Document of The World Bank Report No: 73725- KG RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF WATER MANAGEMENT IMPROVEMENT PROJECT (WMIP) PROJECT IDA GRANT H2120 JAPANESE GRANT TF056324 March 29, 2006 TO THE KYRGYZ REPUBLIC November 21, 2012 ABBREVIATIONS AND ACRONYMS DWR Department of Water Resources NWC National Water Council PDO Project Development Objective SWA State Water Administration USD United States Dollar WMIP Water Management Improvement Project Regional Vice President: Philippe Le Houerou Country Director: Saroj Kumar Jha Sector Manager / Director: Dina Umali-Deininger Task Team Leader: Pieter David Meerbach 2 Restructuring Status: Final Restructuring Type: Level two Last modified on date : 11/21/2012 1. Basic Information Project ID & Name P088671: WATER MGMT IMPRVMT Country Kyrgyz Republic Task Team Leader Pieter David Meerbach Sector Manager/Director Dina Umali-Deininger Country Director Saroj Kumar Jha Original Board Approval Date 03/29/2006 Original Closing Date: 12/31/2011 Current Closing Date 12/31/2012 Proposed Closing Date [if applicable] 11/30/2013 EA Category B-Partial Assessment Revised EA Category B-Partial Assessment-Partial Assessment EA Completion Date 07/11/2005 Revised EA Completion Date 2. Revised Financing Plan (US$m) Source Original Revised BORR 4.70 4.70 IDA 19.00 19.00 JPN 4.40 4.40 Total 28.10 28.10 3. Borrower Organization Department Location Government of the Kyrgyz Kyrgyz Republic Republic 4. Implementing Agency Organization Department Location Department of Water Resources Kyrgyz Republic 3 5. Disbursement Estimates (US$m) Actual amount disbursed as of 11/21/2012 16.97 Fiscal Year Annual Cumulative 2013 1.70 18.67 2014 0.33 19.00 Total 19.00 6. Policy Exceptions and Safeguard Policies Does the restructured project require any exceptions to Bank policies? N Does the restructured projects trigger any new safeguard policies? If yes, please select N from the checklist below and update ISDS accordingly before submitting the package. 7a. Project Development Objectives/Outcomes Original/Current Project Development Objectives/Outcomes The project has a two-pronged development objective: (i) improving irrigation service delivery and water management for the benefit of a sustainable increase in irrigated agricultural productivity; and (ii) improving national water resource governance for the benefit of water users and the nation as a whole. 7b. Revised Project Development Objectives/Outcomes [if applicable] 4 KYRGYZ REPUBLIC WATER MANAGEMENT IMPROVEMENT PROJECT (WMIP) P088671 CONTENTS Page RESTRUCTURING PAPER ........................................................................................................ 6 5 KYRGYZ REPUBLIC - WATER MANAGEMENT IMPROVEMENT PROJECT (WMIP - P088671) IDA GRANT H212 KG, JAPANESE GRANT TF056324 Restructuring Paper 1. The closing date for Kyrgyz Republic, Water Management Improvement Project (WMIP, IDA Grant No: H212 KG, Japanese Grant No: TF056324, P088671), will be extended from December 31, 2012 to November 30, 2013. 2. The project currently is Unsatisfactory for Project Development Objective (PDO) and Moderately Unsatisfactory for Implementation Progress. The project is scheduled to close by December 31, 2012, has been rated Moderately Unsatisfactory from May 2011 onwards, and was downgraded to Unsatisfactory in November 2012. In case of a project extension until November 30, 2013, the current implementation progress would enable the project to achieve a Moderately Satisfactory rating for the PDO at project closing. 3. The project has suffered from significant implementation delays. Under Component 1 – Rehabilitation and Modernization of Irrigation Infrastructure, with the current project closing date of December 31, 2012, only 13 out of 20 contracts will be completed, and 7 contracts (covering 6 schemes) will remain uncompleted. The reasons for this slow progress are: (i) under-resourced contractors; (ii) underestimated construction periods for sites at remote locations; (iii) the events in the south in 2010, where around 75% of the civil works are conducted; and (iv) inadequate procurement and slow tendering at the start of the project. 4. If the project is not extended, the Recipient would be responsible to finance around US$2.5 million outstanding under 7 contracts for 6 irrigation schemes. Given the significant budget constraints faced by the Recipient, it is most likely that the rehabilitation of these 6 schemes would not be completed. This situation would lead to several adverse results: (i) the incomplete schemes would not provide adequate water supply to around 80,000 beneficiaries (farmers and their households) covering 15,000 ha; (ii) the rehabilitation works initiated in 5 schemes have already partially dismantled/replaced the existing water conveyance infrastructure, and if rehabilitation is not completed, the water supply to targeted beneficiaries would be worse than before the project intervention and would be prone to rapid further deterioration because of uncontrolled water flows; and (iii) the incomplete works, including the resulting uncontrolled water, would likely have an adverse impact on the livelihoods of beneficiaries in the project area and would also generate negative publicity. 5. The proposed extension is necessary to complete the civil works for the rehabilitation of 6 irrigation schemes under Component 1. With the project extension, the outcome indicators for the first part of the PDO of “improving irrigation service delivery and water management for the benefit of a sustainable increase in irrigated agricultural productivity” could be achieved. The completion of works under the 6 schemes will increase disbursement from 79.9% currently to 99%. The Recipient through the DWR 6 has submitted a revised implementation plan and budget to IDA to complete the civil works by November 30, 2013. 6. The project extension would not enable the outcome indicators for the second part of the PDO of “improving national water resource governance for the benefit of water users and the nation as a whole” to be fully be achieved. This is due to unsatisfactory progress under Component 2 – Management of Water Resources. In spite of significant efforts from the Department of Water Resources (DWR) and the Project Implementation Unit of the WMIP, the National Water Council (NWC) has not been convened by the Prime Minister’s office since project effectiveness in 2007 and therefore has not issued the relevant resolutions for implementation of the Water Code. In order to achieve part of the results for improved water resource governance, the government will need to take several actions: (i) prepare a proposed roadmap, which details critical actions, NWC resolutions, milestones and the timeline for implementation of critical elements of the Water Code, including delineation of river basin boundaries, establishment of the SWA, preparation of river basin plans and a National Water Strategy; and (ii) convene the NWC to discuss and endorse the roadmap and issue the agreed resolutions to start implementation of the Water Code. In case the government does not complete these actions by January 25, 2013, a notification of suspension for Component 2 will be issued. In case the government prepares a detailed roadmap and convenes the NWC, the IDA task team and government will review the PDO and prepare a separate project restructuring paper in the first quarter of 2013 to revise the PDO (if necessary) and the outcome indicators to reflect what is achievable in the remaining project period. This would ensure that the project would close Moderately Satisfactory. 7. No changes to the current FM arrangements are required. The most recent FM supervision of the project confirmed that in general the PIU has established acceptable FM arrangements including accounting, reporting, budgeting and funds flow, internal controls and staffing. The project audit report for FY 2011 with unmodified (clean) opinion has been submitted on time. The management letter did not contain any major internal control or accountability issues. The project audit report and the accompanying project financial statements have been considered acceptable to the Bank. FMRs under the project are usually received on-time and generally found to be acceptable. 8. This will be the 2nd extension of the project. In February 2011, the project had a level two restructuring extending the closing date from December 31, 2011 to December 31, 2012. 7