The World Bank LK GPOBA - Access to Sanitation Project (P111161)

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1 Public Disclosure Authorized Public Disclosure Authorized The World Bank RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF LK GPOBA - ACCESS TO SANITATION PROJECT APPROVED ON JUNE 8, 2011 TO DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA REPORT NO.: RES27663 Public Disclosure Authorized WATER SOUTH ASIA Public Disclosure Authorized Regional Vice President: Country Director: Senior Global Practice Director: Practice Manager/Manager: Task Team Leader: Annette Dixon Idah Z. Pswarayi-Riddihough Guang Zhe Chen Meike van Ginneken Iain Menzies

2 ABBREVIATIONS AND ACRONYMS GPOBA ISR NWSDB PDO PMU PPP RVP Global Partnership on Output-Based Aid Implementation Status Results Report National Water Supply and Drainage Board Project Development Objective Project Management Unit Public-private Partnership Regional Vice President

3 Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. BASIC DATA Product Information Project ID P Original EA Category Partial Assessment (B) Approval Date 08-Jun-2011 Financing Instrument Investment Project Financing Current EA Category Partial Assessment (B) Current Closing Date 31-Dec-2017 Organizations Borrower Democratic Socialist Republic of Sri Lanka Responsible Agency National Water Supply and Drainage Board Project Development Objective (PDO) Original PDO The objective of the Project is to improve sanitation services to low-income households in Greater Colombo by increasing the numberof sewerage house connections to existing and new sewerage networks and improving on-site sanitation services at household level. Summary Status of Financing TF Approval Signing Effectiveness Closing Net Commitment Disbursed Undisbursed TF Dec Dec Jun Dec Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No

4 Note to Task Teams: End of system generated content, document is editable from here. I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING 1. The objective of the Project is to improve sanitation services to low-income households in Greater Colombo by increasing the number of sewerage house connections to existing and new sewerage networks and improving on-site sanitation services at household level. 2. The Project has completed about five and a half years of implementation since its effectiveness. The project is implemented through the national water utility, National Water Supply and Drainage Board NWSDB. There are two outputs for the Project: (i) Output 1 for sewered connections, and (ii) Output 2 for improved on-site sanitation services (new septic tank and regular desludging). The project is a results-based financing which disburses after (i) the connections have been constructed and (ii) the service provider (NWSDB or private contractor) demonstrates six months of sustainable service provision. This means that there is a significant lag between physical completion and final disbursements (at least six months and following quarterly independent output verification). The grant is funded by the Global Partnership on Output-Based Aid (GPOBA) and government counterpart funding. 3. Following the restructuring of the project and change of TTL in December 2015, the project has shown significant progress in delivering outputs (household connections) and disbursement has subsequently increased from 4.5% to 42% today. Following restructuring approval in principle in June 2017 the PMU/NWSDB has fully committed its resources and started contracts to maximize output delivery and achieve the PDO by 30 December Good progress has been made on Output 1 sub-projects - connections to centralized sewer network and to new decentralized treatment facilities. Physical progress as at 17 November 2017 is 91%. 5. Progress on Output 2 - improving on-site sanitation access though an innovative hybrid PPP solution - has been delayed due to: (i) delay in 2016 government budget approval including counterpart financing which caused a delay in tendering for the PPP contractor; (ii) slower than anticipated initial demand uptake, and (iii) some technical and financial issues with the PPP contractor that are now being resolved. This approach fits well with the MFD principles of private sector engagement. Output 2 started implementation only in June The target number of beneficiary households is 3,785. As of 17 November 2017, 1,646 units have been fabricated and 672 installed. Physical progress is reported at 26%. Bid documents and approval letter were recently forwarded to the NWSDB Tender Division through the General Manager for the installation of 1,500 new septic tanks. Demand uptake is now strong with 1,834 applications having been received by June 2017 and 1,295 eligible households having made their down-payment for the scheme following an active communication program (with Bank support from communications and social development teams). This pipeline of poor household applications will be delivered in 2018.

5 6. The project is of strategic importance to the nascent urban sanitation sector in a rapidly urbanizing context. Recent discussions with the Minister, Ministry of City Planning and Water Supply highlighted the importance of emerging lessons from this pilot project for future development of the sector where over 90% of the population rely on poorly functioning on-site sanitation facilities and services with associated environmental and public health risks. 7. As the PDO is unlikely to be achieved by the current closing date, progress towards achievement of PDO is currently rated Moderately Unsatisfactory. The current overall implementation progress rating is Moderately Satisfactory. This reflects that the Project Management Unit (PMU) has been working effectively on project implementation, fully supported by NWSDB management and the multi-stakeholder project steering committee. The restructuring would allow achievement of the PDO by the revised closing date. 8. The government requested the restructuring on June 30, The proposed restructuring includes a closing date extension of the Recipient-Executed Trust Fund from the current closing date of December 31, 2017 to December 30, The proposed extension would be the second, with a cumulative extension of 36 months. 9. The proposed restructuring fully complies with OP/BP as the (a) project is not subject to suspension of disbursements, and (b) the Borrower does not have any outstanding audit reports nor are there any audit reports that are not satisfactory to the Bank. The client also complies with all legal covenants. II. DESCRIPTION OF PROPOSED CHANGES Following the first restructuring in December 2015, some delays were experienced in implementation of Output 2 (improved on-site sanitation services - new septic tank and regular desludging). The target number of improved onsite sanitation facilities cannot be achieved and provide sustainable services for six months before the current closing date. NWSDB has received many applications and down-payments from eligible low income households in low lying, flood prone areas. The proposed extension of the closing date would allow the target number of households to receive improved sanitation services and facilitate the proper testing of the Public-private Partnership (PPP) model. The restructuring would also include a fine tuning of the second disbursement trigger for Output 2 to reflect lessons learned to date. Note to Task Teams: The following sections are system generated and can only be edited online in the Portal.

6 OPS_DETAILEDCHANGES_LOANCLOSING_TABLE The World Bank III. SUMMARY OF CHANGES Changed Change in Loan Closing Date(s) Not Changed Change in Implementing Agency Change in Project's Development Objectives Change in Results Framework Change in Components and Cost Cancellations Proposed Additional Financing Proposed Reallocation between Disbursement Categories Change in Disbursements Arrangements Change in Disbursement Estimates Change in Overall Risk Rating Change in Safeguard Policies Triggered Change of EA category Change in Legal Covenants Change in Institutional Arrangements Change in Financial Management Change in Procurement Change in Implementation Schedule Other Change(s) IV. DETAILED CHANGE(S) LOAN CLOSING DATE(S) TF Status Original Closing Revised Closing(s) Proposed Closing Proposed Deadline for Withdrawal Applications TF Effective 31-Dec Dec Dec Apr-2019

7 Note to Task Teams: End of system generated content, document is editable from here.