Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 12699-BR

STAFF APPRAISAL REPORT

BRAZIL

PARANA BASIC EDUCATION QUALITY PROJECT

JUNE 8, 1994

Human Resources Operations DivisionCountry Department ILatin America and the Caribbean Region

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EOUIVALENTS(as of May 31, 1994)

Currency Unit: Cruzeiro Real(CR$)US$1.00 = CR$ 1,844.03

US$1 million = CR$ 1,844,030,000

FISCAL YEARJanuary 1 - December 31

ABBREVIATIONS AND ACRONYMS

CBA Ciclo Bdsico de AlfabetizafdolBasic Literacy CycleCELEPAR Parana State Statistical AgencyCETEPAR Parana State Secretariat of Education Teacher Training CenterCONSED Conselho Nacional de Secretdrios de Educacao

National Council of State Education SecretariesDECOM Departamento de Constru,cdo, Opera,cdo, e Manutencao

(State) Department of Construction and MaintenanceEDURURAL Northeast Basic Education I ProjectFAE Fundapao de Assistencia ao EstudantelFoundation for Student AssistanceFNDE Fundo Nacional de Desenvolvimento da Educa,C4o

National Fund for Educational DevelopmentFUNDEPAR Instituto de Desenvolvimento da Educa9ao do Parand

Parana Foundation for Educational DevelopmentIBGE Instituto Brasileiro de Geografia e EstattsticalBrazilian Institute of Geography

and StatisticsICB International Competitive BiddingICMS Value Added TaxINSS Social Security TaxIPI Imposto Sobre Produtos IndustrializadoslTax on Manufactured GoodsIPARDES Instituto Paranaese de Desenvolvimento Economico e SociallParana Institute

for Economic and Social DevelopmentISS Municipal Tax on ServicesLCB Local Competitive BiddingMEC Ministerio da Educagco e do DesportolFederal Ministry of EducationOME Orgao Municipal de Educa'ao Bdsica/Municipal Education OfficePCU Project Coordination UnitPNLD Programa Nacional do Livro DiddticoINational Textbook ProgramSAEB Sistema Nacional de Avaliap2o da Educapdo Bdsica

National Student Assessment SystemSEED Secretaria Estadual da EducacdolState Secretariat of Education (Parana)SEPLAN Secretaria da Estado do Planejamento e CoordenafaolState Secretariat of

Planning & CoordinationUNDIME Unido Nacional dos Delegados e Inspectores Municipais de Educagao

National Association of Municipal Secretaries of Education

FOR OFFICIAL USE ONLY

BRAZIL

PARANA BASIC EDUCATION QUALITY PROJECr

Table of Contents

Page No.

LOAN AND PROJECT SUMMARY ...... ................. iii

SELECTED STATISTICS .............................. vii

1. BACKGROUND, ISSUES AND STRATEGY ................. 1

A. Overview of Education Sector ..................... 1B. Organization and Administration of Primary

Education ................................. 2C. Education Finance ............................ 4D. Sectoral Issues and Government Strategy .... .......... 6E. Bank Strategy ......... .................... 11F. Bank Lending and Lessons Leaned .... ............ 12G. Rationale for Bank Involvement .................. 14

2. THE PROJECT ................................. 15

A. Introduction ............................... 15B. Project Objectives ........ ................... 15C. Project Components ....... ................... 16D. Project Description ....... ................... 17

3. COSTS, FINANCING, PROCUREMENT, ANDDISBURSEMENTS . .............................. 26

A. Project Costs .............................. 26B. Financing Plan ............................. 29C. Procurement .............................. 30D. Disbursements ............................. 35E. Accounting and Auditing ...... ................. 37

This report is based on the finding of an apprmil mission that visited the state of Paann in June1993, consisting of K Hovde (mission leader and task manager); E. Newfield (OPRIS; coas);L. Rosenberg (teacher tmining); S. Dompieri (civil wvrs); E. Marquc (educational finanoes);J. Esquivel-Alfaro (student asement); J. Amanral Sobrinho (instiutional development); A. Ramalhoand J. Vdlehl (procurtment). N. Pieleneier carried out a postpprmial mission on school heakh inAugust 1993; J.B. de Oliveira (EDIHR) assisted on the insbuctional matcrials component; and JB.Gomes Neto assisted on monitoring and evaluation. Reviewcn wre C. Vaivieso (MN2PH, leadreviewer) and L. Wolff (MNIPH). R. Hecht, R. Horn, and A. Saliba (LAIHR) also provided adviceand comments. Messrs. A. Colliou, 0. Grimes, and R. Steckhan ae, rmpectively, the Division Chief,Deparment Project Advisor, and the Deparbment Director for the operation.

This document has a restricted distribution and may be used by recipients only in the performance of theirofficial duties. Its contents may not otherwise be disclosed without World Bank authorization.

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4. PROJECT IMPLEMENTATION AND MONITORING ... ...... 37

A. Project Implementation ........................ 37B. Monitoring and Evaluation ...................... 39

5. PROJECT BENEFITS AND RISKS ....... .. ............ 41

A. Project Benefits ............................ 41B. Risks ................ ................... 41C. Environmental Impact ......................... 42

6. AGREEMENTS REACHED AND RECOMMENDATION ...... 42

7. ANNEXES .................................... 46

Annex 1: Educational Statistics ..................... 46Annex 2: Project Cost Tables ...................... 57Annex 3: Organization Charts ...................... 61Annex 4: Educational Decentralization

in Parana ......................... 63Annex 5: Regional Implementation Strategy for Teacher

Training and Instructional Materials .... ...... 66Annex 6: Preliminary Indicators for Project Monitoring and

Evaluation ......................... 69Annex 7: Selected Documents Available in

Project File ........................ 75

8. LIST OF TABLES IN MAIN REPORT

Table 3.1: Summary of Project Costs by Component .... ........ 26Table 3.2: Summary of Project Costs by Category

of Expenditure ........................... 27Table 3.3: Financing Plan ............................ 30Table 3.4: Procurement Arrangements ..................... 33Table 3.5: Allocation and Disbursement of Bank Loan .... ....... 36Table 3.6: Estimated IBRD Disbursements .................. 37

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PARANA BASIC EDUCATION QUALlTY PROJECTLOAN AND PROJECT SUMMARY

Borrower: State of ParanA

Guarantor: Federative Republic of Brazil

Executing Agency: State Education Secretariat of Parand

Loan Amount: US$96.0 million equivalent

Terms: Payable in 15 years, at the Bank's standard variableinterest rate, with a five year grace period.

Project Objectives: The goal of the project is to improve educationalattainment in the State of Parana, as defined by increasesin student learning and graduation from primary school.The project's objectives are to: (a) improve children'sand teachers' access to adequate quantities of learningmaterials; (b) improve teachers' competence in theclassroom; (c) provide children in low-income urban areaswith physical space adequate for learning; (d) provideschool, municipal, and regional level administrators, withtools, skills and incentives to improve managementpractices and take on new responsibilities; and (e) achievegreater equity between state and municipal school systemsin terms of spending per student and the availability ofessential educational inputs. In support of Parana'sinnovative efforts to administer the first four years ofprimary school in partnership with municipalities, projectinvestments will be directed to the state education systemand to those municipalities in partnership agreements withthe state.

Project Description:

The project will consist of five components, as follows:

(a) Instructional Materials (US$75.5 million equivalent,including contingencies; 38 percent of total project cost).The component will finance: (a) the regular provision oftextbooks to children in both state and municipal schools;(b) a basic package of educational materials andequipment to all state and participating municipal schools;and (c) a school library enrichment program;

(b) Teacher Training (US$27.1 million equivalent, includingcontingencies; 14 percent of total project cost). Thecomponent will finance an in-service training program for

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school principals, supervisors, and teachers through bothface-to-face workshops and distance training;

(c) School Upgrading and Expansion of Access (US$75.4million equivalent, including contingencies; 38 percent oftotal project cost). The component will finance newschool construction and furniture in low-income areaswhere schools are either in precarious condition orpopulation shifts have produced a surge in demand;

(d) Institutional Development (US$18.0 million equivalent,including contingencies; 9 percent of total project cost).The component will support: (a) a project managementunit within the State Education Secretariat; (b) thedevelopment of capacity at the state level for quantitativeassessment of student learning; (c) restructuring anddecentralization of existing management informationsystems; (d) activities to strengthen management atvarious levels, including training for regionaladministrators and municipal staff; and (e) promotion ofquality improvements in schools and municipalitiesthrough the establishment of a prize fund; and

(e) Studies and Evaluation (US$2.4 million equivalent,including contingencies; 1 percent of total project cost).The component will support policy, project evaluation,and impact studies.

Benefits: The project is expected to benefit approximately 1.6million primary school students in both the state andmunicipal systems. By improving the quality ofeducation, it is expected that the project will contribute toreductions in grade repetition and associated resourcewaste, and improved student achievement. Although theproject is directed to all primary school children in publicschools, it should particularly benefit low-incomechildren, who are almost exclusively served by the publicschool system. Targeted construction of new classroomsshould also directly benefit approximately 64,000 childrenwho live in urban low-income areas. Additional benefitsof the project include: (a) better information andmanagement practices within SEED and municipaleducation offices; (b) the development of adecentralization model in education that includes criticalquality and equity concerns; and (c) enhanced knowledgeof the relative cost-effectiveness and impact of variouseducational interventions on system productivity throughevaluation studies and support for systematic studentassessment.

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Risks: The project's principal risks include: (a) problems incoordination between the state and the federal governmenton textbook provision and financing; (b) the possibility ofdiminished political support once the govemment changesin March 1995; (c) problems in the implementation of thestate's decentralization strategy; and (d) delays inimplementation stemming from SEED's lack of familiaritywith Bank guidelines and procedures. With regard totextbooks, the project aims to assure adequate provisionthrough requiring up-front coordination with FAE, whileat the same time requiring the state govemment to assumefull responsibility for textbook provision, regardless of thenature of federal government support. Provision oftextbooks will be carefully monitored, and will be a keyelement in the Bank's ongoing evaluation of projectimplementation. Regarding (b), the inclusion ofmunicipalities should help foster a municipal constituencyfor the project that will carry over beyond the change instate government in 1995 (municipal administrations donot change again until 1997). Regarding (c), Banksupport to the state in fulfilling its part of thedecentralization agreement (mainly through the provisionof training and educational materials) should provide anincentive for the remaining 14 percent of municipalitiesnot yet in partnership agreements to join. With regard to(d), the project design has attempted to minimize this riskby building institutional capacity through theestablishment of a PCU, and early attention to thedevelopment and use of standard bidding documents andother procedures. The project Midterm Review willprovide an opportunity to reassess implementation risksand make adjustments if necessary.

Poverty Category: Consistent with the Bank's assistance strategy for Brazil,the project contributes to human resource developmentand poverty reduction through investing in a program oftargeted primary school interventions aimed at raisingeducational attainment among less advantaged groups inthe State of Parana.

Rate of Return: Not applicable.

Map: IBRD No. 25988

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Summary of Project Costs by Component(US$ millions)

% TotalBase

Local Foreign Total Costs

A. Instructional Materials 57.3 11.5 68.8 38

B. Teacher Trining 24.0 0.9 24.9 14

C. School Upgrading 57.0 9.5 66.5 37

D. Institutional Development 12.7 4.0 16.7 10

E. Studies & Evaluation 2.0 0.2 2.2 1

Total BASELINE COSTS 153.0 26.1 179.1 100

Physical Contingencies 4.0 1.1 5.1 3

Price Contingencies 12.4 1.8 14.2 8

Total PROJECT COSTS 169.4 29.0 198.4 111

Ls Taxes 38.4

Financing Plan(USS millions)

Local Foreign Total

1. Government 95.3 7.1 102.4

2. Proposed BRD Loan 74.1 21.8 96.0

Total 169.4 29.0 198.4

Estimated IBRD DisbursementsTotal Costs, Induding Contingencies

(US$ millions)

Bank Fial Year FY9S FY9C FY97 FY98 FY99 FY2000

Annual 12.0 18.0 22.5 20.0 18.5 5.0

Cumulative 12.0 30.0 52.5 72.5 91.0 96.0

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BRAZILSTATE OF PARANA

BASIC EDUCATION QUALITY PROJECTSelected Statistics

Brazil Parana

Geznera

Area (khn2) 8,511,965 199,554

Population (1991, millions) 146.9 (urban 75%) 8.4 (urban 75%)

Percent of Population under 14 years of age (1990, 35.4 33.1millions)

GDP per capita (1991, US$) $2,890 $2,988

Infant Mortality (deaths per 1,000 live births) 58 (1990)(a) 30 (1991)(b)

EducAtion Sector :_-..---

Adult Illiteracy Rate (1990) 17 17

Total Primary School Enrolhnents 27,416,559 (1989) 1,712,528 (1990)State schools 15,755,120 (57%) 1,053,449 (61%)Municipal schools 8,218,455 (30%) 512,046 (30%)Other (private or federal) 3,442,984 (13%) 147,033 (9%)

Percent of Students Completing 8th Grade 33 47

Percent of Students Completing 8th Grade without 2.0 2.7Repeating l

Primary School Enrollment as Percent of Age 82.2 (1989 92.3Cohort (7-14 years) estimate) l

Secondary School Enrollment as Percent of Age 16.5 (1990 20 (1990)Cohort (5-19 years) estimate)

Primary School Enrollments as Percent of Total 76.5 (1989) 78 (1990)Enrollment in Education

Expenditures on Education as % of GDP 3.7 (1988) l

Total Number of Primary Schools (thousands) 202 (1989) 10.7 (1990,public = 96%)

Sources: SEED, IPARDES, IBGE, World Bank.Notes: (a) World Bank estimates; (b) state statistics

BRAZIL

PARANAL BASIC EDUCATION QUALITY PROJECT

STAFF APPRAISAL REPORT

1. BACKGROUND, ISSUES AND STRATEGY

A. Overview of Education Sector

1.1. Education levels of the Brazilian population are extremely low whencompared with those of other upper middle income countries. Despite thecountry's relatively modem and strong industrial base, an estimated 17percent of Brazilians over seven years of age are illiterate. In 1990, themean average schooling for the adult population was only 3.9 years,approximately the same as El Salvador, Guatemala, and Nicaragua, countrieswith less than half the income level of Brazil.

1.2. In part, these statistics reflect past problems of access to educationwhich have been largely superceded. Brazil has made significant progressover the past forty years in expanding access to primary school. Today, 92percent of Brazilian children enter school, compared to less than 40 percentin 1950. Boys and girls also attend primary school in virtually equalnumbers. These advances have not been accompanied, however, bycorresponding gains in the quality and efficiency of the educational system.Two-thirds of Brazilian children never complete primary school, and learninglevels even for children who remain in school are extremely low. Accordingto 1989 data, fully 21 percent of children in the age group between seven and17 years of age were illiterate. Educational differences also appear to beparticularly important in explaining the large disparity in income amongBrazilians. Research findings indicate that half the differences in averageincomes among urban dwellers in Brazil can be attributed to differences ineducational attainment. In addition to undermining the establishment of astable social and political system, this situation threatens long-term economicgrowth. To a great extent, future economic progress in Brazil must beachieved through the creativity and innovation of an educated labor force,with the ability to function in an increasingly complex work environment.

1.3. Despite the State of Parand's location in the more developed south ofthe country, its educational system suffers from many of the same problemsexperienced in the rest of Brazil. Access to primary school is good: nearly100 percent of children enter primary school at some point in time.Educational attainment, however, is poor: 60 percent of people over 10years old have 4 years of schooling or fewer. Learning levels are also low,although slightly above the national average: in one of the first nationalassessments of student learning in Brazil done in 1990, seventh graders in

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Parana answered only 49.1 percent of questions correctly on the Portugueseportion of the test, 29.2 percent in mathematics, and 44.6 percent in science.

1.4. Brazil's low educational attainment rates are directly related to highrepetition in primary education, particularly in the early grades. Nationally,over 50 percent of students in the first grade of primary school each year arerequired to repeat the grade, the highest first grade failure rate in LatinAmerica. The average Brazilian student currently spends 7.7 years inprimary school, longer than for any other Latin American country and almostenough to complete the eight years of the primary cycle. Yet during those7.7 years, the average student does not even complete the fourth grade. InParana, despite efforts initiated in 1988 to institute automatic promotionbetween the first and second grades, officially reported repetition in the firstgrade remained at 20 percent in 1990 -- an improvement, but still quite high.Simulations of student flow during the 1989 school year indicate that of everyclass of 100 students entering first grade in Parana, only 2.7 studentsgraduate from eighth grade without repeating, and only 47 eventuallygraduate from primary school. The average number of years of instructionper graduate is estimated at 11, with many graduates taking as long as 14years.

1.5. Such inefficient student flows create an enormous financial burden forthe public sector. Nationally, it is estimated that students repeating gradescost the Brazilian education system over US$2 billion equivalent per year, or30 percent of current public spending on education. In ParanA, the cost ofyearly repetition in the state system alone is estimated to be about US$80million equivalent, or approximately 16 percent of total state spending oneducation and 28 percent of state spending on primary education.

B. Organization and Administration of Primary Education

1.6. Brazil supports an extensive and decentralized education system at alllevels, beginning with two years of pre-school (ages 4-6), continuing througheight grades of primary school, 3-4 years of general secondary or technicalschool, and higher education at the undergraduate, master's and Ph.D. levels.Primary education has been compulsory for some time. The 1988Constitution made pre-school compulsory as well, despite the fact that pre-school coverage is currently very low (about 25 percent). All three levels ofgovernment (federal, state, and municipal) are involved in the financing andprovision of education, with considerable overlap of responsibilities.'

1. 'Municipality in this report is used as a translation for the Portuguese 'municfpio, " alocal jurisdiction equivalent to either 'county' or 'municipality.'

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1.7. The quality of schooling varies considerably by region and by type ofprovider. Generally, children from the upper and middle classes attendprivate schools from pre-school through secondary school, while poor andlower-middle class children attend public schools. Children from the publicschool system are almost always inadequately prepared to compete withstudents who have studied in private schools for spaces in the heavilysubsidized public university system. As a result, government expenditures onhigher education at both the state and federal levels disproportionately benefitthe upper and middle classes.

1.8. In Parana, as in the rest of Brazil, the public sector dominates theprovision of basic education. In 1990, the public sector accounted for 91.5percent of primary school enrollments (about 1.6 million students), and 82percent of secondary enrollments (about 185,000 students). Access toprimary school is virtually universal (92 percent of children 7-14 wereenrolled in school in 1990), although there are still localized problems ofaccess and overcrowding stemming from the state's rapid urbanization overthe last two decades. In 1970, 36 percent of the population lived in urbanareas; by 1990, the urban population had climbed to 75 percent.

1.9. Primary and secondary education in Parana is overseen by the StateSecretariat of Education (SEED), which is directly responsible foradministering about 35 percent of the state's 11,771 schools (pre-schoolthrough secondary), and 67 percent of public primary enrollments.Coordination with state schools and municipalities is carried out primarilythrough 30 regional offices located throughout the state. SEED has anexecutive arm, the Institute for Educational Development (FUNDEPAR),which is responsible for civil works, procurement of goods, and managementof statistical information related to the education sector. Teacher training iscoordinated through SEED's Teacher Training Center (CETEPAR). SEEDemployed about 76,000 people in 1992 (both full and part time), of whom 94percent were teachers and administrative personnel located in schools.

1.10. Municipalities in Parand play an important role in the provision ofprimary education, and are responsible for about 33 percent of primarypublic enrollments. Educational administration in Parand's 371municipalities is varied. In larger cities, municipal school systems generallyhave secretariats of education similar in structure, function and administrativecapacity to the state secretariats. In smaller municipalities and particularly inrural areas, there is typically only a small Municipal Education Office(OME), and sometimes no distinct educational administration. The fragilityof many municipal education systems is a major issue throughout Brazil,particularly since, as a result of the fiscal reform of 1988, governmentrevenues are increasingly being devolved to the local level with the

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expectation that municipal authorities and institutions will assume increasingresponsibility for the delivery of social services.

C. Education Finance

1.11. Total public spending on education in Brazil by all levels ofgovernment amounted to about US$11 billion equivalent in 1986 (the lastyear for which consolidated public spending information is available) andaccounted for approximately 23 percent of total social spending and 4 percentof GDP. At the primary level, states are the most important financiers,accounting for about 65 percent of public expenditure, while municipalitiescontribute 25 percent and the federal govemment the remaining 10 percent.Under the 1988 federal Constitution, the federal government must apply atleast 18 percent of its total annual tax receipts to education. State andmunicipal governments, in turn, must devote 25 percent of their totalrevenues to education. Federal spending is channeled to state and municipalschools through financial transfers administered by the National Fund forEducation Development (FNDE), which reports to the Ministry of Education(MEC). FNDE is the principal source of funding for primary education atthe federal level in Brazil, with an annual budget of roughly US$1.5 billionequivalent. FNDE revenues come from the saldrio educafdo, a payroll taxon industrial employees earmarked for primary education. Two thirds of thesaldrio educacdo revenues are returned automatically to the states inaccordance with the revenues generated by the states themselves. Theremaining one third of the saldrio educacdo revenues is managed by thefederal government and allocated to states and municipalities on the basis ofcriteria defined by MEC.

1.12. Like most of the southern and southeastern Brazilian states, Paranrenjoys significant fiscal autonomy from the federal government. Staterevenues come from a variety of sources, the most important of which inParana is the value-added tax (ICMS). Total revenues have remained quitestable over the last five years averaging approximately US$1.6 billion peryear. Of these, state tax revenues plus some federal transfers are "counted'as potential education resources for the purposes of calculating theConstitutionally mandated minimum percentages of education spending. Ofthe US$1.2 billion of revenues available for state education funding in 1992,state revenues accounted for 85 percent while federal transfers made up 15percent. Federal contributions include specialized educational programs suchas the federally funded textbook and school lunch programs, as well as thestate portion of the saldrio educap7o, which has averaged about US$26million per year over recent years.

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1.13. Efforts to contain a state budget deficit have led to declining stateexpenditures over the last five years, which has also had a detrimental effecton education spending. Total state expenditures on education have decreasedby approximately 15 percent in real terms between 1988 and 1992.Education as a percentage of total state spending has been rising gradually,however, reflecting an effort on the part of the state to protect the sector.Total state expenditures on education in 1992 were approximately US$424million, or 27 percent of total state spending. Educational expenditures as apercentage of fiscal revenues were 37 percent in the same year, well over theConstitutionally mandated 25 percent.

1.14. For primary education, both the total level of spending and the overaUallocation of expenditures leave room for improvement. State spending onprimary education has averaged about 62 percent of total education spending(all levels) over the last five years, and like overall expenditures has alsosuffered a decline in real terms. Total spending by SEED and FUNDEPARon primary education amounted to about US$245.9 million in 1992, a 6percent decline from 1988 levels. Expenditures on personnel accounted forabout 84 percent of this total, expenditures on construction and equipmentaccounted for approximately 7 percent, and non-salary recurrentexpenditures, including school supplies (4 percent), books and educationalmaterials (0.3 percent), teacher training (0.7 percent), and equipmentmaintenance and school repairs (4 percent) accounted for about 9 percent.While this level of spending on personnel is in line with payroll expenditureselsewhere in Brazil, it means that non-salary expenditures are modest. Givenper student expenditure in the state system of about US$255 (including bothrecurrent and investment expenditures), non-salary recurrent costs per studentcan be estimated at about US$23 per year, very little of which is going tokey educational inputs such as books.

1. 15. In contrast to the state, where tax revenues have been fairly steady,municipal tax revenues in Parand have increased by 28 percent from 1989 to1992. On the expenditure side, a sample of 42 municipalities revealed that in1991, municipalities spent on average just under 25 percent of totalexpenditures on education, 84.5 percent of which went to primary education.Where expenditures on personnel range from 80 to 90 percent of recurrentspending in the state system, in municipal systems spending on personnel as apercentage of total recurrent costs rarely exceeded 70 percent. In aggregate,municipalities in Parand also have greater per capita financial capacity (asmeasured by potential per student spending) than the state. On average,potential per student municipal spending for primary education in the samplewas US$431, as compared with US$255 for the state. This aggregate figure,however, masks significant differences in municipal capacity and spending;

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existing data also do not allow for disaggregation of investment and recurrentexpenditures at the primary level.

D. Sectoral Issues and Government Strategy

1.16. As elsewhere in the country, the overwhelming issue in education inParana is the low primary completion rate. In general, there is increasingrecognition in Brazil that the problems of low education attainment and therelatively high rates of illiteracy among the young adult population are rootedin the poor quality and low productivity of the public basic education system.Studies also show that students repeating grades in Brazil aredisproportionately from the lowest income deciles, making higher rates ofrepetition and dropout among poor children a contributing factor to theperpetuation of a high degree of income inequality.

1.17. While to some extent these results are exogenous to the educationsystem (poor children are also under greater pressure to leave school forincome earning activities, for example), improving the quality, relevance,and equity of basic education has become increasingly a focus of attentionand efforts by both the federal and state governments in recent years. Atthe national level, the Ministry of Education recently published a Ten YearPlan for Education for All, which emphasizes improvement of the quality ofeducation as its central theme while defining specific targets in a number ofkey areas. This plan is being widely circulated and discussed within Brazil,and has prompted states and municipalities to establish their own plans andtargets for improving education.

1.18. Parana's early recognition of problems related to the quality ofprimary education has also led to a number of initiatives for reform. In1988, along with the States of Sao Paulo and Minas Gerais, Paranl becameone of the first states to introduce the concept of the ciclo bdsico dealfabetizaVao (CBA) to the state educational system. CBA provides for: (a)automatic promotion from grades one to two; and (b) alterations to andenrichment of the basic curriculum for these grades. The idea behind CBAis to ensure that children acquire basic literacy and numeracy skills in thefirst two grades, without being penalized by failure. Recently, the stategovernment has been encouraging municipal systems to adopt CBA, and hasextended the concept of automatic promotion to the first four years ofprimary school in state schools.

1.19. Factors contributing to high repetition and low quality include:(a) lack of books and instructional materials in the classroom; (b) cultural andpedagogical practices prevailing among teachers; (c) institutional weaknesses;and (d) issues of sectoral governance.

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1.20. (a) Lack of Books and Instructional Materials. Research in Braziland elsewhere in the world has demonstrated that the provision of adequatesupplies of textbooks and supplementary materials is the single most cost-effective factor in increasing learning achievement, particularly in situationswhere the quality of teaching is poor. Responsibility for textbook provisionto all public schools in Brazil is centralized at the federal level and handledby the Programa Nacional do Livro Diddtico (PNLD) under the auspices ofthe Fundacto de Assistencia ao Estudante (FAE). This degree ofcentralization in a country of Brazil's proportions and regional diversity hasgiven rise to problems. In 1992, FAE distributed 8.8 million books, or lessthan 10 percent of the estimated need. Although in some years textbookprovision has been higher, less than one third of the estimated nationaltextbook requirements has been met by FAE on average over the last fiveyears. The primary causes of inadequate provision include irregular funding,the absence of clear policy guidelines, and weaknesses in the implementingagency. States and municipalities have been reluctant, however, to takedirect responsibility for providing textbooks or other educational materials.In Parang, for example, expenditures on books and educational materials in1992 amounted to a mere 0.3 percent of overall expenditures on primaryeducation.

1.21. In response to a proposal submitted by the National Council of StateEducation Secretariats (CONSED), MEC recently issued regulations(Resolud4o No. 6 of FNDE, dated July 13, 1993), which earmark funds fortextbook provision on a per public student basis. Under this resolution, thefederal government retains responsibility for financing, procurement, anddistribution of books throughout Brazil, while states assume a greater role inbook selection. It is hoped that this resolution will address some of theproblems of irregular funding which have plagued FAE in recent years.

1.22. (b) Low Quality of Teaching and the "Culture of Repetition".Teachers in Brazil are socialized to assume that a substantial part of their jobis to weed out the good students from the bad, rather than provide learningopportunities to all children. Pedagogical standards are demanding. Thepractice -- common in developed countries -- of giving remedial assistance tochildren lagging behind is alien to many Brazilian teachers. Classroommanagement techniques for helping children of differential ability such assmall group work, after-school sessions, and cross-peer tutoring areinfrequent. Repetition is rarely perceived as a failure of the school or theteacher: in a 1990 survey of teacher attitudes in Parana, for example, nearly60 percent of teachers attributed repetition to "cultural and economicproblems about which the school can do little."

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1.23. How teachers behave in the classroom is related to how they weretrained. Formal teacher training, in Parana as in Brazil, is considered to bepoor. Fully 81 percent of teachers in the municipal system and 97 percent inthe state system are considered to be 'qualified," having completed at least ahigh school degree; about 50 percent have a higher education degree, mostwith a specialization in teaching. Nonetheless, mastery of subject matterand/or effective pedagogical practices is often tenuous, and there is no formalprocess for evaluating teacher competence beyond the initial civil serviceexam (in the case of state teachers). Like many public sector employees,teacher salaries have also come under increasing pressure in recent years,reducing the incentives for talented Brazilians to enter and/or remain withinthe teaching field.

1.24. Investments in teacher training have been identified as one of thepriority areas in both state and national efforts to improve education quality.As part of the Ten Year Plan for Education for All, MEC is currentlyformulating a national program to be executed by universities, StateSecretariats of Education, and possibly other institutions, using alternativeeducational technologies, such as educational television and distanceeducation. In Parana, as of 1990, the state established a new teacher trainingpolicy under which each teacher was allocated 80 hours of training timeduring the year. Training courses were organized by SEED regional offices,and coordinated by CETEPAR. Since 1990, a total of about 875 courses and100 seminars have been given, reaching an estimated 89,000 primary andsecondary school teachers. Existing data do not, however, permit anevaluation of how many teachers attended more than one course, nor has aformal evaluation of the quality of the training offered been done. In aneffort to broaden its training activities without substantially raising costs,Parana has also been promoting several existing teacher training programs invideo format developed by private sector foundations. As of this year, theseprograms are now available to at least one school in every municipalitythrough a closed circuit television network. In order to promote theprograms and guide teachers in their use, CETEPAR has developed atraining program for teachers who serve as "mentors" for their colleagues.

1.25. Parana has also placed priority on basic education through its salarypolicy. Teacher salaries, which like those of other civil servants haddeclined quite significantly during the late 1980s, have been given preferencein monthly salary adjustments over the past two years. While salaries arestill below 1988 levels, Parana has been one of the few states not to haveexperienced a teachers' strike in the last three years.

1.26. (c) Institutional Weaknesses. State Secretariats of Education inBrazil are frequently weak institutions. Administrators are often former

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teachers recruited into administration, many with little specialized training.Decision-making tends to be overly centralized, with a lack of performanceevaluation and information systems that would prompt managers and schoolsto be accountable for results. Although State Secretariats of Educationcollect large amounts of data on the education system, data are not routinelyanalyzed and disseminated in a manner useful for decision making. In otherinstances potentially crucial data are not collected. The lack of a commonmeasure of student learning achievement, for example, makes it impossible toascertain whether teachers are actually using non-achievement-related criteriato fail students. Recognition of the need to establish standards and improvethe reliability and use of information systems has also led to a number ofinitiatives at the national level highlighted in the Ten Year Plan for Educationfor All, including efforts to strengthen the National System for EducationalEvaluation (SAEB).

1.27. Many of these same problems persist in Parana, despite its reputationas having one of the stronger state civil services. Despite these weaknesses,Parana has pioneered a number of innovations in management systems. Forexample, the state developed a computerized system for the management ofpersonnel, which has since been adopted by other states, and in 1991developed a new school-based data system to help monitor its decentralizationprogram with municipalities. Nonetheless, delays in data processing andpoor dissemination often mean that managers do not get information in atimely and useful fashion. Physical distance between SEED, CETEPAR andFUNDEPAR (all are located in different buildings in different parts of thecity) contributes to distinct institutional cultures and difficulties incoordination. As noted earlier, administrative capacity at the municipal levelalso varies widely.

1.28. (d) Issues of Sectoral Governance. Brazil's extreme variations inschool quality reflect, among other things, the failure of the federal and stategovernments to set norms and redistribute spending so as to permit states (ormunicipalities) of different income levels to achieve minimum qualitystandards. The structure of education management in Brazil is complex andill-defined, with overlapping functions and poor coordination at differentlevels of government. Population growth, migratory flows, and the absenceof coordination for physical planning between state and municipal systemsresult in some areas having an excess of classrooms while in othersclassrooms are under-utilized. In recognition of the problems associated withcompeting educational systems, the 1988 Constitution encourages thecooperation of the federal, state and municipal levels in the provision ofeducational services. The Constitution also defines municipal responsibilitiesas being mainly the provision of pre-school and primary education. Whilethe text is generally interpreted as opening the way for increased municipal

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responsibility for primary education, there is little guidance as to howdecentralization should come about, nor what the specific roles of the federal,state, and municipal governments should be in this new cooperativeenvironment.

1.29. Recent positive developments that can be cited at the federal levelinclude a number of policy changes instituted by MEC to improve theefficiency and accountability of federal education spending. In late 1991,after completing an evaluation of the FNDE, the Ministry concluded thatFNDE was not fulfilling its distributive role, in terms of equalizing state andmunicipal spending on basic education, and that funds were often transferredwithout clear criteria. Consequently, MEC established need-based, objectivecriteria for FNDE transfers and publicizes these annually in a documentcalled Sistematica para o Financiamento dos Projetos na Area de EducafdoBasica. The two main factors included in this funding formula are: (i) thesize of the school age population in each state; and (ii) state per capitaincome. MEC has also moved to better define its own role in elementaryeducation as being one primarily of standard setting, dissemination ofinformation, and fiscal equalization, rather than provision of services.

1.30. At the state level, Parana has also been breaking new ground in theareas of educational decentralization and fiscal equalization. In 1991, SEEDinitiated a program of "educational partnership" with municipalities. Thepartnership initiative attempts to minimize some of the negative aspects of theConstitutional overlap of state and municipal responsibility for the provisionof primary education, including lack of coordination in planning andinequities in educational spending. Municipalities entering into a partnershipagreement with the state agree to: (a) spend the Constitutionally mandatedminimum of 25 percent of their tax revenue on education; (b) assume theresponsibility for administration, upkeep and maintenance of (formerly) stateschools serving the first four grades of primary school within its jurisdiction;(c) maintain CBA in schools where it has been introduced; and (d) assumeresponsibility for replacing state-seconded teachers who retire or otherwiseleave the system. For its part, the state assumes responsibility for: (a)seconding state teachers to the municipality with full payment of salaries; (b)renovating school buildings before turning them over to the municipality; (c)providing training for teachers and technical assistance to municipalities; and(d) providing supplementary funding to those municipalities not able to attaina minimum expenditure per student within the mandated 25 percent of theirown budgets.

1.31. Currently a total of 320 municipalities in Parana, or 86 percent of thetotal, have entered into partnership agreements. This has necessitated a newlevel of joint planning and monitoring. Financial transfers are based on a

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minimum percentage of the state portion of the saldrio educaOo, and aremade on a quarterly basis. In order to verify that a municipality has in factspent 25 percent of its tax revenue on education-related expenditures, thepartnership contract requires the municipality to provide a certification ofsuch by the state auditing agency. Since the transfer is based on a minimumexpenditure per student (about US$262 per year in 1992), it is crucial toobtain an accurate number for students currently attending school within themunicipality. Whether a municipality receives additional funding, and howmuch, can fluctuate from quarter to quarter depending on its tax situation andschool attendance records.

1.32. In addition to decentralizing responsibilities to municipalities, Paranahas concurrently been decentralizing responsibilities to state-run schools. Asof early 1993, SEED began a system of transferring selected non-salaryresources to state schools to cover school repairs and local purchases ofmaintenance supplies. These funds are managed by school principals, inconjunction with councils made up of the principal, school administrativestaff, teachers, students, parents, community organizations, and arepresentative of SEED regional staff. School principals have been electeddirectly by the school community in Parana since the mid 1980s, with SEEDplaying an oversight role in the pre-qualification of candidates.

E. Bank Strategy

1.33. The World Bank's country assistance strategy for Brazil focuses onreducing poverty and stimulating macroeconomic growth. Primary educationoffers one of the best investments for attaining both, since research shows thecentral importance of education in raising incomes, reducing incomeinequality, and increasing labor productivity. Within primary education, theBank's objectives are to improve the quality, efficiency, and equity ofeducation, as measured by: (a) improvements in student cognitiveachievement; (b) reductions in the high repetition rates which currentlycharacterize the Brazilian public primary education system; and (c) anarrowing of the large disparities in school quality and productivity (amongstates, between states and municipal systems, and between schoolsthemselves) that result in part from disparities in spending per student. Inpursuing these objectives, the Bank strategy has emphasized: (a) support ofinnovative approaches to improving educational quality which could serve asmodels for the rest of Brazil; and (b) assistance to regions where problems ineducational quality and outcomes are most acute, particularly the Northeast.

1.34. Moreover, since states play a critical role in financing and provisionof primary education (they are responsible for 55 percent of enrollments and65 percent of spending at the primary level), state-level projects, whether

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free-standing or linked to MEC, have become an increasing focus of theBank's lending program. A key feature in this strategy is to strengthen state-level education institutions so that they in turn can assume appropriate state-level roles, including system-wide quality control, teacher training andcertification, and fiscal equalization. The Bank sees this as a prerequisite fora primary education system that is fully decentralized to the municipal level.Although all Bank-supported projects share certain features, project designsvary in accordance with local circumstances, capacity, and priorities.

F. Bank Lending and Lessons Learned

1.35. World Bank lending to Brazil for education began in the early 1970s.Initially, Bank lending emphasized skills training, especially at the secondarylevel. Early projects were in the ares of vocationally-oriented secondary,technical, and agricultural education. In line with a shift in overall WorldBank policy, Bank education lending to Brazil since the early 1980s hasfocused increasingly on primary education, particularly in disadvantagedregions. The Bank's first primary education project was the NortheastBasic Education I Project (Loan 1867-BR, US$32 million), known asEDURURAL, which was approved in 1980. EDURURAL was followed bythe Urban Basic Education Project (Loan 2412-BR, known as Monhangara,US$40 million, approved in 1983), which was designed to expand andimprove the quality of primary school systems in selected rapidly growingregions of the North and Center-west regions. After many delays and a two-year extension, the project ended in early 1991 and approximately 18 percentof the Bank loan was cancelled.

1.36. The third project is the Sao Paulo Innovations in Basic EducationProject (Loan 3375-BR, US$245 million, approved in 1991), which is nowin its second year of implementation. It supports a range of interventions,including the extension of the school day for grades one and two andconsolidation of CBA. No information on its impact is available yet.Because of Sao Paulo's greater financial and institutional capacity, this wasconceived as a free-standing state project. The most recent operations are thetwin projects, Northeast Basic Education II and m (respectively US$212and US$206.6 million, both approved in 1993), which like EDURURAL,focus on the nine Northeast states, and the Minas Gerais Basic EducationQuality Improvement project (US$150 million, approved May 17, 1994).With the addition of the proposed state-based projects in Parana and EspfritoSanto, the Bank would be associated with basic education projects in 13states in Brazil, for a combined total financing of about US$1 billion.

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1.37. Past and ongoing education projects in Brazil and Bank sector-wideexperience include the following lessons, which have guided the developmentof the proposed project:

1.38. (a) Textbook provision and school upgrading are highly efficientinvestments. An important feature of the EDURURAL project was supportfor a comprehensive longitudinal study to evaluate the impact on studentlearning and the cost-effectiveness of the various types of investmentsfinanced under the project. Findings from the EDURURAL evaluationshowed that textbook provision and school upgrading are highly efficientinvestments -- in fact, each dollar invested in these areas under the projectmore than paid for itself in terms of budgetary savings in the project statesdue to lower student repetition.2 The EDURURAL experience has led to anemphasis on the provision of textbooks and educational materials, an areawhere Parana has clearly been underinvesting.

1.39. (b) Teacher training should focus on performance. TheEDURURAL study also demonstrated that student achievement onstandardized tests is highly correlated with teacher competency, as measuredby teachers' performance on the same tests. Teacher training continues to bean important element of primary education projects, but emphasis onupgrading skills and on classroom management techniques seems to be moreappropriate than on certification or subject matter training. The proposedproject has focused on in-service training, and encourages a more hands-onapproach through the linking of training with materials provision.

1.40. (c) Projects must balance policy reforms and investments.Evaluations of both the EDURURAL and Monhangara projects indicate thatinvestment loans are likely to be more appropriate given Brazil's low level ofinstitutional development in the education sector. Even investment loans,however, should incorporate an appropriate balance of policy changes,hardware and software investments, institutional development, and technicalassistance activities to promote sectoral reform. Effective implementationand longer term sustainability of education projects depend strongly on theimprovement of management at all government levels, and on theestablishment of effective management systems, including systems to managesector and school level information and project monitoring, procurement, and

2. See Gomes-Neto, J.B., and Eric Hanushek, 'Grade Repetition, Wastage and Educational Policy",March 1991; Armitage, Jane, Joao B. F. Gomes-Neto, Ralph Harbison, Donald Holsinger, andRaimundo Leite, 'School Quality and Achievement in Rural Brazil", World Bank Education andTraining Series No. EDT25, 1986; and Harbison, R.W., and Eric Hanushek, EducationalPerformance of the Poor: Lessons from Rural Northeast Brazil, World Bank/Oxford UniversityPress, 1992.

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disbursement information. Through its institutional development component,the proposed project supports and expands upon current efforts to strengthenmonitoring systems and management at both the state and municipal levels.

G. Rationale for Bank Involvement

1.41. There are several reasons for Bank support of Paranl's educationalreforms. First, they are consistent with the Bank's human resource strategyin Brazil. Through its adoption of CBA, the partnership program withmunicipalities, and other policy initiatives, Parana has already demonstrated acommitment to improving the quality of public primary education. Second,like the recently approved (May 17, 1994) project in the State of MinasGerais and the proposed project in the State of Espfrito Santo, Parana'sexperience could prove an excellent testing ground for strategies that couldserve as models elsewhere in Brazil. All three states have adopted CBA(although at different stages), and all three are experimenting with differentforms of decentralization (Minas Gerais and Parana to schools; Espfrito Santoand Parana to municipalities). To fully implement its educational reforms,however, Parana needs additional resources and advice in their deployment.Given its extensive involvement in basic education both in other countriesand in other Brazilian states, the World Bank is well placed to providetechnical advice and facilitate a cross-fertilization of ideas and approachesthat could be vital to the success of the proposed project.

1.42. Finally, the proposed project builds on the lessons of experience fromboth other Bank projects in the education sector and previous Bankexperience in Parana. Recent Bank lending to the State of Parana hasfocused mainly on the urban sector, reflecting needs resulting from the state'srapid urbanization (in 1990, the urban population was 75 percent of the total)and the changing responsibilities at both the state and municipal levels as aresult of the 1988 Constitution and tax reform. Ongoing projects include theParand Municipal Development Project (Loan 3100-BR, US$100 million) andParanr Land Management Project (Loan 3018-BR, US$63 million), bothapproved in 1989, and the Water Quality and Pollution Control Project (Loan3504-BR, US$119 million) approved in 1992. Both the Land Managementand the Municipal Development projects have had excellent implementationrecords over the last two years. Although implementation capacity may beweaker in the education sector for the reasons earlier noted, the proposedproject has benefitted from prior state experience with Bank projects, and thework already done in support of decentralization and state-municipalcoordination in other areas.

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2. THE PROJECT

A. Introduction

2.1. The project was identified during the field-based project identificationexercise carried out by Bank staff in FY92 for building a lending pipeline foreducation in Brazil. The state prepared an initial proposal and receivedfederal government approval of creditworthiness in March of 1992, prior tothe first formal Bank mission (October 1992). Project preparation alsobenefited from workshops sponsored by the Government and the Bank oneducational decentralization and procurement.

B. Project Objectives

2.2. The goal of the project is to improve educational achievement in theState of Parana, as defined by increases in student learning and graduationfrom primary school. To reach this goal, the project will support thedelivery of a package of essential educational inputs to primary schools andimprovements in educational management. The project's objectives are to:(a) improve children's and teachers' access to adequate quantities of learningmaterials; (b) improve teachers' effectiveness in the classroom; (c) providechildren in low-income urban areas with physical space adequate forlearning; (d) provide school, municipal, and regional level administratorswith tools, skills and incentives to improve management practices and take onnew responsibilities; and (e) achieve greater equity between state andmunicipal school systems in terms of spending per student and the availabilityof essential educational inputs.

2.3. The State of Parana has reaffirmed its commitment to these objectivesin a Declaration on Policies for the Improvement of Basic Education inParana. In this Declaration, the State has also committed itself toguaranteeing the continuity of a number of important policy initiatives whichform the context for the project, including: (i) the CBA; (ii) the partnershipprogram with municipalities; (iii) community participation in the choice ofschool principals; and (iv) promoting greater autonomy of decision-making atthe school level, through the transfer of non-salary resources to schools bymeans of a revolving fund (para. 6.1a).

2.4. The project will benefit approximately 1.6 million children in gradesone through eight in public schools, but will give particular emphasis togrades one through four, which include 63 percent of primary schoolchildren. In support of Parana's innovative efforts to administer the firstfour years of primary school in partnership with municipalities, most projectinvestments will be directed to the state education system and to those

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municipalities having concluded partnership agreements with the state. Theexceptions to this rule will be textbooks and student assessment, which willincorporate all municipalities regardless of the existence of partnershipagreements.

C. Project Components

2.5. The project consists of five components:

(i) Instructional Materials (US$75.5 million equivalent, includingcontingencies; 38 percent of total project cost). The componentsupports: (a) the regular provision of textbooks to children in bothstate and municipal schools; (b) a basic package of educationalmaterials and equipment to all state and participating municipalschools; and (c) a school library enrichment program;

(ii) Teacher Training (US$27.1 million equivalent, includingcontingencies; 14 percent of total project cost). The componentsupports an in-service training program for school principals,supervisors, and teachers through both face-to-face workshops anddistance training;

(iii) School Upgrading and Expansion of Access (US$75.4 millionequivalent, including contingencies; 38 percent of total project cost).The component will finance school construction and furniture in low-income areas where schools are either in precarious condition orpopulation shifts have produced a surge in demand;

(iv) Institutional Development (US$18.0 million equivalent, includingcontingencies; 9 percent of total project cost). The componentsupports: (a) the establishment of a project coordination unit withinSEED; (b) the development of capacity at the state level forquantitative assessment of student learning; (c) restructuring anddecentralization of existing management information systems; (d)activities to strengthen management at various levels, includingtraining for regional administrators and municipal staff; and (e)promotion of quality improvements in schools and municipalitiesthrough the establishment of a prize fund; and

(v) Studies and Evaluation (US$2.4 million equivalent, includingcontingencies; 1 percent of total project cost). The componentsupports policy, project evaluation, and impact studies.

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D. Project Description

Component 1: Instructional Materials(US$75.5 million equivalent, including contingencies)

2.6. A major aim of the project is to create a richer learning environmentfor children in primary schools. Under the project, instructional materialswill be provided to students and schools through three programs: (a) atextbook program; (b) provision of a package of educational materials andequipment to all state and eligible municipal schools; and (c) a program toenrich school libraries. The project would also finance the provision ofcabinets and bookcases to schools for storage, and activities to promote theuse of the materials provided.

2.7. Textbook Program (US$35.9 million equivalent, includingcontingencies). The goal of the textbook program is to ensure that everychild in grades one through eight in Parana has a set of textbooks ofreasonable quality appropriate to his or her grade-level at the beginning ofthe school year. As in the rest of Brazil, federal provision of textbooks toschool children in Parana has been extremely unreliable. While it is hopedthat the new MEC policy on textbooks (Resolufao No. 6 of FNDE, datedJuly 13, 1993) will serve to improve FAE's performance, it is still too earlyto evaluate the resolution's effectiveness. Under the project, therefore, thestate has assumed full responsibility for the adequate and timely provision oftextbooks to children in both state and municipal schools, regardless of thenature of federal government support (para. 6.2a). This commitmentincludes increasing the state role in monitoring textbook quality and selectionprocedures, as well as financing, procurement, and distribution of textbooksshould the federal textbook program through FAE fail to provide books inthe numbers and specifications agreed to in the project. Textbooks will befinanced entirely through counterpart funds.

2.8. While the State of Parana is committed to working with MEC andFAE to implement the textbook subcomponent within the context of theFNDE resolution, the resolution itself does not resolve the persistent problemof lack of planning for timely textbook delivery. It will be the state'sresponsibility to establish a workplan in coordination with FAE for meetingtextbook needs under the project. This workplan will cover, inter alia: (a) aclear definition of state and federal responsibilities within the framework ofthe resolution; (b) when resources for textbooks will be available to FAE; (c)the timetable for selection, procurement, and distribution of textbooks,including a breakdown by years, grades, and numbers of books; and (d)mechanisms for evaluation of FAE's performance. A draft of this workplanwas submitted as a condition of negotiations (para. 6.1b). Submission of a

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final version of the plan, acceptable to the Bank, is a condition of projecteffectiveness (para. 6.3a).

2.9. The project will provide two textbooks to children in the first twoyears of primary school; four textbooks to children in grades three and four;and five textbooks to children grades five through eight. Implementationarrangements call for beginning selection and purchase arrangements in 1994,in order to have books available by the beginning of February 1995. In all,the project will provide approximately 7 million books for grades one andtwo; 6.2 million books for grades three and four; 4.7 million books forgrades five through six; and 2.3 million books for grades seven througheight. The average life of books is assumed to be one year for grades oneand two, two years for grades three and four, and three years for grades fivethrough eight.

2.10. Educational Materials and Equipment (US$31.2 million equivalent,including contingencies). In order to guarantee a minimum standard ofinstructional materials available to teachers, SEED has established a list ofmaterials to be provided to both urban and rural schools, including maps,games, reading and math aids, and science materials. TVs and VCRs wouldalso be provided to larger urban schools, to be used both in teacher trainingand in the classroom. Both state and eligible municipal schools will receivean initial standardized package of materials. Funds for replacement ofmaterials in state schools have been included in the project; upkeep andreplacement of materials in eligible municipal schools would be theresponsibility of the municipality, as specified in the state-municipalpartnership agreement. Purchase and distribution of educational materialswould follow a regional implementation strategy, and would be linked to theteacher training component.

2.11. In addition to providing ready-made materials to schools, the projectwill include financing for a small pilot project (US$500,000) to promote thedevelopment and dissemination of experimental materials to be used in theteaching of science. This program will be developed by the recentlyestablished State Science Center (A Casa de Ciencia), in close collaborationwith SEED.

2.12. Library Enrichment Program (US$8.3 million equivalent, includingcontingencies). Most schools in Parana do have small school libraries orreading corners; however, books are generally bought infrequently and rarelyreplaced when no longer usable. The project would finance the upgrading ofschool library collections. For both municipal and state schools, SEED willprepare, with the help of a commission, a basic list of books it considersrelevant to the primary school curriculum and age group to serve as a guide

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to purchases. Schools serving grades one through four would receiveapproximately 160 new titles over the life of the project, while larger schoolsserving the entire primary cycle (grades one through eight) would receiveapproximately 300 new titles. Book collections will be accompanied byexplanatory information regarding care, inventory control, and strategies forclassroom use by students.

Component 2: Teacher Training(US$27.1 million equivalent, including contingencies)

2.13. As mentioned in the background section, in 1990 the State of Paranainstituted a new training policy, under which teachers were allocated 80hours to be devoted to training activities (both traditional classroom coursesand self-directed). Under the project, the state proposes to expand its currenttraining program and institute a more systematic approach which wouldinclude enhanced quality monitoring and outside evaluation as well asincreased emphasis on classroom management and use of materials. Schoolprincipals, supervisors, teachers of pre-school through eighth grade, andschool librarians will receive a total of 240 hours of training over the life ofthe project, divided between classroom-based coursework and distancelearning activities, including homework, school-based group work, and workwith instructional videos and educational television programs. The totalnumber of hours of instruction for the majority of trainees will not surpass 80hours per year. Training courses are expected to reach approximately 93,000state and municipal teachers, supervisors, and principals over the duration ofthe project.

2.14. Training courses and workshops will follow a regional implementationplan. For the purposes of project implementation, SEED has divided thestate into three regions. Training will be phased so that the project wouldnot be working in more than two regions at any one time, and will becoordinated with the provision of instructional materials in each of the threeregions during the first three years of the project.

2.15. SEED has opted for a process approach to training, whereby schoolprincipals will receive an initial orientation training and will be subsequentlyinvolved in identifying the training needs of their staff. Regional SEEDoffices and municipal education offices will be responsible for working withschools to consolidate training needs into a Regional Training Plan, whichwill be approved by SEED and further consolidated into an Annual TrainingPlan. This Annual Training Plan will include, inter alia: (a) terms ofreference for the contracting of universities and/or training institutions; and(b) standard terms of reference for individual teachers hired as trainers underthe project, as well as standardized qualifications, pay scales, and contract

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conditions. The Annual Training Plan will be incorporated into the AnnualImplementation Plan to be submitted for Bank review and approval (para.6.2b). Courses will be organized at the local level by the regional SEEDoffices, while contracting of individual trainers and/or training institutionswould be the responsibility of CETEPAR in conjunction with SEED'sPrimary Education Department and the Project Coordination Unit (PCU).The approximately 1,000 municipal and SEED regional staff involved in theorganization of the training program will also receive orientation trainingorganized by SEED.

2.16. Courses will cover methodological issues such as classroommanagement, use of materials, and evaluation, as well as the principal areasof the Parand curriculum, including early literacy and numeracy (the CBAcurriculum), math, Portuguese, science, and geography. In order to helpassure consistency across courses, all trainers to be contracted under theproject will undergo an eight-hour "training of trainers' course, which willplace particular emphasis on methodological issues.

2.17. The project will finance approximately 70 person-months ofconsulting for specialized course development and technician services for thedistance training program; course materials, and the costs of actual courseinstruction, including compensation to course instructors; per diems to covertransport, and expenses for both trainers and trainees; and the purchase ofinstructional videos and basic video equipment for distance training activities.Ongoing evaluation of the teacher training program is contemplated as one ofthe studies under the Studies and Evaluation component of the project. Acondition of disbursement for the component will be the submission of aTraining Plan acceptable to the Bank for the first 12 months of the project(para. 6.4a).

Component 3: School Upgrading and Expansion of Access(US$75.4 million equivalent, including contingencies)

2.18. Parand has made significant strides in expanding access to educationover the last three decades despite very rapid urbanization. Nonetheless,access problems in the form of overcrowding, makeshift classrooms, andlong distances to schools are still common, particularly in the new urbanperiphery. Over the last two years, SEED (through FUNDEPAR) has madea substantial effort to improve the conditions of existing schools through athorough renovation program. Given this fact, it was agreed during appraisalthat the project will concentrate on new construction.

2.19. Under this component, the project will finance construction andfurnishing of a total of 183 new schools (1,147 classrooms) in 66

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municipalities over five years. Of these, 170 classrooms will be constructedto alleviate overcrowding (a third daily shift of students) in neighboringschools where expansion of existing schools is impossible; 104 classroomswill replace existing buildings in need of total reconstruction; 456 classroomswill be built to replace makeshift classrooms; 231 classrooms will be built inareas where children currently have to travel long distances to schools; and186 classrooms will be built in areas where local population growth figuresindicate repressed demand. According to state estimates, this investmentrepresents about 38 percent of Parana's current additional classroom needs inboth the municipal and state systems.

2.20. FUNDEPAR's initial selection of municipalities to be targeted fornew construction was made on the basis of high rates of population growth inthe 7-14 age group and growth in primary school enrollments, mostly due torural-to-urban migration. Within these municipalities, construction will betargeted to low-income areas, as defined by a majority of households earningthree minimum salaries or less. Priority will be given in the first year of theproject to construction of schools in areas where existing schools are either insub-standard condition and in need of total reconstruction, or whereconstruction of the new schools would eliminate the need for a third dailyshift of students in neighboring schools.

2.21. As part of the Annual Implementation Plan, the Secretariat will submitfor Bank approval an investment plan for school construction during eachyear of the project (para. 6.2b). This investment plan should contain: (a)the number and location of civil works to be constructed for the year; (b) adescription of the areas to be targeted and supporting data on income levels;(c) evidence of the availability of land for construction; (d) a current analysisof the demand for classroom seats, based on actual school surveys; and (e)proposed procurement arrangements, including an analysis of municipalcapacity for procurement and supervision of works should this responsibilitybe transferred to a municipality. A condition of disbursement for thetransfer of project funds to a municipality will be submission to the Bank ofevidence that an agreement between the municipality and the state (convgnio),satisfactory to the Bank, has been executed (para. 6.4b).

2.22. Bank approval of the yearly investment plan for civil works will becontingent on its evaluation of the technical aspects of the plan, as well as onthe state's performance on two non-civil works aspects of the project: (a)adequate provision of textbooks, reading books, and instructional materials toschools, as verified by both system-wide information and from a monitoringsurvey of schools; and (b) completion of regular assessments of studentlearning and dissemination of results.

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2.23. In addition to new classrooms and school furniture, this subcomponentwill also finance the limited renovation and rewiring of the Secretariat ofEducation building. The Secretariat is located in a former convent, whichhas not been renovated since the early 1960s. Workspace is inadequate, theplumbing system is precarious, and re-wiring is a prior condition to installingany type of computer equipment.

Component 4: Institutional Development(US$18.0 million equivalent, including contingencies)

2.24. Parana's policy of gradual decentralization of administrativeresponsibility to both schools and municipalities has prompted a series ofimportant changes in the management of the educational system. At the statelevel, SEED has assumed a greater role in financial oversight and systemquality control, which has created a need for access to and dissemination oftimely and reliable information. School directors and municipalities are inturn assuming a greater managerial role than in the past, a role for whichthey are not always well prepared. The principal goal of this component ofthe project is to improve managerial tools, capacity, and incentives at boththe state and local level.

2.25. Project Management (US$2.6 million equivalent, includingcontingencies). In order to build SEED capacity for project implementation,this sub-component will support the establishment of a Project CoordinationUnit (PCU) reporting directly to the Secretary of Education. The PCU willat all times be staffed by a full-time core of professionals with qualificationsand experience acceptable to the Bank (para. 6.2c). These will include at aminimum: (a) a Project Manager; (b) an Administrator/FinancialCoordinator; and (c) a Technical Coordinator. At negotiations, the State ofParana presented evidence satisfactory to the Bank that the PCU has beenformally established and adequately staffed (para. 6.1c).

2.26. The project will finance: (a) equipment and furniture for PCUoperation; (b) training in procurement, disbursement, planning, and otherareas for PCU and other staff involved in implementation; (c) thedevelopment, implementation, and operation of a computerized accountingand monitoring system for the project; and (d) technical assistance andconsulting services for the PCU, including the annual project audit.Incremental operational costs, including salaries of full-time staff plussecretarial help, staff travel and supervision, communications, publications,and consumable supplies have also been included in project costs to befinanced entirely through counterpart funds.

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2.27. Development of Assessment Capacity (US$2.5 million equivalent,including contingencies). Parana's first experience with the application andanalysis of quantitative educational testing was in 1989, when it was one oftwo states selected for the pilot testing of the National Evaluation System forBasic Education (SAEB) sponsored by MEC. It subsequently participated inthe 1990 national version of the test, although the results (which in mostareas and grades show Parana slightly above the national averages) were notwidely circulated. The project will support: (a) continuing work with theSAEB system at the state level, including greater dissemination of results topolicy makers, teachers, and school principals; and (b) elaboration andvalidation of separate tests based on the state curriculum.

2.28. Under the current national schedule, SAEB tests are planned to begiven alternate years to odd-numbered grades; SEED has proposed that testsbased on the Parana curriculum be given every other year to selected even-numbered grades. Testing will begin in 1994, and will initially be limited totesting fourth graders in Portuguese and math. SEED plans to give tests on asample basis, rather than a census of the entire school population withinselected grades, and has also initially decided to develop criterion-referenced,rather than norm-referenced tests. In order to guarantee coordinationbetween the two proposed testing programs, SEED will develop animplementation plan with MEC/SAEB during the first year of the project, tobe included in the Annual Implementation Plan for 1995 submitted to theBank (para. 6.2b).

2.29. The project will finance technical assistance in quantitative testingmethodologies, sampling, and test development and evaluation; training forSEED technical staff and for test administrators; test printing, packaging,distribution, and data processing; and equipment for test processing andanalysis.

2.30. Development of an Integrated and Decentralized ManagementInformation System (US$9.2 million equivalent, including contingencies).Like many State Secretariats of Education, Parana has several differentcomputerized data systems that are generally complicated to use, do notallow cross-referencing of data between systems, and produce data in aformat not always useful or even comprehensible to managers. Moreover,several of the educational data systems in Parana are centralized in the statedata processing agency (CELEPAR). Processing of educational data isusually slow, and SEED is also charged for the production of reports. Thecritical need for up-to-date information for monitoring under the partnershipprogram with municipalities recently prompted the creation of an entirelyseparate data base, but which, like several others, is also not immediatelyaccessible to managers in SEED, let alone the municipalities.

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2.31. To address these problems, the project will support an evaluation andrevision of the current data collection and reporting systems at the central(SEED) and regional level, as well the installation of computer equipment inselected municipalities and larger schools. Systems will be computerizedusing microcomputers, instead of relying exclusively on the mainframesystem used currently. Municipalities, SEED regional offices, and schoolsprovided with microcomputers will increasingly be expected to provideroutine system information in a computerized format, thereby facilitating dataprocessing. All system information will also be connected to a statewide database available to the public.

2.32. The project will finance the purchase of microcomputers, printers,and software for SEED, FUNDEPAR, and CETEPAR, as well as forapproximately 200 municipalities and 200 larger schools; training courses forapproximately 8,000 users and managers; technical assistance andprogramming services; and equipment maintenance.

2.33. Strengthening Management and Planning (US$2.6 millionequivalent, including contingencies). This subcomponent will support anumber of initiatives to improve management and planning at the central,regional, municipal, and school level. Activities include: (a) the definition,in conjunction with municipalities, of "fundamental quality indicators" to aidin tracking school-level data in both state and municipal schools; (b) technicalassistance and management training for approximately 1,880 SEED andmunicipal staff in the use of the indicators for planning, human resourcemanagement, budgeting, as well as other areas; (c) an evaluation of currentmanagement mechanisms under the partnership program with municipalities;(d) the development in the first year of the project of a proposal forreorganization of SEED to better reflect changing responsibilities within anincreasingly decentralized system; and (e) the development of a series ofschool management manuals, to aid principals and school councils inmanaging non-salary resources currently being transferred directly to schools,as well as in other areas of responsibility.

2.34. The project will finance approximately 60 person-months of technicalassistance; costs associated with management training, including per diemsand travel expenses for trainers and trainees; and printing and other servicesinvolved in the development of school management manuals and definition ofminimum quality indicators.

2.35. Education Quality Improvement Prize Fund (US$1.1 millionequivalent, including contingencies). As part of SEED's disseminationefforts and in order to give schools, municipalities, and regional SEEDoffices an additional incentive to improve quality, the project will finance a

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prize fund. Prizes are to be awarded to approximately 50 schools, tenmunicipalities, and one regional SEED office per year, on the basis of a setof easily verifiable criteria, including improvements in student promotionrates from year to year. Prizes will range in size from US$2,000 for aschool to a maximum of US$10,000 for a municipality. Schools, SEEDoffices, and municipalities interested in competing for the prize would fill outa simple application, which would indicate, inter alia, how the prize moneywould be used. Prize money may be spent at the discretion of the school,municipality, or SEED regional office, but will have to be spent foreducational purposes. Schools and municipalities in poor areas will be givenan extra margin of preference. Prizes will be awarded starting in the secondyear of the project, once monitoring systems are in place and an operationalmanual containing guidelines for the program is developed and approved bythe Bank. Submission of an operational manual for the prize fund,satisfactory to the Bank, will be a condition of disbursement for the sub-component (6.4d).

Component 5: Studies and Evaluation(US$2.4 million equivalent, including contingencies)

2.36. This component will finance policy and project evaluation studies, anddissemination of results. Policy studies contemplated under the project willinclude (but will not necessarily be limited to): (a) an evaluation of theimplementation of CBA in the state, in terms of teacher attitudes, and use oftechniques in the classroom; (b) a study of the long-term financialimplications of decentralization on both state and municipal finances; (c) astudy examining factors affecting early repetition, including cultural attitudesof families and teachers; and (d) a series of diagnostic studies on secondaryeducation, with particular emphasis on the strengths and weaknesses offormal teacher training and certification. Project evaluation studies willinclude: (a) a project monitoring study, which would supplement system-wide monitoring done by SEED with periodic surveys in a sample of schools;(b) ongoing evaluation of the teacher training component; and (c) an impactevaluation of the project which would include an assessment of learningachievement of children in a stratified sample of schools.

2.37. All studies will be contracted to outside institutions and/or individualson the basis of terms of reference satisfactory to the Bank. Most studies willbe contracted in two stages: a design, and then an implementation phase. Tofacilitate the contracting and management of these studies, the State hasproposed to form a working group (Nucleo de Estudos e PesquisasEducacionais) composed of representatives from SEED, the Secretariat ofPlanning (SEPLAN), FUNDEPAR, and the Parand Institute for Economicand Social Development (IPARDES) to supervise study implementation.

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Preliminary terms of reference for the studies were presented and discussedduring appraisal and at negotiations (para. 6.1d).

3. COSTS, FINANCING, PROCUREMENT, AND DISBURSEMENTS

A. Project Costs

3.1. The total cost of the project, including physical and pricecontingencies, is estimated at US$198.4 million equivalent. This amount alsoincludes local taxes and duties, estimated at US$38.4 million equivalent, orabout 19 percent of total project costs. Base costs amount to US$179.1million. Foreign exchange costs of US$29.0 million amount to 15 percent oftotal project costs. Tables 3.1 and 3.2 summarize estimated project costs bycomponent and expenditure account. A further breakdown of project costs isprovided in Annex 2.

Table 3.1: Summary of Project Costs by Component(Us$ million)

% TotalBase

Local Foreign Total Costs

A. Instructional Materials 57.3 11.5 68.8 38

B. Teacher Training 24.0 0.9 24.9 14

C. School Upgrading 57.0 9.5 66.5 37

D. Institutional Development 12.7 4.0 16.7 10

E. Studies & Evaluation 2.0 0.2 2.2 1

Total BASELINE COSTS 153.0 26.1 179.1 100

Physical Contingencies 4.0 1.1 5.1 3

Price Contingencies 12.4 1.8 14.2 8

Total PROJECT COSTS 169.4 29.0 198.4 111

Less Taxes 38.4

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Table 3.2: Sunmary of Project Costs by Category of Expenditure(US$ million)

% TotalLocal Foreign Total Base Costs

A. Civil Works 50.3 8.9 59.2 33

B. Equipment & Furniture 9.5 8.7 18.2 10

C. Instructional Materials 13.8 4.3 18.1 10

D. Textbooks 31.8 1.7 33.5 19

E. Reading Books 6.6 0.5 7.1 4

F. Technical Assistance 7.4 0.8 8.2 5

G. Training 24.9 0.8 25.7 14

H. Other Services 1.3 0.1 1.4 1

I. Prize Fund 1.0 - 1.0 1

J. Operations & Maintenance 5.9 0.3 6.2 3

K. Incremental Salaries 0.5 - 0.5 -

Total BASELINE COSTS 153.0 26.1 179.1 100

Physical Contingencies 4.0 1.1 5.1 3

Price Contingencies 12.4 1.8 14.2 8

otal PROJECT COSTS 169.4 29.0 198.4 1

3.2. Base Costs. Price estimates were based on dollar equivalent costs inJune 1993, and were adjusted and/or reconfirmed during negotiations inMay, 1994. Estimated costs of civil works and school furniture were basedon recent experience in the state. Estimated costs of materials and supplies,including books, were based on recent price quotations from major suppliers,past experience at FAE, and expert opinion. Equipment costs were based onprices for similar imported or locally available items. The costs of foreignand local consultants were based on prevailing standards. Incrementaloperating costs were based on current estimates of salaries and otheroperating expenses.

3.3. Contingencies. Total contingencies amount to US$19.3 millionequivalent, or 11 percent of total project costs. Physical contingencies of 5percent were applied to base costs for civil works, equipment, furniture, andeducational materials (excluding textbooks). Price contingencies of 3.2percent for 1994 and 3.6 percent in subsequent years were applied to allcomponents. This is the expected rate of increase for international pricesduring the life of the project. This rate of price increase was used for both

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foreign and local cost components of the project because it is expected thatthe depreciation of the local currency would compensate for differencesbetween U.S. dollar and local currency inflation rates.

3.4. Foreign Exchange. The foreign exchange component, estimated atUS$29.0 million, or 15 percent of total project cost, is based on Bankexperience with similar projects in Brazil. Aggregate foreign exchangeestimations were based on the following percentages: (a) 15 percent for civilworks; (b) 10 percent for furniture; (c) 80 percent for equipment; (d) 10percent for technical assistance; (e) 3 percent for training; (f) 25 percent forinstructional materials; (g) 5 percent for books, services, and operations andmaintenance; and (h) zero percent for salaries and school quality prizes.

3.5. Taxes and Duties. Local taxes and duties are reflected in the basecosts of the project, and amount to approximately US$38.4 million or 19percent of total project costs overall. Locally procured furniture, equipmentand materials (excluding books) are subject to two taxes: the ICMS valueadded tax (17 percent) on goods, fuel, energy, transport, andcommunications; and the IPI (15 percent on average) tax on manufacturedgoods. Books and construction products such as cement, sand, rock, etc. aresubject only to the ICMS tax. Consulting and other services also incorporatetwo taxes: the ISS municipal tax of 5 percent, and the INSS social securitytax of 20 percent. Imported manufactured goods are usually subject to dutiesat least equal to the value of the ICMS and IPI taxes combined.

3.6. Recurrent Costs and Financial Sustainability. By the time of theclosing date of December 31, 1999, it is estimated that additional resourcesof approximately US$12.2 million per year would be needed to sustainproject investments. This estimate excludes financing for textbook provision(about US$7 million per year on average), which the recent FNDE resolutionreconfirmed as a federal government obligation. Approximately US$9.5million of this total reflects increases in non-salary recurrent spending, ofwhich maintenance of buildings and equipment would constitute 22 percent,costs associated with ongoing programs such as student assessment andrefresher courses for teachers would represent 36 percent, and replacement ofinstructional materials (other than textbooks) would represent 42 percent.Incremental salary costs associated with the staffing of new schools areestimated at about US$2.7 million per year. Of the total of 1,147 newclassrooms planned, 961 are either to house existing classes or replaceexisting classrooms. SEED therefore expects to be able to redeploy existingpersonnel in order to staff these classrooms. Additional staff would have tobe contracted only for the 186 classrooms estimated to be needed in order tosatisfy repressed demand.

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3.7. Assuming no municipal contributions to project recurrent costs, thisincrease would represent about 5 percent of state spending on primaryeducation in 1992, which is considered sustainable with governmentcommitment. Under the partnership initiative, however, municipalities areexpected to assume the maintenance costs of buildings and equipmenttransferred by the state, including replacement of instructional materials andany new staffing of classrooms serving grades one to four. Given thatmunicipalities in Parana have in aggregate greater potential per-studentspending capacity than the state, over the medium term increased municipalcontributions to the administration of primary education (particularlypersonnel costs) should mean that the state will have greater flexibility bothto subsidize poorer municipalities and to devote additional resources to non-salary recurrent costs. Assuming full municipal capacity to shoulder thesecounterpart contributions (i.e. contributions would not be off-set by statesubsidies of poorer municipalities), the state's portion of the project'srecurrent cost obligations would fall to approximately US$8.3 million peryear, or about 3 percent of current spending levels. No declining financingis being proposed, given that even the high estimate of US$12.2 million isless than the approximately US$13.4 million per year that the state would berequired to budget as counterpart funds during project implementation.

B. Flnancing Plan

3.8. The total amount of the proposed loan to the State of Parana isUS$96.0 million. The proposed Bank loan will finance 48 percent of totalproject costs, or 60 percent of total project costs net of taxes. Bankfinancing will cover about 75 percent of the foreign exchange expendituresand 44 percent of local currency expenditures. The loan will be for 15 yearsat the Bank's standard variable interest rate, on a fixed amortization scheduleincluding a five year grace period. The financing plan and loan allocationsby category of expenditure are presented in Table 3.3.

3.9. Retroactive financing of up to US$5 million (5 percent of the totalloan equivalent) is recommended for expenditures made in accordance withBank procurement guidelines for a period of up to twelve months prior to thedate of loan signing. Retroactive financing is recommended to covercontracting of technical assistance and equipment necessary for theestablishment of monitoring systems, and renovation of the Secretariat ofEducation building in order to install computer equipment.

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Table 3.3: FThancing Plan(USS million)

IBRD State Total % IBRD

A. Civil Works 33.6 33.6 67.2 50B. Equipment & Furnite 14.9 5.3 20.2 74

C. Instructional Materials 14.9 5.4 20.3 73

D. Textbooks - 35.9 35.9 -

E. Reading Books 5.6 2.6 8.2 67

F. Technical Assistance 6.7 2.0 8.7 77

G. Training 18.4 9.5 27.9 66

H. Other Services 1.1 0.4 1.5 73

I. Prize Fund 0.8 0.3 1.1 73

J. Operations & Maintenance - 6.9 6.9 -

K. Incremental Salaries -- 0.5 0.5 -

Total 96.0 102.4 198.4 48

C. Procurement

3.10. Country-wide Procurement Issues. Procurement problems havebeen common in past projects in Brazil because of discrepancies betweenBank procurement guidelines and both federal and state procurement laws.A new national procurement law (Law 8.666) was passed by Congress inJune 1993. Although the new law appears to resolve most of the previousconflicts with Bank guidelines, there remain a few outstanding differences ininterpretation. A short term solution to these differences has been foundthrough the publishing of temporary executive orders (medidas provs6fias)giving special exceptions to internationally financed projects. A longer termsolution is being sought through ongoing discussions between the Bank andthe federal government.

3. 11. Procurement Responsibility. Most of SEED's procurement of goodsis done through its semi-independent affiliate, FUNDEPAR. FUNDEPARalso possesses an engineering department which designs basic specificationsfor school buildings. Procurement and supervision of school buildingconstruction for state schools is generally done through the State Departmentof Construction and Maintenance (DECOM), according to technicalspecifications developed by FUNDEPAR. The capacity of both DECOM andFUNDEPAR to procure works and goods under the project is satisfactory,although some technical assistance to FUNDEPAR with regard to

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procurement and distribution of books and other educational materials iscontemplated under the project. While the bulk of procurement under theproject will be handled by these two agencies, some civil works procurementwould be decentralized to municipalities having concluded partnershipagreements with the state. Transfers to municipalities for payments tocontractors would be made via specific legal agreements, or convenios,acceptable to the Bank, specifying, inter alia, the use of standard LCBbidding documents developed for the project, and reporting requirements. Atnegotiations, the State of Paranl submitted to the Bank a draft modelconvenio and criteria for evaluating municipal capacity for carrying out civilworks under the project (para. 6.le). A condition of disbursement will bethat no withdrawals shall be made under the civil works component, unlessthe Bank has been fumished with evidence that the state and municipalityhave entered into a convenio satisfactory to the Bank (para. 6.4b).

3.12. Procurement Arrangements. The project would involveprocurement of civil works, equipment and fumiture, educational materialsincluding textbooks and reading books, consultant services, includingtraining, technical assistance, evaluation, and auditing, as well as other goodsand services, including publicity, printing, data processing, and packaging.Most procurement would be carried out centrally using competitive methods,although in some cases procurement would be decentralized to schools andwould be done through local shopping procedures acceptable to the Bank.Where ICB procedures are used, goods manufactured locally would be given,for the purpose of bid evaluation, a preference margin of 15 percent. Allprocurement would be carried out according to Bank guidelines. Allcompetitive bidding (both LCB and ICB) would make use of standard biddingdocuments (para. 6.2d). Prior to negotiations, the State of Paranapresented to the Bank draft standard LCB documents for goods and works,and legal opinions as to their acceptability under state law (para. 6.1f).Final versions of the bidding documents incorporating the Bank's commentswill be included in the final version of the Project Operational Manual, to besubmitted as a condition of effectiveness (para. 6.3b). Specificarrangements for procurement of goods and services to be financed with theproceeds of the project are presented in Table 3.4.

3.13. Civil Works totalling US$66.2 million equivalent, includingcontingencies. Packages for new construction are estimated to range betweenUS$200,000 and US$500,000 equivalent. Considering that no civil workscontracts are expected to exceed US$5 million equivalent, ICB procedureswould not be appropriate. Contracts exceeding US$100,000 but below US$5million equivalent will be awarded following Local Competitive Bidding(LCB) procedures acceptable to the Bank. At this point (based on SEED'sprioritization of new construction) no use of Local Shopping procedures is

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expected. It was agreed at appraisal that no construction under the projectwill be carried out via force account.

3.14. Equipment and Furniture totalling US$20.2 million equivalent,including contingencies. Bid packages in excess of US$300,000 equivalentwould be procured on the basis of ICB procedures. It is estimated that about70 percent of contracts for goods fall in this category. Local manufacturerswould be granted a 15 percent margin of preference. Smaller packageswould be procured through Local Competitive Bidding (for contracts betweenUS$50,000 and US$300,000 equivalent), up to an aggregate limit of US$4million equivalent. Local Shopping will be permitted up to an aggregatelimit of US$1 million equivalent for packages of equipment and furniture upto US$50,000 equivalent.

3.15. Instructional Materials (other than books) totalling US$20.3 millionequivalent, including contingencies. Most instructional materials areexpected to be procured centrally in the first three years of the project.Initial bid packages in excess of US$300,000 equivalent will be procured onthe basis of ICB procedures. Smaller packages will be procured throughLocal Competitive Bidding (for contracts between US$50,000 andUS$300,000 equivalent), up to an aggregate of US$5.5 million equivalent.Replacement of materials in state schools may be done in a decentralizedmanner through local shopping by schools for contracts under US$50,000million, up to an aggregate limit of US$2.9 million equivalent.

3.16. Textbooks totalling US$35.9 million equivalent, includingcontingencies, will be financed entirely through counterpart funding, andprocured according to local procedures already in place.

3.17. Reading and Reference Books totalling US$8.2 million equivalent,including contingencies. Initial purchases of books will be done centrally,through SEED and FUNDEPAR. Initial packages are expected to exceedUS$300,000, and would be procured under ICB procedures. Once schoolshave been provided with a standard package of books, it is proposed that thepurchase of additional books be done in a decentralized manner, via theorganization of book fairs in different regions of the state. State andmunicipal schools would be guaranteed a "library fund" equivalent toUS$0.50 per student per year. Purchases would be made via a vouchersystem, whereby publishers would be paid centrally by SEED or by localbanks upon receipt of evidence of delivery of books to schools. Since priceswould be established by publishers and selection would be left to the schools,the mode of procurement would be direct purchase from publishers. Themaximum size of individual contracts under direct contracting will not exceedUS$5,000.

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Table 3.4: Procurement Arrangements(US$ million)

ICB LCB Other NBF Total

Civil Works 67.2 67.2(33.6) (33.6)

Equipment & Furniture 15.2 4.0 1.0/d 20.2

(12.4) (2.0) (0.5) (14.9)

Instructional Materials 11.9 5.5 2.9/ 20.3(9.4) (3.6) (1.9) (14.9)

Textbooks 35.9 35.9(0.0) (0.0)

Reading Books 3.4 4.8"' 8.2(2.2) (3.4) (5.6)

Technical Assistance 8.7/b 8.7(6.7) (6.7)

Training 27.9/c 27.9(18.4) (18.4)

Other Services 1 .51d 1.5(1.1) (1.1)

Prize Fund 1.1(0.8) (0.8)

Operations & 6.9 6.9Maintenance (0.0) (0.0)

Incremental Salaries 0.5 0.5(0.0) (0.0)

Total 30.5 76.7 47.9 43.3 198.4(24.0) (39.2) (32.8) (0.0) (96.0)

Notes: Values in parentheses reflect Bank financing./a - Direct purchase by schools from publishers/local shopping/b - Consulting Services/c - Training includes approximately US$5.8 million of consulting;US$3.0 million for materials; and US$19.1 million of non-procured itemssuch as travel, scholarships and per diems./d - Local shopping

*NBF: Not Bank-financed

3.18. Technical Assistance and Studies totalling US$8.7 millionequivalent, including contingencies, would be contracted in accordance with

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the August 1981 "Bank Guidelines for the Use of Consultants by World BankBorrowers and by the World Bank as Executing Agency.'

3.19. Training Services totalling US$27.9 million equivalent, includingcontingencies. Training costs include approximately US$5.8 millionequivalent for consulting, curriculum development, and trainers' fees;US$3.0 million for materials; and US$19.1 million for non-procured itemssuch as travel, scholarships, and per-diems. Where the hiring of a firm,university, or individual trainer is involved, the August 1981 'BankGuidelines for the Use of Consultants by World Bank Borrowers and by theWorld Bank as Executing Agency" would apply. In the case of contractingof individual trainers through the executing agency, the Bank and SEED willdevelop standard letters of invitation, terms of reference, forms of contract,payment scales, and a computerized tracking system to help ease thesupervision burden. Standardized terms of reference and qualifications of allindividual trainers to be contracted under the project will be subject to Bankapproval as part of the Annual Implementation Plan (see para. 2.15).

3.20. Other Services totalling US$1.5 million equivalent, includingcontingencies. Costs include contracting out of publicity, printing, graphics,packaging, and data-processing services associated with the implementationof the student assessment and management subcomponents. As contractpackages are expected to be under US$50,000 equivalent, Local Shoppingprocedures will be used.

3.21. Quality Improvement Prize Fund totalling US$1.1 millionequivalent, including contingencies. Prizes will be given starting in thesecond year, and would range in size from US$2,000 equivalent toUS$10,000 equivalent. Schools, municipalities, and SEED regional officescould use the prize funds as they wish, but funds would have to be used foreducational purposes and proposals for use would have to receive priorapproval from SEED. These could include purchase of materials, training,funding of school trips, and other activities. Given the small sizes of thegrants, local shopping procedures would be most appropriate for theacquisition of goods or services.

3.22. Operations and Maintenance totalling US$6.9 million equivalent,including contingencies. Operations and maintenance includes costs formaintenance of buildings and equipment, staff travel and supervision, andconsumable supplies. These would be financed with counterpart fundingusing SEED's standard procedures and guidelines.

3.23. Incremental Salaries totalling US$0.5 million equivalent covers thecosts of the three full-time Project Coordination Unit coordinators plus

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secretarial support. Salaries will be financed entirely through counterpartfunds.

3.24. Bank Review Requirements. The Bank would review and approvebefore contract award: (a) all ICB documentation and contracts; (b) the firsttwo LCB contracts for goods and civil works, regardless of size; and (c) allcontracts for civil works above US$400,000 equivalent. Prior reviewprocedures for consulting services would follow the August 1981 'BanlkGuidelines for the Use of Consultants by World Bank Borrowers and by theWorld Bank as Executing Agency," with the exception of contracts with (a)individual consultants valued at less than US$50,000 equivalent; and (b)contracts with firms valued at less than US$100,000, where prior reviewwould generally be limited to terms of reference. Full prior reviewprocedures would apply to contracts of a specialized nature, regardless ofvalue. Expected prior review coverage would be approximately 50 percentof the value of Bank-financed contracts, which is considered acceptable. Allprocurement documentation would also be subject to select ex-post review bythe Bank and external auditors, and would be kept by the PCU for periodicreview during supervision.

D. Disbursements

3.25. All disbursements will be made upon receipt of full documentation,except for payments in connection with goods, civil works, and consultantcontracts valued at less than US$400,000 equivalent for civil works, less thanUS$300,000 equivalent for goods, and contracts less than US$100,000 withconsulting firms, and less than US$50,000 for contracts with individualconsultants, for which disbursements will be made against statements ofexpenditure (SOEs). SOEs will be certified locally by SEED. Supportingdocumentation will be retained by the PCU, and will be available forinspection during Bank supervision missions and by independent auditors.The proceeds of the US$96 million loan will be disbursed against categoriesand percentages summarized in Table 3.5.

3.26. Special Account. To ensure the efficient and timely implementationof the project, the Borrower will open a Special Account denominated inU.S. dollars in a commercial bank acceptable to the Bank. The authorizedallocation for the Special Account will be US$6.0 million, which isequivalent to an average of approximately four months of disbursements.Funds from the Special Account will be available for financing only theBank's share of eligible project costs. The Borrower and the Bank willreview project development from time to time, and may reach agreement onchanges to the authorized allocation for the Special Account. The Bank willreplenish the Special Account as requested upon receipt of satisfactory

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evidence that expenditures paid were eligible for financing out of the account.Replenishment requests will be submitted monthly, or whenever one third ofthe amount deposited has been withdrawn, whichever occurs first.Conversions from crnzeiros reais to U.S. dollars or any other currency willbe made in accordance with Bank guidelines.

Table 3.5: Allocation and Disbursement of IBRD Loan

Amount of the Percent of Expenditures toLoan Allocated be Fmnanced

(USS million)

1. Civil Works 30.2 50 percent of totalexpenditures.

2. Equipment and Furniture 14.2 100 percent of foreign and50 percent of localexpenditures.

3. Instructional Materials 14.2 100 percent of foreign and65 percent of localexpenditures.

4. Reading Books 5.3 100 percent of foreign and65% of local

5. Technical Assistance 6.8 100 percent of foreign and75 percent of localexpenditures.

6. Training(a) Teacher Training 17.5 100 percent of foreign and

65 percent of localexpenditures.

(b) Other Training 0.9 100 percent of foreign and65 percent of localexpenditures.

7. Other Services 1.1 100% of foreign and 70%of local expenditures.

8. Prize Fund 0.8 70 percent of totalexpenditures.

9. Unallocated 5.0

TOTAL 96.0

3.27. Schedule. The disbursement schedule is based on a five and one-halfyear implementation period, with loan effectiveness expected by early

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September, 1994. Retroactive financing of up to US$5 million equivalent isrecommended for eligible expenditures incurred up to 12 months prior fromthe date of signing. The project completion date will be June 30, 1999, andthe project closing date will be December 31, 1999. The expected scheduleof disbursements is found in Table 3.6.

Table 3.6: Estimated IBRD DisbursementsTotal Costs, Induding Contingencies

(US$ million)

XIBRD TscaI Year FY95 FY96 FY97 FY98 FY99 FY2000

Annual 12.0 18.0 22.5 20.0 18.5 5.0

Cumulative 12.0 30.0 52.5 72.5 91.0 96.0

E. Accounting and Auditing

3.28. The Borrower will maintain separate accounts for all projectexpenditures. Copies of the audited statements from SEED will be sent tothe Bank within six months of the end of each fiscal year (June 30). Theauditors' reports will include an opinion (and comments, as necessary) on thequality of the methods employed in compiling the statement of expenditures,the relevance of supporting documents, their eligibility for financing withloan proceeds, and the quality of record-keeping and internal controls. Atnegotiations, assurances were given that all project accounts, including theSpecial Account, will be audited annually in accordance with appropriateauditing principles by independent auditors with qualifications acceptable tothe Bank (para. 6.2e).

4. PROJECT IMPLEMENTATION AND MONITORING

A. Project Implementation

4.1. Project Management. Primary responsibility for projectimplementation will be vested in SEED, which will be responsible forcoordination between departments internally, with other state institutions, andwith municipal agencies. SEED's training institute, CETEPAR, will beresponsible for the administration of courses and contracts under the teachertraining component. SEED's semi-independent affiliate, FUNDEPAR, willbe responsible for: (a) preparation and analysis of architectural designs for

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construction under the project; (b) purchase of goods, furniture and othermaterials; and (c) oversight and production of educational statistics. TheState Department of Construction and Maintenance (DECOM) in conjunctionwith FUNDEPAR will be responsible for procurement and supervision ofcivil works, including oversight of any civil works relegated tomunicipalities.

4.2. Coordination has been enhanced by the creation of a CoordinatingCommittee and the creation of a Project Coordination Unit (PCU) in SEEDMembers of the Coordinating Committee include: the Secretary ofEducation, the President of FUNDEPAR, a representative of the Associationof Municipalities of Parana, and the General Coordinator of the PCU. TheCoordinating Committee will be maintained during the life of the projectunder terms of reference satisfactory to the Bank (para. 6.2f). As defined inthe Operational Manual, the responsibilities of the Coordinating Committeeinclude: (i) facilitating internal bureaucratic processes and procedures; (ii)reviewing progress and taking measures to resolve difficulties in projectimplementation; and (iii) serving as a conduit both to receive and disseminateinformation about the project to and from municipalities and other interestedparties. The Coordinating Committee will meet at least six times a year.

4.3. The PCU is located in SEED, and reports directly to the Secretary ofEducation (see also Annex 3). The PCU is responsible for internalcoordination with SEED and FUNDEPAR administrative units involved inproject implementation, as well as with municipalities, and is to be theprincipal liaison with the Bank with regard to project monitoring andreporting. The PCU will at all times be staffed by a full-time core ofprofessionals with qualifications and experience acceptable to the Bank. Toaid in reporting, the PCU will also maintain and operate a computerizedcontrol system, acceptable to the Bank, for tracking commitments,contracting, procurement, and disbursement under the project (para. 6.2c).At negotiations, the State of Parana presented evidence, satisfactory to theBank, that both the Coordinating Committee and the PCU had been formallyestablished by government decree (para. 6.1c).

4.4. Municipal Participation in the Project. It was agreed at appraisaland confirmed at negotiations that, with the exception of textbooks andstudent assessment, only those municipalities with valid 'partnershipagreements' with the state will be eligible for the transfer of benefits to themunicipal system (paras. 6.2g and 6.4c). All state schools, however, willbenefit regardless of location. At negotiations, municipalities withpartnership agreements constituted about 86 percent of the total. For themost part, municipalities will benefit from in-kind transfers of instructionalmaterials, equipment, and training, although in some instances municipalities

-39-

would also receive monetary transfers for civil works construction. Whereresponsibility for construction is decentralized to a municipality, the state willenter into an agreement (convenio), satisfactory to the Bank, specifying, interalia, the use of Bank-approved standard bidding documents and procedures incivil works construction, as well as extent of municipal responsibility formaintenance and/or staffing of the newly constructed building. A draftversion of this agreement was discussed at negotiations (para 6.1e);presentation of a signed version of this agreement will be a condition ofdisbursement to a municipality (para. 6.4b).

4.5. Operational Manual. Further definition of institutionalresponsibilities, procurement guidelines, disbursement guidelines, andaccounting requirements, will be outlined in an operational manual for theproject. Prior to negotiations, the State of Parana presented a preliminaryversion of this manual to the Bank, including a list of indicators formeasuring progress in the implementation of the project (see Annex 6), andcopies of the standard bidding documents to be used in projectimplementation (para. 6.1f). Submission of a final version of theOperational Manual, revised in accordance with Bank comments will be acondition of project effectiveness (para. 6.3b).

4.6. Inplementation Schedule and Strategy. The project is expected tobe implemented over a five and one-half year period, with a projectcompletion date of June 30, 1999, and a closing date of December 31, 1999.Whereas certain project activities will follow their own implementation logic(civil works, for example), teacher training and instructional materials otherthan books will follow a regional implementation strategy (see Annex 5). Allregions of the state are expected to receive project benefits in these two areasby the third year of the project. Prior to negotiations, the state furnished tothe Bank: (a) a revised version of the Project Implementation Plan, includingdetailed implementation timelines for each component for the first 18 monthsof the project (para. 6.1g); and (b) evidence that it has allocated sufficientcounterpart funds in the 1994 budget for carrying out project activities duringthe first year of implementation (para. 6.1h).

B. Monitoring and Evaluation

4.7. Project Monitoring. The PCU will be responsible for overall projectmonitoring and evaluation on the basis of pre-established monitoringindicators. These indicators will consist of both input and output indicators,including trends in repetition and student flow. Repetition and pass rates willbe monitored both at a system-wide level and at the school level (via asample). Based on simulations done with existing statistics and discussedwith the Secretariat of Education and FUNDEPAR, the following project

-40-

targets were established: the percentage of students reaching fifth grade witha maximum of one repetition would increase from the current level ofapproximately 45 percent in 1993, to 60 percent by the end of the project,and the percentage of students concluding the eighth grade with a maximumof two repetitions would increase from approximately 15 percent in 1993 to25 percent by the end of the project. Given that passage from lower primaryto higher primary grades is highly correlated with the likelihood ofcompletion of eighth grade, improvements in this measure are also taken as atrigger of improvements in the overall rate of completion of primary school.A draft list of monitoring indicators is included in Annex VI, and in thepreliminary version of the Operational Manual, to be presented in finalversion to the Bank as a condition of project effectiveness (para. 6.3b).

4.8. Reporting and Implementation Reviews. By March 15 of eachyear, starting in 1995, the PCU will prepare and send to the Bank for reviewan Annual Progress Report, assessing progress toward meeting the specifictargets established the previous year (para. 6.2h). By June 30 of each year,the PCU will prepare a detailed Annual Implementation Plan for all projectcomponents for the subsequent year (para. 6.2b). This AnnualImplementation Plan would include: (a) a description of the major tasks tobe initiated and completed and/or continued during the year; (b) an activitybudget by component and subcomponent for all tasks to be implemented,including physical and financial objectives and requirements; (c) a detailedschedule of activities; and (d) additional information as requested relating tothe civil works, training, and student assessment components (see paras.2.15 and 2.21). No later than April 30 of each year, starting in 1995, SEEDand the Bank will conduct a joint annual implementation review to analyzethe previous year's performance, and set guidelines for the preparation of theAnnual Implementation Plan (para. 6.2i).

4.9. In addition to annual implementation reviews, no later than 30 monthsafter project effectiveness, the govemment and the Bank will carry out aMidterm Review of project execution. This review will focus particularly onprogress towards achieving project targets and intermediary outcomes. Itwill also, however, address overall system management issues such as stateand municipal expenditures on education. The costs of project componentswill also be reassessed, and reallocations made as necessary. SEED willprepare for the Midterm Review: (a) a mid-term progress report; (b) areport covering sources and uses of education funds; and (c) any otherreports as the Bank may reasonably request (para. 6.2j).

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5. PROJECT BENEFITS AND RISKS

A. Project Benefts

5.1. The project is expected to benefit approximately 1.6 million primaryschool students in both the state and municipal systems. By improving thequality of education, it is expected that the project will contribute toreductions in grade repetition and associated resource waste, and improvedstudent achievement. Although the project is directed to all primary schoolchildren in public schools, it should particularly benefit low-income children,who are almost exclusively served by the public school system. Targetedconstruction of new classrooms should also directly benefit approximately64,000 children who live in low-income urban areas. Additional benefits ofthe project include: (a) better information and management practices withinSEED and municipal education offices; (b) the development of adecentralization model in education that includes critical quality and equityconcerns; and (c) enhanced knowledge of the relative cost-effectiveness andimpact of various educational interventions on system productivity throughevaluation studies and support for systematic student assessment.

B. Risks

5.2. The project's principal risks include: (a) problems in coordinationbetween the state and the federal government on textbook provision andfinancing; (b) the possibility of diminished political support once thegovernment changes in March 1995; (c) problems in the implementation ofthe state's decentralization strategy; and (d) delays in implementationstemming from SEED's lack of familiarity with Bank guidelines andprocedures. With regard to textbooks, the project aims to assure adequateprovision through requiring up-front coordination with FAE, while at thesame time requiring the state govemment to assume full responsibility fortextbook provision, regardless of the nature of federal government support.Provision of textbooks will be carefully monitored, and will be a key elementin the Bank's ongoing evaluation of project implementation. Regarding (b),the inclusion of municipalities should help foster a municipal constituency forthe project that will carry over beyond the change in state government in1995 (municipal administrations do not change again until 1997). Regarding(c), Bank support to the state in fulfilling its part of the decentralizationagreement (mainly through the provision of training and educationalmaterials) should provide an incentive for the remaining 14 percent ofmunicipalities not yet in partnership agreements to join. With regard to (d),the project design has attempted to minimize this risk by building institutionalcapacity through the establishment of a PCU, and early attention to thedevelopment and use of standard bidding documents and other procedures.

-42-

The project Midterm Review will provide an opportunity to reassessimplementation risks and make adjustments if necessary.

C. Environmental Impact

5.3. The project is not expected to have any adverse environmental impact.Environmental safeguards would be incorporated into contract arrangementsas well as site-selection criteria for new school construction.

6. AGREEMENTS REACHED AND RECOMMIENDATION

6.1. Prior to negotiations, the State Government provided to the Bank:

(a) a Declaration on Policies for the Improvement of Basic Educationin Parana, signed by the Governor, and acceptable to the Bank (para.2.3).

(b) a draft workplan for the provision of textbooks under the projectwithin the framework of the new MEC resolution (para. 2.8);

(c) copies of governmental decrees establishing the structure andcomposition of the PCU and Coordinating Committee, as well ascurriculum vitae of the Project Manager, Administrative and FinancialCoordinator, and the Technical Coordinator, all of which were foundacceptable to the Bank (para. 2.25 and 4.3);

(d) preliminary terms of reference for the evaluation studies proposedunder the project (para. 2.37);

(e) criteria for evaluating municipal capacity for procurement of civilworks under the project, and a draft legal agreement (convgnio) to besigned with municipalities implementing civil works (para. 3.11 and4.4);

(f) a preliminary version of the Project Operational Manual, includinginter alia, project monitoring indicators and draft model biddingdocuments for LCB procurement of goods and works, as well as legalopinions as to their acceptability under state law (para. 3.12, 4.5);

(g) a revised version of the detailed timeline and implementationtargets for all components over the first 18 months of the project(para. 4.6);

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(h) evidence that sufficient counterpart funding has been included inthe 1994 state budget to cover the first year of project implementation(para. 4.6); and

6.2. At negotiations, assurances were obtained that the Borrower will:

(a) assume full responsibility for ensuring the adequate and timelyprovision of textbooks to children in both state and municipal schools,starting in 1995, regardless of the nature of federal governmentsupport (para. 2.7);

(b) submit for Bank review and approval by June 30 of each year,starting in 1994, an Annual Implementation Plan for all projectcomponents for the following year, including a detailed schedule,physical and financial targets, and proposed budget (paras. 2.15; 2.21;2.28; and 4.8);

(c) maintain, at all times, a Project Coordination Unit with a projectmanager and core staff with qualifications and experience acceptableto the Bank, which would, inter alia, maintain and operate acomputerized control system, acceptable to the Bank, for trackingcommitments, contracting, procurement, and disbursement under theproject (paras. 2.25 and 4.3);

(d) carry out all procurement of goods, civil works, and consultingservices in accordance with Bank guidelines, including the use ofBank standard bidding documents for ICB procurement of goods andworks, and the use of standard LCB bidding documents for goods andworks as developed by the Borrower and approved by the Bank (para.3.12);

(e) forward to the Bank, by June 30 of each year, starting in 1995,annual audits of all project accounts, including the Special Account,which will be audited annually in accordance with appropriate auditingprinciples by independent auditors with qualifications acceptable to theBank (para. 3.28);

(f) maintain, at all times, a project Coordinating Committee underterms of reference satisfactory to the Bank (para. 4.2);

(g) unless the Bank should otherwise agree, and with the exception oftextbooks and student assessment, direct project benefits exclusively tothose municipalities with valid partnership agreements with SEED(para. 4.4);

-44-

(h) submit for Bank review, by March 15 of each year, starting in1995, an annual implementation report, assessing progress towardmeeting the specific targets established the previous year (para. 4.8);

(i) conduct in conjunction with the Bank, no later than April 30 ofeach year, an annual review of project implementation (para. 4.8);

(j) no later than 28 months after the date of project effectiveness,submit to the Bank a Midterm progress report according to terms ofreference mutually agreed, and no later than 30 months after the dateof effectiveness, conduct in conjunction with the Bank, a Midtermreview of project implementation (para. 4.9);

6.3. As conditions of project effectiveness, the Borrower would:

(a) provide to the Bank a final version of the workplan, forimplementing the project's textbook provision subcomponent incooperation with FAE (para 2.8);

(b) provide to the Bank a revised version of the Operational Manualsatisfactory to the Bank, including final project monitoring indicatorsand revised LCB bidding documents incorporating Bank comments atnegotiations (paras. 3.12, 4.5, and 4.7);

6.4. As conditions of disbursement:

(a) no withdrawals would be made for the teacher training componentprior to Bank approval of a Training Plan for the first year of theproject (para. 2.17);

(b) no withdrawals would be made for expenditures incurred by amunicipality under the civil works component, unless the Bank hasbeen furnished with evidence that the state and municipality haveentered into an agreement (convPnio) satisfactory to the Bank (paras.2.21, 3.11, and 4.4);

(c) unless the Bank should otherwise agree, no withdrawals would bemade for expenditures by, on behalf of, or for the benefit of amunicipality, other than a municipality that has concluded apartnership agreement with the state (para. 4.4);

(d) no withdrawals would be made for the prize fund, unless the Bankhas been furnished with an operational manual, acceptable to theBank, for the implementation of the fund (para. 2.35).

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6.5. Recommendatlon. Subject to the above conditions and assurances,the project constitutes a suitable basis for a Bank loan of US$96.0 millionequivalent to the State of Parana, with the Guarantee of the FederativeRepublic of Brazil, to be repaid over a period of 15 years on a fixedamortization schedule with a five-year grace period. Retroactive financing ofup to US$5 million equivalent for eligible expenditures incurred up to 12months before the signing date is also recommended (para. 3.9).

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Annex 1

Table 1: Parant Basic Education IndicatorsAverage Educational Attainment of Population Over 10 Years of Age

Total Years of Schooling Mmn Women TaI % of Total

No instruction, or less than one year 435,384 565,229 1,001,613 14.1

One year 180,130 172,691 352,821 5

From 2 to 4 years 1,426,464 1,463,939 2,896,563 40

From 5 to 8 years 854,145 755,947 1,641,080 23

From9to 11 years 396,982 413,830 810,632 11

12 years or more 180,573 201,871 382,350 5

Unknown 240 05

TOTAL 3,476,045 3,575,081 7,089,004 100

Source: Pesquisa Nacional por Amostra de Domicflios, 1990

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Annex

Table 2: Brazil and Parana: Comparison of Mean StudentTest Scores by Subject and Grade, 1990

: i i:i0i :Subjecti: Grade klath Science Portuges

tXtFirstG rade --0ii:ti:t 0 4 : ti-00 ii ;i;t4440t t t:; t t

Brazil 52.8 - 56.8Parana 58.5 - 62.2

State 60.3 - 62.7Municipalities 56.6 - 61.6

ThirdGrdeBrazil 50.2 - 61.9Parand 58.4 - 66.5

State 58.8 -- 67.6Municipalities 57.9 - 65.3

Brazil 31.6 41.7 51.9ParanA 31.6 41.8 51.9

State 30.9 41.5 51.1Municipalities 35.5 44.5 56.4

SevnthGrade; : 0:?j

Brazil 30 43.3 48.6Paranf 29.2 45.2 49.4

State 28.4 44.5 48.8Municipalities 35.5 50.6 54.1

Note: Maximum score is 100.Source: SAEB, 1990.

IW& s rMm -__ted _aj 19

T~~~m1Az Vmw~~~~~~ - i........ ....

51 1 a 1 _ _ _ 1 I2 L IL L1 a 1 M 1 A 1 a

I 1,000 352 124 44 16 6 2 1 0 0 0 0 0 0 0 0 0 0 0 1,542 0 627 401 193 83 34 14 5 2 1 0 0 0 0 0 0 0 0 0 1I3603 0 0 419 370 219 109 49 21 * 3 1 0 0 0 0 0 0 0 0 1,194 0 0 0 292 315 215 11I 57 28 11 4 1 0 0 0 0 0 0 0 1,395 0 0 0 0 203 307 233 205 128 74 40 20 9 4 2 1 0 0 0 1,2766 0 0 0 0 0 97 132 201 171 123 0 48 27 14 7 3 2 I 0 9567 0 0 0 0 0 0 54 118 147 139 110 77 49 29 16 9 4 2 1 7553 0 0 0 0 0 0 0 34 32 III 112 94 59 46 2 16 9 4 2 07

- -g " i ... ll" ...- ....: .. ;70e O 0 0 0 O 0 0 27 63 83 36 72 3 36 21 14 8 4 0 467

ghdalS 7 6 7 9 19 19 20 21 13 16 11 * 5 2 2 0 0 0 0 165

Ys~~~~~~~~~~~~~~~~~3*0I ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~~~0

"fl ...... 4 .2 gg..14.....A. *. - 45 ..

WEdWwi Witjadrcwf.. Wlibdreu/'

auamdzmg *.7 11.5 5.7 7.5 3.3

*N-mbd of *mdes.yc-n Of ia2 ui pcr g_duaD is 18.7.S-'CG Nolo calo-'sim Rbeibr ani Kle, usng SEED/PUNDPAR da.

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Annex 1

Table 3B: Parana - Total Repetition Rates, 1989

Grade Rwtition Promotin Withdrew/approved Withdrew/not approved

First 0.352 0.627 0.014 0.007Second 0.288 0.668 0.038 0.006Third 0.243 0.697 0.049 0.01Fourth 0.197 0.695 0.095 0.013Fifth 0.433 0.48 0.049 0.038Sixth 0.359 0.562 0.048 0.031Seventh 0.292 0.635 0.033 0.04Eighth 0.213 0.758 0 0.029

Average 0.297 0.64 0.04 0.022

Source: SEED/FUNDEPAR

.t

Table 4A: Paraim - Enrolknent by Ivel of Schooling and Sector, 1985 - 1990

Lelofhoi;nL Xa edral A SFal I Municipa A Privae I

Pre-School 1985 29,868 21 32,064 23 23,021 16 55,371 40 140,3241990 1,225 .80 37,214 24 57,559 37 60,313 39 156,311

Primary 1985 1,096 .07 909,361 58 501,462 32 148,351 10- 1,560,2701990 687 .04 1,053,449 62 512,046 30 146,346 9 1,712,528

Secondary 1985 7,010 4 135,675 75 58 .03 39,209 22 181,9521990 6,214 3 178,561 78 236 .10 43,635 19 228,646

Higher 1985 16,894 19 32,013 36 12,822 14 28,250 31 89,9791991 15,357 16 44,117 45 7,031 7 31,159 32 97,664

Note: 1990 nunbers not available.Source: SEED/FUNDEPAR

Table 4B: Paramn - Primary School EnroLlment by Grade, 1990

t gmad 2nd emde 3rd grae 4th emde 5th ga 6th gmde 7 th grade Taw

Federa 358 158 111- 60 - - - - 687

State 136,198 141,474 119,568 101,633 218,413 150,545 107,639 77,979 1,053,449

Municipal 160,077 129,970 108,886 88,257 10,591 6,922 4,377 2,929 512,009

Private 23,859 22,519 22,124 19,809 17,935 15,368 13,374 11,358 146,346

Total 320,492 294,121 250,689 209,759 246,939 172,835 125,390 92,266 1,712,491LA

Source: FUNDIEPAR 1990 Tnitial Enroilnmen

Table 5: Parana - School-Age Population and Enrollment at Primary and Secondary Levels, 1986-1990

School-age Primary school Secondary school TotalYear Dopulation enrollment 9G enrollment 6 enrollment %

1986 1,517,646 1,335,003 87.97 6,341 0.42 1,341,344 88.381987 1,523,471 1,330,788 87.35 8,368 0.55 1,339,156 87.9

7-14 years 1988 1,531,120 1,356,229 88.58 8,246 0.54 1,364,475 89.121989 1,541,070 1,395,421 90.55 10,349 0.67 1,405,770 91.221990 1,552,969 1,425,516 91.79 9,163 0.59 1,434,679 92.38

1986 882,057 175,367 19.88 137,880 15.63 313,247 35.511987 870,733 160,944 18.49 138,723 15.93 299,667 34.42

15-19 years 1988 860,425 172,731 20.08 147,631 17.16 320,362 37.231989 850,978 181,406 21.32 159,555 18.75 340,961 40.07

1990 842,355 190,604 22.53 168,061 19.95 358,665 42.58

Note: Total enrollment figures in this table reflect only specified age groups - combined totals hence differfrom Table 4A, where all age groups are included.

Source: SEED FUNDEPAR

TabIe 6pwar State Expeaditres by Sector, 1931592 (i 12 lISS M iN

1983156 1590 159 15

US$ X S X USS X$ USS X USS %

01 Legislative 34,277 1.72 41,654 2.00 47,724 2.67 48,004 2.93 42,58 2.7002 Judiciay 37,112 4.38 126,195 6.07 149,513 3.37 151,543 9.26 128,184 3.1903 Admin. Plnning 380,753 19.12 636,194 30.60 3S6,134 21.61 253,190 15.47 134,396 11.8104 Agricutue 66,487 3.34 92,350 4.44 66,418 3.72 75,220 4.60 71,094 4.5405 Connunicawin 718 0.04 509 0.02 1,033 0.06 356 0.02 0 0.0006 Public Safety 113,907 5.97 120,907 5.82 130,153 7.28 129,650 7.92 125,235 8.0007 RcgioE Dcvelqwm 65,467 3.29 13,443 0.65 16,S50 0.94 35,220 2.15 78,242 5.000 FduCation&Cukur 488,801 24.55 500,963 24.10 460,280 25.76 441,391 26.96 423,740 27.0609 EneD h Mining 14,668 0.74 4,565 0.22 22,223 1.24 30,656 1.87 _ 21,346 1.3610 Husing 5,698 0.29 3,578 0.17 2,680 0.IS 15,739 0.96 39,207 2.501 1 Iugy & Comnuncre 25,680 1.29 5,752 0.28 8,411 0.47 23,752 1.45 44,70S 2.8612 Foip RelJtior 0 0.00 0 0.00 0 0.00 0 0.00 0 .0013 Hah and Welfam 59,406 2.98 89,339 4.30 76,832 4.30 65,924 4.03 79,207 5.0614 Labor 2,186 0.11 5,294 0.25 5,370 0.33 3,753 0.23 2,202 0.1415 Socil Seority 234,099 11.76 245,879 11.83 249,928 13.99 230,610 14.09 244,571 15.6216 Tunp o 406,609 20.42 192,353 9.25 163,006 9.12 131,939 8.06 80,917 5.17

TarAL 1,990,868 100.0 2,079,025 100.0 1,737,061 100.0 1,636,946 100.0 1,565,807 100.0

SoLue: Ste Balances(*)Avenkp 1992 DoBar appid to conat 1992 Crizo valus.

Table 7: Egpesab.u at Seandariot of E arksm md FUINDEPAR, bY Pr.pin(m*1992 US$uilmu

Administration 24,303 45,883 32,424 32,726 532 37,346 . 37,523 42,5SSSecrtriat of Education 19,897 40,458 27,600 28,034 532 32,677 37,482 42,256FUINDEPAR 4,906 5,425 4,823 4,693 0 5,169 41 329

Primay Education 252.022 321,010 332,100 287,035 319,825 303,376 272,409 245,905Secrctariat of Educaon 221,625 277,558 296,627 249,694 278,197 267.293 272,409 245,904FUNDEPAR 30,397 43,452 35,473 37,341 41,628 36,083 0 1

Secondary Edca-ton 33,174 37,524 45,119 31.525 28,914 24,831 25,428 26,995Secretariat of Educaion 32,446 36,364 44,411 30,590 28,401 24,407 25,428 26,995FUNDEPAR 723 659 708 935 513 424 0 0

HigSer Education 68,620 97,551 112,944 123,795 138,688 116,120 .0 0Secretariat of Education 68,620 97,551 112,944 123,795 138,688 116,120 0 0FUNDEPAR 0 0 0 0 0 0 0 0

Adult Education 2,310 3,323 4,324 2,974 3,435 3,006 3,432 4,361SecretAriat of Education 2,310 3,323 4,324 2,974 3,435 3,006 3,432 4,361FUNDEPAR 0 0 0 0 0 0 0 0

Sporu Edcation 64 341 54 54 45 0 2,959 2,780Secretariat of Education 64 341 54 54 45 0 283 285FlUNDEPAR 0 0 0 0 0 0 2,676 2,495 4'

Student Asisance 282 265 482 19 51 69 91 0SecretaristofEducation 282 265 482 19 51 69 91 0FUNDEPAR 0 0 0 0 0 0 0

Culture 31 13 2 0 0 0 0 0Secretariat of Education 31 13 2 0 0 .0 0 0FUNDEPAR 0 0 0 0 0 0 0 0

Special Education 1,750 1,353 2,402 3,160 4,763 4,276 5,82 - 9,283Secretariat of Education 1,750 1,853 2,402 3,160 4,763 4,276 5,882 9,283FUNDEPAR 0 0 0 0 0 0 0 0

Special Programs 45,38f 45,182 37,481 39,759 34,308 59 0 0Secretariat of Education 39,515 42,017 36,891 39,723 34,808 59 36 0FUNDEPAR 6,333 3,165 590 36 0 0 0 0

TOTAL 428,954 552,945 567,332 521,047 531,112 489,5S4 347,724 331,909Secretariat of Eduation 386,539 500,244 525,738 473,042 438,972 447,908 345,042 329,065FUNDEPAR 42,414 52,701 41,595 43,005 42,140 41,676 53,656 2,824

Corred Total 2) 329,708 421,329 429,029 367,549 363,960 340,752 312,60 308,436

(1) Incbd 5g Eaviroiaal Prtection, Specil, and IntpWdtd Prgrm.2) Exduding trfer fom dte Secetariat to FUNDEPAR. Tbe tnfen wold be counted twice once included in intergovenment trafa.

(0) 1992 dollar avea applied against value of 1992 comatnt azmiroa.

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Annex I

Table 8: ParanA - Potential Spending Capaidty on Primary Education - Sample of Munidpalltles, 191(in 1992 US dollars)

Education Enrollment In Per StudentMunidnalities Expenditures Primary Education Expenditures

1 Arapoti 763,733 2,029 3762 Barbosa Ferraz 399,120 867 4603 Boa Erpean9a 375,410 199 1,8864 Campo Mourao 1,651,573 3,974 416S Cantagalo 468,215 3,664 1286 Cap.Le6nidas Marques 566,438 1,493 3797 Catanduvas 374,811 1,217 3088 Cerro Azul 366,547 1,879 1959 Clevelindia 395,598 1,493 265

10 Imbituva 477,873 1,898 25212 Irati 942,059 1,671 56413 Ivaipora 691,927 4,428 15614 Jandaia do Sul 480,557 712 67515 Japira 97,921 37 2,64716 Laranjeirs do Sul 1,113,679 5,805 19217 Londina 13,482,909 24,732 54518 Mallet 334,947 567 59119 Maringa 7,004,232 7,343 95420 Mormtes 246,792 1,138 21721 Noaa Sm. das Gracas 156,764 87 1,80222 Nova Aurora 513,097 1,079 47623 Nova Olimpia 209,115 114 1,83425 Ortigueira 589,789 3,538 16727 Palmas 1,058,330 3,879 27328 Ponta Groma 6,697,560 14,766 45429 PortoVit6ria 181,165 278 65231 Quer6ncia do Norte 272,123 1,499 18232 Sabaudia 137,799 63 2,18733 Sto.Antonio do Paaiso 140,352 163 86134 Sao Jose das Palmeiras 260,500 367 71035 Sapopema 200,383 666 30136 Senges 469,373 1,564 30037 Tamboara 188,473 54 3,49038 Telemaco Borba 2,050,280 6,544 31339 Terra Boa 573,102 273 2,09940 Terra Rica 443,874 617 71941 Tibaji 704,789 3,338 21142 Turvo 448,634 1,640 274

TOTAL 45,529,841 105,675 431

Source: Tribunal de ContaB do Estado do Parana(*) 1992 dollar average applied against value of 1992 cruzeiro.

-56-

Annex 1

Table 9: ParanA Teaching Staff by Level of Training, Location and Sector, 1990

Grades I - 4 Grades 5 - 8 TotalLocation State Mun, Total State Mun. Total State Mun. Total

UrbanPrimary Education

Completed 160 127 287 2 -- 2 162 127 289Incomplete 115 176 291 24 -- 24 139 176 315

Secondary EducationComplete 7,796 5,989 13,685 948 74 1,022 8,744 5,963 14,707Incomplete 398 370 768 71 1 72 469 371 840

Higher EducationComplete 8,475 3,689 12,164 24,385 804 21,189 28,860 4,493 33,353Incomplete 2,397 1,363 3,760 1,213 116 1,329 3,610 1,479 5,089Total 19,341 11,614 30,955 22,643 995 23,638 41,984 12,689 54,593

RuralPrimary Education

Complete 131 1,431 1,562 -- 1 1 131 1,432 1,563Incomplete 212 2,040 2,252 1 -- 1 213 2,040 2,253

Secondary EducationComplete 1,486 6,908 8,354 162 81 243 1,568 6,989 8,557Incomplete 148 643 791 8 3 11 156 646 802

Higher EducationComplete 389 634 943 1,477 285 1,762 1,786 919 2,705Incomplete 226 549 775 308 68 376 534 617 1,151Total 2,432 12,205 14,637 1,956 438 2,394 4,388 12,643 17,031

TotalPrimary EducationComplete 291 1,558 1,849 2 1 3 293 1,559 1,852Incomplete 327 2,216 2,543 25 -- 25 352 2,216 2,568

Secondary EducationComplete 9,202 12,797 21,999 1,110 155 1,265 10,312 12,952 2,364Incomplete 546 1,013 1,559 79 4 83 625 1,017 1,642

Higher EducationComplete 8,784 4,323 13,107 21,862 1,089 22,951 30,646 5,412 36,058Incomplete 2,623 1,912 4,535 1,521 184 1,705 4,144 2,096 6,240Total 21,773 23,819 45,592 24,599 1,433 26,032 46,372 25,252 71,624

Source: SEED/FUNDEPAR

Table 1:Parana Basic Education Quality Improvement Project

Components by Financiers(USS '000)

IBRD State Govt. Total Local (Excl. Duties &Amount % Amount % Amount % For. Exch. Taxes) Taxes

A. Instructional MaterialsTextbooks 49.6 0.1 35,894.5 99.9 35,944.1 18.1 1,798.9 34,145.2Didactic Materials 22,993.0 73.5 8,273.8 26.5 31,266.8 15.8 10,369.6 20,897.2Reading Books 5,607.9 67.2 2,732.6 32.8 8,340.5 4.2 583.5 7,757.0

Subtotal Instructional Materials 28,650.5 37.9 46,900.9 62.1 75,551.4 38.1 12,752.0 62,799.4B. Teacher Training 17,986.0 66.3 9,132.0 33.7 27,118.0 13.7 983.4 26,134.5C. School Upgrading 36.311.8 48.1 39,120.6 51.9 75.432.4 38.0 10,737.0 64,695.4D. Institutional Development

Project Management Unit 1,172.0 44.8 1,444.1 55.2 2,616.1 1.3 241.8 2,374.3Assessment Capacity 1,347.2 54.8 1,113.3 45.2 2,460.5 1.2 283.0 2,177.6MIS Development 6,904.3 75.1 2,292.3 24.9 9,196.6 4.6 3,580.6 5,616.0 -

Management Reform 984.7 38.1 1,598.6 61.9 2,583.4 1.3 173.9 2,409.4 -

Prize 776.1 70.0 332.6 30.0 1,108.7 0.6 - 1,108.7 -

Subtotal Institutional Development 11,184.3 62.3 6,781.0 37.7 17,965.3 9.1 4,279.3 13,686.0E. Studies & Evaluation 1,832.3 77.5 531.9 22.5 2,364.2 1.2 236.4 2,127.8

Total Disbursement 95,964.9 48.4 102,466.4 51.6 198,431.2 100.0 28,988.1 169,443.1

XN,

Table 2:Parana Basic Education Quality Improvement Project

Project Components by Year - Totals Including Contingencies(US$ '000)

Totals Including Contingencies94/95 95/96 96/97 97/98 98/99 Total

A. Instructional MaterialsTextbooks 11,113.6 5,069.9 12,171.9 5,561.9 2,026.8 35,944.1Didactic Materials 8,487.3 7,896.3 12,096.8 1,368.6 1,417.9 31,266.8Reading Books 99.8 3,901.9 - - 4,338.7 8,340.5

Subtotal Instructional Materials 19,700.6 16,868.2 24,268.6 6,930.5 7,783.4 75,551.4B. Teacher Training 3,355.2 5,732.3 8,272.8 6,449.5 3,308.1 27,118.0C. School Upgrading 16,579.1 15,712.3 16,550.4 13,066.8 13,523.7 75,432.4D. Institutional Development

Project Management Unit 519.2 536.8 501.8 519.8 538.5 2,616.1Assessment Capacity 481.2 394.3 501.5 510.9 572.6 2,460.5MIS Development 5,087.4 3,210.0 413.0 238.8 247.4 9,196.6 1Management Reform 578.7 630.9 654.6 377.2 341.9 2,583.4 ooPrize - 262.6 272.1 281.9 292.0 1,108.7

Subtotal Institutional Development 6,666.4 5,034.7 2,343.0 1,928.6 1,992.5 17,965.3E. Studies & Evaluation 629.9 651.4 348.3 360.8 373.8 2,364.2Total PROJECT COSTS 46,931.3 43,998.9 51,783.1 28,736.3 26,981.6 198,431.2

:tDX

Tabbl 3Parana Basic Education Quality Improvement Project

Expenditure Accounrts by Components - Totals Including Contingencies(USS '000)

Instttutlonal Development

Instructional Materials ProjectDidactic Reading Teacher School Management Assessment MiS Management Studies &

Textbooks Materials Books Tfalning Upgrading Untt CapacIty Developmerit Reform Prize Evaluatlon Total

L Investment CostsA CMI Works - - 67,178.5 - 67,1785

S. Equipment & Furniture1. Furniture - 4,473.3 - - 4,950.1 - - 9,423S

2. Equipment 6,341.5 152.6 - 114.5 157.8 3,974.9 - - 10,741.3Subtotal Equipment & Fumiture 10,814.8 152.6 4,950.1 114.5 157.8 3,974.9 - - - 20,164.7C, Technical Assistance

1. Policy Support - - - - - - - - 2.3642 2,342

2. Impkementation Support 33.3 33.3 33.3 175.2 - 1,090.1 26.8 3,270.7 12.0 - - 4,674.73. Institutional Developmnent - - - - - 852.1 - 882.9 - - 1,735.0

Subtotal Technical Assistance 33.3 33.3 33.3 175.2 1,090.1 878.9 3,270.7 894.9 - 2,364.2 8.773.8

D. Training - - - 26,469,9 - 103.3 117.7 1,199.1 - - - 27,890.0

E. Instructional Mteriais - 20,130.4 - 177.7 - - - 20,308.1

F. Textbooks 35,844.2 - - - - - - 35,844.2

G. Reading Books - - 8,240.7 * - - - - - - 8.240.7

H. Goods & Serices 33.3 33.3 33.3 138.7 - 218.0 624.2 407.3 - 1,488.0I. Prize - - - - - - - - 1,108.7 - 1,108.7

J. intenanrce & Operation 33.3 255.0 33.3 4.0 3,303.7 545.1 682.0 751.8 1,28112 - 6,889.3

K. Incremental Salaries - - - 545.1 - - - - - 545.1

Total PROJECT COSTS 35,944.1 31,266.8 8,340.5 27,118.0 75,432.4 2,616.1 2,460.5 9,196.6 2,583.4 1,108.7 2,364.2 198.4312

Taxes - - - -

Foreign Exchange 1,798.9 10,369.6 583.5 983.4 10,737.0 241.8 283.0 3,580.6 173.9 - 236.4 28,9A81

Table 4:Parana Basic Education Quality Improvement Project

Expenditure Accounts by Years - Totals Including Contingencies(US$ '000)

Totals Including Contingencies94J95 95/96 96/97 97/98 98/99 Total

I. Investment CostsA Civil Works 15,468.3 14,326.1 14,793.9 11,217.7 11,372.5 67,178.5

B. Equipment 8 Furniture1. Furniture 2,193.9 2,482.9 3,070.7 832.3 843.6 9,423.5

2. Equipment 6,430.6 2,478.9 1,754.2 38.1 39.5 10,741.3

Subtotal Equipment & Furniture 8,624.5 4,961.8 4,824.9 870.4 883.1 20,164.7

C. Technical Assistance1. Policy Support 629.9 651.4 348.3 360.8 373.8 2,364.2

2. Implementation Support 2,487.7 1,486.7 224.2 233.8 242.2 4,674.7

3. Institutional Development 348.3 390.2 477.7 257.6 261.2 1,735.0

Subtotal Technical Assistance 3,465.9 2,528.2 1,050.2 852.2 877.2 8,773.8 1

D. Training 3,251.6 6,290.1 8,544.6 6,472.2 3,331.6 27,890.0 o

E. Instructional Materials 3,944.4 5,339.0 8,353.0 1,312.2 1,359.5 20,308.1

F. Textbooks 11,013.7 5,069.9 12,171.9 5,561.9 2,026.8 35,844.2

G. Reading Books - 3,901.9 - - 4,338.7 8,240.7

H. Goods & Services 522.9 247.3 266.6 221.6 229.6 1,488.0

I. Prize - 262.6 272.1 281.9 292.0 1,108.7

J. Maintenance & Operation 538.3 966.7 1,397.2 1,833.4 2,153.7 6,889.3

K. Incremental Salaries 101.6 105.1 108.8 112.8 116.8 545.1

Total PROJECT COSTS 46,931.3 43,998.9 51,783.1 28,736.3 26,981.6 198,431.2

x

-61- ~~~~~Annex 3

. | ,~~~~~~

gX

Strudure of the State SeCetariat of Education

State Secriaria l

of Education

Stawe Counaci for Education

PUNDEPAR

Office of the SaWd*t|y TeChnical Aaistanc

(TA)

Directo Cw 0

Sectoral Adminisration

Sectogal Prning Goup Group

(GPS) (GAS)

Human Rcsourcea

Sectoral Finance Group Gr|p

(GFS) (GRHiS)

SuperinIendes of Education

4"Ila EAhxada Came for Sti Tmacbsr T1mhhg

De nK (DE hm) omt CA.r (CETEPAR)

lIi~ 1111Id R~omn It

X

-63- Annex 4

EDUCATIONAL DECENTRALIZATION IN PARANA

Since the mid 1980s, the State of Parand has been implementing apolicy of "municipalization," in education as well as other sectors,consisting of the gradual decentralization of selected responsibilities andresources to the municipal level. As of 1986, the state government stoppedhiring teachers for grades one through four. Municipalities were encouragedto hire' teachers to fill positions in state schools while the Secretariat ofEducation (SEED) transferred resources to the municipalities to pay forsalaries.

With the adoption of a new state constitution in 1991, the statestopped transferring resources to the municipalities to pay for the teachersthey had hired. Instead, it revised its "municipalization" program throughthe establishment of a "cooperative agreement of education partnership." Outof 371 municipalities, 92 signed the agreement in the beginning of 1992while at the end of the year the number had risen to 260. As of July 1993, atotal of 303 municipalities in Parana, or 81 percent of the total, had enteredinto partnership agreements.

Municipalities entering into a partnership agreement with the stateagree to: (i) spend the Constitutionally mandated minimum of 25 percent oftheir tax revenue on education; (ii) assume the responsibility foradministration, upkeep and maintenance of (formerly) state schools servingthe first four grades of primary school within its jurisdiction; (iii) assume theresponsibility for replacing state-seconded teachers who retire or otherwiseleave the system; (iv) establish and maintain minimum qualifications forteachers; (vi) regularly provide SEED with enrollment and expenditureinformation; and (v) maintain the ciclo basico in primary schools turned overto the municipality.

For its part, the state assumes responsibility for: (i) seconding stateteachers to the municipality with full payment of salaries as well as pensionsupon retirement; (ii) investing in renovations to school buildings beforeturning them over to the municipality, and maintaining those buildingsserving grades 1-8; (iii) providing training and technical assistance; and (iv)providing supplementary funding to those municipalities not able to attain aminimum expenditure per student within the mandated 25 percent of theirown budgets. Currently, the only direct way of transferring educationalresources to the municipalities is under the "municipalization" program.Financial transfers are based on a minimum percentage of the state portion ofthe "saldrio educafao," and are made on a quarterly basis. In order toverify that a municipality has in fact spent 25 percent of its tax revenue oneducation-related expenditures, the partnership contract requires themunicipality to provide a certification of such by the state auditing agency.In order to determine which municipalities are entitled to receive resourcesand how much each one will receive, SEED uses a formula' that takes intoconsideration a municipality's average monthly revenue (established by theConstitution), total enrollment of state and municipal schools, and a pre-

-64- Annex 4

established monthly cost-per student determined by SEED. While transfersare done on a monthly basis and used for recurrent expenditures, the formulais calculated every three months. Whether a municipality receives additionalfunding, and how much, can fluctuate from quarter to quarter depending onits tax situation and school attendance records.

In order to examine how the transfer system is working in the State ofParana after the process of "municipalization" started, a sample of 42municipalities representing the 373 existing municipalities was selected andanalyzed. The following were some of the findings about the behavior ofeducational expenditures in 1991: a) 20.5 percent of the resources of the"non-municipalized" municipalities were from taxes, while only 5 percent ofthe resources of the "municipalized" municipalities were from taxes.Municipalities with the least tax collection capacity appear to be the oneswho are most likely to benefit from "municipalization," and they thereforehave an incentive to sign an agreement (convenio) with the state government;b) capital expenditures of the "non-municipalized" municipalities represented28.2 percent of the total expenditures while for the "municipalized" ones thatpercentage was 15.6 percent, leading to the conclusion that non-municipalized municipalities have greater capacity to invest in constructionand equipment; c) in terms of total education spending as a percentage of themunicipal budget, there does not seem to be much variation between"municipalized" and "non-municipalized" municipalities: an average of 24.7percent of the total expenditure was allocated to education in the 42municipalities, with a variation of only 2 percent between the"municipalized" and "non-municipalized" ones.

In the short-run, the formula being used for the transfer of resourcesis advantageous for the municipalities that have greater enrollment than theirfinancial capacity, since they receive additional resources to support theadditional enrollment. However, for those municipalities that have financialcapacity greater than enrollment the agreement is disadvantageous since theywill have to shoulder the responsibility of the state schools while notreceiving any transfers from SEED. For this reason, several of the largerand richer municipalities have not yet signed a partnership agreement withthe State government.

The long-run tendency is that municipalities will be responsible formore expenses as they undertake the responsibility of maintaining andincreasing the number of schools in the municipal system, as well as hiringteachers to substitute state teachers that have retired. Since teachers retirewith 25 years of service and since the state stopped hiring new teachers in1986, after the year 2011 all the teachers for grades 1-4 in the educationsystem of Parana could presumably be hired by municipalities. Thus, stateexpenditures should gradually decline while municipal expenditures increase.

-65- Annex

1. The trnsfer formula is calculated in the following way:

Formula I - CFM - (RTMA * 25%)ICAM

Where: CFM -> Financial ceapacity for current enrollment

CAM -> Monthly Student Cost (cetablished by SEED)

RTMA - > Average monthly tax revenues are calculated making the adjustment for monthlyinflation;

Note: If formula I yields a nurnber larger tham the total number of students in both mnunicipal andstte schools, the municipality will not receive any state transfers. Otherwise, the municipalitywill receive state transfers.

Formuls 2 - VPCA = [(MAM * 100)/CFMI - 100

Where: VPCA -> Variable percentage of enrollment capacity (this number is a % and can be eitherpositive or negative)

MAM - > Current enroHmnent in municipality

Note: When the umlt is positive, it means that the municipality is spending more than 25 % of itsresources on education; when the result is negative it means that the municipality is spendingless than 25% of its resources on education.

If VPCA is > or - 80 % SEED will increase by 20% the monthly sudent costusing the following formula:

CAM * 1.20 X (MAM - CFM)

If VPCA rangs from .01 % to 79.99 % then:

CAM * (MAM - CFM)

If VPCA rangcs from -20% to 0% then:

CAM *35

-66- Annex 5

REGIONAL IMPLEMENTATION STRATEGYFOR TEACHER TRAINING AND INSTRUCIIONAL MATERIALS

For the implementation of the teacher training component and ins'ructional materialsother than books, SEED has defined a gradualist strategy of implementation by region. Inthe first year of the project, SEED would distribute materials and train teachers and otherpersonnel associated with the seven SEED regional offices (Nucleos Regionais de Ensino) inthe Curitiba Metropolitan and Northwest regions of the state. In the second year of theproject, training activities would be extended to state and municipal schools associated withan additional ten SEED regional offices. Schools in these regions would also receiveinstructional materials in the second year of the project. By the third year of the project, allschools will have received materials and will have been incorporated into the trainingprogram.

Table 1: Overall Schedule for Implementing the Project

Y-=ea SEED Regional Offices (Ntcleos)

1994

North Metropolitan Area

South Metropolitan Area

Curitiba

Assis Chateaubriand

Cascavel

Foz do Iguacu

Toledo

1995 Paranagua

Ponto Grossa

Telemaco Borba

Uniao da Vit6ria

Wenceslau Braz

Jacarezinho

Apucarana

Paranavaf

-67- Annex

Table 1: Overall Schedule for Implementing the Project

Maringa

Londrina

1996 Irati

Nova Londrina

Ivaipora

Umuarama

Cianorte

Campo Mourao

Goioere

Pitanga

Cornelio Proc6pio

Francisco Beltrao

Dois Vizinhos

Pato Branco

Guarapuava

-68- Annex S

Table 2: Parana Basic Education Teacher TrainingTarget Number of Trainees by Region

Region I Rcgion 2 - egjon 3-State SchoolsUrban

Principals 799 1107 984Specialists 883 1223 800Pre-school 493 470 417Grades 1-4 5876 8019 6300Grades 5-8 7528 8907 7220Spec. Ed. 297 395 334Librarians 810 1110 960

RuralPrincipals 74 54 133Specialists 27 23 28Pre-school 20 40 23Grades 1-4 584 954 1003Grades 5-8 569 375 1099Spec. Ed. 0 13 6Librarians 90 60 120

Municipal SchoolsUrban

Principals 266 35 277Specialists 268 543 75Pre-school 429 1325 593Grades 1-4 3599 6456 2026Grades 5-8 239 679 121Spec. Ed. 81 96 19Librarians 270 540 240

RuralPrincipals 79 59 55Specialists 32 24 0Pre-school 116 128 154Grades 1-4 2837 3384 6529Grades 5-8 115 223 120Spec. Ed. 4 8 6Librarians 90 60 60

Total Number of Trainees 26,475 36,310 29,702

Source: FUNDEPAR 1990

-69- Annex 6

PRELIMINARY INDICATORS FOR PROJECT MONITORING AND EVALUATION

As agreed during project preparation and specified in draft form in the project'sOperational Manual, monitoring under the Parana Basic Education Quality project will bedivided into two phases: (i) monitoring of the physical and financial implementation of theproject; and (ii) monitoring of indicators related to project goals. Monitoring activities will alsotake place at two levels: (i) the level of central executing agencies, regional SEED offices(NREs), and municipalities; and (ii) the level of the schools themselves. Aggregate level dataavailable at the SEED, NRE, and municipal levels through existing or newly created informationsystems will be checked through annual surveys done in a random sample of schools. Thesesurveys will involve actual visits by researchers to schools, and not merely responses to mailedquestionnaires. Responsibility for oversight of monitoring activities will be vested in the ProjectCoordination Unit, with outside technical assistance as needed.

IMPLEMENTATION INDICATORS

Implementation indicators are here defined as quantitative measures of each component'sphysical implementation targets, and are intended as a checklist for supervision and reportingpurposes. More qualitative evaluation (for example, of the teacher training component) willbe done through separate studies or surveys. The principal indicators to be regularly trackedare listed in Table 6A.

OUTCOME INDICATORS

The project's overall goal is to improve educational attainment in the state of Parana, asdefined by increases in student learning and graduation from primary school. Progress towardthis goal will be measured by the following indicators: (i) percentage of students reaching fifthgrade with a maximum of one repetition; (ii) the percent of students reaching eighth grade witha maximum of two repetitions; (iii) changes in the overall success rate for children in the firstto fourth grades; (iv) changes in the overall success rate for children in the fifth to eighth grades;(v) results on standardized tests in portuguese given to fourth graders; and (vii) results onstandardized tests in mathematics given to fourth graders. A summary of these indicators andthe methodology to be used in calculating them are presented in Table 6B.

Although it will only be possible to attribute changes in these indicators to projectactivities through a structured project impact study (contemplated under the Studies andEvaluation component), these overall indicators, like the implementation indicators, will betracked on an annual basis. Simulations of student flow done using the Kline/Costa Ribeiromethodology for correcting official statistics found that in 1990, 45 percent of studentscompleted 5th grade with a maximum of one repetition, while 15 percent of students completed8th grade with a maximum of two repetitions (see Table 6C). Taldng these rates as a baselinefor the start of the project, the targets for improving system efficiency by the end of the project

-70- Annex C

were set at 60 percent of students reaching 5th grade with a maximum of one repetition, and 25percent of students reaching 8th grade with a maximum of two repetitions (see Table 6D).Given that passage from lower primary to higher primary grades is highly correlated with thelikelihood of completion of eighth grade, improvements in this measure are also taken as atrigger of improvements in the overall rate of completion of primary school. The first roundof standardized tests to be developed by the state (scheduled for fall of 1994) will serve as thebaseline for monitoring learning achievement. Although success rates from 1985 to 1990 arepresented in Table 6E, it was decided that given the fairly recent introduction of the CBA (ciclobdsico de alfabetizapao) in 1988, more recent data was needed in order to establish a reliablebaseline and set targets.

-71- Annex 6

Table 6A - Parana Basic Education Quality Project - Implementation Indicators

Compont .Indicator(s)

I. Instructional Materials

Textbooks (a) percent of textbooks provided relative toplanned;(b) percent of children with textbooks

Educational Materials (a) percent of schools receiving educationalmaterials;(b) percent of children benefitting

Library Enrichment (a) percent of schools receiving books and/orvouchers;(b) percent of children benefitting

II. Teacher Training (a) percent of teachers, principals, supervisors, andlibrarians trained relative to planned

Ill. School Upgrading (a) number of new classrooms built;(b) percent of estimated demand covered;(c) number of students directly benefitting

IV. Institutional Development

Assessment Program (a) percent of schools receiving analysis ofassessment results

Information Systems (a) percent of microcomputers distributed toschools, NREs and municipalities relative toplanned;(b) percent of administrators trained in use ofcomputers;(c) average delay (days, months, years) inavailability of selected system information

Management Reforms (a) percent of schools receiving managementmanuals;(b) percent of municipalities in partnershipagreements with the State;(c) percent of students in grades 1-4 in municipal ormunicipalized schools;(d) percent of municipalities receiving trainingunder the project

Quality Improvement Prize (a) percent of schools, NREs and municipalitiesparticipating in program;(b) number of schools, NREs and municipalitiesreceiving prizes

-72- Annex 6

[Component Indicator(s)

V. Studies and Evaluation (a) number of studies contracted and completedrelative to planned;(b) percent of schools, NREs and municipalitiesreceiving study findings

Table 6B - Parana Basic Education Quality Project - Outcome Indicators

[Indicator(s) |_Methodology [Level of Data Aggregation

Indicators of System Efficiency

Percent of students reaching 5th Ruben Kline/Sergio Costa Ribeiro State (both state and municipalgrade with maximum of one PROFLUXO model for cohort systems)repetition simulation

Percent of students reaching 8th Idem Idemgrade with maximum of tworepetitions

Success rate for grades 1-4 Total number of students Municipality by system (state andpromoted in the first four grades municipal)divided by the initial enrollmentminus transfers in same grades.

Success rate for grades 5-8 Idem Idem

Indicators of LeaningAchievement

Results of Portuguese tests given Criterion-referenced standardized NRE by system (municipal andto 4th graders in both state and tests, given to a random sample state)municipal systems of 4th graders.

Results of Mathematics tests Idem Idemgiven to 4th graders in both stateand municipal systems

-73- Annex 6

Table 6C - Paramn - Estimates of System Efficiency Indicators Based on Simulations of Student Flow

Year Percent of Students Reaching 5th Percent of Students Finishing 8thGrade with a Maximum of One Grade with a Maximum of Two

l_____ Repetition Repetitions

1981 26 9

1982 29 8

1983 29 10

1984 26 8

1985 35 12

1986 28 8

1987 39 15

1988 46 18

1989 39 14

1990 45 15

Table 6D - Parana Basic Education Quality Project - Annual System Efficiency Targets

Year Percent of Students Reaching 5th Percent of Students Finishing 8thGrade with a Maximum of One Grade with a Maximum of TwoRepetition Repetitions

1994* 45 15

1995 48 17

1996 51 19

1997 54 21

1998 57 23

1999 60 25

Base Year

-74- Annex6

Table 6E - Paman - Estimated Success Rates (Primary School)

Year Total Success Rate: Grades 1-4 Total Success Rate: Grades 5-8

1985 71 78

1986 70 77

1987 71 78

1988 72 78

1989 73 76

1990 76 77

-75- Annex7

BRAZILPARANA BASIC EDUCATION QUALlTY IMPROVEMENT PROJECT

SELECTED DOCUMENTS AVAILABLE IN PROJECT FILE

1. Estado do Parana, Secretaria de Estado do Planejamento eCoordenacao Geral. Proposta do Plano Plurianual. 1992-1995.September 1991.

2. Estado do Parana, Secretaria de Estado da Educacao. Plano GlobalEducaco Basica. 1992-1995. 1991.

3. Original Project Proposal - SEED/PR. Projeto Qualidade no EnsinoPublico do Parana. July 1992

4. SEED/PR. Projeto Qualidade no Ensino Publico do Parana -- Roteiropara Discussao. October 1992

5. SEED/PR. Projeto Qualidade no Ensino Publico do Parana --Resumo Executivo June 1993.

6. SEED/PR. Projeto Qualidade no Ensino Publico do Parana --Capacitagco dos Recursos Humanos da Educaco, June 1993; revisedversion May 1994.

7. SEED/PR. Projeto Qualidade no Ensino Publico do Parana --Desenvolvimento Institucional, June 1993; revised version, May 1994.

8. SEED/PR. Projeto Qualidade no Ensino Publico do ParanA -- SaudeEscolar, June 1993

9. SEED/PR. Projeto Qualidade no Ensino Pu'blico do Parana --Materiais Pedag6gicos e Equipamentos, June 1993; revised versionMay 1994.

10. SEED/PR. Projeto Qualidade no Ensino Publico do Paran5 --Expansao da Rede Ffsica -- October 1993

11. SEED/PR. Projeto Qualidade no Ensino Publico do Paran5 --Estudos, Pesquisas e Avaliaqao, July 1993

12. SEED/PR. Projeto Qualidade no Ensino Publico do Parana -- RedeFfsica. Detalhamentos Complementares, July 1993

13. SEED/PR. Informac6es Sobre o Processo de ParceriaEducacional/Munipalizacao 1992-1993.

14. Marques, A.E.S. and Xavier, A.C.R. 0 Financiamento da Educacono Parana. Brasflia: October 1993 (final version)

-76- Annex7

15. Klein, Ruben and Ribeiro, Sergio Costa. 0 Fluxo dos Alunos doPrimeiro Grau no Estado do Parana na Decada de 1980. November1993.

16. Bank Appraisal Mission Back-to-Office Report, July 28, 1993.

17. Pielemier, Nancy. Parana Basic Education Project -- Final Appraisal,School Health Component. Consultant Report.

18. SEED/PR. Manual de Operacoes. Preliminary Version, May 1994.

19. Declaration on Policies for the Improvement of Basic Education inParana, May 1994.

20. Govemo do Estado do Paranl. Copies of Decrees Number 3134 and3135, Establishing the Conselho Consultivo (Coordinating Committee)and the Project Management Unit.

21. Preliminary terms of reference for studies proposed under the Studiesand Evaluation Component.

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