critical for the financial sustainability and quality of service delivery, as well as improved transparency and governance. The design of Component 2, related to institutional support was therefore, revised to include performance-based grants to create incentives for improved service delivery at the operational level. IV. APPRAISAL SUMMARY A. Economic and Financial Analysis Economic Analysis 55. The original economic analysis covered the project’s investments in the target cities of Pemba, Beira, Dodo, Tete and Moatize. The analysis of the economic returns was based first on the expected project benefits during the life cycle of the project (30 years), related mainly to the improved health and time savings of project beneficiaries. Second, the cost analysis included investments for rehabilitation and expansion of water production and the extension of water distribution under the project. For the AF, this analysis was complemented with the investments for the city of Nacala. 56. Findings from the economic analysis indicate that the project is expected to generate positive socio- economic returns for the city of Nacala. The net present value (NPV) for Nacala for existing connections reaches US$1.7 million with an economic rate of return (ERR) of 9.5 percent, and a benefit-cost ratio of 1.3. For new connections, the NPV for Nacala city reaches US$8.3 million with an ERR of 18.5 percent and a benefit-cost ratio of 2.4. Table 4 - Summary of Economic Rates of Return per City and Nacala (AF) City Estimated ERR New Existing Total Connections Connections* Pemba 18.1% 6.8% 14.9% Beira/Dondo 28.2% 8.0% 26.3% Tete/Moatize 14.3% 4.6% 6.7% WASIS II (Original Financing) 22.1% 6.5% 19.3% Nacala 18.5% 9.5% 16.9% Total all Cities (Original 19.8% 7.2% 18.6% Financing and AF) *Assuming a consumption increase of 5 percent 57. The total NPV for all cities, including Nacala, reaches US$33.3 million for new connections and US$10.1 million for existing connections (total of US$43.4 million). The total NPV for Nacala for both existing and new Page 19 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) connections is US$10.0 million for the lifetime of the project, which represents 50 percent more than the NPV estimated for the city of Pemba (US$6.7 million), only 2/3 of the NPV of Beira/Dondo (US$15.3 million) and close to the NPV of Tete/Moatize (US$11.4 million). Table 5 - Distribution of NPV (US ‘000 per city, including AF) New Existing NPV(000) Total Connections Connections Pemba 5,000 1,655 6,655 Beira/Dondo 11,250 4,085 15,335 Tete/Moatize 8,750 2,660 11,410 Nacala 8,279 1,722 10,001 Total 33,279 10,122 43,401 58. Sensitivity analysis was carried out considering potential costs generated by damages from extreme weather events and associated benefits from activating CERC investments of the project. The project’s economic returns and NPVs were estimated based on two damage cost scenarios (low and high impact) 17 related to negative impacts of floods damaging water and sanitation infrastructures.18 The overall net values of the sensitivity analysis were negative based on the difference between CERC’s benefits from investments in rehabilitating infrastructure, minus the damage costs estimated based on recent estimates.19 The NPVs for damage costs reduced the NPV of the project (with AF) from US$43.4 million to US$28.7 million. The ERR was reduced to 14.6 percent. Financial Analysis 59. FIPAG’s 2017 financial results show revenues20 of MZN 1.85 billion (US$30.9 million equivalent). This is a 19 percent increase over 2016; and is largely due to higher tariffs that came into effect as of October 1, 2016. Billed water (in m3) increased 5.7 percent over the same period. Due to the ongoing drought in the southern and central regions, the amount of water sold remains below amounts reported in 2014 and 2015. 60. Direct operating expenses increased 13 percent between 2016 and 2017, totaling MZN 1.5 billion (US$25.5 million equivalent). The largest component of that is “supplies and services”, at MZN 687 million (US$11.5 million equivalent), which makes up 45 percent of direct operating costs.21 Based on the operational revenues and expenses, FIPAG’s net operational revenues for 2017 were MZN 432.7 million (US$7.2 million) – a 28 17 The scenarios of low impact considered 40 percent of total average water supply and sanitation costs, and the high scenario 75 percent of total average water supply and sanitation costs. Both these scenarios were averaged as total costs to compare with the benefits of CERC investments. The assumption is that a flood/cyclone event will take place in 2022, discounting benefits and costs during the lifetime of the project. 18 These damage costs were compared with benefits from the CERC component that aims to mitigate the damages from these climate events through contingency and response financing. 19 Based on Idai cyclone’s Post Disaster Needs Assessment (PDNA) based on the assessment of multiple institutions Water Supply Investment and Assets Fund (FIPAG), the Water and Sanitation Infrastructure Board (AIAS), the National Directorate of Water and Sanitation (DNAAS) and the AURA/CRA. Also, some figures from GFDRR on previous flood damages in port cities in Mozambique (2015-2016) were utilized in the analysis. 20 Revenues are made up of billings of customers of urban water supply systems under FIPAG’s direct operations as well as lease revenues from AdeM 21 Electricity, included in Supplies and Services, makes up 14 percent of direct operating expenses. Page 20 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) percent increase over 2016. The resulting operational coverage ratio is a healthy 1.30. The following summarizes FIPAG’s 2016 and 2017 financial performance according to their audited financial statements. Table 6- FIPAG’s Financial Performance (in MZN ‘000) 2016 2017 FIPAG Direct Operational Revenues 1,317,535 1,568,346 Lease Fees from AdeM 276,687 285,200 Total Revenues 1,594,221 1,853,546 Operational Expenses* 1,256,267 1,420,878 Net Operational Revenues 337,954 432,667 Depreciation 371,601 375,737 Provisions for Uncollected Revenues 140,579 20,920 Interest Expense 63,502 56,076 Net Profit (Loss) (244,593) (20,245) * Adjusted to reflect expenses not directly related to operations and paid by international donors. 61. FIPAG operates under three main financial covenants related to its borrowings from the World Bank: (i) achieving full cost recovery through water tariffs; (ii) maintaining a debt-service coverage ratio (DSCR) of 1.2; and (iii) reasonable projections of a DSCR of 1.5 if FIPAG is considering additional debt. 62. The language of the full cost recovery financial covenant requires that tariffs shall be sufficient to cover (i) operating expenses; (ii) depreciation; and (iii) the cost of capital “in a reasonable time horizon.” The cost- recovery ratio for 2017 was calculated to be 1.0 – i.e., revenues just covered FIPAG’s operational expenses, depreciation, and interest charges. Assuming that revenues in 2018 and 2019 increase in a manner consistent with recent tariff revisions, that future tariff increases are in line at least with inflation, and that growth in expenses is kept to about 5 percent annually, the covenant is likely to be met, although the impact of the emergencies caused by cyclones Idai and Kenneth are likely to have a negative impact on FIPAG’s financial performance. 63. FIPAG was not able to meet the DSCR of 1.2 for 2016 or 2017. For 2016, FIPAG achieved a DSCR of 0.72 – below the level necessary to pay its debt service obligations through its net revenues. It made debt payments using cash accumulations from previous years. For 2017, lower collections from customers resulted in a DSCR only of 0.76 – i.e., still below what it needs to pay its debt service. However, assuming regular tariff increases of 10 and 15 percent; tight cost controls that limit increases in operating expenses to five percent per year; and increases in client receivables of no more than 10 percent of billings each year – FIPAG would be able to meet a DSCR of 1.5 in 2024, which is when repayment obligations for three World Bank projects begin. With the exception of 2018 (when FIPAG’s water sales and revenues are still expected to be constrained by drought), FIPAG is able to meet the covenant until 2024. 64. The World Bank still advises that new investments to FIPAG be financed through grants, primarily due to the continued challenges FIPAG faces in collecting from customers, which are now certainly exacerbated by the impact of cyclones Idai and Kenneth. The assumptions made above assume increases in client receivables of only 10 percent of billings. However, FIPAG’s collection performance has been below this level in recent years, mainly as a result of decreased service levels directly correlated with external shocks, such as rationing caused by droughts. The project’s Institutional Support component has funding allocated to provide technical Page 21 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) assistance and support for improved operational, commercial and billing performance, such as a new commercial system and loss reduction among others. This support is expected to have a positive impact on FIPAG’s overall financial performance, by lowering operating costs and improving levels of collection. 65. The net emissions of the project are estimated at 3,968 tCO2-eq over the 30-year life of the project, while the gross emissions are estimated to be 4,064 tCO2-eq. On average, the project generates estimated net emissions of 132 tCO2-eq annually. The water supply distribution would see estimated net emissions of 2,962 tCO2-eq due to the use of grid energy for water pumping, and a highly conservative baseline of water from handpumps and wells. The water intake and treatment have 601 tCO2-eq and tCO2-eq, respectively. 66. According to the Global Climate Risk Index (2017), Mozambique was the country most affected by climate change in 2015. Mozambique has a long history of catastrophic flooding, which occurs almost annually during the rainy season. In addition, droughts are particularly frequent in the central and southern regions, while cyclones are common along the exposed coast line from October to April. Strong winds, storm surges, and heavy rains from cyclones damage infrastructure, disrupt water, sanitation, and electricity supply systems, and degrade the coastal environment.22 Heavy rains can also cause urban (river) floods, which entail health risks by flushing pathogens and pollutants into the network. Given the country’s vulnerability to climate change, climate risks have been considered in the project design: flood-resilient materials/design for water supply systems and other relevant infrastructure will be promoted, along with operational plans to build resilience to the identified climate risks into the water supply infrastructure and services. B. Technical 67. The World Bank has reviewed and confirmed that the proposed investments are aligned with Government priorities and the service objectives of FIPAG and address the key technical issues identified. The infrastructure solutions proposed are considered technically sound concepts, supported by feasibility studies, technical investigations and operational/institutional interventions which are designed to support project sustainability. More specifically, to enable the restoration of services and increase in coverage as well as to facilitate improvements in the quality of water services, the project will invest significantly in water production and distribution (Component 1). This approach is required to restore the infrastructure and services in the project areas, following cyclone Idai and to keep pace with the increasing demands associated with rapid urban growth in each city. Priority will be given to the cities most affected by cyclone Idai. Flood resilient materials/design for the water systems and other relevant infrastructure will be promoted under the project along with operational health and safety plans for the infrastructure. Moreover, the proposed investments will leverage and support the institutional reforms by reinforcing the operational performance of the regional utilities. 68. During preparation, the demand projections and calculations for planning the number of connections and length of distribution network expansion within each system were reviewed and verified, along with the requirements for investments to indirectly reduce major technical losses. Feasibility assessments have been prepared for all the major investments in Tete and Moatize, and detailed designs for the treatment plant and transmission main for Nacala city that will be reviewed and updated as needed. The detailed designs for the proposed network investments will include calibrated hydraulic models in order to address the key hydraulic bottlenecks, balance pressure management and control water losses. Cost estimates have been prepared and reviewed by the World Bank. The estimates are based on a comparison of market rates from similar projects recently implemented by FIPAG and include provisions for escalation and contingencies. 22 Source: Climate Change Knowledge Portal (https://climateknowledgeportal.worldbank.org/country/mozambique/vulnerability). Page 22 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) 69. The proposed contract packaging considers potential technical and procurement risks, geographical constraints, and where possible seeks to increase efficiency through economies of scale (by grouping similar investments into larger packages). Moreover, the procurement packaging and implementation timeframes were reviewed from a technical perspective and it was confirmed that the approach incorporates lessons learned through the experience and lessons of previous operations and is considered achievable within the project duration. C. Financial Management 70. FIPAG will have fiduciary responsibility for the implementation of the proposed AF. The recent FM supervision mission conducted in December 2018, concluded that FIPAG has been working to ensure compliance with FM requirements of World Bank-financed operations. The unaudited interim financial reports (IFRs) have been submitted timely with acceptable quality and acceptable project audited financial statements for the fiscal year that ended December 31, 2017 were submitted to the World Bank on time. There are no outstanding IFRs or audit reports under this operation. 71. The FM and Disbursement arrangements in place for the original project will also apply for the AF, and changes to those arrangements are not expected. The project funds, expenditures, and resources will be accounted for using the existing automated accounting software, which is adequate as it can produce reliable financial reports required to monitor and manage effectively the progress of the project. Disbursement of IDA funds will be done on transactions basis (statements of expenditures [SOEs]). The proposed project will make use of advances23, direct payments, reimbursement and special commitment methods for disbursements. However, payments under contracts (goods, works, non-consulting services and consulting services) procured/selected through international (open or limited) competition or Direct Selection will be made through direct payment method of disbursement, unless the Special Commitment disbursement method is used. FIPAG will prepare quarterly IFRs and provide such reports to the World Bank within 45 days of the end of each calendar quarter. The project financial statements will be audited annually by the independent auditor in accordance with International Standards on Auditing (ISA) as issued by the International Auditing and Assurance Standards Board (IAASB) within IFAC. 72. The project’s FM arrangements have an overall residual FM risk rating of moderate, and satisfy the World Bank’s minimum FM requirements under World Bank Policy and Directive for IPF. D. Procurement 73. All procurement to be financed under the project will be carried out in accordance with the World Bank Procurement Regulations for IPF Borrowers (dated July 2016), revised November 2017 and August 2018, and the provisions stipulated in the Financing Agreement. Procurement activities related to emergency response will follow the provision designed under the IRM for Mozambique, which provides the applicable approaches and thresholds, in case of emergency. 74. Project procurement will be carried out by FIPAG and CRA, and the arrangements designed under the original financing will remain in place. It is not anticipated that the additional activities will have an adverse impact on the available capacity within CRA and FIPAG. 23 As currently Mozambique has a Lapsed Loan, no advances will be released until the full settlement of the outstanding balance of the Designated Account under the Lapsed Loan. Once the Lapsed Loan has been closed, advances will then be released. Page 23 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) 75. As the project will now adopt the World Bank’s Procurement Regulations, a Project Procurement Strategy for Development (PPSD) will be prepared by the implementing agencies, covering the components with new activities. However, in view of the emergency nature of the project and the streamlined preparation, the PPSD will be completed during implementation, by July 15, 2019. 76. The procurement chapter of the Project Implementation Manual developed under the original financing will be updated to incorporate the language and fixtures of the World Bank’s Procurement regulations. The update will provide both FIPAG and CRA with guidance on the implementation of the project, and it summarizes the main procurement aspects applicable to the project. The manual may be updated from time to time to incorporate lessons throughout the implementation. 77. The Procurement Plan for the project, covering the new activities, will be developed before the PPSD is ready. However, it shall be updated once FIPAG and CRA are able to draft the PPSD and incorporate it into the World Bank’s tracking system, Systematic Tracking of Exchanges in Procurement (STEP), which will provide for an environment for the submission of prior review requests to the World Bank and contract implementation monitoring. 78. Review by the World Bank of procurement decisions. Table 7 indicates the initial values for prior review by the World Bank. All activities estimated to cost below these amounts shall be treated as post review and will be reviewed by the World Bank during the implementation support mission under a post-procurement review exercise. Direct Contracting/Single Source Selection will be subject to prior review only for contracts estimated to cost more than the amounts indicated in the Table 7. The World Bank may, from time to time, review the amounts, based on the performance of the implementing agencies. Table 7 - Prior Review Thresholds Procurement Type FIPAG Prior Review (US$) CRA Prior Review (US$) Works and supply and installation 10,000,000 - Goods and non-consulting services 2,000,000 1,500,000 Consultants services (Firms) 1,000,000 500,000 Individual consultants 300,000 200,000 79. Assessment of national procedures. The Mozambique Procurement Regulation, Decree 5/2016 of March 8, 2016, has been assessed as per the requirements of the World Bank’s Procurement Framework. The assessment indicated that the country’s regulations are generally consistent with international best practice for the following reasons: (a) there is adequate advertising in national media; (b) the procurement is generally open to eligible firms from any country; (c) contracts documents have an appropriate allocation of responsibilities, risks, and liabilities; (d) there is publication of contract award information in local newspapers of wide circulation; (e) the national regulations do not preclude the World Bank from its rights to review procurement documentation and activities under the financing; (f) there is an acceptable complaints mechanism; and (g) records of the procurement process are maintained. Page 24 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) 80. However, the RFB/Request for Proposals document shall require that bidders/proposers submitting bids/proposals present a signed acceptance at the time of bidding, to be incorporated in any resulting contracts, confirming application of, and compliance with, the World Bank’s Anti-Corruption Guidelines, including without limitation the World Bank’s right to sanction and the World Bank’s inspection and audit rights. 81. With the incorporation of the above provision, the Mozambique Procurement Regulation will be acceptable to be used under those procurements not subject to the World Bank’s prior review, as the thresholds indicated in Table 7, or any updates indicated by the World Bank in the Procurement Plan. E. Social (including Safeguards) 82. Partial safeguards deferral was authorized to expedite project processing and support the emergency recovery efforts in the cyclone Idai affected areas. On May 20, 2019, the Regional Vice President (RVP) authorized to process the AF under special conditions defined in paragraph 12 (Projects in Situations of Urgent Need of Assistance or Capacity Constraints) of Section III of the World Bank Policy for Investment Project Financing and approved a partial deferral of safeguards requirements for the project. The deferral was justified by the urgent need to commence project activities in some of the project cities affected by cyclone Idai for which all safeguards requirements have been fully met. The Environmental and Social Management Framework (ESMF) and the Resettlement Policy Framework (RPF) originally prepared, approved and disclosed for Tete, Moatize, Pemba, Beira and Dondo have been updated to incorporate the proposed Nacala works. The updated instruments were disclosed in-country and on the World Bank’s website on May 20, 2019. The investments for the cities of Nampula, Quelimane and Mocuba are covered under the ESMF and RPF prepared as part of Immediate Response Mechanism (IRM), disclosed in-country and on the World Bank’s website on April 17, 2019. The action plan for completion of safeguard requirements can be found in Annex 2. 83. For Nacala City, the Environmental and Social Impact Assessment (ESIA) for the Water Intake, Water Treatment Plant (WTP) and transmission main construction; and the dam safety assessment for Nacala Dam are at advanced stages of preparation, and are expected be completed by July 15 and 30, 2019, respectively. A Safeguards Action Plan has been prepared for the completion of the ESIA and the dam safety assessment during project implementation, prior to bidding (Annex 2). 84. Potential unintended negative social impacts will be mitigated through application of World Bank social safeguard instruments. OP/BP 4.01 (Environmental Assessment), OP/BP 4.12 (Involuntary Resettlement) and OP/BP 7.50 (Projects on International Waterways)24 were triggered in the original project. The RPF originally prepared, approved and disclosed for Tete, Moatize, Pemba, Beira and Dondo was updated to incorporate the Nacala works. The update of the RPF included extensive consultations. The social impact assessment carried out during the updating the project’s ESMF confirmed that the overall impacts of direct land acquisition are expected to be of limited scale, the main social impacts from the project stem from: (i) population and labor influx in the project area which is incremental to an ongoing and cumulative influx process; (ii) potential impacts of temporary equipment, land and road users including roadside businesses along heavy equipment transport routes, and any users of affected land and natural resources in these areas; and (iii) resettlement related to support subcomponents and any ancillary facilities (camps, borrow pits, accesses, etc.). 24 The original project obtained exception to notification requirement, approved by the RVP on March 3, 2015 for investments in Beira, Dondo, Tete and Moatize cities. The additional investments do not fall under the International waterways. Page 25 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) 85. The nature of the physical investments envisioned for the AF are similar to infrastructure investments under the original financing. The likelihood of large-scale, significant, cumulative, and/or irreversible impacts of these investments is considered low, as works will be placed within road rights-of-way and vacant land when possible. Previous project activities have made concerted efforts to avoid land acquisition or to cause negative impacts on assets whenever possible through routing of pipelines along rights-of-way that have not been encroached upon. Although the targeted areas are urban in nature, it should be possible for most works to occur within the right-of-way and within the existing infrastructure footprint. Any works to be completed on private land will be with the consent of the landowner. It is likely that civil works associated with upgrading, rehabilitation, and refurbishment of FIPAG infrastructure can be done within existing compound areas already owned by FIPAG. 86. For ongoing contracts, labor influx management plans and code of conducts have been developed and will be implemented. These instruments include provisions for land compensation, livelihood restoration and community development plan, stakeholder engagement plan, grievance redress mechanism (GRM), local labor hiring plan, cultural heritage management plan including specific elements if applicable and a chance find procedure. Plans, including the Environmental and Social Management Plans (ESMPs) must include all access ways, ancillary sites (including sources of materials and waste disposal sites), traffic routes and temporary facilities (camps, staging areas, etc.). 87. The Mozambican Land Law25 establishes a Partial Protection Zone (PPZ) of 100 meters (50 meters on each side), of every water conduit, in which land use is subject to special permits, and Land Use Right (Direito de Uso e Aproveitamento de Terra, DUAT) cannot be obtained. However, the outer 25 meters on either side are not needed for safety or technical reasons. The Law does not differentiate the type and source of water, and whether this is applicable to wastewater. Reducing the right of way would reduce impacts on Project Affected Persons (PAPs) and be consistent with current practices in Mozambique. For the existing infrastructure, these may already have PPZ and project activities to upgrade/rehabilitate are not expected to create additional PPZ. For the new public infrastructure to be built under the project, where it is established that a new PPZ will be created, FIPAG will put in place adequate measures to ensure that the rights of people located within the PPZ are not adversely affected by the application of the Land Law to water conduits and installations being supported by the project, in line with OP 4.12. 88. The ESMPs will include specific requirements for contractors, including, among others, the preparation and enforcement of a Labor Management Plan, Influx Management Plan, Camp Management Plan, GRM(s) for PAPs and for workers, Code of Conduct (including standards and sanctions against Gender-based Violence (GBV) and Sexual Exploitation and Abuse (SEA), sexual abuse/exploitation of minors, child labor, forced labor, and discrimintation based on gender, race, religion, etc.) and community and workers health and safety. 89. The original financing is currently in the process of being retrofitted to include aspects of GBV. As part of this process, a GBV assessment will be prepared and mapping of the institutions, services and non- governmental agencies that can provide training as a preventing measure as well as assistance to people affected in the project area. These provisions will also apply to the AF. 90. Mechanisms for beneficiary feedback will be strengthened through the project. Grievance-handling procedures are in place for managing grievances related to implementation of safeguards instruments. These mechanisms are documented in the various safeguard’s documents. As part of the institutional strengthening component, the project will support FIPAG and its regional entities to develop, test and institutionalize an 25 Boletim da República (1997) Lei Nr. 19/97 de 1 de Outubro, Maputo, Moçambique. Page 26 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) efficient and cost-effective methodology for regular customer satisfaction measurement to ascertain the importance customers attach to various service attributes, as well as customers' perception of FIPAG’s performance on those attributes, which will be verified by the independent assessments by AURA. 91. The AF will be enhanced to close specific gender gaps identified to ensure women will fully benefit from the project. In addition to tracking project beneficiaries using gender-disaggregated data, the project will also focus on an identified gap from the sector gender assessment: women and youths disproportionately lack access to jobs and employment opportunities in the water and sanitation sector. Project contractors and consultants will be encouraged to engage women and youths in project design and during the construction phase and provide them with training opportunities. The project will also support FIPAG to provide career training and increase the capacity of women in the regional entities, through Component 2. F. Environment (including Safeguards) 92. The environment assessment classification remains as Category B. The types of activities expected to be carried out during the implementation phase of the WASIS II AF project include civil construction activities and/or the rehabilitation of infrastructures (i.e., water abstraction, transport, storage, treatment and distribution systems). It is envisaged that the bulk of the environmental and social impacts associated with the proposed activities will occur during the construction/rehabilitation phases. These impacts will however be short to medium-term, localized and temporary and can be mitigated through compliance with EIA Regulations and an ESMP to be implemented by the Contractors. 93. To mitigate the anticipated environmental impacts FIPAG has updated the ESMF. Since specific project details are not yet known and the exact project footprint cannot be determined, the existing ESMF was updated to include the proposed works in the city of Nacala. The cities of Tete and Moatize were already part of the of safeguards assessment of the original financing. The anticipated impacts associated with the construction and rehabilitation activities will likely include soil erosion resulting from vegetation clearance and excavations of soils for activities such as the rehabilitation and construction of boreholes, and the installation of pipelines and/or construction of distribution centers and water treatment plants. Additional impacts will include noise and dust emissions from vehicles and the movement of machinery, including risks to the community and workers health and safety. Pollution of soils and waterways may also result from spills and leaks of fuels as well as oils and any lubricants used on the machinery and vehicles involved in construction activities. 94. The ESMF provides a screening process for establishing the level of environmental management required for each type of project activity. With respect to implementation of the ESMF and the RPF, the Environmental and Social Unit (ESU) created in FIPAG within the Technical Support area holds primary responsibility for all environmental and social issues of the project including implementation of the ESMF and RPF. 95. The strengthening of the ESU and implementation of the ESMPs will ensure the availability of qualified safeguards and health and safety specialists and their capacity to handle the safeguards instruments that will guide the implementation of the project in full compliance with the World Bank Safeguards policies, applicable Environmental, Health and Safety Guidelines and the applicable Mozambique environmental and social regulations. The environment and social impact assessments (ESIAs), ESMPs, Resettlement Action Plans (RAPs), Abbreviated Resettlement Action Plans (ARAPs) and any other safeguard instruments, such as a Health and Safety Plans, also delineate the environmental and social management responsibilities of the project owner, the contractors and the Owner’s Engineer. These will be integrated in the bidding documents and construction contracts as appropriate. Page 27 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) 96. In addition, as part of construction supervision engineering/safeguards/health and safety supervision and monitoring and evaluation consultants will be hired to support FIPAG in the implementation of the safeguards documents, ESMPs and Health & Safety Plans and RAP/ARAPs. G. Other Safeguard Policies (if applicable) 97. The AF triggers the World Bank policy on Safety of Dams (OP4.37) given the project relies on the performance of the existing Nacala Dam. The project will finance electromechanical works in the existing raw water intake at Nacala dam, which was previously built by the GoM, along with 2 km of raw water transmission main from the intake to the water treatment plant. FIPAG is currently undertaking a dam safety assessment which will be reviewed and advised by the World Bank team. The assessment is expected to be completed by July 2019. The project will finance under Component 2 the implementation of the safety plan (which forms part of the assessment) and comprises of measures that need to be implemented to ensure adequate dam safety. Component 2 will also finance a panel of experts, if it is deemed required as result of the dam safety assessment. 98. The AF also triggers The Bank Policy on Physical Cultural Resources (OP/BP4.11), to ensure that any cultural resources are identified and properly managed. This includes subproject siting and design criteria that will seek to ensure that the proposed activities will avoid disturbing or affecting physical cultural resources. Additionally, the ESMF includes “chance finds” procedures to address OP 4.11. These procedures will be included in all the civil work contracts. V. WORLD BANK GRIEVANCE REDRESS 99. Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported project may submit complaints to existing project-level grievance redress mechanisms or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns. Project affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/en/projects-operations/products-and- services/grievance-redress-service. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org Page 28 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) VI SUMMARY TABLE OF CHANGES Changed Not Changed Results Framework ✔ Components and Cost ✔ Loan Closing Date(s) ✔ Reallocation between Disbursement Categories ✔ Safeguard Policies Triggered ✔ Legal Covenants ✔ Procurement ✔ Implementing Agency ✔ Project's Development Objectives ✔ Cancellations Proposed ✔ Disbursements Arrangements ✔ EA category ✔ Institutional Arrangements ✔ Financial Management ✔ APA Reliance ✔ Other Change(s) ✔ VII DETAILED CHANGE(S) COMPONENTS Current Component Name Current Cost Action Proposed Component Proposed Cost (US$, (US$, millions) Name millions) Component 1: 116.10 Revised Component 1: 163.90 Rehabilitation and Rehabilitation and Expansion of Water Supply Expansion of Water Production and Distribution Supply Production and Distribution Page 29 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) Component 2: Institutional 18.90 Revised Component 2: 18.90 Support Institutional Support Component 3: Output-Based 6.00 Revised Component 3: Output- 2.00 Payments for Low-Income- Based Payments for Household Connections Low-Income-Household Connections Component 4: Contingent 0.00 Revised Component 4: 10.00 Emergency Response Contingent Emergency Response Component 5: Capacity 5.00 No Change Component 5: Capacity 5.00 Building and Operational Building and Support to CRA Operational Support to CRA TOTAL 146.00 199.80 LOAN CLOSING DATE(S) Ln/Cr/Tf Status Original Closing Current Proposed Proposed Deadline Closing(s) Closing for Withdrawal Applications IDA-57830 Effective 31-Oct-2022 31-Oct-2022 31-Oct-2024 28-Feb-2025 IDA-D1100 Effective 31-Oct-2022 31-Oct-2022 31-Oct-2024 28-Feb-2025 REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed REALLOCATION NEW IDA-57830-001 | Currency: XDR iLap Category Sequence No: 1 Current Expenditure Category: GDS & WKS part A 40,994,000.00 5,710,246.08 42,894,000.00 100.00 100.00 iLap Category Sequence No: 2A Current Expenditure Category: GDS,NCS,CS pt B &C 0.00 0.00 0.00 100.00 100.00 iLap Category Sequence No: 2B Current Expenditure Category: OUTPUT BASED PAYMENTS 0.00 0.00 0.00 100.00 100.00 Page 30 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) iLap Category Sequence No: 3 Current Expenditure Category: GDS,NCS,CS,OC pt E 0.00 0.00 0.00 100.00 100.00 iLap Category Sequence No: 4 Current Expenditure Category: Emergency Expenditures under pt D 7,206,000.00 0.00 5,306,000.00 100.00 100.00 Total 48,200,000.00 5,966,009.14 48,200,000.00 IDA-D1100-001 | Currency: XDR iLap Category Sequence No: 1 Current Expenditure Category: GDS & WKS part A 0.00 0.00 0.00 100.00 100.00 iLap Category Sequence No: 2A Current Expenditure Category: GDS,NCS,CS pt B &C 10,200,000.00 762,190.96 10,200,000.00 100.00 100.00 iLap Category Sequence No: 2B Current Expenditure Category: OUTPUT BASED PAYMENTS 3,300,000.00 0.00 1,400,000.00 100.00 100.00 iLap Category Sequence No: 3 Current Expenditure Category: GDS,NCS,CS,OC pt E 3,600,000.00 158,207.36 3,600,000.00 100.00 100.00 iLap Category Sequence No: 4 Current Expenditure Category: Emergency Expenditures under pt D 0.00 0.00 1,900,000.00 100.00 100.00 Total 17,100,000.00 920,398.32 17,100,000.00 Expected Disbursements (in US$) DISBURSTBL Fiscal Year Annual Cumulative 2016 0.00 0.00 Page 31 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) 2017 0.00 0.00 2018 9,459,442.13 9,459,442.13 2019 7,212,451.06 16,671,893.19 2020 20,328,106.81 37,000,000.00 2021 25,000,000.00 62,000,000.00 2022 25,000,000.00 87,000,000.00 2023 33,000,000.00 120,000,000.00 2024 30,000,000.00 150,000,000.00 2025 15,000,000.00 165,000,000.00 SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) Risk Category Latest ISR Rating Current Rating Political and Governance ⚫ Moderate ⚫ Substantial Macroeconomic ⚫ High ⚫ High Sector Strategies and Policies ⚫ Low ⚫ Substantial Technical Design of Project or Program ⚫ Moderate ⚫ Moderate Institutional Capacity for Implementation and ⚫ Moderate ⚫ Moderate Sustainability Fiduciary ⚫ Moderate ⚫ Moderate Environment and Social ⚫ Moderate ⚫ Moderate Stakeholders ⚫ Low ⚫ Low Other ⚫ Moderate ⚫ Moderate Overall ⚫ Moderate ⚫ Moderate Safguard_Table COMPLIANCE Change in Safeguard Policies Triggered Yes Safeguard Policies Triggered Current Proposed Environmental Assessment OP/BP Yes Yes 4.01 Page 32 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) Performance Standards for Private No No Sector Activities OP/BP 4.03 Natural Habitats OP/BP 4.04 No No Forests OP/BP 4.36 No No Pest Management OP 4.09 No No Physical Cultural Resources OP/BP No Yes 4.11 Indigenous Peoples OP/BP 4.10 No No Involuntary Resettlement OP/BP 4.12 Yes Yes Safety of Dams OP/BP 4.37 No Yes Projects on International Waterways Yes Yes OP/BP 7.50 Projects in Disputed Areas OP/BP 7.60 No No LEGAL COVENANTS1 LEGAL COVENANTS – Water Services & Institutional Support II (P149377) Loan/Credit/TF LEGAL TBL1 Description Status Action IDA-57830 Finance Agreement :Maintenance of Complied with No Change Adequate Cost-Recovery | Description :Schedule 2. Section V. A. (a) - The recipient shall ensure that: the tariffs for the water systems under the responsibility of the Water Supply Asset Holding and Investment Fund (Fundo de Investimento e Patrimonio do Abastecimento de Agua (FIPAG) shall reflect the principle of full cost-recovery and shall be sufficient to cover operating expenses, depreciation, and cost of capital in a reasonable time horizon for all said systems. These tariffs shall be assessed yearly to ensure that they satisfy these requirements. | Frequency Page 33 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) :Yearly IDA-57830 Finance Agreement :Maintenance of Not yet due No Change Adequate Cost-Recovery | Description :Schedule 2. Section V. A. (b) -The recipient shall ensure that: within 12 months following the mid-term review, measures shall be taken to cover the financing needs referred to in (a) as necessary. | Frequency :Yearly IDA-57830 Finance Agreement :Maintenance of Complied with No Change Adequate Cost-Recovery | Description :Schedule 2. Section V. A. (h) -The recipient shall ensure that: the terms and conditions of the Subsidiary Agreement between FIPAG and the recipient with regard to financing shall have the same terms and conditions as the Financing Agreement between IDA and Mozambique, and the respective amounts shall be converted to Meticais at exchange rates applicable at the time of disbursement of the relevant proceeds of the Financing to FIPAG. | Frequency :Yearly IDA-57830 Finance Agreement :Contracts with the Not complied with Revised four regional utilities to operate the water supply assets | Description :Schedule 2. Section V. A. (c) -The recipient shall ensure that: the Regional Utilities have been incorporated as corporations under the laws of the Recipient by no later than November 1, 2016. | Frequency :Yearly Proposed Finance Agreement :Contracts with the Not yet due four regional utilities to operate the water supply assets | Description :Schedule 2. Section V. A. (c) -The recipient shall ensure that: the Regional Utilities have been incorporated as corporations under the laws of the Recipient by no later than November 30, 2020. | Frequency :Yearly IDA-57830 Finance Agreement :Contracts with the Not yet due No Change four regional utilities to operate the Page 34 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) water supply assets | Description :Schedule 2. Section V. A. (d) -The recipient shall ensure that: FIPAG maintains at all times during the Project, contracts with the Regional Utilities to operate the water supply assets under FIPAG’s responsibility; the said contracts to address the financial obligations undertaken by FIPAG under various loans and credits extended to FIPAG and the sustainability of the future investments in the water supply systems, including any applicable lease fees payable to FIPAG. | Frequency :Yearly IDA-57830 Finance Agreement :Contracts with the Not yet due No Change four regional utilities to operate the water supply assets | Description :Schedule 2. Section V. A. (e) -The recipient shall ensure that: an escrow account has been established for each Regional Utility, into which all revenues from the provision of services shall be deposited, for the purpose of payment of applicable lease fees and operator tariff. | Frequency :Yearly IDA-57830 Finance Agreement :Water tariffs review Complied with No Change | Description :Schedule 2. Section V. A. (f) -The recipient shall ensure that: FIPAG submits to CRA, by August 31 of each year, a proposal for tariff revision based on the audited expenses of the prior Financial Year, with reasonable projections of the cost of service, including operating expenses, applicable depreciation, and cost of capital, for the following three Financial Years for each of the Regional Utilities. | Frequency :Yearly IDA-57830 Finance Agreement :Water tariffs review Complied with No Change | Description :Schedule 2. Section V. A. (g) -The recipient shall ensure that: CRA reviews and issues a resolution annually on the proposed tariff revision Page 35 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) and reasonable projections of tariffs for the following three Financial Years by November 30 of each year, even if the adjustment of tariffs approved by CRA is zero. Should there be an increase in tariffs; CRA shall publish a resolution in the Official Gazette no later than December 31 of each year, with implementation of the new tariff by March 1 of the following year. | Frequency :Yearly LEGAL COVENANTS2 LEGAL COVENANTS – MZ - Additional Financing - Water Services and Institutional Support II (P165463) Sections and Description Not later than two (2) months after Effectiveness, the Recipient shall ensure that the PIM is updated and adopted by FIPAG and, thereafter, implemented by FIPAG, throughout Project implementation. Conditions Type Description Effectiveness The Co-financing Agreement has been executed and delivered and all conditions precedent to its effectiveness or to the right of the Recipient to make withdrawals under it (other than the effectiveness of this Agreement) have been fulfilled. Type Description Effectiveness The Subsidiary Agreement between the Recipient and FIPAG has been updated and executed on behalf of the Recipient and the FIPAG in a manner satisfactory to the Association. Type Description Disbursement Financing Agreement: Schedule 2, Section III. B. 1(b): No withdrawals shall be made under Category 2(b), upon submission to the Association of the evidence mentioned in the PIM, satisfactory to the Association, and as confirmed by the IVA. Type Description Disbursement Financing Agreement: Schedule 2, Section III. B. 1(c): No withdrawals shall be made under Category 2(c), unless and until: (i) a Performance-based Grant Agreement has been executed between the FIPAG and each Beneficiary, in form and substance satisfactory to the Association, and in accordance with Section I.D. of Schedule 2 to this Agreement; (ii) the upon submission to the Association of the evidence mentioned in the PIM, satisfactory to the Association, and as confirmed by the IVA; and (iii) the Project Implementation Manual has been updated and, thereafter, adopted by the FIPAG, in a manner satisfactory to the Association. Page 36 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) Type Description Disbursement Financing Agreement: Schedule 2, Section III. B. 1(e): No withdrawals shall be made under Category 4, unless and until: (i) the Nacala ESIA/ESMP has been consulted upon, finalized, adopted and publicly disclosed; (ii) a Dam Safety Assessment and a Dam Safety Plan for the Nacala Dam has been finalized and implemented; all of which in a manner satisfactory to the Association further to its review; and (iii) the Project Implementation Manual has been updated by the FIPAG, in a manner satisfactory to the Association. Page 37 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) VIII. RESULTS FRAMEWORK AND MONITORING Results Framework COUNTRY: Mozambique RESULT_NO_PDO MZ - Additional Financing - Water Services and Institutional Support II Project Development Objective(s) The objectives of the Project are to: (i) Increase water service coverage in key cities of Mozambique's territory; (ii) Strengthen the institutional and regulatory capacity for water supply services in the northern, central and southern regions of Mozambique's territory; and (iii) Support Mozambique to respond promptly and effectively to an Eligible Crisis or Emergency. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_T BL_ PD O Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 Increase water service coverage in key cities of Mozambique's territory Number of people in urban areas provided with access to Improved 0.00 0.00 0.00 58,300.00 106,000.00 185,500.00 265,000.00 371,000.00 Water Sources under the project (Number) Action: This indicator has been Revised Direct project 0.00 0.00 0.00 56,562.00 106,000.00 185,500.00 428,829.00 959,374.00 beneficiaries (Number) Rationale: Action: This indicator has Indicator revised to include beneficiaries in Nacala. been Revised Page 38 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) RESULT_FRAME_T BL_ PD O Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 Female beneficiaries (Percentage) 50.00 0.00 0.00 50.00 50.00 50.00 50.00 50.00 Strengthen the institutional and regulatory capacity for water supply servic Number of completed and independently audited financial 1.00 1.00 1.00 4.00 4.00 4.00 4.00 4.00 statements (annual) (Number) Number of Implemented and Monitored regulatory frameworks 1.00 4.00 4.00 4.00 4.00 4.00 with the Regional Utilities (ADM, Northern, Central and Southern) (Number) Support Mozambique to respond promptly and effectively to an Eligible Crisis or Emergency (Action: This Objective is New) Restored production capacity in response to 0.00 49,500.00 an emergency event (Cubic Meter(m3)) Rationale: Production capacity affected by cyclone Idai for which the project has or will contribute towards restoring: Beira: 20,000 m3/day Action: This indicator is Moatize: 6,000 m3/day New Tete: 19,000 m3/day Quelimane: 4,500 m3/day PDO Table SPACE Page 39 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) Intermediate Results Indicators by Components RESULT_FRAME_T BL_ IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 Component 1: Rehabilitation and Expansion of Water Supply Production and Distribution New piped household water connections that are resulting from the 0.00 0.00 0.00 11,000.00 20,000.00 35,000.00 50,000.00 70,000.00 project intervention (Number) Rationale: Action: This indicator has Value increased to reflect the connections made in Nacala. been Revised Piped household water connections that are benefiting from rehabilitation works 0.00 0.00 0.00 0.00 26,000.00 53,000.00 96,383.00 131,014.00 undertaken by the project (Number) Action: This indicator has been Revised Length of Water supply network laid under the project and operational 0.00 20.00 170.00 250.00 370.00 540.00 (cumulative) (Kilometers) Rationale: Action: This indicator has Increased to include the length of network to be laid in Nacala. been Revised Increased capacity of the water systems (treatment, production, 0.00 16,800.00 35,000.00 47,000.00 and transport) (Cubic Meter(m3)) Page 40 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) RESULT_FRAME_T BL_ IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 Rationale: Increased production capacity for Nacala - existing capacity is 7,000 m3/day. The project will build new water treatment plant with 25,000 m3/day capacity, Action: This indicator has average production (based on water availability) is expected to be 19,000 m3/day. been Revised Average hours of water 0.00 0.00 supply per day (Hours) Action: This indicator has been Revised Pemba (Hours) 6.00 10.00 12.00 14.00 14.00 Beira & Dondo (Hours) 14.00 16.00 16.00 16.00 16.00 Tete & Moatize 19.00 17.00 18.00 19.00 20.00 (Hours) Rationale: Action: This indicator Revised to take into account current operating conditions. Production capacity affected as a result of cyclone Idai. has been Revised Nacala (Hours) 12.00 14.00 15.00 16.00 16.00 Action: This indicator is New Component 2: Institutional Support Number of water utilities that the project is 0.00 0.00 1.00 2.00 3.00 3.00 3.00 3.00 supporting (Number) Incorporation of regional utilities as corporations 0.00 3.00 3.00 3.00 3.00 3.00 3.00 (Number) Page 41 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) RESULT_FRAME_T BL_ IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 Commercial systems operating in regional utilities (Northern, 0.00 3.00 3.00 Central & Southern) (Number) Audited Collection ratio (annual billings less change in gross 0.00 90.00 receivables)/annual billings (Percentage) Rationale: Action: This indicator has Target reduced as a result of difficulties faced due to macroeconomic conditions, drought and cyclones. been Revised Northern (Percentage) 68.00 75.00 80.00 80.00 85.00 90.00 90.00 90.00 Action: This indicator has been Revised Southern (Percentage) 94.00 95.00 95.00 95.00 95.00 95.00 95.00 95.00 Central (Percentage) 76.00 80.00 85.00 85.00 86.00 87.00 88.00 90.00 Action: This indicator has been Revised Development and Implementation of corporate equal opportunity policies/procedures 0.00 1.00 1.00 2.00 2.00 3.00 3.00 (addressing gender and disability issues in particular) (Number) Page 42 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) RESULT_FRAME_T BL_ IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 Component 3: Output-Based Payments for Low-Income-Household Connections Number of subsidized house connections 0.00 0.00 0.00 0.00 5,000.00 10,000.00 15,000.00 20,000.00 installed (Number) Rationale: Action: This indicator has Target reduced as a result of reduced funding for the component. been Revised Number of subsidized house connections with continuous water 0.00 0.00 0.00 5,000.00 10,000.00 15,000.00 20,000.00 services for three months (Number) Rationale: Action: This indicator has Target reduced as a result of reduced funding for the component. been Revised Number of low-income (poor) beneficiaries of the output-based 0.00 0.00 0.00 0.00 26,500.00 53,000.00 79,500.00 106,000.00 connection subsidy (Number) Rationale: Action: This indicator has Target reduced as a result of reduced funding for the component. been Revised Component 5: Capacity Building and Operational Support to CRA Implementation of "Citizen Voice" tools and RECO procedures in 0.00 3.00 3.00 project cities (Number) Page 43 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) RESULT_FRAME_T BL_ IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 Customer satisfaction index for water supply 0.00 50.00 60.00 65.00 70.00 75.00 80.00 services in the project cities (Percentage) Action: This indicator has been Revised Impact Evaluation - completion of baseline No Yes and end-project surveys (Yes/No) Action: This indicator has Rationale: been Marked for Project will no longer finance impact evaluation. Impact evaluation will be carried out with NIH funding. Deletion IO Table SPACE Monitoring & Evaluation Plan: PDO Indicators Mapped Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection This indicator measures the actual number of people in urban areas who benefited from improved water FIPAG and Number of people in urban areas supply services that have annual Project Project reports FIPAG provided with access to Improved Water been constructed under Reports Sources under the project the project. Guidance on "improved water sources": Improved water sources include piped household Page 44 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) connections (house or yard connections), public standpipe, boreholes, protected dug well, protected spring and rainwater collection. Hence, "Improved Water Sources" do not include, inter alia, water provided through tanker truck, or vendor, unprotected well, unprotected spring, surface water (river, pond, dam, lake, stream, irrigation channel), or bottled water. The definition of what is considered an ‘improved water source' follows the UNICEF-WHO Joint Monitoring Program definition. Note that "Improved Water Sources" does not refer to the question of new versus rehabilitated water sources, but is the standard definition used to track progress on the Millennium Development Goals. Guidance on people with access: The data on the number of people provided Page 45 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) with access can be estimated by TTLs by multiplying i) the actual number of piped connections with an estimate of the number of people per household connection; and/or ii) the actual number of community water points with an estimate of the number of people per community water point. The assumptions made regarding number of people per connection made should be carefully documented in the ‘comments' section of the indicator when data is entered in the ISR. Guidance on urban classification: The classification should follow the official definition used in the country. Direct beneficiaries are people or groups who FIPAG and directly derive benefits Annual Project Project reports FIPAG Direct project beneficiaries from an intervention (i.e., Reports children who benefit from an immunization program; Page 46 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) families that have a new piped water connection). Please note that this indicator requires supplemental information. Supplemental Value: Female beneficiaries (percentage). Based on the assessment and definition of direct project beneficiaries, specify what proportion of the direct project beneficiaries are female. This indicator is calculated as a percentage. Based on the assessment and definition of direct project beneficiaries, Female beneficiaries specify what percentage of the beneficiaries are female. Number of completed and independently FIPAG Reports Annual audited financial statements (annual) Number of Implemented and Monitored regulatory frameworks with the Regional Utilities (ADM, Northern, Central and Southern) FIPAG data Project reports and Daily water production Restored production capacity in response annual and project FIPAG monitoring FIPAG capacity restored after an to an emergency event reports system emergency event. Page 47 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) ME PDO Table SPACE Monitoring & Evaluation Plan: Intermediate Results Indicators Mapped Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection Number of new piped household water connections which result from the project intervention. A piped household water connection is defined as a connection that provides piped water to the consumer through either a Project reports and New piped household water connections house or yard Annual FIPAG monitoring FIPAG that are resulting from the project Reports connection. Hence, they system intervention do not include, inter alia, standpipes, protected well, borehole, protected spring, piped water provided through tanker trucks, or vendors, unprotected wells, unprotected spring, rivers, ponds and other surface water bodies, or bottled water. Number of piped Project reports and Piped household water connections that household water Annual FIPAG monitoring FIPAG are benefiting from rehabilitation works Reports connections benefiting system undertaken by the project from rehabilitation works. Page 48 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) This indicator is measured as the number of piped household water connections benefiting from rehabilitation works. Rehabilitation works are undertaken so that existing customers see the quantity and/or quality of their water supply services enhanced. Annual Project reports and Length of Water supply network laid Annual project FIPAG monitoring FIPAG under the project and operational reports system (cumulative) Annual Project reports and Increased capacity of the water systems Annual project FIPAG monitoring FIPAG (treatment, production, and transport) reports system Annual Project reports and Annual project FIPAG monitoring FIPAG Average hours of water supply per day reports system Pemba FIPAG Reports Semi-annual Beira & Dondo FIPAG Reports Semi-annual FIPAG and Project reports and Annual Project FIPAG monitoring FIPAG Tete & Moatize Reports system Nacala Annual FIPAG and Project reports and FIPAG Page 49 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) Project FIPAG monitoring Reports system Total number of utilities Number of water utilities that the project providing water supply FIPAG Reports Semi-Annual is supporting with which the Bank is working under the project. Incorporation of regional utilities as FIPAG Reports Annual corporations Regional Commercial systems operating in regional Utilities/FIP Reports Semi-annual utilities (Northern, Central & Southern) AG Annual Audited Collection ratio (annual billings Regional Project Audit report less change in gross receivables)/annual Utilities/FIP Annual Reports billings AG Annual Regional Project Audit reports Northern utilities/FIP Annual Reports AG Regional Southern utilities/FIP Reports Annual AG Annual Regional Project Audit Reports Central utilities/FIP Annual Reports AG Development and Implementation of Regional corporate equal opportunity Utilities/FIP Reports Annual policies/procedures (addressing gender AG and disability issues in particular) Page 50 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) Independent FIPAG and regional Number of subsidized house connections Annual verification Household surveys utilities installed report Independent Number of subsidized house connections FIPAG and regional Annual verification Household surveys with continuous water services for three utilities report months Independent Number of low-income (poor) FIPAG and regional Annual verification Household survey beneficiaries of the output-based utilities report connection subsidy Implementation of "Citizen Voice" tools CRA Reports Semi-Annual and RECO procedures in project cities This indicator measures the percentage of surveyed CRA annual Household and Customer satisfaction index for water Annually CRA customers that are reports customer supply services in the project cities satisfied with the water services Impact Evaluation - completion of CRA Reports Annual baseline and end-project surveys ME IO Table SPACE Page 51 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) Annex 1: Economic Analysis Summary 1. The economic analysis covered the project’s investments in each of the target cities. The analysis of the economic returns was based first on the expected project benefits during the life cycle of the project (30 years), related mainly to the improved health and time savings of project beneficiaries. Second, the cost analysis included investments for rehabilitation and expansion of water production and the extension of water distribution under the project. Finally, the economic analysis performed sensitivity and risk analyses. Main Assumptions 2. The main economic benefits considered for the project are those accrued to households that have no formal connection to the network, and thus are predominantly poor, and, also, those households benefiting from additional water from infrastructure upgrades. For those households already with access to water through non-household piped premises, tubewells, or protected public wells, the main assumption is that with the presence of the program these will experience a net increase in water consumption by ten percent from their current consumption levels in the city of Nacala. The analysis identifies benefits of improving equity in the distribution of urban water supply to economically disadvantaged households. In Nacala the AF of the project will target investments which will improve the utility’s ability to meter and bill water consumption, reduce non-revenue water and improve water supply access in of 25 districts of the current network including Nacala Velha. For the project’s area of influence and affected population, these investments will have spillover effects on increased access of businesses to better water services and reduced uncertainties from water supply interruptions. Tangible benefits will be triggered through the project’s targeted investments aimed at improving overall water distribution efficiency to households already connected to the water network in Nacala. 3. The main assumption for the value of incremental water for those households with new connections was that newly connected households would consume at the current average water consumption per capita. In Nacala, the average production of water with the project will increase to 10,500 m3/day with projected revenues of US$1.125 million per year. For those households with current water service connections, it is assumed that there will be an increase in consumption (10 percent) because these customers will be shifting to better water services, which will in turn trigger higher consumption of water with higher quality standards. This assumption of water consumption increases for currently connected households is justified because these households have low levels of (and constant) water consumption, so an increase in water availability for these households is unlikely to trigger substantially higher levels of water consumption. Page 52 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) Table 1.1 - Existing Connections by Type, comparing WASIS II project with AF (Nacala) 4. The assumptions used to estimate the project’s benefits for new connections in Nacala included the incremental value of water with new connections, the opportunity costs avoided from reducing time to fetch water, the avoided cost of days lost due to diseases, avoided costs of water-borne disease treatment, and other avoided costs. Averted burden of diseases and years of life lost (YLL) were added as benefits to beneficiaries based on the top five water-borne diseases26 with the highest incidence rates. These indicators are reported by World Health Organization (WHO), with YLL, and Disability-adjusted Life Years (DALY) weights tables, for all communicable diseases in 2016. Table 1.2 - Main Water-borne Disease Incidence and Time to Fetch Water Disease Beira Tete Pemba Nacala Malaria 13,771 9,813 5,221 9,986 Lower Respiratory Infections 20,183 12,383 7,637 13,133 Diarrheas 22,486 11,728 6,169 13,612 Neonatal Sepsis 4,694 3,037 1,756 3,093 Pre-term birth complications (diarrhea during pregnancy) 8,191 6,478 3,745 6,275 Neonatal encephalopathy (solid contaminants in Water) 1,015 457 316 622 Anemia 1,121 505 349 701 Malnutrition 10,068 4,787 2,915 6,516 All water-borne disease 81,529 49,188 28,108 53,937 Minutes to fetch water (average 2011-2014) 32.0 30.7 30.3 32.8 Note: Based on FIPAG core indicators data and GHE/YLL, WHO, 2012-2013. For Nacala data is obtained and updated for 2017 based on Mozambique’s WASH Poverty Diagnostic, and Doenças Crónicas e Transmissíveis em Moçambique Relatório Nacional - 2018 5. These are only the accrued benefits to the population without access to water (the majority of them poor). The health benefits are relatively high because all waterborne diseases are included, and Mozambique ranks very high on leading age-standardized rates of DALY, including the YLL from water- borne diseases. These diseases include: diarrhea, malaria, lower respiratory infections, neonatal sepsis (pregnancy infections), pre-term birth complications (pregnancy diarrhea), neonatal encephalopathy 26These diseases are malaria, enteric diseases, diarrheas, acute respiratory infections and other infectious diseases related to water contamination. Trends in disease incidence changes were applied to obtain figures for 2014. Also, the Inquérito Demográfico e de Saúde was used to complement WHO tables. Page 53 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) (solid contaminants in water), anemia and malnutrition. In addition, the cholera disease burden was included where Mozambique (particularly Beira and Tete) has one of the highest rates in the world. The available country information on DALY for 2013 and 2016 was prorated with the population per city.27 Table 1.3 - Characteristics of Target Population, Connections and Production Water Water Per-household Water Sales Minimum Population Production City Connections Consumption (m3/year) Wage (000) (m3/day) (000) lpd (000) (US$/day) (000) Beira 593.1 50.5 60.6 5.9 15.9 5.6 Pemba 161.5 14.1 93.0 3.3 4.7 5.6 Tete 263.3 29.8 119.2 8.0 10.9 5.3 Nacala 264.7 9.5 52.0 3.0 14.4 5.2 Total 1,282.68 103.91 81.2 5.0 11.5 5.4 Table 1.4 - Main Water-borne Diseases DALY and YLL in Mozambique’s Urban Areas Ranking of DALY rate Disease YLL Burden of Disease 000s for Mozambique * Malaria 19.2 3,258 14 Lower Respiratory Infections 16.5 1,112 4 Diarrheas 28.6 842 7 Neonatal Sepsis 20.4 616 13 Pre-term birth complications (diarrhea during pregnancy) 7.6 558 8 Neonatal encephalopathy (solid contaminants in Water) 18.3 537 14 Anemia 3.8 305 4 Malnutrition 4.5 326 7 All water-borne disease average 17.1 944 8.9 Source: WHO, GOB (UofW). Note: One DALY represents the loss of the equivalent of one year of full health. Using DALYs, the burden of diseases that cause early disability due to disease, DALYs in Africa for water-borne diseases are at least two times higher than in any other region. YLL are cumulative years lost due to premature death, weighted by age. DALYs include YLL. *The numbers indicate the rank across 15 countries for each cause in terms of highest age-standardized DALY rates, with 1 as the best performance and 15 as the worst. For cholera information based on OCHA and based on estimates from Ali, Nelson, Lopez and SACK (2015) Updated Global Burden of Cholera in Endemic Countries. PLOS NTD. No. 9 Vol. 6. 6. Other benefits were estimated based on (a) the incremental value of water provided via new household connections; (b) the health benefit through cost reduction and disease incidence and burden reductions for newly-connected households; and (c) the economic benefit from improved economic means or extra earnings of households based on the associated gains in wages from time savings from 27 For cholera, DALYs were estimated from the incidence rates between December 2014 and May 2015 from the United Nations Office of Coordination for Humanitarian Affairs (OCHA). OCHA estimates 8,500 cases in Mozambique out of the 9,200 cholera outbreak cases reported in this period for affected Sub-Saharan Countries (including Malawi, Zimbabwe, Tanzania and Zambia). Given the high disease burden of water-borne diseases, the majority of benefits from the intervention accrue from water availability and water quality, and less so on changes in water consumption. The relative reduction in avoided cost of disease is more prominent than the relative increase in value of water because Mozambique consumes very low quantities per capita even in urban areas. Page 54 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) fetching water. For those households with existing connections, the benefits were added based on increased water consumption which is a result of improved reliability and continuity of service with the project. Because household water consumption thresholds have been historically low and steady, a reasonable increase in consumption of ten percent was assumed for existing connections as a proxy for other tangible benefits from the project for these types of subpopulation. The cost components included the expansion of household connections, rehabilitation and water distribution costs, and output-based subsidized connections. 7. These assumptions were made based on presenting the economic efficiency and NPVs with and without the project, under the original project and the additional financing for the City of Nacala. Without the project, residents have to take measures to find sources of water and treat it for cooking and drinking purposes. Common costs related to fetching water are (a) journeys to collect water from a source nearby (river, stream, or collective point); and (b) the opportunity cost of time to conduct activities requiring water outside the household. Common household practices for drinking and cooking water are (a) boiling water; (b) purchasing bottled water; and (c) filtering or chlorination.28 Table 1.5 - Demand and Coverage of Project’s Cities Average % Households Demand Increase 3 Consumption per Total Budget City/Urban Area Consuming Less Than 5 (m per day, Connection (US$ millions) m3 per month thousands) (m3 per month) Beira/Dondo 32 90 10 23.6 Pemba 24 29 12 59.7 Tete/Moatize 35 55 13 44.6 Nacala 40 29 10 43.1 Total 33 51 11 171.0 8. For gains in the incremental value of water, the assumptions made in terms of consumption are supported by the most recent distribution of consumption across cities. Households in the lowest segments of the water consumption distribution would then benefit relatively more compared to average- or high-consuming households. In Beira, 32 percent of households have average consumption of 5 m3 per month or less, whereas Pemba has 24 percent of households with these consumption thresholds. The city of Tete shows the highest percent of households in the lowest segment of the water consumption distribution (close to 35 percent). For one-third of the households in each city, average consumption levels were imputed (see Financial Analysis on average consumption per city). Finally, for the rest of the households in Nacala the average threshold of national consumption was imputed uniformly for all three cities (close to 10.2 m3 per month). 9. Discount rates of 12 percent were used to discount values over a 30-year period. The discount rate was set high to be conservative in the estimates and to internalize any project implementation risk 28Benefits were transformed in monetary values based on the most recent (2014) monthly minimum wage rate (MZN 5,402) and a daily wage rate of MZN 207.8 (MZN 5,402 per 26 days of labor per month). Shadow pricing for wages were not considered in the estimates of the opportunity costs involving wage rates. This is because, according to the Doing Business Report on Labor Regulations (2015), Mozambique’s ratio of minimum wage to value added per worker is 1.5, so ther e is already an implicit non- market valuation added in the minimum wage and thus shadow pricing for this wage threshold would overestimate benefits Page 55 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) and threats to the distribution of benefits. The selection of the 12 percent discount rate is closer to the rate used by the Mozambican Central Bank (around nine percent) and the IMF recommendation of a discount rate for investment projects including country-based external borrowing risks of between 8- 11 percent. The exchange rate assumed throughout the period of analysis is 42 Meticais per US dollar. 10. Avoided economic costs were accounted based on changes in time lost with daily journeys to collect or fetch water. According to survey data, the average time spent per person to collect water in 20-liter containers is about 25-30 minutes per trip, and four trips are required per day per household. For washing clothes and baths an additional 30 minutes are required. The economic cost of time was valued as women and children are generally in charge of this chore. The average cost of lack of access to piped water is about US$300 per household per year, where the cost of an added water household connection for the water utility (FIPAG) is around US$240. 11. Finally, there are additional benefits that are worth highlighting that could not be estimated due to data limitations. These benefits are related to the improved efficiencies in the utilities, which are a significant part of the resources allocated through the project. The project will aim to improve metering and billing collection, reduce leakages from deteriorating distribution infrastructure, decrease inefficiencies in distribution systems, and reduce illegal connections to the water network. However, back-of-the-envelope calculations provide a threshold or reference point of the magnitude of these (monetized) benefits distributed in each city. 12. Each city under the project will have different gains from improved efficiency of the utility through the current household connections, additional capacity expanded (in m3 per day), the average household consumption (m3 per day), the expected improvement in non-revenue water (percentage), and the average tariffs paid. For Beira, there are 47,050 connections with an average consumption of 10 m3 per month per household and a total consumption of 5.7 million m3 per year. With additional capacity of 15,000 m3 per year and an average of MZN 23 per m3 paid by each household, the total value of this expansion translates into MZN 130 million (around US$3 million per year). An improvement of ten percent in efficiency from this value will add up to US$6.6 per household (an increment of US$1.1 per month from current consumption levels). In the case of Pemba, there are 14,340 connections with an average consumption of 12 m3 per month per household and consumption reaching 2.1 million m3 per year. With additional capacity of 15,000 m3 per year and an average of MZN 24 per m3 paid by households, the total value of this expansion translates into MZN 49.6 million (around US$1.2 million per year). 13. An improvement of 10 percent in efficiency from this value will add up to US$8.2 per household (an increment of US$1.4 per month from current consumption levels). Tete has 29,800 connections with an average consumption of 13 m3 per month per household and consumption reaching 4.6 million m3 per year. With additional financing the capacity of Nacala will increase approximately to 10,500 m 3 per year and an average of MZN 22 per m3 paid by households, the total value of this expansion translates into US$1.13 million per year. An improvement of 10 percent in efficiency from this value will add up to US$7.0 per household in operation and maintenance costs (an increment of US$1.20 per month from current consumption levels). These estimations give a sense of the nature of these benefits distributed per city. The contrast of these figures with actual utility efficiency gains that will be estimated by FIPAG will provide concrete data on these benefits. Page 56 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) Results 14. Findings from the economic analysis indicate that the project is expected to generate positive socio-economic returns for the city of Nacala. The NPV for Nacala for existing connections reaches US$1.7 million with an economic rate of return (ERR) of 9.5 percent, and a benefit-cost ratio of 1.3. For new connections, the NPV for Nacala city reaches US$8.3 million with an ERR of 18.5 percent and a benefit-cost ratio of 2.4. Table 1.6 - Summary of Economic Rates of Return per City and Nacala (AF) Estimated ERR City Existing New Connections Total Connections* Pemba 18.1% 6.8% 14.9% Beira/Dondo 28.2% 8.0% 26.3% Tete/Moatize 14.3% 4.6% 6.7% WASIS II 22.1% 6.5% 19.3% Nacala 18.5% 9.5% 16.9% Total all Cities (AF) 19.8% 7.2% 18.6% *Assuming a consumption increase of 5 percent. For existing connections discount rate of 6 percent was used. 15. All cities including Nacala’s additional financing reach a total NPV of US$33.3 million for new connections and only US$10.1 million for existing connections (total of US$43.4 million). The total NPV for Nacala for both existing and new connections reaches US$10 million for the lifetime of the project, which represents 50 percent more than the NPV estimated for the city of Pemba (US$6.6 million), only 2/3 of the NPV of Beira/Dondo (US$15.3 million) and close to the NPV of Tete/Moatize (US$11.4 million). Table 1.7 - Distribution of NPV (US ‘000 per city, including additional financing) New Existing NPV (000) Total Connections Connections Pemba 5,000 1,655 6,655 Beira/Dondo 11,250 4,085 15,335 Tete/Moatize 8,750 2,660 11,410 Nacala 8,279 1,722 10,001 Total 33,279 10,122 43,401 16. The project’s economic analysis was also modified by incorporating the greenhouse gas (GHG) estimates generated over a 30-year period. The GHGs accounted involved the water distribution, supply and treatment infrastructures provided under the additional financing. The project generated gross emissions of 4,064 of tCO2eq over 30 years, with net emissions reaching 3,968 tCO2eq. This translates into approximately 132 tCO2eq generated by the project on average per year. These estimates were monetized using the shadow price of Carbon per World Bank’s guidelines with a baseline minimum Page 57 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) value of US$40 and a maximum of US$80 per ton CO2eq in baseline year 2020, with an average rate of increase of 2.26 percent per year. The values estimated of these net emissions reached an average decline in the NPV of 4.8 million during the lifetime of the project, discounted at 6 percent. The ERR consequently reduced to 16.3 percent for the additional financing considering the GHG estimates with net positive, albeit low, emissions. 17. Sensitivity analysis was carried out considering potential damage costs from extreme weather events and associated benefits from activating CERC investments of the project. The project’s economic returns and NPVs were estimated based on two damage cost scenarios (low and high impact)29 related to negative impacts of floods damaging water and sanitation infrastructures.30 The overall net values of the sensitivity analysis were negative based on the difference between CERC’s benefits from investments in rehabilitating infrastructure, minus the damage costs estimated based on recent estimates.31 The NPVs for damage costs reduced the NPV of the project (with AF) from US$43.4 to US$28.7 million. The ERR was reduced to 14.6 percent. 29 The scenarios of low impact considered 40 percent of total average water supply and sanitation costs, and the high scenario 75 percent of total average water supply and sanitation costs. Both of these scenarios were averaged as total costs to compare with the benefits of CERC investments. The assumption is that a flood/cyclone event will take place in 2022, discounting benefits and costs during the lifetime of the project. 30 These damage costs were compared with benefits from the CERC component that aims to mitigate the damages from these climate events through contingency and response financing. 31 Based on Idai cyclone’s PDNA based on the assessment of multiple institutions Water Supply Investment and Assets Fund (FIPAG), the Water and Sanitation Infrastructure Board (AIAS), the National Directorate of Water and Sanitation (DNAAS) and the AURA/CRA. Also, some figures from GFDRR on previous flood damages in port cities in Mozambique (2015-2016) were utilized in the analysis. Page 58 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) Annex 2 - Safeguards Action Plan for Updating the ESIA and Preparing a Dam Safety Assessment for Nacala Dam Note: Each Action will be evaluated on meeting requirements of Mozambican law and World Bank Safeguard Policies and the World Bank Group General Environmental, Health and Safety Guidelines, the EHSG for Waste Management Facilities, the EHSG for Construction Materials Extraction and will need to be addressed in the project ESIA and ESMP, which should contain adequate implementation, monitoring and reporting arrangements, including key performance indicators. Actions Milestone Responsibility Comments 2. Complete environmental and social documents Prior to Water Supply Actions require World Bank N/O Finalize the ESIA and ESMP for the bidding Asset Holding and Ministry of Environment, Land Nacala water treatment plant, [Expected by Investment and Rural Development transmission main and network June 15, 2019] Fund (FIPAG) (MITADER) environmental license upgrade. The ESMP should be part of the Bidding Documents as per procurement standards to enhance Environmental Social Health and Safety (ESHS), including detailed Health & Safety Plan consistent with OHSAS 18001:2007 or ISO 45001. 3. Complete the Dam Safety Actions require World Bank N/O Assessment and integrate Prior to Water Supply proposed remedial measures bidding Asset Holding Contingencies included into the into the project activities. [Expected by Investment project design to finance any July 31, 2019] Fund (FIPAG) remedial measures identified in the dam safety assessment. Page 59 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) Annex 3: Project Original and Revised Results Framework Unit of Indicator Name Baseline Target Action Revised target measure Project Development Objectives Indicators Number of people in urban areas provided with Nr 0 318,000 Revised 371,000 access to an improved water source under the Direct project beneficiaries (percentage of whom Nr 0 828,829 Revised 959,374 are female) % 50% 50% No change Number of implemented and monitored regulatory frameworks with the regional utilities Nr 1 4 No change - ADM - Northern - Central - Southern Number of completed and independently audited Nr 1 4 No change financial statements (annual) 3 Production Capacity Restored after an Emergency m 0 49,500 New Intermediate Results Indicators Component 1 New piped household water connections resulting Nr 0 60,000 Revised 70,000 from the project intervention Piped household water connections that are benefitng from rehabilitation works undertaken Nr 0 96,383 Revised 181,014 under the project Lenght of water supply network laid under the km 0 390 Revised 540 project and operational (cumulative) Increased capacity of water systems (treatment, m3/day 0 35,000 Revised 47,000 production and transport) Average hours of water supply per day 14 - Pemba 14 16 - Beira & Dondo hours/day 0 16 Revised 20 - Tete & Moatize - 22 14 14 Nacala( New) Component 2 Water utilities the project is supporting Nr 0 3 No change Incorporation of regional utilities as corporations Nr 0 3 No change Commercial systems operating in regional utilities - Northern Nr 0 3 No change - Central - Southern Audited collection ratio (annual billings less increase in gross receivables)/ annual billings 68 95 90 - Northern % 76 95 Revised 90 - Central 94 95 95 - Southern Development and implementation of corporate equal opportunity policies / procedures Development of Nr 3 No change (addressing issues of gender and disability in TORs particular) Component 3 Number of subsidized house connections installed Nr 0 70,000 Revised 20,000 Number of subsidized house connections with Nr 0 70,000 Revised 20,000 continuous water services for three months Number of low-income (poor) beneficiaries of the Nr 0 371,000 Revised 106,000 out-put based connection subsidy Component 5 Implementation of “Citizen Voice” tools and RECO Nr 0 3 No change procedures in project cities Customer satisfaction Index for water supply Percentage 0 - Revised/New 80 services Impact Evaluation – completion of baseline and Baseline/end of Marked for Yes/No baseline procured end-project surveys project delection Page 60 of 61 The World Bank MZ - Additional Financing - Water Services and Institutional Support II Project (P165463) Explanation: The targets and implementation timelines for two of the PDO indicators (Number of people in urban areas provided with access to an improved water source under the project and Direct project beneficiaries) were revised to reflect the additional investments, and one indicator (Production Capacity Restored after an Emergency) was added to reflect the investments under the CERC component. Ten of the intermediate indicators were also revised, given the increase scope of investments under the project and one to comply with the corporate requirements on citizen engagement. In addition, the indicator on the beneficiary survey has been revised to measure a customer satisfaction index (which measures the percentage of surveyed customers that are satisfied with the water services), to better reflects the project’s citizen engagement aspects. Page 61 of 61