The World Bank Housing and Communal Services Project (P079032)

REPORT NO.: RES42704

Public Disclosure Authorized DOCUMENT OF THE WORLD BANK

RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING

OF For Official Use Only HOUSING AND COMMUNAL SERVICES PROJECT APPROVED ON FEBRUARY 26, 2008 Public Disclosure Authorized TO

THE RUSSIAN FEDERATION

URBAN, RESILIENCE AND LAND

EUROPE AND CENTRAL ASIA Public Disclosure Authorized

Regional Vice President: Anna M. Bjerde Country Director: Renaud Seligmann Regional Director: Steven N. Schonberger Practice Manager/Manager: David N. Sislen

Public Disclosure Authorized Task Team Leader(s): Tatyana Shadrunova The World Bank Housing and Communal Services Project (P079032)

I. BASIC DATA

Product Information

Project ID Financing Instrument P079032 Investment Project Financing

Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B)

Approval Date Current Closing Date 26-Feb-2008 31-Dec-2020 For Official Use Only

Organizations

Borrower Responsible Agency Ministry of Constructoin and Housing and Communal The Russian Federation Services of the Russian Federation

Project Development Objective (PDO) Original PDO The project development objective is to improve the quality and financial viability of HCS of Participating Municipalities. Summary Status of Financing

Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed

IBRD-48880 26-Feb-2008 16-Sep-2009 05-Feb-2010 31-Dec-2020 200.00 198.46 1.54

Policy Waiver(s)

Does this restructuring trigger the need for any policy waiver(s)? No

I. SUMMARY OF PROJECT STATUS AND PROPOSED CHANGES The World Bank Housing and Communal Services Project (P079032)

Project Overview

1. This Restructuring Paper seeks a nine-month extension of the loan closing date for the Housing and Communal Services (HCS) Project from December 31, 2020 until September 30, 2021. The extension of the closing date is requested to allow completion of three major ongoing civil works contracts that have been delayed due to COVID-19 lockdown measures introduced in Russia and worldwide and related disruption to domestic and international trade and logistics.

2. US$200 million Housing and Communal Services Loan was approved by the Board on February 26, 2008, signed on September 16, 2009, and became effective on February 5, 2010. The Project Development Objective (PDO) is to improve the quality and financial viability of housing and communal services of the participating municipalities. The Project supports investments in the HCS infrastructure in ten Project participating cities that were competitively selected through an open process announced by the Borrower and located in different parts of Russia. The cities received grants to upgrade their communal infrastructure after they completed an agreed set of reforms For Official Use Only 3. The Project was restructured three times. The first restructuring was processed in June 2013 and the loan closing date was extended from June 1, 2014 to May 15, 2016 to allow for all project activities to be completed and for pending contracts to be signed. The second restructuring was in November 2015 and extended the loan closing date until May 15, 2018 to enable the completion of all ongoing investment contracts and, therefore, full achievement of the project development objectives. The last restructuring was processed in July 2017 and the share of the Borrower’s co-financing increased from just US$6 million up to US$91.7 million. The loan closing date was extended until December 31, 2020 to enable implementation of two additional investment sub-projects in two Project participating cities (Ivanovo and Naberezhnye Chelny) to reinforce already achieved Project results in these two municipalities and maximize the Project’s environmental impact. The additional investment in Naberezhnye Chelny was to finance the upgrade of the main city sewer system to minimize the number of sewer pipe bursts and, thus, mitigate the risk of polluting the environment, while improving the quality of effluents treated by the district wastewater facilities in respect to suspended solid concentration. The additional investment in Ivanovo finances the upgrade of the biological treatment facilities at the city wastewater treatment plant which would reduce the human-induced impact on the bodies of water in the catchment of the Volga River by removing the nitrogen and phosphorus compounds from the wastewater during biological treatment. This investment is intended to improve the efficiency of the digestion unit performance, result in energy savings due to reuse of treated water, obtain dewatered biomaterial ready to be used in the city landscaping works, reduce the air consumption in the wastewater treatment system, and, consequently, reduce the utility prices and increase the reliability (failure-free operation) of the wastewater treatment plant in general.

Project Status and Achievements

4. The Project is on track to meet its development objectives. Progress towards meeting the PDO and implementation progress are both rated Satisfactory. Most of the PDO and intermediate indicators have either been met or show a positive momentum and are expected to be met following the completion of all the investment contracts. To date, disbursement reached US$198.46 million (99 percent of the loan amount), with US$4.6 million disbursed during FY20.

5. All planned investments in seven out of ten project participating cities - the cities of Volzhsky (Volgograd region), Nefteyugansk (Khanty-Mansiysky Autonomic Okrug), Novokuibyshevsk (Samara region), Cheboksary (Chuvashiya Republic), Bratsk (Irkutsk region), Saransk (Mordoviya Republic) and Orenburg (Orenburg region) - have been The World Bank Housing and Communal Services Project (P079032)

completed. The quality of completed works is satisfactory. The Project Implementation Unit at the St. Petersburg Foundation of Investment Projects (FISP), with the support of the competitively selected consultant, is working on preparation of the mini-Implementation and Completion Reports (mini-ICRs) for the Project participating cities with already finalized subprojects. Drafts of mini-ICRs for Volzhsky, Nefteyugansk, Novokuibyshevsk, Bratsk, Cheboksary, Saransk and Orenburg and interim mini-ICRs for completed investments in Ivanovo, Naberezhnye Chelny and Tula have been prepared and reviewed by the Bank.

6. The Project has had a significant impact on the HCS reform agenda of the participating cities. Positive impacts include elimination of arrears in social payments (0 percent against the baseline of 20 percent), increase in the percentage of multi-family buildings managed by professional management companies (81 percent against the baseline of 15 percent), and reduction in the number of pipe breaks in distribution networks. The number of the project beneficiaries exceeded 3.5 million people, of which more than 1.8 million are female. The rehabilitation of water networks under the Project resulted in more than 253,000 improved piped household connections. The number of people in urban areas provided with access to improved water sources under the Project exceeded 660,000. For Official Use Only 7. The remaining civil works at the implementation stage include contracts under the above mentioned large investments in the cities of Ivanovo and Naberezhnye Chelny that were added to the Project scope in 2017, and a contract for reconstruction of the water supply system in the city of Tula that was signed in November 2019.

Rationale for Restructuring

8. In response to the Borrower’s request of June 25, 2020, this restructuring paper seeks a nine-month extension of the HCS loan closing date from December 31, 2020 to September 30, 2021.

9. While the majority of activities under the Project have already been completed, there are three major investment contracts which could not be successfully finalized by the current loan closing date of December 31, 2020 due to delays in their implementation scheduled caused by the impact of the COVID-19 pandemic situation.

10. To date, the Project has four ongoing contracts in three Project participating cities which involve complex rehabilitation of wastewater and water supply facilities, including: • Contract No. HCSP/ICB/IVN-4 Rehabilitation of the sewage treatment facilities - biological treatment unit in the city of Ivanovo. • Contract No. HCSP/ICB/IVN-5 Rehabilitation of the wastewater treatment plant. II Stage. Construction of the final treatment system for biologically treated sewage at sewage treatment facilities of Bogdanikha (in the city of Ivanovo). • Contract No. HCSP/NCB/TUL-4 Reconstruction of the water supply system of Proletarskiy okrug in the city of Tula. • Contract No. HCSP/ICB/NCH-6 Capital repair of main sewage collector in the city of Naberezhnye Chelny.

11. The Borrower was fully committed to complete all the ongoing contracts by the current loan closing date of December 31, 2020, and, until recently, the contracts were fully on track with their work schedules. However, the smooth implementation of the contracts was hampered due to suspension or slowing down of construction works, as well as delays with the purchase of the needed equipment to be installed as part of the contracts, because of restrictions imposed in response to the spread of novel coronavirus (COVID-19), including lockdown measures introduced in Russia and worldwide, and related disruption to domestic and international manufacturing, trade and logistics. The World Bank Housing and Communal Services Project (P079032)

12. Although partial lifting of restrictions have allowed resumption of implementation of the contracts at the Project sites, their schedules had to be revised and the pace of works slowed down, as all the contracts must be conducted by smaller teams with limited number of staff in order to comply with sanitary and epidemiological requirements, including a two-week quarantine requirement that applies to any newly arriving personnel of construction teams or representatives of process equipment and components manufacturers. In addition to the challenges of moving/replacing staff due to the current epidemiological situation, the contractors are also experiencing difficulties with the supply of the necessary equipment and materials, including both domestically produced and imported ones, since all manufacturers had to increase their production and delivery timelines to compensate for the suspension of their operations caused by COVID lockdown measures. For example, the new minimum production time for equipment for wastewater treatment settling tanks which need to be purchased and installed under the contract No. HCSP/ICB/IVN-5 in the city of Ivanovo has been increased to 28 weeks after agreement on technical specifications and dimensions. Similar problems are being faced under the contract No. HCSP/ICB/IVN-4. Although the contract is 65 percent completed, further construction and assembly works are pending For Official Use Only due to problems with delivery of engineering equipment and shutoff valves. The works under the contract No. HCSP/NCB/TUL-4 in the city of Tula have also been slowed down due to significant delays in delivery of large diameter pipe products, fittings and shutoff valves, mainly caused by the problems with delivery of raw material by companies from South-East Asia, including Japan and Korea. As a result of the afore-mentioned issues and associated delays in the contracts implementation, the ongoing investments in the cities of Ivanovo and Tula could not be completed by the current HCS loan closing date. Implementation of the ongoing contract No. HCSP/NCB/NCH-6 on capital repair of the main sewage collector in the city of Naberezhnye Chelny, which is 85 percent completed and is now at its very final stage, is delayed due to insufficient supply of the remaining number of large-diameter pipe products. However, the contractor estimates that it is possible to finalize all works by the end of December 2020, as scheduled.

13. The proposed extension of the HCS loan closing date is, therefore, necessary to complete all civil works under the ongoing sub-projects in the cities of Ivanovo and Tula, while the sub-project in the city of Naberezhnye Chelny is still planned to be finalized by the current HCS loan closing date of December 31, 2020.

14. The Borrower’s rationale for the proposed nine-month extension is driven by the length of the construction season in the participating Russian cities which is limited to the summer season. Nine months will provide sufficient (but not excessive) time to compensate for delays in execution of civil works during the 2020 construction season, as well as delays in supplying the equipment which is necessary for completion of the sub-projects in due course and with due technical quality of the civil works, including testing the installed equipment and putting rehabilitated facilities into operation so that the Project would deliver everything as planned. A shorter extension will not help, since many of the needed construction works can be conducted only during construction season which, in the case of Russia, starts in April and lasts to September/October.

15. This will be the fourth and final extension of the HCS loan closing date. Since this extension accrues to a total loan closing date of more than two years, it requires the Regional Vice President decision. The cumulative period of extension will be 7 years and 3 months.

16. The restructuring will not change the PDO and associated outcomes, nor the target values of the PDO and intermediate results indicators. The composition of the Project components, institutional and implementation arrangements will also remain unchanged. The World Bank Housing and Communal Services Project (P079032)

17. There are no outstanding audits under the Project. All audit and financial management reports have been submitted in time and found to be acceptable to the Bank. Both Procurement and Safeguards compliance are satisfactory, and no safeguards related issues have been reported. The Project’s environmental category B does not change. There are no new safeguards policies triggered.

II. DETAILED CHANGES

LOAN CLOSING DATE(S)

Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal For Official Use Only Applications 01-Jun-2014, 15-May- IBRD-48880 Effective 30-Nov-2012 2016, 15-May-2018, 30-Sep-2021 30-Jan-2022 31-Dec-2020