Peru - Primary Education Quality Project

Dacum. of The World Bank FOR OMRCUL MS ONLY Rqprt No. P-6400-PE IDMORANDUM A1ID RECllIDATION OF THE PRESIDENT OF THE INTERFATIONAL BANK FOR VEONSTRUCTION AND DEVEPMN TO THE XTECTIVE DIRECTORS ON A PROPOSED LOA IN M AMOUNT EQUIVALENT To US$146.4 MILLION TO THE REPUBLIC OF PERU FOR A PRIARY EDUCAION QUALITY PROJECT NIOVEBER 28, 1994 Thls docunt has a restricted distribtio and may be nod by recipiet only in the perfotuanm of tei ofcial duties. Its contents may not otewis be dasclosed widwut ord BOan auhod to  CURRENCY EQUIVALENTS (as of August 31, 1994) Current Unit = Nuevo Sol (SI.) US$1.00 S/. 2.25 US$1 million = SI. 2.250 million US$444.444 SI. 1 million FISCAL YEAR January 1 - December 31 ACADEMIC YEAR April 1 - December 15 PRINCIPAL ABBREVIATIONS AND ACRONYMS USED APAFAS Asociaci6n de Padres de Familia ADES Areas de Desarrollo Educativo CEI Centros de Educaci6n Inicial COMUNED Consejo Comunal de Educaci6n DINFE Direcci6n de lnfraestructura Educativa DRE Direcci6n Regional de Educaci6n DSRE Direccion Subregional de Educaci6n ENSA Encuesta Nacional de Salud FONCODES Fondo Nacional de Compensaci6n y Desarrollo Social GDP Gross Domestic Product GOP Government of Peru GTZ German Agency for Bilateral Cooperation IDB Inter-American Development Bank INFES Instituto Nacional de Infraestructura Educativa y de Salud ISP Institutos Superiores Pedag6gicos KfW Kreditanstalt fOr Wiederaufbau MHC Minis.ry of Transport, Housing and Construction MOE Ministry of Education MEF Ministry of Economy and Finance MEP Ministry of the Presidency NEC Nd3cleos Escolares Comunales ORDES Organismos Regionales de Desarrollo PRONOEI Programas no Escolarizados de Educaci6n Inicial OREALC/UNESCO Oficina Regional de las Naciones Unidas Para la Educaci6n y Cultura SENCICO Servicio Nacional de Capacitaci6n para Is Industria de la Construcci6n UNDP United Nation Development Program USES Unidades de Servicios Educativos  FOR OFFICIAL USE ONLY PERU PRIMARY EDUCATION QUALITY PROJECT LOAN AND PROJECT SUMMARY Borrower: Government of Peru Implementig Agencies: MOE, INFES Benefidary: Ministry of Education Poverty: Program of Targeted Interventions Amount: US$ 146.4 million equivalent Terms: Repayment in 17 years, including a grace period of five years with loan amortization based on level repayments of principal at the Bank's standard variable rate. Commitment Fee: 0.75 percent on undisbursed loan balances, beginning 60 days after signing. Flinandg Plan: See Schedule A. Net Present Value: Not Applicable Staff Appraisal Report NO: 13426-PE This document bas a resticted distb 8on and may be sd by recilents in the pt ydomm o(tul affidal dutiest Its cotents mway not ohewwse be disloosed woWoldd Bank t  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF PERU FOR A PRIMARY EDUCATION QUALITY PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed loan to the Republic of Peru for the equivalent of US$146.4 million to help finance a primary education quality project. The loan would be at the Bank's standard variable- interest rate, with a maturity of 17 years, including a five year grace.period. Background 2. Peru has one of the highest rates of enrollment in primary education in Latin America. The share of 6 to 14-year-olds attending school increased steadily from 78 percent in 1972 to 89 percent in 1991. 'Me high proportion (97 percent) of each age cohort who enroll in first grade on time (between ages 6 and 7) suggests that parents are committed to sending their children to school. However, during the last three decades, this increase in educational demand has been accompanied by declining financial resources and mismanagement of the sector. The conflict between a dramatic expansion of enrollment and a decrease and misuse of resources has seriously affected the quality of education. 3. Expenditures on education have experienced a continuous decline in real terms, causing Peru to lose its leadership role in educational investment in Latin America. In the early 1970s, educational expenditures as a percent of GDP in Peru were slightly above the LAC regional average (3.5 percent vs 3.4 percent), but by the beginning of the 1990s they were significantly below that average (1.9 percent vs 3.5 percent). The decline in real expenditures, coupled with expanding enrollment, resulted in a sharp drop in real per student spending after 1985, from US$175 per student to about US$80 per student by 1989-90. 4. Parallel to this growing tension between increasing demand for education and decreasing resources, a series of management changes weakened the Government's institutional capacity. These changes included the creation of school clusters to strengthen rural schools in the early 1970s, and the transfer of key educational responsibilities to regional authorities in the late 1970s. Although well- intentioned, the measures were poorly conceived, planned and implemented, leaving the Ministry of Education (MOE) with little capacity to manage daily operations or to enforce and implement national policies. The situation was aggravated by the 1989 regionalization law which gave the Ministry of Finance (MEF) authority to negotiate the education budget with each region. By controlling resource allocation, MEF was left in a better position than MOE to influence educational policies at the regional level and MOE lost all control over the provinces. 5. Financial difficulties have also affected the physical conditions of the schooling environment. Only about 30 percent of the classrooms are in good condition, 57 percent require immediate repair and approximately 13 percent of the classrooms are unsalvageable. Furthermore, schools in poverty- stricken rural and urban areas lack basic furniture, and only 2.4 percent of rural schools have access to water, sewerage and electricity. 6. As part of the preparation of the Primary Education Project, the Government recently completed the preparation of a long-term plan to improve the quality of primary education and to increase access among ethnic minority children to this education level, and is formulating a more  -2- comprehensive long-term strategy for the entire education sector. Recently, the Government produced a draft of this strategy in a document entitled Long-Term Education Development Plan (1995-2010). The main objectives of this strategy are to increase coverage at the preschool and primary school levels, to improve the quality of education at all levels in order to meet the challenges of technology-driven economic development, and to strengthen the institutional framework and the man&jement capacity of the educational system. Implementation of the Long-Term Education Development Plan would be financed by the national budget as well as by resources from the privatization program,- loans from multinational and bilateral organizations such as the World Bank, the Inter-American Development Bank, and KfW, and contributions from bilateral donors (e.g. Spain and Germany). Rationale for Bank Involvement and the Relationship of the Project to the Bank Country Assistance Strategy - 7. This operation is consistent with the Country Assistance Strategy discussed by the Board on November 22, 1994 on the basis of the Memorandum and Recommendation of the President dated October 28, 1994 (Report No. 12997-PE) which includes improvement of primary education as one of the strategies lursued by the Bank to help develop Peru's most important resource, its human capital. The proposed project would help achieve this objective by improving school teaching conditions as well as quality of teaching and school management, and by reducing repetition and drop-out rates. The project would also foster better resource utilization and more effective service delivery by modernizing educational management and increasing public school autonomy and accountability. Proect Objectives and Description 8. The project's major goals are to improve the quality of primary education and to strengthen the manaement capacity of the MOE at the central, regional and school level. Specifically, the project would improve teaching conditions by rehabilitating dilapidated classrooms and by distributing teaching materials and training teachers on tde use of these materials. Educational management would be strengthenied through the modernization of current management practices and the transference of key management functions to schools. 9. The proposed project has three main components. An Educational Qualiy component (US$88.1 million, or 35 percent of total base costs) would reduce repetition and dropout rates, and increase educational attaintment by improving the availability and quality of textbooks and instructional materials; enhance teaching competencies of primary school teachers; and improve the curriculum's scope, sequence and adaptability. A Modernization of Educational Administration component (US$44 million, or 17 percent of total base costs) would strengthen the management capacity of the education sector at the central, departmental and local levels by transferring various budgetary and management functions from the MOE, and USES to the schools; develop information management capabilities at the central, departmental, and local levels; and establish a modern student assessment system. An lnfrastructure Improvement component (US$121.8 million, or 48 percent of total base costs) would support the improvement of teaching and learning conditions by rehabilitating and replacing school infrastructure in rural and urban poor areas. The resources will primarily be targeted at financing the rehabilitation and replacement of classrooms in thirteen departments where the proportion of unsalvageable classrooms is above the national average, the proportion of student  -3 - enrollment is below the national average, and the proportion of population living under extreme poverty conditions is above the national average. 10. As part of its long term education strategy, the Peruvian Government has also asked the Inter- American Development Bank (1DB) to flnance a parallel loan to the education sector. The main components of that proposed loan are: (i) expansion of access to preschool education; (ii) improvement of secondary educatien; (iii) reform of vocational and technical education; and (iv) strengthening the capacity of the MOE for strategic planning. The GOP has also requested from the German Government financial support to implement the teacher training component of the current project and technical assistance for the preparation of a project tO reform pre-service teacher training and a bilingual education program. To ensure that these projects complement each other, IDB, KfW, GTZ and World Bank staff have been in close contact throughout the project preparation period. Project Costs and Flnancdng 11. Total project costs, including physical and price contingencies, are estimated at US$298.6 million. Foreign exchange costs, local costs excluding taxes, and duties and taxes amount to US$22.1 million (7 percent), US$234.4 million (78 percent) and US$44.3 million (15 percent) of total project costs, respectively. Base costs are estimated at US$253.9 million (US$19.5 million in foreign exchange costs, US$189.7 million for local costs excluding taxes, and US$44.3 million for duties and taxes). A breakdown of project costs and financing plan is shown in Schedule A. Amounts and methods of procurement and disbursement, and the disbursement schedule, are shown in Schedule B. Retroactive financing of up to US$14.6 million equivalent would be provided for expenditures made in accordance with Bank procurement guidelines since July 5, 1994 (project appraisal), to ensure that technical assistance and civil works necessary for the timely implementation of the project begin with sufficient lead time. A timetable of key processing events and the status of Bank group operations in Peru are given in Schedules C and D respectively. A Staff Appraisal Report NO 13426-PE, dated November 14, 1994, is being distributed separately. Project Implefnentation and Sustainability 12. Implementation. The project would be executed within the existing organizational structure of the MOE supported by a Project Implementation Unit (PIU) and with the participation, via implementation agreements. of the National Institute for Educational and Health Infrastructure (INFES) and National Training Center for the Construction Industry (SENCICO). To carry out their obligations, MOE, INFES, and SENCICO would be directly responsible for contracting out services for implementing the different components of the project and for ensuring that the components achieve project objectives. 13. The PIU, reporting directly to the Minister of Education, would coordinate project activities which would be undertaken by the MOE's directorates of Education Technology, Educational Research and Training, Supervision, Infrastructure, and Planning. The PIU would be responsible for consolidating the yearly work plans, coordinating activities among participating agencies, providing administrative backup services, and carrying out project monitoring and evaluation. To ensure efficient and timely implementation of the project the Government has agreed to set up a Special Account in U.S. dollars in a commercial bank with an initial deposit of US$7.0 million equivalent, corresponding to about four months of project implementation costs.  4- 14. Sustainability. The effect of the proposed project on total educational expenditures and the ability of the GOP to finance these, has been carefully examined in the context of Government's overall commitments to education. The Government prepared a long-term plan outlining its strategy to improve the quality of primary education in Peru and projecting the financial needs of the sector until 2010. According to the plan, the Government needs to increase annual public spending in education from the current level of 14 percent in 1994 to 16 percent by the year 1999. The long-term plan's overall budgetary estimates and the corresponding project's budget line items, would be used as the basis for annual discussions with the Government on budget allocations for the fbllowing year. 15. - To ensure long term sustainability of the investments associated with the project it is important that the MOE be in a position to assume some of the expenditures linked to the implementation of project activities after project completion and integrate them as part of the sector's recurrent costs. The additional annual recurrent expenditures at the end of the project are estimated at about US$24 million in 1994 prices, representing about 3.3% of the MOE's recurrent budget for 1994. The estimated increase in recurrent expenditures will consist mainly of educational materials (textbooks, teacher's guides) and teacher training. LAssons Learned 16. The lessons from the Primary Education (Second Education) Project (Loan 2465-PE) in Peru and from Bank experience with education projects in other countries have been examined and have influenced the proposed strategy for this project. These lessons relate to issues of sustainability, effective implementation, monitoring and evaluation, and sector specific issues such as textbooks and instructional materials and teacher training. 17. The proposed project takes these lessons into consideration by: (i) financing programs for upgrading teachers and supporting the development of a separate strategy for revamping the teacher certification system; (ii) financing training programs that are practice-oriented and are linked with the new textbooks and instructional materials; (iii) stimulating local implementation of training programs; (iv) conducting a national project launch workshop which would be followed up by a series of similar regional workshops; and (v) conditioning disbursement for civil works to the achievement of previously agreed targets for textbook distribution and teacher training. Agreed Actions 18. At negotiaticns, it was agreed that the MOE would: (a) operate and maintain, during the execution of the project, the PIU with an internal structure, functions and staffing satisfactory to the Bank; (b) operate and maintain, during the execution of the project, a high level Advisory Council; (c) submit to the Bank, not later than December 31 of each year of project implementation, progress reports on the Project including, inter-alia: (i) information on the progress achieved in the implementation of the project and on the achievement of its objectives based, inter-alia, on the agreed monitoring indicators; (ii) assessment of the problems and issues derived from the implementation of the project; and (iii) information on the compliance of INFES and SENCICO with their respective participation agreements; (d) furnish to the Bank, for its review and approval, not later than December 31 of each year of project execution, a proposed annual investment plan providing for the activities, implementation schedule, and proposed budget for each component of the project during the upcoming year; (e) submit to the Bank, no later than December 31, 1995, a copy of the Bilingual Education Plan; (f) submit to the Bank not later than December 31 of each year of project execution,  -5 - starting in 1996, reports on the progress in the achievement of the goals of the Long-Tenn Education Devetopmeit Plan; (g) hold annual reviews jointly with the Bank not later than January 31 of each year of proje execution, starting in 1996; (O) conduct jointly with the Bank, 30 months after effectiveness, a mid-term implementation- review of the project to analyze project implementation experience and possible project impact, and progress in the achievement of the goals of the Bilingual- Intercultural Education Plan; (i) maintain through the PIU a consolidated account of all expenditures under the project. These accounts would be audited annually by independent auditors satisfactory to the Bank. The audit reports would be forwarded to the Bank no later that six months after the end of each fiscal year; and 0) require that INFES -uses a system of standard regional unit prices, acceptable to the Bank, to guide the negotiation of contracts for civil works implemented through direct contracting. This system will be rfviewed twice a year by the Bank, MOE, and INFES to assess how adequate are the prices been used. 19. Agreement have also been reached on: a list of monitoring and evaluation indicators including the definition of implementation targets for civil works, school furniture, teacher training, and textbook distribution; a system for tracking project implementation using the monitoring indicators; the final list of the departnents that would participate on the school rehabilitation program; and a commitment that INFES would not finance infrastructure related to primary schools in the targeted schools included in the annual project plan approved by the Bank. The Government and the Bank have further agreed that: disbursement of loan proceeds for the construction, rehabilitation, improvement, furnishing or provision of office furniture would be reserved for targeted schools included in the annual plan approved by the Bank. The number of targeted schools to be included in the annual plans would be determined on the basis of the achievement of the annual implementation targets for textbooks distribution and teacher training to be agreed at negotiations; and withdrawals ior technical assistance for implementing the recommendations of the management audit studies would be conditioned to an agreement between the MOE and the Bank on a concrete action-plan for upgrading management capacity. 20. As condition of loan effectiveness the MOE would: adopt the Operational Manual comprising a description of procedures for project implementation satisfactory to the Bank; amend its agreements with FONCODES, requiring FONCODES to not finance community based projects for the rehabilitation of any of the targeted primary schools classrooms covered in the annual project plan approved by the Bank; appoint the planning specialist, the procurement expert, and at least three of the educational specialists required by the PIU; sign the subsidiary agreements with INFES and SENCICO; and establish the Advisory Council with terms of reference acceptable to the Bank. Poverty Category 21. Consistent with the Bank assistance strategy for Peru, the project contributes to human resource development and poverty reduction through investing in the rehabilitation of targeted primary schools and classroom specific interventions aimed at raising educational attaintment among the less advantaged groups of the country. Environmental Aspects 22. Since the project would only finance replacement of deteriorated classrooms, it is not expected that it would have any adverse environmental impact.  6 - Program Objective Category 23. This project consists of activities included in the categories of poverty reduction, human resource developreat and economic management. Participatory Approach 24. The project was identified during a week-long seminar attended by representatives of the MOE, the Ministry of Economy and Finance, teacher training institutes, universities, NGOs, research institutes, and donor agencies. The seminar resulted in a consensus on the main problems and priorities in primary education. To facilitate project implementation and to gain support from stakeholders, the MOE will organize a four day project launch workshop at the national level with the participation of MOE staff and regional coordinators. lThis workshop will be followed by regional workshops conducted by the regional project coordinators for MOE regional staff, teachers, principals, and educators of universities and teacher training institutes. Benefits and Risks 25. Benefits. The main benefits of the project would be improvements in the quality and internal efficiency of primary education which would result in: (i) increased graduation rates; (ii) reduced resource wastage by reducing repetition and dropout rates; and (iii) improvements in the learning achievement of primary students. Other benefits would be increases in equity among regions and between urban and rural areas and improvement in the MOE's capacity to formulate policies that respond to local needs, to monitor school quality, and to assist local level education authorities in improving the efficiency and quality of their systems. 26. Risks. Main project risks are associated with: (i) the lack of capacity at the central (MOE) and departmental level to implement policies and programs, (ii) possible opposition of departmental and local authorities to the decentralization strategy proposed by the Central Government; and (iii) possible changes in government priorities, resulting from the inauguration of a new administration in 1995. To strengthen MOE's capacity to implement large scale national programs the Bank has been providing during project preparation, technical assistance to the MOE's project preparation team on computerized project management (CPM) techniques. The financial support of a Japanese Grant allowed the MOE to procure training for the staff of the Project Preparation Unit is these techniques which were used for the preparation of detailed project implementation plans. During implementation, the project will support the creation of a small Project Implementation Unit (PIU) responsible for providing project management support and technical assistance to the MOE's operational departnents. This unit would develop and implement standard procurement, monitoring, evaluation, and accounting procedures to be used by the project and the MOE for the procurement of good and services. Also the project would finance training on project management, monitoring and implementation of the staff of the MOE's departnents responsible for instructional materials, student assessment, teacher training, planning, and school infrastructure. Although the risk of opposition of local governments is more difficult to control, the project would try to overcome this obstacle by promoting early involvement of departmental and local educational authorities both in the initiation of each activity and in its implementation.  -7- Recommnwdation 2t. 1 am satisfied that the-proposed 1Qan would comply wi the Articles of Agreement of the Bank and recommend that the Executive Directors approve it. Lewis T. Preston President Attachments Washington, D.C. November 28, 1994  -8- Schedutle A Page I of. - PRIMARY EDUCATION OUALITY PROJECT Summary of Project Costs by Component (USS Million) S Total Local Forign Total Base Costs 1. Infrastructure Improvement 121.5 0.3 121.8 48 2. Improving Educatonal Quality 77.2 10.9 88.1 35 3. Institutional Development 35.7 8.3 44.0 17 Total BASELINE COSTS 234.4 19.5 253.9 100 Physical Contingencies 15.0 .8 15.8 6 Price Contingencies 27.1 1.8 28.9 11 Total PROJECT COSTS 276.5 22.1 298.6 118 Less Taxes 44.3 F:inancing Plan (US$ Million) Proposed IBRD Loan Government Total IBRJ) % Civil Works 99.3 17.9 117.2 84.7 Equipment 7.1 2.5 9.6 73.5 Vehicles 0.1 0.0 0.1 70.7 Techoical Assistance 19.5 7.2 26.7 73.0 Training 0 56.3 56.3 0 Furniture 20.4 3.7 24.1 84.7 Instructional Materials 0 54.5 54.5 0 Seniinars 0 2.7 2.7 0 Sal8aies 0 0.5 0.5 0 Equipment Maintenance 0 0.1 0.1 0 Office Materials and 0 6.8 6.8 0 Operational Costs TOTAL 146.4 152.2 298.6 49.0  9 - Schdule A Page 2 of 2 MUMAY-EDUCATION QUALL- PROJEC Summary of Project Costs by Category of Expenditure (USS Million) %Total Local Foreign Total Base Costs 1. investment Costs A. Civil Works 96.9 - 96.9 38 B. Equipment 4.9 3.8 8.7 3 C. Vehicles 0.0 0.1 0.1 - D. Technical Assistance 20.9 3.3 24.2 10 E. Training 46.4 1.9 48.3 19 F. Furniture 20.7 - 20.7 8 G. Instructional Maerials 35.9 105 46.4 18 H. Seminars 2.4 - 2.4 1 Total investment Costs 228.1 19.5 247.6 98 II. Recufrent Costs A. Salaries 0.5 - 0.5 - B. Equipment Maintenance 0.1 - 0.1 - C. Office Materials & Operational Costs 5.8 - 5.8 2 Total Recurrent Costs 6.3 - 6.3 2 Total BASELINE COSTS 234.4 19.5 253.9 100 Physical Contingencies 15.0 .8 15.8 6 PRice Contingencies 27.1 1.8 28.9 11 Tota PROJECT COSTS 276.5 22.1 298.6 118  - lQ- Schedule B Page I of 2 PERU ERIMARY EDUCATION OUALITY PROECa Procurement Arrangements (US$ million equivalent) Procurment Methods Consuling LCWr Other Services NBF Total A. Civil Works 76.2 41.0 - 1172 (64.5) (34.8) (99.3) B. Equipment -- 9.6 -- -- 9.6 - . (7.1)w (7.1) C. Furniture 21L7 2.4 -- -- 24.1 (18.4) (2,0)b (20.4) D. Vehicles -- 0.1 -- -- 0.1 MAY) (0.1) E. Instructional Materials Printed Material -- -- 35.5 35.5 Non-Printed Materials -- -- 14.9 14.9 Library Materials -- - 4.1 4.1 F. Technical Assistance -- -- 26.8 - 26.8 (19.5) (19.5) G. Training 56.3 56.3 H. Seminars - -- 2.7 2.7 I. Recurrent Costs - . - 7.4 7.4 Total 97.9 53.1 26.8 120.9 298.6 (82.9) (44.0) (19.5) (0.0) (146.4) b Local Competitive Bidding b, Locai and Intemational Shopping - Limited International Bidding 4. Not Bank-Financed Note: values in parentheses represent IBRD financing.  Sgbedvle B Page 2 of 2 PERU PRIMARY EDUCATION OUALITY PROJECT Disbursement Categories and Percentages Amount of the Loan Allocated - Percent of Expenditures to be financed (US$ nmilion) 1. Civil Works 90.7 85% of local expenditures 2. Funiture 19.5 85% of local expenditures 3. Equipment and Vehicles 6.8 100% of foreign and 53% of local expenditures 4. Consultant Services (a) for instructional materials 4.6 100% of foreign and 70% of local and training of teachers expenditures and school principals (b) for the modemization of 14.7 100% of foreign and 70% of local educational administration expenditures S. Unallocated 10.1 TOTAL 146.4 Estimated IBRD Disbursement Total Costs, Including Contingencies (US$ Million) Bank Fiscal Year FY95 FY96 FY97 FY98 FY99 Annual 24.2 44.4 42.7 26.8 8.3 Cumulative 24.2 68.6 111.3 138.1 146.4  -12 - -Page I of I Time Table of Key Processing EvenX" Time taken to prepare: 8 months Prepared by.: Government of Peru with Bank Assistance Ernesto Cuadra (Task Manager) Julian Schweitzer (Division Chief) First Bank Mission: November 1993 Appraisal Mission Departure: June 19, 1994 Negotiations: October 28, 1994 lists of Relevant PCRs: Primary Education (Second Education) Project PCR Report for Loan N