The World Bank AFCC2/RI-Central African Backbone - APL3 - Republic of Congo (P122398) REPORT NO.: RES32517 Public Disclosure Authorized RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF AFCC2/RI-CENTRAL AFRICAN BACKBONE - APL3 - REPUBLIC OF CONGO APPROVED ON MAY 25, 2011 TO Public Disclosure Authorized MINISTRY OF POSTS AND TELECOMMUNICATIONS IN CHARGE OF ICT,MINISTRY OF TELEOMMUNICATIONS TRANSPORT & DIGITAL DEVELOPMENT AFRICA Public Disclosure Authorized Regional Vice President: Makhtar Diop Country Director: Jean-Christophe Carret Senior Global Practice Director: Jose Luis Irigoyen Practice Manager/Manager: Boutheina Guermazi Task Team Leader: Jerome Bezzina Public Disclosure Authorized The World Bank AFCC2/RI-Central African Backbone - APL3 - Republic of Congo (P122398) ABBREVIATIONS AND ACRONYMS The World Bank AFCC2/RI-Central African Backbone - APL3 - Republic of Congo (P122398) BASIC DATA Product Information Project ID Financing Instrument P122398 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 25-May-2011 31-Dec-2019 Organizations Borrower Responsible Agency Ministry of Posts and Telecommunications in Charge of Ministry of Posts and Telecommunications in Charge of ICT,Ministry of Teleommunications ICT,CAB Project Implementation Uniit Project Development Objective (PDO) Original PDO The development objective of the proposed project is consistent with the PDO for the CAB Program: to contribute to increase geographical reach and usage of regional broadband network services and reduce their prices, in the Republic of Congo. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-59910 30-Mar-2017 18-Apr-2017 06-Oct-2017 31-Dec-2019 5.00 3.09 2.22 IDA-49740 25-May-2011 15-Jul-2011 19-Dec-2011 31-Dec-2019 15.00 13.50 .02 The World Bank AFCC2/RI-Central African Backbone - APL3 - Republic of Congo (P122398) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING Project status 1. The Central African Backbone APL3 project was funded through an IDA credit, effective December 2011, to the Republic of Congo. The initial financial agreement was in the amount of SDR 9.4 million (around USD 15 million at the exchange rate in 2011). 2. The development objective of the proposed project is consistent with the PDO for the regional CAB Program: to contribute to increase geographical reach and usage of regional broadband network services and reduce their prices, in the Republic of Congo. 3. The project underwent a restructuring in 2017 to extend the credit by an additional financing of SDR 3.7 million, and to add component C on the promotion of the ICT sector. Thus, as of today, the project includes three components and a project management component. The associated allocations inclusive of the additional financing are shown below: (i) Component A – Enabling environment at the regional and national levels ($3.55 M) (ii) Component B – Connectivity ($12 .40 M) (iii) Component C - Promotion of ICT sector ($2.10 M) (iv) Component D - Project Management ($1.50 M) 4. The project maintained a Satisfactory rating for both Development Objective (DO) and Implementation Performance (IP) in most Implementation Status Reports (ISRs) filed over the period January 2011- November 2017 (a total of 12 missions and 12 ISRs). As described in the recent ISRs, the CAB3 project is on track to achieve its PDO with eight out of ten of its DO and Intermediate indicators meeting or exceeding their respective targets. The disbursement ratio currently stands at 88.11%. 5. The main component, Component B, consisted of the construction of a fiber optic network linking the Republic of Congo to Gabon in Congo’s western region from Pointe Noire to Mbinda, along the Chemin de Fer Congo-Océan (CFCO Congo-Ocean Railway) railway infrastructure. 6. The initial financial agreement required the government to contribute to the project financing, according to a set schedule, in the total amount of 7.5 billion CFA. The government in this regard has fulfilled all contractual obligations of the financing agreement and contributed to the agreed upon funding by April 2016. 7. In 2014, CAB3 awarded the contract for the construction of the fiber optic infrastructure from Pointe-Noire to Mbinda under Component B, to Chinese vendor HUAWEI. The project had underestimated the construction costs by 4.2 The World Bank AFCC2/RI-Central African Backbone - APL3 - Republic of Congo (P122398) billion CFA due to changes in the network route and an increase in civil works costs. To that end, the Minister of Post and Telecommunications has committed to fund the additional cost of 4.2 billion CFA, through an official letter to the World Bank representative, dated October 8, 2014 (provided as an annex). The contract then had to be split into two parts: Part 1 funded through the initial IDA credit financed the passive infrastructure (construction and fiber optic); and Part 2, funded by the government covering the 4.2 billion CFA, and financing the active equipment (shelters and termination equipment). 8. Part 1 of the contract was fully disbursed and paid to the contractor by August 2016 and with that the initial credit agreement was utilized at 99% to fund the passive infrastructure of a 504-km fiber optic network. 9. By July 2016, the government had covered 1.2 billion of the 4.2 billion of Part 2 (1.5 in April 2016 and 0.7 July 2016). However, due to severe Government budget constraints, the government was not able to complete the remaining financing. 10. The World Bank has therefore agreed with the Republic of the Congo to extend the original credit in April 2017 by an additional SDR 3.7 million. This additional financing was intended to only cover 1.7 billion CFA out of the remaining additional cost incurred by the construction of the network contract (3 billion CFA ), while the government pays the remaining 1.3 billion CFA. 11. The additional financing also aimed at scaling up activities under Component C by establishing and providing seed money for a new Digital Development Fund (Fonds de Développement du Numérique), while leveraging private investors willing to promote entrepreneurship in the ICT sector in Congo, create local content, and new job opportunities for youth in the country. Rationale for restructuring of the project 12. Today, the government is still facing similar, if not worse, budget constraints and is not able to cover the 1.3 billion CFA. In summary, the government already contributed to the project a total of 8.7 billion CFA (7.5 + 1.2) out of the 11.7 billion CFA committed; then the additional financing covered 1.7 billion CFA, and there remains a gap of 1.3 billion. These 1.3 billion are divided into 0.9 billion CFA in debt to the contractor Huawei and an estimated 0.4 billion CFA for the audit of the construction of the network. 13. The government has therefore requested the restructuring of the project, Letter N°0293/MFB/CAB dated June 11, as it is unlikely to be able to cover this financing gap. The delay in paying Huawei debts and the audit of the network will delay the full operationalization of the network which is vital to the international connectivity of Congo and its connection to Gabon, as originally intended. The backbone network will also lead to more efficiently realizing the benefits of other projects in the sector, most notably the Projet de Couverture National (PCN National Coverage project) and the infrastructure project funded by the African Development Bank which will link the backbone fiber network to Cameroon and Central African Republic. 14. Following this request, this restructuring proposes to reallocate the funds of component C that are not initiated yet and the savings of the PIU expenses to close the financing gap for component B. The reallocation of funds is based on the following enabling factors: a. CAB3 has not yet started the new activities of component C, i.e. the support to a local ICT incubator and the establishment of a Digital Development Fund. B. This component was allocated 820,000 SDR. The World Bank AFCC2/RI-Central African Backbone - APL3 - Republic of Congo (P122398) b. The CAB3 PIU has been partially funded by the African Development Bank as foreseen in the project design, to leverage on the synergies between the two projects, CAB3 and the Cameron, CAR and Congo regional interconnection. As a result, the PIU was able to save around 380,000 SDR till date. Going forward and in preparation for the closure of the project, the PIU management expenses will amount to around 50,000 SDR resulting in around 330,000 SDR in savings. c. The projected need for 0.4 billion CFA for the audit of the network has been reduced to 0.2 billion, since CAB3 as already awarded the management of the network to Skytic, and less audit would therefore be needed before the closure of the project. 15. This reallocation will therefore also entail the cancellation of the two remaining activities, DDF and ICT incubator, under component C. This reallocation and the operationalization of the network has a considerable positive impact on the progress towards the achievement of the PDO compared to the marginal impact of cancelling the above- mentioned activities. The PDO will remain fully achievable after the cancellation of the DDF and Incubator activities under Component C. 16. Under this reallocation, the project will be able to close one year in advance with a 100% disbursement rate, i.e. in December 2018, since what remains to be completed is only the audit to the network.