Public Disclosure Authorized

The World Bank

Urban Water Supply Strengthening Project (P173125)

REPORT NO.: RES53177

RESTRUCTURING PAPER

ON A
Public Disclosure Authorized

PROPOSED PROJECT RESTRUCTURING

OF
URBAN WATER SUPPLY STRENGTHENING PROJECT

APPROVED ON JUNE 22, 2020

TO THE

REPUBLIC OF HONDURAS
Public Disclosure Authorized

WATER GLOBAL PRACTICE

LATIN AMERICA AND CARIBBEAN REGION

Regional Vice President: Carlos Felipe Jaramillo

Country Director: Michel Kerf
Public Disclosure Authorized

Regional Director: Anna Wellenstein

Practice Manager/Manager: David Michaud
Task Team Leader(s): Maria Eliette Gonzalez Perez
 The World Bank
Urban Water Supply Strengthening Project (P173125)

ABBREVIATIONS AND ACRONYMS

DA Designated Account
DFIL Disbursement and Financial Information Letter
E&S Environment and Social
Water and Sanitation Sector Regulator (Ente Regulador de los Servicios de Agua
ERSAPS
Potable y Saneamiento)
ESCP Environmental and Social Commitment Plan
ESF Environment and Social Framework
FA Financing Agreement
FM Financial Management
FMA Financial Management Assessment
FY Fiscal Year
GDR Rural Development Directorate (Gerencia de Desarrollo Rural)
GoH Government of Honduras
IDA International Development Association
INVEST-H Honduras Strategic Investment Office (Inversión Estratégica de Honduras)
IP Implementation Progress
M&E Monitoring and Evaluation
PCM Ministry Council Decree (Presidencia del Consejo de Ministros)
PDO Project Development Objective
PIU Project Implementation Unit
PMU Project Management Unit
POM Project Operations Manual
PPSD Project Procurement Strategy for Development
RIRP Rapid Impact and Rehabilitation Plan
SAG Ministry of Agriculture and Livestock (Secretaría de Agricultura y Ganadería)
SDGs Sustainable Development Goals
SEFIN Ministry of Finance (Secretaría de Finanzas)
Honduras’ Integrated Financial Management System (Sistema de Administración
SIAFI
Financiera Integrada)
Project Administration Unit of the Ministry of Agriculture and Livestock (Unidad
UAP-SAG
de Administración de Proyectos, Secretaría de Agricultura y Ganadería)
UWP Urban Water Provider
 The World Bank
Urban Water Supply Strengthening Project (P173125)

BASIC DATA

Product Information

Project ID Financing Instrument

P173125 Investment Project Financing

Environmental and Social Risk Classification (ESRC)

Moderate

Approval Date Current Closing Date

22-Jun-2020 30-Dec-2025

Organizations

Borrower Responsible Agency

Honduran Strategic Investment Office (INVEST-H),
Republic of Honduras
Secretaría de Agricultura y Ganadería (SAG)

Project Development Objective (PDO)

Original PDO
To improve the quality and efficiency of water supply services delivered by Participating Urban Water Providers and
support urban municipalities to respond to water supply and sanitation emergency needs.
OPS_TABLE_PDO_CURRENTPDO
Summary Status of Financing (US$, Millions)
Net
Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed

IDA-66960 22-Jun-2020 03-Jun-2021 24-Sep-2021 30-Dec-2025 45.00 .98 44.02

Policy Waiver(s)

Does this restructuring trigger the need for any policy waiver(s)?
No
 The World Bank
Urban Water Supply Strengthening Project (P173125)

I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING

1. This Restructuring Paper seeks the approval of the Country Director on a Level 2 Restructuring of the Financing
Agreement 66960-HN for the Urban Water Supply Strengthening Project the Project) (P173125). This is the first
restructuring to the Project and the proposed changes to the Financing Agreement (FA) entails the following: (i)
changing the Project Implementing Entity from the Honduras Strategic Investment Office (Inversión Estratégica de
Honduras - INVEST-H) to the Ministry of Agriculture and Livestock (Secretaría de Agricultura y Ganadería - SAG), (ii)
incorporating the new institutional arrangements proposed by the Ministry of Finance (Secretaría de Finanzas –
SEFIN) in coordination with SAG1; (iii) updating the disbursement estimates; and (iv) revising the fiduciary risk of the
project. The proposed restructuring duly addresses the official request submitted by the Ministry of Finance, dated
August 16, 20222.

A. PROJECT BACKGROUND
2. The Urban Water Supply Strengthening Project (P173125) was approved by the Board of Executive Directors on
June 22, 2020, and became effective on September 24, 2021, with an IDA credit in the amount of US$45 million
(IDA 6696-HN). The Project Development Objective (PDO) of this demand-based operation is “to improve the quality
and efficiency of water supply services delivered by Participating Urban Water Providers (UWPs) and support urban
municipalities to respond to water supply and sanitation emergency needs”. The Project comprises four components:
Component 1 Improving Water Supply Services Provision in Urban Areas (US$40 million), supports the
operationalization of water systems as contemplated in Honduras’ Drinking Water and Sanitation Sector Framework
Law, using a demand-based approach, and based on municipality/urban water providers (UWPs) compliance with
eligibility criteria; Component 2 Institutional Strengthening of ERSAPS3 (US$1.5 million), seeks to enhance ERSAPS’
institutional capacity to implement incremental activities associated with Component 1 for Participating UWPs;
Component 3 Project Management, Communication, Outreach, Monitoring and Evaluation (US$3.5 million) activities
supports, inter alia, overall project implementation and oversight functions, national and local communication and
outreach activities and citizen engagement measures, the development and oversight of gender strategies in
participating UWPs and monitoring of UWP performance and compliance with sector regulations; and Component 4
“Contingency Emergency Response” (US$0.0 million) will provide for an immediate response to eligible emergencies.
The Project Management Unit (PMU) is presently housed in the Rural Development Directorate (Gerencia de
Desarrollo Rural - GDR) of the INVEST-H, a government agency under the General Coordinator of the Presidency of
the Republic of Honduras. The Project’s current closing date is December 30, 2025.

B. OVERALL PROJECT STATUS

3. Since Board Approval in June 2020, the Project has experienced a series of implementation delays that led to the
downgrading of Overall Implementation Progress (IP) from to Moderately Unsatisfactory, as documented in the
Implementation Status and Results Report (ISR) of December 21, 2022. Since June 2020 approval, project
implementation encountered a series of delays, which put the Project at risk of not being able to disburse the totality
of the credit amount by the current closing date. Signature of the FA was delayed for a full year due to fiscal
constraints associated with the need to divert central government funding to the COVID-19 pandemic and post-
tropical storms Iota and Eta emergency needs. Furthermore, Honduras’ new administration that took office in
January 2022, made the decision to dissolve INVEST-H, the implementing entity, appoint a Liquidator, and transfer
its projects to other institutions.

1 Letter SAG-1160-2022 dated September 5, 2022.

2 Letter DGCP-FE-576/2022
3 Water and Sanitation Sector Regulator (Ente Regulador de los Servicios de Agua Potable y Saneamiento)
 The World Bank
Urban Water Supply Strengthening Project (P173125)

4. INVEST-H was among 21 public agencies eliminated by the Honduran Council of Ministers in April 2022. Following
Honduras’ general elections held on November 28, 2021, the new administration decided to dissolve INVEST-H due
to broader institutional issues unrelated to the Directorate implementing water sector projects funded by the Bank.
As part of the overall reorganization of the new administration, two Ministry Council Decrees (PCM 05-2022 and PCM
11-2022) and one Ministerial Accord (003-2022) were issued to process the liquidation of INVEST-H, appoint a
Liquidator for INVEST-H, and coordinate the transfer of rural development projects (including the Urban Water
Supply Strengthening Project) to SAG as the new Project Implementing Entity. The Liquidator in charge of INVEST-H
is expected to ensure proper closing of the institution and to maintain ongoing projects financed by multilateral
institutions in operation until their transfer to the new Project Implementing Entity, which is expected to take place
by early March 2023.

5. This change further delayed project implementation since the INVEST-H lacked an authority with broad
administrative and decision-making powers until June 2022 when the Liquidator was appointed. Given the
institutional impasse associated with INVEST-H’s liquidation, the PMU continued to operate for several months with
limited resources, which impacted the Project's capacity to attain both the required implementation pace and
disbursement rate roughly 24 months following its approval. Between August and September 2022, under the
Liquidator’s temporary authority, the Project was able to regain limited operative capacity and implemented an
action plan to make some progress, namely: (i) recruitment of all required core PMU staff, including the Project’s
Environmental and Social Specialists; (ii) completion of the selection processes of beneficiary municipalities/UWPs at
the national level; (iii) preparation of assessments and bidding documents for infrastructure rehabilitation plans and
COVID-19 emergency goods for eligible municipalities/UWPs; and (iv) preparation of partnership agreements with
eligible municipalities, which are ready to be signed once the FA amendment is effective.

6. Despite the delays incurred, the PDO remains achievable. At this time, an extension of the Project closing date is
not envisaged as the Project is fully focusing on the identification and implementation of “no regret” investments
that are directly linked to the PDO targets and results. Therefore, and as reflected in the ISR dated December 21,
2022, the rating of the achievement of the PDO is retained as Moderately Satisfactory. However, depending on the
design of the updated implementation plan and implementation capacity at UAP-SAG, one may be required at a
future date to enable the Project to fully complete activities and disburse 100 percent of credit proceeds.

C. RATIONALE FOR PROJECT RESTRUCTURING

7. To reflect the changes made at the administrative level to dissolve INVEST-H, the Government of Honduras (GoH)
formally requested a Project Restructuring through Letter DGCP-FE-576/2022 from the Minister of Finance, dated
August 16, 2022. The project restructuring request involves the change of the implementing entity from INVEST-H to
SAG and the related changes to the implementation arrangements. More specifically, the Project Administration Unit
of the Ministry of Agriculture and Livestock (Unidad de Administración de Proyectos, Secretaría de Agricultura y
Ganadería, UAP-SAG)4 will implement the Project.

8. Fiduciary assessments were conducted during September 2022 to evaluate the adequacy and potential risks
associated with the fiduciary and implementation arrangements proposed by SAG to absorb the Project. While the
arrangements were deemed acceptable by the Bank, several recommendations, aimed to reduce the risk of
mismanagement of resources and unnecessary inefficiencies, were made (cf. 19 and 26). The Project will follow the
same flow of funds that was designed at Appraisal. The Designated Account (DA) used for the Project under INVEST-H
will be redirected to the administration of the UAP-SAG. In addition, from the implementation perspective, the PMU

4The UAP-SAG is an independent department of SAG created with Ministerial Agreement No. 362-14 on June 4, 2014 and has implemented several
donor-funded Projects.
 The World Bank
Urban Water Supply Strengthening Project (P173125)

provided a revised implementation plan, including disbursement estimates, which indicated the required actions to
strengthen PMU capacity and improve implementation progress during the remaining project timeframe, to ensure
PDO achievement. These actions include: (i) launching bidding process for the implementation of five (5) Rapid
Impact and Rehabilitation Plans (RIRP) of eligible UWPs; (ii) launching bidding process for the first batch of COVID-19
emergency goods for seven (7) municipalities; (iii) hiring individual consultants to advance preparation of RIRPs and
environmental and social plans required for rehabilitation works/investments; (iv) signing partnership agreements
with selected municipalities as soon as FA amendment is effective; (iv) identifying and launching “no-regret”
investments to establish a road map for systematic improvements in the operation of the UWPs (i.e., non-revenue
water reduction, rehabilitation works, improving water testing capacity, etc.).

9. The Urban Water Supply Strengthening Project is fully aligned with the policy priorities of the GoH. The GoH has
consistently confirmed the relevance of the Project in contributing to its commitment to set the water sector on track
to meet the Sustainable Development Goals (SDGs) related to access, quality, sustainability, and resilience of water
services to climate change-exacerbated risks.

II. DESCRIPTION OF PROPOSED CHANGES

10. The proposed restructuring involves no changes to the Project’s PDO, design, component structure, target
beneficiaries, geographic coverage, or Results Framework. The changes that are proposed in this Restructuring
Paper are exclusively intended to ensure the smooth transition of the Project to the new Implementing Entity.

A. Change in the Implementing Entity

11. Change of Project Implementing Entity from INVEST-H to SAG, following liquidation of INVEST-H as set forth via
PCM Decree 05-2022. The proposed change in the Project Implementing Entity will trigger an Amendment to the FA,
so that SAG replaces INVEST-H as the Project Implementing Entity and consequently, reflect the required changes in
institutional arrangements derived from the transfer from INVEST-H to SAG.

B. Change in the Institutional Arrangements

12. The Project will be transferred to SAG, and it will be embedded in its existing structure. SAG will absorb the PMU
that operates in the GDR of INVEST-H and will integrate it into the organizational structure, more specifically within
the Project Administration Unit, UAP-SAG. The SAG has appointed a UAP General Director/Coordinator, who will
provide all follow-up to ensure implementation of the projects under the purview of the SAG. In addition, UAP-SAG
will have seven (7) key cross-cutting positions: (i) UAP-SAG Coordination; (ii) Administrative, Accounting and Financial
Coordinator; (iii) Internal Control Officer; (iv) Procurement Coordinator; and (v) Planning, Monitoring and Evaluation
(M&E) Coordinator; (vi) Legal Advisor; and (vii) Safeguards Coordinator for the Safeguards Coordination Unit that will
be established within the UAP-SAG’s organizational structure. These positions will need to be financed on a prorated
basis by all the projects administered by the UAP-SAG, including those that are not financed by the Bank. The share
of the prorated budget allocated to the Urban Water Supply Strengthening Project funds will be agreed through
annual work plans and budgets. This process will be framed within the operational and regulatory decisions defined
and proposed by SAG (See Error! Reference source not found.). Additionally, considering SAG’s lack of experience
with water sector projects, the recruitment of additional technical and fiduciary specialists is deemed critical to
support implementation within UAP-SAG and to speed up implementation and disbursements, thereby, making up
for lost time and ensuring attainment of the PDO within the remaining three years of implementation.

13. The Urban Water Supply Strengthening Project PMU will retain its current Project Coordinator and dedicated
technical team, as well as its environmental, social, fiduciary, monitoring and evaluation specialists. However,
 The World Bank
Urban Water Supply Strengthening Project (P173125)

under the proposed new institutional arrangements, the specialists will also report to their respective transversal
coordinating positions5 within UAP-SAG. Environmental and Social Framework (ESF) instruments will be updated
accordingly to ensure they reflect the changes in implementation arrangements as well as any other adjustments in
project activities or timelines that result from this restructuring.

14. The UAP-SAG will initially remain based in the physical offices currently occupied by INVEST-H. The offices have
adequate space for the operation of the process evaluation commissions, which require certain conditions to
maintain confidentiality, as well as adequate physical facilities for the custody and proper management of accounting
and administrative support documents.

Figure 1. Proposed new institutional arrangements for Urban Water Supply Strengthening Project PMU within UAP-
SAG.
SAG Minister

UAP General
Coordinator

Executive
Internal Control
Assistant

Fundraising

Transversal UWSS
Coordinating Other PIUs Other PIUs
Units Project

Procurement

Admisnitrative
and Financial

M&E

Safeguards/E&S
Coordination

Flow of Funds
15. The Project will follow the same flow of funds that was designed at Appraisal. The DA used for the Project under
the GDR (INVEST-H) will be redirected to the administration of the UAP-SAG. The outstanding balance will remain in
the DA and will be fully transferred under the authority of the UAP-SAG.

 Step 1. The UAP-SAG, through its Administrative and Financial Coordination area, will estimate the amount of cash
required for the following semester, based on the operational plans and commitments of each project. In the
preparation of the disbursement request, it will consider the following:
o Cash estimate for the following semester of the detailed budget presented to the UAP-SAG Coordinator by
the PMU
o Amounts not executed at the end of the current semester.
 Step 2. The Ministry of Finance (SEFIN) will certify the disbursement request in accordance with the provisions of
the Disbursement Letter and returns it to the SAG.

5 The three transversal (cross cutting) units are: Administrative and Financial, Procurement, and M&E.
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Urban Water Supply Strengthening Project (P173125)

 Step 3. The highest authority of the SAG will approve the disbursement request in coordination with the UAP-SAG.
 Step 4. The SAG will send the disbursement request to the Bank through Client Connection, in accordance with
the disbursement arrangements defined in the Amended Disbursement and Financial Information Letter (DFIL).
 Step 5. The Bank will receive the disbursement request through Client Connection. It will analyze the disbursement
request and, if it agrees, will transfer the funds to the DA at the Central Bank of Honduras.
 Step 6. The Bank will transfer the funds to the DA via SWIFT. This credit will appear on the bank statement of the
Central Bank of Honduras the same day the funds transfer is received.
 Step 7. The Bank will notify the disbursement by email to the General Directorate of Public Credit and the SAG, by
copying it to the UAP-SAG.
 Step 8. The SAG will make the payments of external funds both in dollars and in lempiras according to the payment
currency agreed for each case directly from the operating books enabled in Honduras’ Integrated Financial
Management System (Sistema de Administración Financiera Integrada, SIAFI) and fed with the disbursements
made by the Bank to the DA with the participation of the administrative management of SAG.
 Step 9. Payments to consultants, suppliers and contractors contracted to execute the activities, studies, works and
projects under the Project’s components must correspond to eligible expenses according to the credit regulations
with the Bank and with the protocol established as a reference of the Administrative Management of the SAG.

Figure 2. Proposed flow of funds for Urban Water Supply Strengthening Project within UAP-SAG.

Financial Management (FM)

16. There are no changes to the FM arrangements. However, due to the change of Implementing Entity, the Bank carried
out a Financial Management Assessment (FMA) during the last week of September 2022 to evaluate the adequacy
of the FM arrangements proposed by the SAG. The scope of the assessment included: (i) an evaluation of existing
financial management systems to be used for project monitoring, accounting, and reporting; (ii) a review of the
existing staffing of the projects; (iii) a review of the flow of funds arrangements currently in place; (iv) review of the
internal control mechanisms in place; and (v) review of the internal and external audit arrangements. The
implementation arrangements are relatively complex and rely on various layers of approvals and decision-making
above each Project Coordinator that could impact the implementation of the Project. Given that UAP-SAG will be
absorbing several projects previously implemented by GDR of INVEST-H, the number and diversity of activities of
each project added to the functions of coordination for FM and procurement could imply lengthy processes and
complex channels of communication between the technical team and the FM and procurement teams, leading the
projects to rely on cumbersome processes and lack of independence for each project. In order to improve this
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Urban Water Supply Strengthening Project (P173125)

transition, the GoH will transfer the organizational structure and staff of the GDR in INVEST-H to the UAP-SAG to
reduce the learning curve during implementation and minimize the need of an organizational reengineering process
during the transition.

17. For FM, implementation of the Project will continue to rely on Honduras’ country systems, more specifically on the
procedures established for the PMU according to the Organic Budget Law. Funds flow arrangements will be
centralized in the Central Bank of Honduras and under the responsibility of the SAG, which will be responsible for
payments, accounting and reporting of Project activities and their corresponding components.

18. Despite the GoH’s efforts to ensure a smooth transition, some delays are expected. Even though most of the staff
from the PMU will be transferred from INVEST-H to UAP-SAG, the lack of experience of SAG as an institution that
implements Bank-financed operations will likely impact the speed of various processes. The specific FM risks and
challenges related to the change of implementing entity are the following: (i) higher rank and centralized approvals
in the UAP-SAG may result in delays in disbursement and payment processes; (ii) FM capacity may be lost with the
transition due to staff turnover; (iii) cumbersome coordination between the technical and the FM teams due to the
cross-cutting FM function; (iv) non-exclusive management of Bank operations by the higher ranks of the UAP-SAG
could create delays in decision-making; and (v) unclear definition of roles and responsibilities in terms of delegation
of authority for day to day oversight of implementation.

19. To manage the FM risk, the following mitigating measures are recommended: (i) SAG must delegate approvals
within its powers to lower level functions; (ii) minimize the loss of technical and well-trained and capable staff by
ensuring their retention during the transition; (iii) ensure proper communication channels are available to key staff
of the Project and cross cutting functions to ensure continuity of the functions; (iv) update the Operations Manual
for both the Project and the UAP-SAG to ensure coherent processes are established, and clarity on roles and
responsibilities are set; and (v) prorate the salaries of the cross-cutting positions between all projects under the UAP-
SAG to ensure appropriate time is allocated to each project.

20. Provided that the mitigating measures are in place, the residual FM Risk is assessed as Substantial. Once the
transition is finalized and the FA amendment becomes effective, the residual FM risk will be re-evaluated. The overall
conclusion of the assessment is that the FM arrangements as set out for the change of implementing entity are
considered adequate provided that the mitigating measures are put in place, and the activities under staffing, budget,
accounting, reporting and internal controls have been re-established.

Procurement
21. There are no changes to the procurement arrangements. However, given the change of Implementing Entity, during
the last week of September 2022, the Bank carried out an assessment of UAP-SAG to determine its capacity to
undertake procurement functions as the Implementing Entity for the Project. The UAP-SAG is an independent
department of SAG created in 2014 and has implemented several donor-funded Projects. Nevertheless, UAP-SAG
does not have previous experience in Bank procurement procedures and policies, which poses a risk. This risk will be
mitigated by the transfer of the procurement capacity currently in place at INVEST-H, including the GDR Procurement
Coordinator and the Project’s dedicated procurement staff. The key challenge will be to ensure that the procurement
capacity is maintained, and that UAP-SAG is always staffed with qualified procurement consultants during project
implementation.

22. Based on the proposed arrangements provided by SAG, the UAP demonstrates the necessary administrative,
financial and procurement independence for Project implementation. As detailed earlier, SAG has appointed a
General Director/Coordinator to head the UAP-SAG, who reports directly to the SAG and will provide all the follow-
 The World Bank
Urban Water Supply Strengthening Project (P173125)

up necessary to ensure the execution of projects under the purview of the UAP-SAG. As mentioned above, UAP-SAG
will have seven (7) key cross-cutting positions, including a Procurement Coordinator.

23. The Project Procurement Strategy for Development (PPSD) and Procurement Plan will be updated as needed by
Q3FY23. Mandatory procurement prior review thresholds detailed in the World Bank Procurement Procedures,
Annex I will be observed. All procurement procedures, delegations of authority and any additional approvals from
other units in SAG will be defined in the Project Operations Manual (POM). The POM will be updated to reflect the
new implementation arrangements and internal approvals, all of which must be approved by the Bank by end
February 2023. SAG also informed the Bank that their Operations Manual will be revised; therefore, it is
recommended that the Operations Manual of the UAP-SAG only include general lines and that particular project
thresholds are included in their respective Operations Manual.

24. All contracts previously signed by INVEST-H under the Project will be subrogated to SAG, in compliance with
Presidential Decrees PCM 05-2022 and PCM 11-2022. UAP-SAG shall ensure that all contracts are subrogated in due
time and contractual obligations are met during this transition and throughout the Project life.

25. The Procurement Risk is considered Substantial. Although the GDR team will be transferred to SAG, there are several
additional risk factors in this proposal: (i) UAP-SAG does not have previous experience implementing World Bank
financed Projects, therefore a learning curve is to be expected; (ii) as noted in the FM assessment above, centralized
approvals in the UAP-SAG may result in delays in procurement processes; and (iii) procurement capacity may be lost
in the transition due to staff turnover.

26. To manage the procuremente risk, agreed mitigation measures include: (i) the use of Procurement Regulations for
all Bank-financed procurement. Training on the World Bank Procurement Procedures and Policies shall be provided
to UAP-SAG and SAG staff that will be involved in project implementation; (ii) a clear delegation system between the
Minister and the UAP-SAG Coordinator and between the latter and the Project Coordinator will be defined and
included in the POM. SAG shall not abrogate, amend, suspend, terminate, or waive the POM or any provision thereof;
(iii) SAG shall ensure that the PMU is staffed with a procurement specialist at all times, with terms of reference,
qualifications and experience acceptable to the Bank; and (iv) additional consultants with relevant experience in the
procurement of water sector projects may be needed for certain project activities.

Environmental and Social Framework (ESF)

27. Project restructuring does not imply any changes in relation to the Project´s Environmental and Social (E&S)
assessment. The proposed restructuring includes an amendment to the FA to incorporate the SAG as the
Implementing Entity, and to specify the new institutional arrangements within SAG. As such, the Environmental and
Social Commitment Plan (ESCP) has been updated and disclosed on the Bank website on December 22, 2022, to
reflect the new institutional arrangements.6 Implementation capacity to comply with the relevant E&S instruments
will be ensured through the PMU’s E&S specialists that were recruited in September 2022. In addition, the SAG will
initially absorb the Project’s environmental and social safeguards specialists and officers, guaranteeing the adequate
follow-up of the triggered E&S policies through the updating and implementation of the Project’s existing E&S
management instruments. For purposes of strengthening the UAP-SAG, a Safeguards/E&S Coordination Unit will be
established within its organizational structure.

C. Change in the Project’s Risk Ratings

6https://documentos.bancomundial.org/es/publication/documents-
reports/documentdetail/099010112232238445/p1731250326b000b0a91c01057a8741164
 The World Bank
Urban Water Supply Strengthening Project (P173125)

28. The overall risk rating in maintained as Substantial but there are changes to the Fiduciary risk. Based on the
fiduciary assessments for the proposed change in the Implementing Entity from INVEST-H to SAG, the Project’s
Fiduciary Risk is revised from Moderate to Substantial. As described in section II.B, FM and procurement assessments
highlighted the associated fiduciary risks of the Project under UAP-SAG given the probability of staff turnover derived
from the transition, coupled with SAG’s lack of experience with Bank-financed operations, which increases the risk
of delays in the procurement of key activities; disbursements and payment processes. To avoid protracted delays and
mitigate the identified fiduciary risks, a series of procurement and FM actions have been recommended, including:
(i) retention of well-trained staff in FM and procurement positions; (ii) ensure adequate levels of delegation and
timely decision-making within and between the UAP-SAG and the PMU; (iii) institutional strengthening within the
UAP-SAG to increase fiduciary capacity, among others.

D. Change in the Disbursement Estimates

29. The proposed restructuring would include adjustments to the disbursement estimates to reflect projected
disbursements within the approved closing date of December 30, 2025. Disbursement estimates will be further
revised together with the implementation plan at the Project’s Mid-Term Review to be conducted between Q1 and
Q2FY24.

E. Change to Financing Agreement and DFIL.

30. FA IDA 6696-HN and the DFIL dated June 3, 2021, will be amended to reflect the above-described changes. The DFIL
will be amended to replace references to INVEST-H with SAG. All other provisions and attachments in these documents
will remain in force and effect.

III. SUMMARY OF CHANGES

Changed Not Changed

Implementing Agency ✔
Disbursement Estimates ✔
Overall Risk Rating ✔
Institutional Arrangements ✔
DDO Status ✔
Project's Development Objectives ✔
Results Framework ✔
Components and Cost ✔
Loan Closing Date(s) ✔
Cancellations Proposed ✔
Reallocation between Disbursement Categories ✔
Disbursements Arrangements ✔
Legal Covenants ✔
Financial Management ✔
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Urban Water Supply Strengthening Project (P173125)

Procurement ✔
Implementation Schedule ✔
Other Change(s) ✔
Economic and Financial Analysis ✔
Technical Analysis ✔
Social Analysis ✔
Environmental Analysis ✔

IV. DETAILED CHANGE(S)

OPS_DETAILEDCHANGES_IA_TABLE

IMPLEMENTING AGENCY

Implementing Agency Name Type Action

Honduran Strategic Investment Office Implementing Marked for Deletion
(INVEST-H) Agency
Secretaría de Agricultura y Ganadería (SAG) Implementing No Change
Agency

OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE

DISBURSEMENT ESTIMATES

Change in Disbursement Estimates

Yes

Year Current Proposed

2020 0.00 0.00

2021 5,380,000.00 119,000.00

2022 8,070,000.00 863,000.00

2023 12,320,000.00 7,455,000.00

2024 9,540,000.00 16,375,000.00

2025 6,690,000.00 17,188,000.00

2026 3,000,000.00 3,000,000.00

2027 0.00 0.00

OPS_DETAILEDCHANGES_SORT_TABLE
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Urban Water Supply Strengthening Project (P173125)

SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT)

Risk Category Rating at Approval Current Rating

Political and Governance  Substantial  Substantial

Macroeconomic  Substantial  Substantial
Sector Strategies and Policies  Moderate  Moderate
Technical Design of Project or Program  Substantial  Substantial
Institutional Capacity for Implementation and  Substantial  Substantial
Sustainability
Fiduciary  Moderate  Substantial
Environment and Social  Moderate  Moderate
Stakeholders  Moderate  Moderate
Other  Moderate  Moderate
Overall  Substantial  Substantial
.