RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF SUSTAINABLE ENERGY FINANCE PROGRAM GLOBAL ENVIRONMENT FACILITY (GEF) GRANT TO THE

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF SUSTAINABLE ENERGY FINANCE PROGRAM GLOBAL ENVIRONMENT FACILITY (GEF) GRANT TO THE DEPARTMENT OF ENERGY MINISTRY OF TRANSPORT, WORKS AND ENERGY GOVERNMENT OF FIJI Regional Vice President: Country Director: Sector Manager / Director: Task Team Leader: JUNE 2012 Pamela Cox Ferid Belhaj Mona Sur Kamleshwar Prasad Khelawan Report No: v1

2 PACIFIC ISLANDS SUSTAINABLE ENERGY FINANCE PROJECT P CONTENTS Page A. SUMMARY... 3 B. PROJECT STATUS... 4 C. PROPOSED CHANGES... 4 D. APPRAISAL SUMMARY

3 SUSTAINABLE ENERGY FINANCE PROJECT RESTRUCTURING PAPER A. SUMMARY The proposed changes are required to facilitate the implementation of the Sustainable Energy Financing Project (SEFP) in Fiji, in line with the intent of the Project Appraisal Document (PAD) and the Executive Agency Operations Manual (EAOM), and to address policy barriers to the successful implementation of the project. The SEFP is a regional project that included PNG, Solomon Islands and Fiji. The IFC was to implement the project in Vanuatu and RMI but this was not progressed. The SEFP incentivizes local financial institutions to lend to business and households for installation of renewable energy equipment and for energy efficiency measures. The incentive is provided through a Risk Sharing Fund which guarantees 50% of the loans provided by the local financial institutions for these purposes. The project is currently being restructured to close it in PNG and SI but to continue in Fiji as a means to leverage the experiences from Fiji for broader Pacific Islands application. This interim amendment to the Fiji Grant Agreement is proposed to address the immediate and pressing issues in relation to the SEFP program whilst the broader restructure of the program is progressed. The main modifications proposed under this interim restructuring are: 1. the revision of the definitions for operating costs and training; 2. the inclusion of a new sub-component (under Part 2 (g) for the review of the energy policies and implement measures to address any barriers to significantly increasing the adoption and use of renewable energy technologies and more efficient use of energy; and 3. inclusion of methods other than Quality and Cost- Based Selection (QCBS) for selection of consultants. B. PROJECT STATUS The project overall is currently rated moderately unsatisfactory. However, progress toward achieving the development objectives has been positive in Fiji, where financial intermediaries have now lent $2.2 million to households and small businesses to purchase and install renewable energy systems or improve energy efficiency. Little progress has been made in the other participating Pacific Island states. A Mid Term Review of the SEFP recommended that the program be closed in PNG and SI and that the remaining funds be allocated to Fiji for a more aggressive implementation and to share the experience from Fiji for capacity building and increasing knowledge in the Pacific Island States (PICs) with a view to re-engage the PICs in the program. 3

4 However, a number of outstanding matters, particularly in the PICs where the SEFP is proposed to be closed, have delayed the full restructure of the project. C. PROPOSED CHANGES Project s Development Objectives - No change. Results/indicators No change Components The proposed changes and the reasons for the changes to the Fiji Grant Agreement are outlined below. 1. Amendment to Part 2, Technical Assistance, Market Incentives and Communications It is proposed that Part 2(g) of Schedule 1 of the Grant Agreement be amended as follows: review the Recipient s energy policies and implement measures to address any barriers to significantly increasing the adoption and use of renewable energy technologies and more efficient use of energy, and carry out renewable energy resource studies and studies regarding the efficient use of energy. The development objective of the Program is to increase significantly the adoption and use of renewable energy technologies and more efficient use of energy in Participating Island States through a package of incentives to encourage local financial institutions to participate in sustainable energy finance. The uptake of renewable energy technologies and more efficient use of energy require a supportive energy policy environment. However, the technical assistance activities under the Grant Agreement do not explicitly include a review of energy policy to identify and address any barriers to renewable energy and energy efficiency. Preliminary work by the Department of Energy in Fiji indicates that there is potential for energy policy measures that could contribute to the project development objective of the SEFP by achieving a facilitating environment for renewable energy and energy efficiency investment funded by loans from the local financial institutions. 2. Amendment to definition - Training and Incremental Operating Costs It is proposed that the definition on training and incremental costs be amended to reflect the intent in the PAD and the EAOM and to reflect the needs of the Executive Agency for implementation of the SEFP, as follows: 4

5 For the purpose of this paragraph: (i) the term Training means training provided as of February 11, 2009 to retailers, small enterprises, end users of Participating Financial Institutions, and staff of the Recipient s Ministries, the Executive Agency, the Management Contractor and Participating Financial Institutions, including purchase and publication of materials, rental of facilities, course fees, and travel, accommodation and subsistence of trainees and trainers, all as included in an annual budget approved by the World Bank; and (ii) the term Incremental Operating costs means operating costs required as of February 11, 2009 for the Project including consumable materials and supplies, advertising, communications, mass media and printing services, vehicle rental, operation, insurance, fuel and maintenance, charges for the opening and operation of bank accounts required for the Project and travel, accommodation and subsistence for operational staff of the Project, all as included in an annual budget approved by the World Bank. Annex 4 of the PAD, under component 2, Technical intermediaries, contemplated training for the Executive Agency and the Management Contractor to enable them to discharge their SEFP duties. This intent is reflected in the EAOM under Technical Assistance where the objective amongst other things is to strengthen the capacity of technical intermediaries (Executive Agency and Management contractor). The proposed definition has been extended to include Recipient s Ministries as the implementation of the SEFP require support from line and other Ministries, such as agriculture (e.g for bio fuels). All training activities will be identified and included in an annual budget to be approved by the World Bank. The definition currently does not provide for accommodation and subsistence of trainers and operation, insurance, fuel and maintenance cost of a vehicle where one is justified as necessary. The lack of such provision and clarity in the Grant Agreement has resulted in some intended or necessary expenditures to be classified as ineligible following a Financial Management Review of the SEFP. Therefore, the amendments are intended to take effect from 11 February 2009, the date of the last amendment to the Grant Agreement that clarified the training and incremental operating costs. 3. Amendment to Section III (C) (2) of Schedule 2 of the Grant Agreement; Particular Methods of Procurement of Consultants Services It is proposed that the above sections be amended as follows to include methods other than Quality and Cost-Based Selection (QCBS) for selection of consultants: Other Methods of Procurement of Consultants Services. The following methods, other than Quality- and Cost-based Selection, may be used for procurement of consultants services for those assignments which are specified in the Procurement Plan: Least-Cost Selection (LCS); Selection Based on the Consultants Qualifications (CQS); Single Source Selection (SSS); and Selection of Individual Consultants. 5

6 The Grant Agreement only provides for Quality and Cost-Based (QCBS) method for the selection of consultants and for Selection of Individual Consultants if specified in the Procurement Plan at present. The Executive Agency procures consultants for a number of small assignments which are of routine and of standard technical nature and where work may be a continuation of previous work carried out be a firm. In these circumstances the use of QCBS, that requires the preparation and evaluation of competitive proposals, is not always justified. These additional methods of selection will be subject to the World Bank s approval as part of a Procurement Plan. Safeguards No change Institutional arrangements No change Financing No change Financial management No change Procurement refer to previous section Closing date No change Implementation schedule No change Others (please specify) No change D. APPRAISAL SUMMARY No change in terms of impact compared to the original PAD. The changes reflect the intent of the PAD so far as the training and operating costs are involved and provides more flexibility for the implementation of the SEFP. 6