Philippines - Third Elementary Education Project

Document of The World Bank Report No. 15888-PH STAFF APPRAISAL REPORT REPUBLIC OF THE PHILIPPINES THIRD ELEMENTARY EDUCATION PROJECT October 25, 1996 Human Resources Operations Division Country Department I East Asia and Pacific Region  CURRENCY EQUIVALENTS (As of September, 1996) Currency Unit = Peso US$1.00 = Pesos 26 US$0.038 = Peso 1.00 WEIGHTS AND MEASURES I Meter (m) = 3.28 Feet (ft) I Kilometer (km) = 0.62 Mile ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank AUSAID Australian Agency for International Development AWPB Annual Work Program and Budget BEE Bureau of Elementary Education CIDA Canadian International Development Agency COA Commission on Audit DECS Department of Education, Culture and Sports DECS-CO Central Office of DECS DECS-RO Regional Office of DECS DECS-DO Divisional Office of DECS DEDP Divisional Elementary Education Development Plan DoF Department of Finance GoP Government of the Philippines INSET In-Service Training LGU Local Government Unit MIS Management Information System MOOE Maintenance and Other Operating Expenditures NEDA National Economic and Development Agency NGO Non Governmental Organization OECF Overseas Economic Cooperation Fund PISU Project Implementation Support Unit PRODED Program for Decentralized Elementary Education PTA Parent-Teacher Association PY Project Year SEF Special Education Fund SIIF School Improvement and Innovation Facility SRA Social Reform Agenda SUC State Universities and Colleges TEI Teacher Education Institution TEEP Third Elementary Education Project FISCAL YEAR January I - December 31 SCHOOL YEAR June I - March 31  REPUBLIC OF THE PHILIPPINES THIRD ELEMENTARY EDUCATION PROJECT Table Of Contents LOAN AND PROJECT SUMMARY ..................................... iii GLOSSARY ..................................... iv I. BACKGROUND ......................................1 II. THE ELEMENTARY EDUCATION SYSTEM ......................................2 A. Overview ......................................2 B. Issues in Elementary Education ......................................3 C. Govermnent Sub-Sectoral Strategy ......................................9 D. Bank Strategy ..................................... 11 E. Lessons Learned from Past Operations ..................................... 12 F. Rationale for Bank Involvement ..................................... 14 II. THE PROJECT ..................................... 15 A. Goals, Objectives and Indicators ........................ 15 B. Scope and Approach ........................ 15 C. Project Description ........................ 16 D. First Component: Capacity-Building at the Central and Regional Levels ...... 18 E. Second Component: Elementary Education Improvement in 26 Poor Provinces ...................................................... 20 IV. PROJECT COSTS, FINANCING, AND IMPLEMENTATION ........................ 27 A. Cost Estimates ........................................................... 27 B. Financing Plan ........................................................... 28 C. Procurement ........................................................... 29 This report is based on the findings of a joint IBRD-OECF appraisal mission which visited the Philippines in ApriUMay 1996, comprising Mmes./Messrs. F. Delannoy (Task Manager, EA1HR), B. Bidani (Economics, ASTHR), M. Lockheed (Education, HDD), J. Kirk (Distance Education, Consultant), J. Renner (Management, Consultant), S. Theunynck (Civil Works/ Implementation, Consultant) and C. Vales (Resident Mission). OECF was represented by Messrs. Shimokawa and Kabayashi and Ms. Muto. Project design and preparation were partly funded by Japan, AusAID, CIDA, UNDP/UNICEF, UNESCO France and ADB. The underlying sector work was conducted by a Filipino team led by Mr. E. Barzaga (Innotech-Seamao) with support from V. Ordonez (UNESCO), and assistance from J. Fernandez and for the Bank by A. Schwartz (PSP) and J-P. Tan (HDD). Preparation was led by Ms. Lourdes G. de Vera and Mr. J. Mateo (DECS) under the leadership of Mrs. L. Pefianco (DECS Undersecretary) and with the assistance of Mr. M. Taguiwalo (Economist), University Ateneo de Manila, and the Philippines Business for Social Progress. Valuable comments/inputs were contributed by B. Alano (sustainability analysis, consultant), B. Diokno (devolution), A. Christensen (Indigenous people and resettlement, ASTHR), H. Patrinos (demand-side financing, HDD), E. Heneveld/H. Craig/Y. Zeeger/R. Matthews/A. Burke (schools and teachers), N. Jangira/G. Wall (pedagogical decentralization), 1. Montagnes (textbooks), S. Shaeffer (multigrade), J. Izard (assessment). Peer Reviewers were E. Jimenez (PRDPH), B. Fredriksen (AFTHD), J. Middleton (EDINP), and V. Paqueo (LASHC). The Lead Advisor was Mr. A. Verspoor (SA2RS) and for the economic analysis, Mr. N. Prescott (EAIHR). The report has been endorsed by Messrs. S. Burmester (Chief, EAIHR) and J. Khalilzadeh-Shirazi (Director EAI and Acting Vice President EAP).  - 11 - D. Disbursements ................................................ 34 E. Audits and Accounting ................................................. 35 F. Implementation ................................................ 36 G. Monitoring and Evaluation ............................................... 37 H. Status of Preparation ................................................. 38 I. Sustainability ................................................ 38 J. Poverty, Environment and Gender ................................................ 40 V. BENEFITS AND RISKS ..................................................... 41 A. Benefits ..................................................... 41 B. Risks ..................................................... 41 VI. AGREEMENTS REACHED AND RECOMMENDATION ............................... 43 TABLES In Text Table 2.1: Philippines School System .2 Table 2.2: Reasons for Not Attending School .5 Table 4.1: Summary Costs by Component .27 Table 4.2: Summary Costs by Category of Expenditure .28 Table 4.3: Financing Plan by Disbursement Categories and Financiers .29 Table 4.4: Procurement Arrangements .33 In Annexes Annex 1: Contextual Country Data .45 Annex 2: Economics Analysis .47 Annex 3: Role of Other Donors .65 Annex 4: Data on TEEP Provinces .66 Annex 5: Project Performance Indicators .70 Annex 6: DEDP Planning .79 Annex 7: GoP's Memorandum of Policy .80 Annex 8: Project Management Chart .93 Annex 9: DEDP Criteria and Guidelines .94 Annex 10: Decentralized Educational Planning and Management ................................ 96 Annex 11: Exemples of SIIF Pilots, TEEP Strategy for Indigenous People .................. 99 Annex 12: Implementation of the School Building Program ....................................... 102 Annex 13: Supervision Plan ..................................................... 108 Annex 14: Costs and Financing ...................................................... 112 Annex 15: Procurement Matrix ..................................................... 117 Annex 16: Disbursement Schedule and Profile ..................................................... 118 Annex 17: Documents in Project File ..................................................... 119 MAP IBRD 27835  - iii - PHILIPPINES THIRD ELEMENTARY EDUCATION PROJECT Loan and Project Summary Borrower: Republic of the Philippines Implementing Agencies: Department of Education, Culture and Sports (DECS), Local Government Units (LGUs) Beneficiary: N/A Poverty: Program of Targeted Interventions Amount: US$113.4 million Terms: Repayable in 20 years, including 5 years of grace, at the standard interest rate for a LIBOR-based US dollar single currency loan. Commitment Fee: 0.75% on undisbursed loan balances, beginning 60 days after signing, less any waiver. Financing Plan: See Table 4.3 Net Present Value: N/A Map Number: IBRD 27835 Project Identification Number: 4602 Vice President: Javad Khalilzadeh-Shirazi, Acting, EAP Director: Javad Khalilzadeh-Shirazi, EAI Division Chief: Sven Burmester, EA1HR Task Manager: Fran,oise Delannoy, Sr. Operations Officer  - iv - EDUCATION GLOSSARY Cohort survival rate Refers to the proportion of enrollees at the beginning grade or year level who least reach the final grade of or year level at the end of the required number years of study (Grade VI enroll. current year over Grade I. enroll. five years ago). Enrollment ratio (gross) Refers to the total enrollment in a given level of education as a percentage of ago the population which according to national regulations should be enrolled in this level. It is a measure of the "'capacity" of the country's elementary (age 7-12) or secondary (age 13-16) schools total. Completion rate Refers to the percentage of first year entrants in a cycle of education surviving and completing the cycle at the end of the required number of years of study. (Graduates VI current year over Grade I five years) Headteacher Refers to an administrator of elementary school of who supervises at 7 and at most 9 teachers and teaches at least two subjects. Participation rate or Net enrollment ratio Refers to the total enrollment in a given level of education as a percentage of the population which according to national regulations should be enrolled in this level. It is a measure of the "capacity" the country's elementary (ages 7-12) or secondary (ages 13-16) schools. Repetition rate Refers to the proportion of pupils/students who enroll in the same grade/year level more than once to the number of pupils/students enrolled in that grade/year during the previous school year. (No. of repeaters current year over total enrollment previous year --could also be for particular grade). Transition rate Refers to the percentage of pupils who graduate from one level of education surviving and completing the cycle at the end of the required numbers of years of study. (First year high school current year over Grade VI previous year).  PHILIPPINES THIRD ELEMENTARY EDUCATION PROJECT 1. BACKGROUND 1.1 Following a decade of reform and restructuring, the Philippine economy is well on the path to recovery. GNP growth started accelerating in 1994, reached 5.5 percent in 1995 and is projected at 6.5-7 percent for 1996. The prospects for sustaining this trend are better than at any time since the debt crisis of the early 80s. They will depend on Government's ability to maintain appropriate macroeconomic policies, pursue its economic liberalization program and intensify the fight against poverty. 1.2 Poverty is still the Philippines' major development challenge, with over one third of households classified as "poor" (1994). The problem is concentrated in the rural areas, where two thirds of the poor live, and over half of the population is poor. Rural poverty reflects both lower average incomes and more severe income disparities than in the country as a whole. Poverty declined by about 0.7 percent per annum during 1971-91, a modest record by East Asian standards. 1.3 Average educational indicators are favorable in quantitative terms, particularly for a country at that income level (GNP per capita: US$1,134 in 1995). In 1995, the Philippines was ranked the third most schooled nation in Asia, after Brunei and Korea, both with a much higher per capita income (UNESCO). However, national and even regional averages obscure wide discrepancies in access to quality education which coincide with the poverty map. Almost all children enter elementary school, but one-third drop out. They come disproportionately from poor families and economically depressed areas, as shown by the completion rates, which range from nearly 100 in the National Capital Region (NCR) to below 30 percent in parts of Eastern Visayas and Mindanao. Education is not the only factor explaining income differentials, but when combined with a low level of agricultural investment, it has condemned rural youths to a life of poverty. Poverty incidence is 65 percent among households whose heads have less than five years of education. 1.4 The Government of the Philippines (GoP) is aware that the existence of large concentrations of poverty and low levels of education is not only inequitable, but also poses a threat to social stability, investor sentiment and economic competitiveness. It has declared poverty reduction one of its highest priorities for the remaining period of its tenure, and has developed a strategy to that effect, the Social Reform Agenda (1994). The SRA aims to share the benefits of growth more equitably, while involving the poor more actively in the development process. It is a geographically targeted program which combines measures to expand economic opportunities in depressed rural areas, provide basic social services to improve the human capital of the poor, and promote democratic governance. The proposed operation of the Department of Education, Culture and Sports (DECS) is the first GoP SRA project. It begins tackling the central issue of low completion rates and low learning achievements among rural children, as a first step towards helping them break the cycle of poverty.  - 2 - 2. THE ELEMENTARY EDUCATION SYSTEM A. OVERVIEW 2.1 The Philippines education system, one of the most mature in Asia, can boast impressive quantitative achievements. Universal access to elementary education was reached as early as the mid-60s; the adult basic literacy rate is about 93 percent (1990); enrollments in higher education are among the highest in the developing world, and private sector participation is strong, especially at the post-primary level. The following table summarizes the key sectoral data. Table 2.1: Philippines School System - 1994/95 Number of Students Enrollment Participation Number Number Total Public Age Ratio Rate2 of of Enrollment (%) Group (%) (%) Teachers Schools Preschool 165,9973 92 6 Elementary 10,903,529 7-124 112 87 302,551 35,775 Secondary 4,762,877 68 13-16 77 58 91,778 6,055 Higher Education 2,150,611 21 17-21 --- --- 6,024 2,457 Cohort Analysis Elementary Education Secondary~ Education Public Private Public Private Cycle Completion Rate 67.3 77.7 67.3 76.1 % of graduates completing in 6 years 89.3 96.0 % of graduates completing in 4 yrs. 91.7 95.0 Av. ed. yrs. used per I graduate 7.5 7.0 5.1 4.8 Av.. ed. yrs. consumed per dropout 2.8 3.2 2.2 2.3 % of dropouts not reaching grade 4 67.9 62.8 1995 DECS profile unless otherwise indicated. The statistics quoted in this report are not always fully consistent because they come from various sources or were collected at different points in the school year (SY). DECS and the Bank are aware of the problem, and improving data quality is a priority objective of this project. 2 Participation Rate = Net Enrollment Ratio. 3 1991 Data. 4 WillI shift to 6-1 1 by 2003, due to lowering of admission age. Project design is based on 6-12 years-old cohort.  -3 - 2.2 Elementary education consists of six grades. However, rural areas have some 4,400 "incomplete" schools, i.e., limited to the first four grades, and 11,000 multigrade schools, where one teacher handles two or more grades. The average pupil:teacher ratio is 1:33, with wide regional variations. The admission age was lowered from 7 to 6 years in SY95/96. The stated gross elementary enrollment ratio is high (112 percent) as is the net enrollment ratio ("participation rate") at 87 percent, but they still leave 1.5 million 7-12 year olds, the hardest to reach, out of school. By contrast with most developing countries, girls are more schooled than boys. Basic Data are in Annex 1. 2.3 DECS administers and supervises elementary and secondary education. As of to-day, line authority extends from DECS Central Office through 16 Regional Offices to 134 provincial and city School Divisional Offices, down to some 2,100 District Offices which oversee about 15- 20 public elementary schools each. The roles of the various layers of the education system are being redefined to make the School Divisions the key operational level (para. 3.23). GoP proposes to implement this reorganization via administrative, rather than legislative channels. B. ISSUES IN ELEMENTARY EDUCATION 2.4 The downside of the GoP's mass-education strategy has been a continuous decline in quality which has hurt the poor more than any other group (1991 Report of the Congress Education Commission, or EDCOM Report). For long the impact was not felt because slow growth and import-substitution development strategies failed to create high productivity employment, forcing 4 million Filipinos to take their skills abroad. Social rate of returns on education decreased, educational investment stagnated and outcomes declined. But this seemed irrelevant since anyway, many people were trapped in low paying agricultural or informal urban sector jobs. Thus, the Philippines failed to capture the benefits normally associated with education-productivity growth, poverty reduction, economic and social development. Now that the export-led pattern of growth adopted by GoP is accelerating the demand for labor, low educational quality is increasingly identified by business as a major impediment to catching up with the East Asia "miracle" countries, which have achieved growth and equity. The two main issues in elementary education are variations in outcomes and adverse social selectivity (paras. 2.5-2.9). Paras. 2.10-2.23 discuss the root causes. Wide Variations in Outcomes 2.5 Education quantitative indicators are good on average, but analyses at the provincial level or below reveal wide qualitative disparities which are poverty-related. Most children have access to a school, but only 68 percent complete elementary education. For many of those who complete, little learning takes place. Recent international comparisons of math, science and reading among 9 and 14 years old show not only a low mean score for Filipino children - two standard deviations below the sample mean - but greater variations around the mean, both of student scores and school scores. The urban/rural differences were particularly pronounced. This suggests that raising quality would require not only increasing average performance but also reducing variations across students and schools by targeting the worst schools. By contrast with many African or Latin American countries, repetition is not a major cause of drop-out. Children  - 4 - either are promoted - over 89 percent of the graduates complete the cycle in six years - or are allowed to drop out, as poor achievements reflect badly on teacher's performance. About 60 percent of the drop-out happens in Grades I and II, another eight percent before Grade 4. The 2.8 years spent in school by the drop-outs are not enough for them to remain literate. 2.6 The disparities in public schooling outcomes are reflected in social indicators. In well-off provinces, higher educational attainment and achievements lead to improved adult health status, lower fertility levels and reduced malnutrition; better nutrition enhances pupils' ability to learn; children who have a positive schooling experience stay longer in school, as in a seamless web. In very poor provinces such as Abra, Masbate, or Zamboaga, up to 50 percent of the children are malnourished, completion rates can fall as low as 25 percent, and achievement levels, as low as 36 percent of curriculum objectives. There is a strong negative correlation between fertility, infant mortality, on one hand, and elementary school completion on the other hand. Social Selectivity in Elementary School Completion 2.7 The education system is structurally equitable in terms of the budget share allocated to each level, but socially regressive. Children from poor families are ill -prepared for learning and have no choice but to go to public schools, which tend to offer lower quality education than the better endowed private schools. The quality gap is larger in rural areas, because of an inequitable, pupil-based resource allocation mechanism that puts small schools at a disadvantage. The poor are trapped in a vicious circle: they learn little at school, get discouraged, drop-out early and, with little education, have limited earning power, perpetuating the cycle of poverty for their offspring. The probability of drop-out for a first grader from a low- income farming family is almost 20 percent, versus less than 5 percent for a child from an urban educated background. 2.8 Poor youngsters face additional handicaps. First, even in public schools, parents contribute on average one-third of total costs; consequently, public elementary education costs more to low-income households, as a proportion of their budget, than private education to the rich. Second, poor children have to work: nearly half of 7-12 year olds, especially boys, are engaged in home production, contributing up to 25 percent of family income; almost one-fourth do market work, which keeps them at peak season, and sometimes permanently, out of school; child labor is not uncommon. For these families, the private costs of public education (para. 2.12) are simply unaffordable. Combined low quality and high cost, in a context of economic hardship and lack of job opportunities, make elementary school attendance a waste of time and have generated a decline in demand. 2.9 Adverse social selectivity works mainly along poverty, not gender lines. In 1994, girls accounted for 49.5 percent, 51.5 percent and 56.3 percent of enrollments in elementary, secondary and tertiary education. In 1992, among the 30 percent poorest, 7.6 percent of 7-12 year-old boys, and 6.1 percent of girls, were out of school. The percentages jump to 29.2 percent and 19.5 percent for the 13-16 year old group. On the other hand, among the poor, some groups face particular odds because of size, geographical isolation, language, or lifestyle. They include: children of ethnic minorities such as the Ifugaos in the North, nomadic tribes such as the  - 5 - Manobos in Mindanao, migrant workers ("sacada") in the plantations of Visayas, and boys engaged in child labor. Table 2.2 summarizes why children from the 30 percent lowest per capita income group are not in school. It shows that significantly reducing the drop-out rates will require interventions that (a) make the schooling experience more interesting; (b) bring schools closer to the barangays (village); and (c) address demand-side issues (health, nutrition, cost of education). These findings have shaped the design of the proposed operation. Table 2.2: Reasons for Not Attending School Percent of Respondents in Age Group B~~ Girls Lack of Interest 59.2 54.1 Inaccessibility of school 14.2 17.8 High cost of education 10.1 8.9 Working/looking for work 9.0 11.4 Illness/disability 7.5 7.8 Source: Harris & Racelis, NEDA, 1994 The Root Causes: Macro Constraints Erode Equity 2.10 The Impact of Poverty. The declining human capital of the poor is the legacy of years of neglect, followed by a period of slow and erratic growth which frustrated the major commitments of the Aquino Administration in favor of the social sectors. During the 70s and 80s, negative per capita growth reduced per pupil public investment in education, per capita income, and, as income distribution remains very skewed, the amounts that poor households can invest in the education of their children. Part of the problem is therefore of a macro nature. While most of the urban poor could be pulled out of their predicament by sustained, export-led growth, improving the lot of the poorest, most of whom live in rural areas, will require increased rural investments and the provision of basic social services, as proposed under this project. Access to quality education and health is a key determinant of life expectancy, life quality, and labor productivity, influencing the extent to which individuals are prepared to invest in their own human capital. 2.11 Unbalanced, Inequitable Public Funding. A 1996 Bank study on "Education Financing and Social Equity: A Reform Agenda" confirmed that the Filipinos are highly committed to education, as reflected in the 6 percent of GNP the nation allocates to the sector. However, the public contribution, at 2.8 percent of GNP, is still below the Asian average of 3.4 percent, and is not sufficient to correct market failures. This is not for lack of effort: public sectoral spending grew by nearly 12 percent in real terms during 1985-95. However, the impact was more remedial than developmental; the increase was stop-go and most of it was absorbed by a 76 percent increase in teacher salaries, the nationalization of locally-funded village high schools, and the introduction of a voucher system in support of free universal secondary education. 2.12 The pattern of sectoral spending raises two issues. First, by level of education, it has become less pro-poor, with the share of elementary education declining from 60 to 47 percent during the past 11 years. The percentage is still enviable, but equity has suffered, as elementary education is the only schooling 60 percent of the poor receive. By type of expenditure, the  - 6 - pattern has become increasingly incompatible with the delivery of quality, as salaries (85 percent of DECS 1995 Budget) have crowded out other expenditures, especially instructional materials. In 1995, the Maintenance and Other Operating Expenditures (MOOE) allocation of 125 Pesos (US$5.0) at the elementary level was insufficient to provide the "interesting" learning environment needed to keep poor children in school. Second, GoP's difficulties in meeting education's financing requirements since the late 80s have been compensated by an increasing involvement of the Local Government Units (LGUs) and the private sector. This could lead to greater efficiency but may also exacerbate inequities. LGU financing since the Local Government Code (LGC) was promulgated in 1991 increased from 2 to 9 percent of total public sector spending. As all LGUs contribute according to means, and GOP's allocations are pupil- based, excluding any mechanism to compensate for the narrow resource base of poor LGUs or for the small student body of rural schools, the educational quality gap between affluent and poor schools is likely to widen. As for private funding, it increased from 18 to 31 percent of total expenditures on elementary education, further contributing to the propensity of poor children to dropping out. 2.13 What are GoP's options to redress the present inequities? Neither the share of the total budget allocated to education (26 percent in 1995), nor the contribution of private education (Table 1) can be raised much further. Three promising avenues would be to: (a) reallocate resources from the State Universities and Colleges, which have high unit costs and absorb 16 percent of total GoP educational expenditures; (b) revise staff deployment practices and norms for allocating resources to schools, which are cost-ineffective and put small rural schools at a disadvantage; and (c) tap those LGUs which are able and willing to pay for improved services, while targeting available resources at those most in need. The project will help DECS achieve a more equitable, efficient and balanced spending pattern. 2.14 The Challenges and Opportunities of Devolution. Although education is one of the few non devolved sectors, the 1991 LGC established two elements of a decentralized framework for education: (a) the provincial, city or municipality School Boards, co-chaired by the LGU and DECS authorities, which allocate LGU funding to the sector: and (b) a Special Education Fund (SEF) maintained in each provincial, city or municipality treasury and administered by the corresponding School Board. The LGC is under review and it is expected that more educational functions -- except for teacher salaries -- will be decentralized. The LGU contribution to education is strikingly complementary to that of Central Government, with its focus on non- salary expenditures, MOOE and capital outlay. It also offers potentialfor expanding elementary education financing. Mobilizing additional LGU resources for education should be facilitated by the fact that financial transfers to LGUs will increase sharply in the years ahead. The project will introduce, for school construction and maintenance, a Central/Local Government cost-sharing ratio which will increase public education financing and make it more progressive. 2.15 Traditional Management Style. With 45 percent of the civil service, DECS is the largest GoP Department. Its bureaucratic, complex management practices do not meet the needs of a large, diverse country undergoing rapid decentralization or the demands of a modernizing economy, both of which require flexibility. Neither are they designed to correct educational inequities. Decision-making remains centralized and top-down and involves many levels (1993  I - 7 - Internal Audit). The Regional Offices are too remote from classrooms and absorb 30 percent of resources. Another problem area is the limited use of the massive amount of data collected from the field for decision-making. There is no institutional capacity to prepare analyses for the Secretary. The need for rigorous measurement of impact and costs is not fully appreciated; for instance, the population-based assessment system is costly and does not generate timely diagnostic information. The weak budget monitoring procedures result in underspending. Finally, DECS is still the sole provider of support services, such as testing or in-service training, which outsourcing could improve. Physical planning is still based on standardized norms rather than actual needs. In particular, pupil-based MOOE allocation and staffing norms for teachers and principals affects the quality and effectiveness of school and classroom management and ultimately, schooling outcomes, preventing the reduction of disparities. The system is more oriented towards control than support, and activities than results. Most DECS' managers and professionals are former teachers with limited training in their new responsibilities. DECS leadership is aware of these problems and plans to use the project to address them through a major capacity-building effort. Sectoral Factors Reinforce the Disparities in Access to Educational Quality Inputs 2.16 A 1993 "fast-track" assessment of 16,000 Grade VI pupils found that only 29 percent of the 131 competencies tested were learned. In 1994 provincial test scores ranged from 54 in Masbate to 102 in the National Capital. The following paragraphs explore why. 2.17 Inequities in Readiness for School and Teachability. Poor children in rural areas enter school late (7 years old or more), frequently come from functionally illiterate homes, and, having seldom attended early childhood or pre-school programs, have not had previous exposure to English or Tagalog, the two languages of instruction. One project study found that even one year of preschool raises learning, especially in the early grades and in language skills, and reduces the likelihood of drop-out by one-third. Pupils also miss school and eventually drop out because of easily treatable diseases such as respiratory infections and diarrhea. One third--and up to half in pockets of extreme poverty such as Leyte or Masbate--suffer from protein-energy malnutrition (PEM) and micronutrient deficiencies. This slows down intellectual development and depresses the immune system, making poor pupils more likely to underperform and more vulnerable to disease. To address demand issues, the project will pilot research-based targeted interventions. 2.18 Inequitable Access to Basic Inputs. Due to distribution problems, remote schools only have a few textbooks per class (one book for 3-6 children in the project's six pilot provinces), and the books lack relevance to a rural environment. Teaching aids are scarce, mostly teacher- made, and libraries are thinly stocked. A major development is that under a recently passed law, the textbook publishing sector for public schools, hitherto under government monopoly, is to be entirely privatized over the next three years. Schools will select books from a DECS-approved 5 "Do Pre-school programs Improve Elementary School Outcomes? Evidence from the Philippines". A. Mingat (IREDU) and J-P Tan (World Bank), 1995. Available in the Project File.  - 8 - list. This reform, which in the long-run is likely to promote an already vibrant national publishing industry, for the short term generates uncertainty regarding the price of books and their delivery to isolated areas. It also calls for new skills, systems and procedures if the transition is to be orderly. The project will build on analytical inputs provided to GoP by the Canadian Government in the area of publishing. 2.19 Pedagogical Constraints. Rural schools, which in most cases have no principal to provide instructional leadership, no MOOE to purchase materials, and are rarely supervised, also have beginner teachers. Equipped with a limited repertoire of classroom management skills, those teachers have to practice multigrade teaching without proper equipment and preparation despite the noteworthy effort of UNICEF which has trained and equipped about 9,000 teachers. This explains why multigrade is perceived by parents and teachers as second-rate education. Young teachers are also thrown into a rigid prescriptive pedagogic system which does not develop initiative. In-service training remains supply-driven, teacher and subject-centered, underfunded and biased towards urban teachers. Other constraints are systemwide but particularly affect small rural schools because of their isolation and limited resources. For instance, the curriculum emphasizes "Minimum learning competencies", instead of developing individual students' full potential, and needs to be refocused on core disciplines. The school calendar was extended in 1993, but teachers are overburdened with extracurricular activities which leave little time for reflective, individual or group learning. The early, formative grades do not get enough attention. Tlhe project will approach these issues by revitalizing in-service training in support of pedagogical decentralization (paras. 2.26-2.27). 2.20 In poor schools, the dilapidated physical environment is not conducive to learning. The regional distribution of schools and furniture bears little or no relationship with poverty or school participation. Furthermore, the needs for maintenance and replacement are considerable, as one third of the existing 305,000 classrooms are over 15-20 years old, and most were built to low quality standards. Nearly one-fourth of total capacity cannot be used as classrooms, so that the pupil/classroom ratio averages 42, with wide regional variations. Almost half of the schools have no water, and 61 percent, no electricity. All lack modem means of communications. Access per se is not an issue, but access to quality, and to a "complete" school offering six grades, is. Low completion rates and the high incidence of overage children (40 percent in Mindanao) are linked to distance from a properly equipped, albeit small, school offering all six grades (21 percent of grade VI pupils walk over one hour). However, the current school map reflects a preference for large "central" or "model" schools located near urban centers and better endowed to provide quality education. Offering small multigrade schools closer to the barangays would reduce the capital and recurrent costs associated with monograde teaching. The same classroom design is used throughout the country, whatever the physical and climatic conditions. In the project's six pilot provinces, the desk:pupils ratio is about 1: 4. A preparation study 6 found that desks and furniture were as cost-effective as workbooks in raising learning. About 75-85 percent of school sites are untitled, but DECS has put in place a legal, albeit lengthy 6 "Putting Inputs to Work in Elementary Schools: What Can Be Done in the Philippines?" J-P. Tan (ESP) et al. (1995)  -9- process, to ensure that at least for new sites there is evidence of clear title, and displaced individuals, if any, are properly compensated. Need for Greater Attention to Micro Factors 2.21 In-School Factors. A complete quality improvement strategy must go beyond the mere provision of inputs to improve the way these are managed at the school level. Particularly critical to shifting from "status quo" to dynamic and adaptive schools is the lack of principals. Only one school in four has a principal, and most rural schools do not A preparation study7 comparing 11 high-performing and 8 low-performing schools (HPS, LPS) found that HPS have entrepreneurial principals who exercise instructional and administrative leadership, create a sense of discipline, purpose and teamwork and forge partnerships with the communities. However, there is no systematic program to identify and nurture leadership. Under the project, school clusters will be assigned one principal, pilot schools will be empowered, and management/leadership training will be provided. 2.22 Weak Community Participation Community and parental involvement, which correlates positively with ownership, financial support and school outcomes, is consistently more limited in poorer communities. Project studies report acts of vandalism against school facilities and parents shunning PTA meetings. There is no systematic school-level mechanism to advise and control the principal. In recent years, neither communities nor Municipal Engineering Offices (MEOs) have been involved in school construction, although both would be interested in the economic benefits and the MEOs have the technical capacity. School construction has been the responsibility of the Department of Public Works and Highways (DPWH); it represents a minor fraction of DPWH's workload (5-10 percent) and has received commensurate attention. Community and parental involvement is even weaker--and practically non-existent--in pedagogical decisions. Participation is critical to the sustainability of the project, and has been built into its design, from planning through implementation. 2.23 Child Labor and Other Demand-side Constraints. The best strategy to address demand- side issues (para. 2.8) is to raise the quality of education so that attending school is worth the opportunity cost, and to reduce the private cost of schooling to make it affordable to poor families. A case study of child labor is under preparation to design workable solutions. The elementary education development plans prepared by the six project pilot provinces all include requests for "special programs" in health, nutrition, interventions for ethnic minority children and migrant laborers. These programs will initially be treated as pilots. C. GOVERNMENT SUB-SECTORAL STRATEGY 2.24 GoP's five-pronged strategy for elementary education reaffirms long-standing principles and incorporates new ones. (a) The commitment to elementary education as the funding priority 7 A Comparative Study of High-performing and Low -Performing Elementary Schools", Ateneo de Manila University. 1995.  - 10- is embodied in the 1987 Constitution, and has been revived by the EDCOM and Education-for- All Reports and the SRA. (b) The trend towards decentralization dates back to the mid-70s and is now being carried below the regional level to the provinces, under the new impetus given by the 1991 LGC. (c) On the other hand, the use of participatory approaches reflects the empowerment policies of the Aquino and Ramos Administrations, while (d) the "Effective School' thrust and the new emphasis on diversified solutions, experimentation and (e) measurement build on recent worldwide education research findings. In recent years, isolated steps have been taken to improve quality. DECS was split in three to concentrate on Basic Education only, teacher salaries have been increased, the school year lengthened, and private sector regulations relaxed. The impact of these measures is not known. Preparation of this project has, however, provided a strategic opportunity to align all the elements of the system towards the goal of quality education, especially for the poor, and to rally the donors. The full strategy, which builds on work done by DECS, not only with the Bank, but also with Australian, Canadian, Irish, Japanese bilateral aid, and with ADB, UNDP and UNICEF, is detailed below. It will be tested in the most challenging provinces under TEEP and generalized if successful. 2.25 Improving Sectoral Funding. To correct inequities in access to quality inputs, GoP will use the budget for social targeting and will tap additional sources of public funds. The plan is to: (a) maintain education's share in the Central Government budget (26 percent); (b) within this, restore the share allocated to elementary education in the mid-80s (60 percent) and increase the proportion of this going to the 26 provinces from 17 to no less than 20 percent; (c) introduce a progressive cost-sharing formula between central and local governments to target resources on poorer LGUs and expand the elementary education allocation by devolving school construction/maintenance (1997); (d) increase the MOOE allocation; (e) improve expenditure efficiency by rationalizing the staffing norms; and (f) create a School Improvement and Innovation Facility (SIIF) to further target the more marginalized schools. 2.26 School-based Quality Improvement. The strategy to increase achievements and retention is the 'Effective School" framework in which schools are the locus of an active, organic process of transformning inputs into pupils' learning. It proposes to: (a) give all children easy access (1 hour's walk) to a complete school, mono or multigrade, providing quality education; (b) create school clusters to organize a demand-driven process of in-service training and to facilitate frequent, supportive supervision; instructional (internal) leadership will be provided in rural schools, by district supervisors and in urban schools, by principals; (c) equip each school, classroom and pupil with a basic kit of instructional material; (d) give schools more autonomy and flexibility (with respect to MOOE, school attendance calendar, the extra-curricular demands on teachers, time on task, and indigenization of up to 30 percent of the curriculum where so desired by communities); (f) develop a successful multigrade model; (g) expand community- based ECD/pre-schooling programs targeted at the poorest; and (h) use SIIF grants to encourage schools to introduce instruction-related innovation that reflect their unique circumstances. 2.27 Management Decentralization. To support this focus, TEEP will bring the level of decision-making closer to the school and the community. The School Divisions (Provinces and Cities) are becoming the basic operational units to plan, implement, monitor and manage education programs delivered by the schools. Over time, more responsibility may be shifted to  - 11 - the District level. Some schools will selectively be "empowered", e.g., in fiscal and pedagogical management, under different organizational models giving more or less power to the principal and the School's Management Advisory Committee. The role of the Regional Offices will be reoriented to facilitate this transition. Appropriate skills, systems and procedures will be developed to delegate operational functions to lower levels, allowing the Central Office of DECS to concentrate on its strategic, regulatory and resource mobilization roles. 2.28 Partnerships with Stakeholders. To ensure sustainability, TEEP will mobilize the communities in support of schools. It proposes to: (a) involve DECS Divisional Offices, LGU and community officials in the preparation of the DEDPs; (b) have the LGUs contribute to the financing and implementation of the school construction/ maintenance program, as a step towards devolution; (c) use the existing provincial and municipal School Boards, and create "School Management Advisory Committees", to exercise "democratic oversight" and to deepen parental and community involvement in all aspects of school life, such as the delivery of textbooks; (d) recruit NGOs for the independent monitoring of relatively non-technical aspects of school and classroom processes; and (e) mobilize corporate funding. 2.29 Measuring Impact and Cost to Guide Decision-Making. To better target resources, determine whether to institutionalize or to drop the pilot experiments, and increase accountability and transparency, TEEP will promote information-based decision-making. It will introduce: (a) a sample-based assessment system to provide educators with rapidly usable diagnostic information; (b) a user-friendly MIS tailored to the needs of policy-makers and implementing Divisions; and (c) procedures to monitor, communicate and inform stakeholders and the public about project actions, their impact and cost. D. BANK STRATEGY 2.30 The Bank's Country Assistance Strategy (February 15, 1996) was prepared following a participatory approach. Now that the fiscal crises of the past are under control, the strategy stresses macroeconomic stability and the quality of the development process. Its five objectives are to: (a) help the GoP maintain sound macro policies to convert the current economic recovery into a period of sustained growth; (b) strengthen the public sector's implementing capacity; (c) improve the country's infrastructure to promote private sector-led growth; (d) support sustainable management of natural resources and protect the environment; and (e) design and implement better mechanisms to reduce poverty and upgrade the quality of basic services for the poor. 2.31 Because of the need to be selective, for the short-term the Bank's social sector program is geared towards the CAS' poverty objective. One of the three recommendations of the Bank's 1996 "Strategy to Fight Poverty" is to provide quality basic social services to the poor. In line with this recommendation, the proposed Third Elementary Education Project and an Early Childhood Development (ECD) Project under preparation will target interventions in health, nutrition and cognitive development on the most vulnerable, highest pay-off group, namely young children from poor families. In both cases the Bank is helping GoP to strengthen the strategic framework for addressing inequities, to develop cost-effective delivery mechanisms,  - 12 - and to mobilize soft money. As pilots being tested in the SRA provinces prior to adoption in other poor provinces, these interventions will have a large multiplier effect. In parallel, the Bank is using non-lending services for building analytical and implementation capacities in the social sectors. One Institutional Development Fund Grant is assisting the Central Agencies with poverty monitoring and targeting, while another one under preparation will help sharpen their human resource development strategy and investment program. Supervision of an Engineering and Science Education Project (Ln. 3435-PH) and a Second Vocational Technical Project (Cr.2392-PH) provides a platform for an on-going dialogue on skills for global competitiveness in a rapidly changing environment. E. LESSONS LEARNED FROM PAST OPERATIONS 2.32 Projects in the Philippines. The eleven projects implemented since 1965 (totaling about US$553 million) provide many relevant lessons, especially the 1981 Sector Program for Decentralized Elementary Education (PRODED) and the 1991 Second Elementary Education Project (SEEP)8. On simple project elements such as school construction, Filipinos have a good mastery of the required techniques, and even a change in approach as proposed here can be easily absorbed. On the other hand, qualitative objectives have been elusive, and more complex interventions such as targeting, monitoring and evaluation require more thorough, practical preparation (e.g., a school-map, rather than an elaborate mathematical formula) and supervision. Another lesson is that participation in project design is essential to avoid stakeholder resistance, and for effective implementation. PRODED would have benefited, had it been implemented on a geographically and chronologically phased basis, in line with absorptive capacity, rather than wholesale nationwide. Its implementation experience shows that projects involving decentralization, in particular, require careful consideration of administrative arrangements, roles and responsibilities and early institutionalization. The failure to institutionalize PRODED's INSET program does illustrates the fact that incentives such as honoraria, when excessive, are not sustainable. Other relevant lessons include the importance of: (a) a free-standing, properly staffed, project management unit (SEEP); (b) making better use of consultants (PRODED); and (c) simplifying disbursement arrangements (SEEP). The Technical Volume contains details. 2.33 Lessons from Other Sources. The project design also builds on lessons learned from other countries. Chapter 1 of the Technical Volume summarizes the findings of a 1991 review of over 100 education reform programs worldwide9 and recent literature on the management of educational change. Three key lessons emphasize the importance of: (a) schools and classrooms, decentralized educational decision-making power, and local solutions to local 8 Based on three PCRs: Education V (Mass Media), Ln. S008-PH, 1984; Sector Program for Education, Ln. 2030-PH, 1991; Vocational Training, Ln. 2200-PH, 1992; and five PPARs: Education 1, Ln. 393-PH, 1975; Education 11, Cr. 349-PH, 1982; Education III, Ln. 1224T-PH, 1986; Education IV, Ln. 13-74-PH, 1986; Education VI, Ln. 1786-PH, 1990. PRODED received a US$100 million dollar IBRD Loan(Ln. 2030-PH), closed on December 31, 1988 and SEEP, a US$200 million IBRD Loan (Ln. 3244-PH), closed on June 30, 1996. 9 "How Schools Improve" IMTEC, Oslo, 1991.  - 13 - problems; (b) implementation, which must be a learning process characterized by stable goals and coupled with flexible modalities but based on serious monitoring; and (c) participation during planning, preparation and implementation, to increase ownership. 2.34 Findings about the management of complexity and uncertainty also deserve special mention because the proposed project on the one hand, takes a systemic approach and departs from standardized planning, which makes it managerially demanding; and on the other hand, will be implemented in an environment characterized by a fairly high degree of institutional and political unpredictability. The following design choices have been made to minimize these risks: * Selectivity: the project will target 26 Divisions out of 134 * Geographic phasing: 6 pilot provinces by appraisal, 8 more in PY2 and 12 in PY3 * Upfront deloading. (a) curriculum improvement, will be approached, not as a project component, but through INSET and textbook revision; (b) the reform of teacher pre- service training, rationalization of the State Universities/Colleges and of staffing norms to achieve efficiency gains will be pursued as part of the policy dialogue * Piloting: pilots, funded by the SIIF beginning in PY2, will test different models of school empowerment, school pricing, and improvement plans for marginalized schools * Incremental levels of innovation, as units demonstrate their ability to handle new tasks * Contracting out to the private sector some support functions (research, INSET...) * Intensive capacity-building focus in PYI. 2.35 Analysis of Design Alternatives. During preparation, the DECS/Bank project team looked at alternative project designs from three different perspectives (Details in Annex 2). Technical Options. Based on existing studies, the team looked at the impact on cost and learning of the following inputs and/or alternatives: (a) workbooks/textbooks; (b) multigrade versus monograde teaching; (c) pre-service versus in-service teacher training; (d) early childhood/pre- school programs; (e) nutrition and health interventions; (f) reduction in class-size; and (g) desks/furniture. The findings helped determine the nature/ scope of project interventions. Public/Private Provision. A recent analysis of the relationship between income levels and enrollment distribution between public and private schools shows that, by contrast with secondary education, public schools are the main, if not the only, elementary schooling opportunity for poor children, especially in rural areas. This justifies the project focus on public elementary education. Public/Private Financing. Three main pricing options to retain poor pupils in school were examined. Charging the full cost of a better quality elementary education was rejected. The required increase in present per pupil expenditures would drive up the cost to parents, which is already contributing to the drop-out rate. Instead the project aims to lower the private cost of education by providing fully-subsidized textbooks, relaxing the uniforn requirements, and bringing schools within walking distance from home. However, for the 22 percent who are fully employed, it may be necessary to lower the price even further by subsidizing the cost of school attendance. The study on child labor will determine the level of subsidy required to keep children at different income levels in school, leading to a pilot voucher system (para. 3.39).  - 14- F. RATIONALE FOR BANK INVOLVEMENT 2.36 The project is an important building-block of the Bank's CAS, discussed by the Executive Directors in April, 1996, which aims to help GoP transform the present growth into sustainable, broad-based development and to accelerate poverty reduction. It is a direct follow- up to the Bank's recent Strategy to Fight Poverty (Report No. 14933-PH), and would operationalize several of its key priorities: the provision of quality basic social services for the poor; recognition that education remains a central government function and the main intervention to help the next generation pull themselves out of poverty; and targeting. By focusing on the design and testing of a framework for redressing inequities, on the development of more effective and efficient delivery mechanisms, and on donor concessional finance and technical mobilization, the project would have the type of strategic and multiplier impact the GoP expects from Bank operations in the social sectors. Increasing investment in elementary education is a major determinant of predicted economic growth rates, accounting for 34 percent of the differential between Latin America and East Asia. Raising the level of educational attainment to high school completion, towards which the project would be a first step, would reduce the poverty headcount by over 1 1 percentage points and the poverty gap by almost 6 percentage points. The current economic take-off is absorbing the excess underemployed educated labor. This may take a few years. Because investments in human capital have a long gestation period, now is the time to initiate the reforms needed to ensure that by 2015, the country has a large enough pool of workers who are sufficiently literate and numerate to be adaptable and trainable. 2.37 Macro Policies and Implementation. As recommended in the Bank's 1995 Public Expenditure Review, the project will also help rationalize public expenditures by improving resource allocation through targeting and better budget monitoring. It will build the professional and managerial capacities needed for DECS to adapt to its changing role, facilitating implementation of the civil service reform. It will use the lessons from other sectors, especially health, to ease the process of educational decentralization. The likelihood that it will achieve results is enhanced by the level of attention given to institutionalization during preparation. 2.38 The Bank's non-financial contribution to the project is threefold. During preparation, it brought its cross-country experience (notably Chile, Columbia, and India) to bear into project design, especially in the areas of participatory planning, school improvement, educational decentralization and the management of change. The Bank also assembled a coalition of donors who support the project, either as cofinancier (Japan's OECF) or through a reorientation of their programs. AusAID and possibly HEDCO (Australian and Irish Government Bilateral Agencies) will strengthen the Teacher Education Institutions that will supply in-service training; CIDA is assisting the process of educational decentralization and textbook privatization; UNDP/UNICEF is deepening and expanding its involvement in multigrade teaching. During implementation, the Bank and these donors will help ensure that this evolving, participatory project receives the right level and type of supervision -- frequent, supportive, flexible and result-oriented. The thrust of donor interventions is summarized in Annex 3.  - 15 - 3. THE PROJECT A. GOALS, OBJECTIVES, AND INDICATORS 3.1 GoP's constitutional goals for education are to maximize its contribution to national development and to equalize access to, and the benefits from, it. Closing the educational gap between rich and poor provinces in terms of school inputs and outcomes has top policy priority under the Social Reform Agenda. Another concern of the Department of Education, Culture and Sports (DECS) is to modernize education. The proposed Third Elementary Education Project - or TEEP - addresses the first goal, and to a lesser extent, supports the second one. TEEP is a specific investment project which aims to: (a) build the institutional capacity of DECS to manage the change process associated with TEEP; and (b) improve learning achievements, completion rates and access to quality elementary education in 26 poor provinces, especially their most disadvantaged communities. The targeted areas include the 20 SRA, plus six provinces identified by the Presidential Commission to Fight Poverty as including a substantial number of the very poor; 60 percent of the population in the targeted provinces are classified as poor. Together the 26 provinces account for 18 percent of the nation's population, 20 percent of the 6-12 year olds and 24 percent of the poor. Poverty there is both more severe and "deeper" than the national average. Details are in Annex 4. 3.2 Eleven performance indicators and targets linked to these objectives have been agreed with the stakeholders. They complement the traditional measures of performance covered by routine reporting -procurement, disbursement, etc. For capacity-building, implementors will monitor: (a) the extent to which policy decisions reflect project-funded research (Outcome - this is one of two non-quantifiable indicators); (b) the timeliness and accuracy of statistical reports (Output); (c) the gap between planned and actual sub-sectoral expenditures achievements (Outcome); (d) institutionalization of in-service training (Impact); (e) the level of resources flowing directly to schools (Input); and (f) the extent to which Central/Local Government cost- sharing operates as a targeting mechanism (Impact). For educational improvement in 26 poor provinces, monitoring will cover: (g) the textbook:pupil ratio in remote schools (Outcome); (h) pupils' scores in English, Mathematics and Science (Impact); (i) completion rates through Grade VI (Impact); (j) the percentage of children living less than one hour's walk from school (Outcome); and (k) the extent to which stakeholders, especially minority groups, feel that they have been consulted during preparation, and that their views are taken into account during implementation (Outcome). Annex 5 details the targets and monitoring arrangements. B. SCOPE AND APPROACH 3.3 Implementation will be phased. During preparation, six School Divisions (Provinces) selected as pilots formulated their own 5-year Divisional Elementary Education Development Plans (DEDPs), following agreed TEEP Guidelines. This allowed DECS to develop, by major geographic zone, a typology of issues and solutions which were extrapolated for costing. This is a process project characterized by a flexible design under which detailed planning of interventions will be done by the stakeholders during implementation, allowing adjustments in  - 16 - an uncertain environment. The six pilot DEDPs were appraised by the Bank/OECF in May 1996. Two more batches of 8 and 12 DEDPs will be prepared/appraised in the second and third project years (PY2 and 3) respectively. By the end of its seven year period, TEEP will have benefited about 2.3 million 6-12 year olds, about 70 percent of whom come from poor households, and nearly 52,000 teachers and education managers. The completion rate in the target group is expected to increase from an average of 55 percent to 64 - 71 percent (low/high case scenario), and learning achievements to increase by 20 percent. Designed as an exceptional intervention to overcome the educational odds of isolated, long neglected rural areas, TEEP cuts across bureaucratic layers and processes. If the effectiveness of the approach -which combines targeting, a school focus, decentralization, participation and information-based decision-making- is confirmed, the GoP plans to extend it nationwide. 3.4 Preparation was driven by the stakeholders, earning TEEP the status of Participation Flagship in the Bank. It started with participatory Sector Work, most of which was conducted by Filipino consultants and Task Forces during 1994-95. The Sector Work focused on implementation, since educational strategic directions had already been mapped out by the EDCOM Report, and was designed to build consensus. About ten input studies were conducted, and numerous consultations were organized nationwide to create ownership. Following project identification in February 1995, a bottom-up planning approach was adopted under which each DECS Divisional Team in six pilot provinces prepared its own DEDP with local technical assistance and the participation of LGUs, Universities, Parent-Teacher Associations (PTAs), and Non-Governmental Organizations (NGOs). The process involved a variety of steps and participatory techniques, from baseline data collection to pilot preparation activities. Special care was taken to ensure culturally appropriate ways of consulting minority groups during preparation. For the Divisional teams, Bank missions provided capacity-building opportunities in unfamiliar planning and budgeting techniques. In turn, the six pilot provinces will help the next batches of provinces, initiating a leaming process. The LGUs support TEEP and are ready to contribute to its funding and implementation. Annex 6 and the Technical Volume (TV) give details. C. PROJECT DESCRIPTION 3.5 To achieve its objectives, the project will have a policy and institutional framework and two investment components. 3.6 Policy and Institutional Framework (PIFM. The PIF will: (a) improve the adequacy, efficiency, and equity of sub-sectoral funding by protecting the elementary education budget; targeting resources to reduce the cost of schooling for poor children; devolving the School Building Program (SBP), the cost of which will be shared between the Central and Local Governments; and rationalizing staff deployment; (b) ensure that basic inputs are delivered to project schools through community involvement and more transparent operations, and improve school and classroom processes; (c) introduce systems and procedures to decentralize selected education functions and the corresponding resources, to the Divisions and, where feasible, the schools; (d) measure the impact of project interventions on cost and learning to guide decision- making; and (e) provide a Framework for the orderly handling of Resettlement issues that may be  - 17- raised by the SBP. A Memorandum of Policy, prepared by DECS and formally endorsed by the Cabinet, outlines these directions (Annex 7). Because the underlying implementation arrangements require a number of exceptions to existing rules, they have been fonnalized in Memoranda of Agreement (MoAs) between DECS, the Department of Finance (DoF), the Department of Budget Management (DBM), and the Department of Public Works and Highways (DPWH). Detailed TEEP Guidelines, designed to guide field practitioners in the day-to-day implementation of the project, have been prepared. During negotiations, assurances were obtained from GoP that it shall (i) carry out the Project in accordance with the principles set forth in the Memorandum of Policy and with the TEEP Guidelines; (ii) exchange views with the Bank prior to any modification to its Memorandum of Policy or to any of the MoAs with DoF, DBM, and DPWH, that would materially and negatively affect the carrying out of the project, and (iii) not amend, suspend, abrogate, repeal or waive the TEEP Guidelines without the prior approval of the Bank As a Condition of Loan Effectiveness, the MoA with DoF, DBM, and DPWH shall have become effective. As a Condition of Disbursement against the DEDPs, [the final] TEEP Guidelines, acceptable to the Bank, shall have been adopted and put into effect by DECS. One exception to this Disbursement Condition is "Instructional Materials", which require immediate procurement action. 3.7 Investrnent Components. (a) Capacity-building at the National and Regional Levels. This component will: (i) create a national structure for project management and capacity-strengthening; (ii) build capacities in support of policy and decision-making; and (iii) build capacities in support of decentralized implementation and effective schools (estimated baseline cost, US$28.0 million or 6 percent of total base cost); and (b) Educational Improvement in 26 poor provinces. This component will: (i) strengthen capacities in the Divisional Offices, LGUs and other TEEP stakeholders of the targeted provinces; (ii) develop and implement, on a phased basis, locally-prepared, customized Divisional Elementary Education Development Plans (DEDPs) in the 26 provinces. With local variations, the Plans are expected to: (i) improve learning through: the provision of textbooks/ instructional materials, in-service training (INSET) and pedagogic renovation, and, awards from a School Improvement and Innovation Facility (SIIF); (ii) raise completion rates through: the construction/rehabilitation/repair and the provision of equipment of fully equipped small multigrade village schools; community mobilization; and demand-side interventions, mostly funded as pilots under SIIF; (iii) expand access through: the provision of additional school places with furniture and equipment (US$453.7 million, or 94 percent of total base cost). 3.8 The project will finance largely the same inputs as more traditional education projects. However, the approach is different, with its bottom-up planning process, its emphasis on school processes, systemic capacity-building and learning, and decentralization thrust.  - 18 - D. FIRST COMPONENT: CAPACITY-BUILDING AT THE CENTRAL AND REGIONAL LEVELS (US$28.0 MILLION) 3.9 This component will establish a national management structure, with antennae in the TEEP Divisions, to help DECS manage the project and build capacities at key levels of the system. It will be financed by the Overseas Economic Cooperation Fund (OECF) of Japan, with the exception of the MIS, which is Bank-funded. Para. 4.7 summarizes the cofinancing plan. A Condition of Effectiveness of the IBRD Loan is that all conditions precedent to the effectiveness of the OECF Loan Agreement shall have been fulfilled Sub-Component One: National Management Structure (US$6.7 million) 3.10 The Basic Education Steering Committee, an existing interagency high-level body chaired by DECS Secretary, will be responsible for overall policy direction and interagency coordination. A Project Management Advisory Committee (PMAC) composed of DECS managers and stakeholder representatives (parents, LGUs, and an independent Group of Eminent Educators) has been established to (a) provide overall management advice to the Project Director; (b) make recommendations on proposed modifications to the TEEP Guidelines; (c) provide intra- departmental coordination; and (d) articulate stakeholder perspectives and concerns to guide project implementation. The Project Director -- DECS Undersecretary for Programs and Operations -- will also be assisted in an advisory capacity by the concerned Regional Directors, DECS Assistant Secretaries, and the Director of Elementary Education. 3.11 Project Implementation Support Unit (PISU). A PISU has also been established to: (a) support and monitor TEEP day-to-day implementation at the national level, within the "TEEP Guidelines"; and (b) build capacity in DECS. A PISU Manager, acceptable to the Bank, has been appointed from DECS Bureau of Elementary Education. The PISU will be fully integrated in DECS' Operations Complex and will eventually be merged into it. It will be staffed with (i) a core of DECS personnel, seconded there because of their experience with sector project type of approaches, acquired both during PRODED and TEEP preparation; (ii) national consultants with strong experience in modern project and education management techniques; and (iii) on a rotating basis, DECS staff who will join the PISU for developmental assignments, then return to their base unit to become agents of institutional change; some PISU functions will even be directly located in DECS existing units, with consultant inputs where required by the use of new techniques or approaches. The combination of regular/temporary staff and consultants should provide continuity and ownership, sustainability yet enough flexibility to survive a possible restructuring of DECS during implementation. Annex 8 provides the organizational chart. 3.12 The national managerial, professional and technical assistance services and related training, equipment, and vehicles required by PISU, including the specialist services for capacity-building in the provinces, will be procured under an umbrella-contract to be reviewed by the Bank and OECF. The selection process will follow OECF procedures. As a Condition of Disbursement against the DEDPs, GoP shall have appointed the following PISU's key consultant staff: facilities specialist, procurement specialist and a TEEP Advisor in each of the six pilot provinces, with qualifications and experience acceptable to the Bank  - 19- Sub-Component Two: Support to Policy and Decision-Making (US$9.6 million) 3.13 All the capacity-building (CB) sub-components will, with variations, begin with the establishment of a TEEP Support Team (one each for Research/Strategic Thinking, Assessment, MIS Statistics, Budget/Finance, Instructional Material, INSET, etc...) consisting of regular DECS staff and one PISU consultant, and based either in the PISU or in the relevant DECS entity. Each Support Team will (a) provide support to decentralized implementation in its particular area of responsibility; (b) organize training for DECS staff in a new way of performing their functions and, where appropriate (research, assessment, management training ...), manage, with assistance from PISU's Procurement Team, a program of contracts with outside specialized agencies. Management training will be under the overall responsibility of the National Educators Academy of the Philippines (NEAP), operating under contracts with private consultants. 3.14. Research and Evaluation. To give DECS' management access to quality policy analysis, TEEP will support a national Policy Research Unit, to be established outside DECS through local competition. The Unit and other sub-contractors will carry out studies and rigorous evaluations related to: (a) determinants of student drop-out from elementary school (20 percent); (b) impact of project reforms on student learning and school completion (50 percent); and (c) other topics, such as the cost and benefits of adding an 11th year to basic education, at the request of the Secretary (20 percent). It will also disseminate the results of all research, evaluation and assessment carried out under TEEP (10 percent). PISU will act as liaison with the Policy Unit, identify emerging issues and commission the studies. Details are in the Borrower's Project Implementation Plan (PIP) and the Bank's Technical Volume (TV). 3.15 Assessment. Feeding into these evaluations, the project will improve the quality of information on student leaming achievement, following on the recommendations of a national workshop on Assessment Systems (November 1993). This will include: (a) capacity-building in national assessment strategies; (b) visits by national sampling consultants; (c) development and implementation of national assessment tests; and (d) higher degree studies in assessment. TEEP will contract a strong national institution with good international linkages to help the National Education Testing Research Center (NETRC) to (i) develop a national sample-based assessment system, (ii) administer tests in mathematics, science, English and/or Filipino to approximately 1,000 students per grade in Grades 2, 4, and 6; and (iii) provide teachers in TEEP provinces with additional support in developing curriculum-based formative assessments. Details are in the Technical Volume. Assurances were received at negotiations that GoP shall administer the national sample-based assessment tests (i) in all active Project Provinces in 1998, 2000, and 2002; and (ii) in accordance with methods acceptable to the Bank. 3.16 MIS, Statistics and Planning. Based on a pilot educational MIS developed in three Divisions during preparation, the which project will: (a) improve data quality by reducing the demands placed on schools and familiarizing them with data-based monitoring; (b) train DECS- CO, RO and DO staff in the use of this new MIS to support policy-making, scenario development and resource targeting, participatory planning for the DEDPs, decentralization of decision-making to the DOs, and performance monitoring for increased transparency and accountability. The new MIS will be implemented in DECS CO, the 11 concerned Regional Offices, the 26 TEEP Divisional Offices, 50 selected District Offices and a few selected schools.  - 20 - The MIS is the only element of the first component to be funded by the IBRD Loan. The Loan will finance training, specialist services, and equipment. Sub-Component Three: Support to Decentralized Implementation and Effective Schools (US$11.7 million) 3.17 Budget and Finance. To address the issues identified in the Bank's 1995 Public Expenditure Review, the project will assist DECS Financial/Management and Planning Service Units (FMS) in developing standards and procedures to (a) improve allocative effectiveness and efficiency, especially expenditure targeting; (b) ensure that funds flow directly to TEEP provinces and in selected cases, to schools; (c) improve budget presentation and monitoring, beginning in FY98; (d) tighten the linkage between policies, allocations, and delivery of education. Personnel Management. To improve the utilization and productivity of education personnel in the TEEP provinces, under the project DECS' FMS will commission manning studies and operational research. The results, which will guide the revision of staffing norms, will be discussed at the joint annual reviews. 3.18 Quality Inputs. Three programs which are critical to quality improvement and the change process underlying TEEP -- textbooks and instructional materials, in-service training, and a School Improvement and Innovation Facility -- will be implemented at the provincial level, with the center and regions playing a support role. They are described beginning in para. 3.23. 3.19 Advocacy. The project will: (a) inform potential stakeholders (parents, community leaders, LGUs, DECS staff) of TEEP's objectives, approaches, and implementation modalities to gain their active support; (b) help ensure that DECS staff at all levels understands and supports the value of the participatory, grassroots approach to DEDP planning and of decentralized management. Community mobilization methods will be used, in coordination with a series of audio-visual communications and targeted media messages. Based in PISU, with support from the Regional Offices, the Advocacy team will: (i) conduct research, formulate strategy, manage the production work and community mobilization training; (ii) develop material in accordance with standard communications practice including pre-testing and impact/efficiency evaluation; and (iii) develop in DECS the expertise to manage the program. Furthermore, each concerned Regional Office will run a TEEP "Hot-Line" and "Help Desk" to answer queries from, and mobilize support to, project implementors. Details are in the PIP and the TV. 3.20 Preparation Facility. To support the participatory planning of the remaining 20 DEDPs, and their start-up activities, the project will finance a Preparation Facility. DEDP Preparation Guidelines form part of TEEP Guidelines. E. SECOND COMPONENT: ELEMENTARY EDUCATION IMPROVEMENT IN 26 POOR PROVINCES (US$453.7 MILLION) 3.21 What are the DEDPs? The DEDPs are sub-projects prepared by divisional planning teams following TEEP Guidelines developed by DECS-CO with World Bank assistance and with extensive stakeholder consultations. Although the provinces are pre-targeted, approval of their  - 21 - DEDP is subject to compliance with eligibility criteria. The horizon of the DEDPs is five years, with detailed Annual Work Plans and Budgets, all to be approved by the TEEP Director on the recommendation of PISU. Provinces that do not deliver on their contractual commitments will be suspended after two years, and others, substituted for them. Despite local variations, a core of interventions has emerged from the six pilot DEDPs (para. 3.3). To ensure high-quality start-up and create the conditions for institutionalization, emphasis is being placed on upfront development of capacities, systems and procedures. The focus is on the creation of more "Effective Schools" in poor rural areas, and the entire system is being reorganized to support that approach. Implementation will be the responsibility of the DOs. Annex 9 summarizes the key elements of TEEP Guidelines governing DEDP preparation. The DEDPs for the six pilot provinces are in the TV. At negotiations, GoP gave assurances that each DEDP shall be prepared and appraised in consultation with the Bank. As a Condition of Disbursement against the DEDPs, GoP shall, in respect of the DEDPs for each of the six pilot provinces, cause the respective DECS- DO to enter into a Memorandum of Agreement satisfactory to the Bank with the respective provincial and municipal LGUs, parent representatives, and other concerned parties which shall set forth the obligations of each party to implement such DEDP in accordance with the TEEP Guidelines. 3.22 This component will: (a) strengthen the capacity of (i) DECS Divisional Offices (DO) as the basic TEEP provincial management structure; (ii) the LGUs, Parents-Teachers Associations (PTAs), Teacher Education Institutes (TEIs), Non-Governmental Organizations (NGOs), and communities, so that they actively support TEEP; and (c) develop and implement the DEDPs. Sub-Component One: Divisional/Provincial Management Structure and Capacity-Building (US$32.5 million) 3.23 Divisional Offices. Until now mere administrators and implementors, the Division Superintendents are becoming managers. In partnership with other stakeholders, they will (a) oversee the preparation of the DEDPs; (b) cooperate with the Provincial School Boards to mobilize more resources from the SEF and secure endorsement of the DEDPs; (c) implement the DEDPs; and (d) use the School Boards as "democratic oversight mechanisms". The Regional Offices' role will evolve towards support/mentoring and monitoring. Other partners of the DOs will be: the Municipalities and their Engineering Offices, who will implement the school building program (SBP); TEIs and other consultants for training; NGOs as service providers, and the private sector, as a potential source of additional funding. 3.24 Each Divisional Superintendent will be assisted by one TEEP Adviser plus three months/year of other short-term technical specialist services on demand. The Advisers will not substitute for the DO staff, who will remain in charge, but will provide on-the-job training, analyses and recommendations for action. The duration (3 years on average) and nature of this assistance may vary depending on the pace at which existing DO staff acquire the new skills required for implementing TEEP. Benchmarks will help the DOs monitor their performance. 3.25 GoP and donor funds will flow directly to the DOs via DECS, and the DOs are being reinforced by GoP to handle their new financial responsibilities, described in para. 4.36. The new  - 22 - MIS, designed to help the Divisions in making school-mapping and other allocative decisions, and in monitoring TEEP, will be installed in the DOs. Working closely with DECS-CO's various Support Teams, the new DOs will outcontract support services such as INSET or local adaptation of materials. The specialist services to provide technical support and training will be financed by OECF under the PISU umbrella -contract, with the Bank Loan financing civil works and equipment for the DOs. Annex 10 and the TV provide details on decentralization. 3.26 Non-DECS Stakeholders. To mobilize support for TEEP and institutionalize its participatory approaches, this group will receive induction and training in areas such as TEEP's principles and design, communications, and management. The stakeholders include the LGUs, which will share in the cost of the school building program, and, through their Engineering Offices, will participate in its implementation; PTAs, which will play an increased role as schools are "empowered" and elect a School Management Advisory Committee; NGOs, which will be involved in the advocacy campaign, training, school construction, some of the pilots, and the yearly participatory performance audit. The Loan will finance workshops and materials. 3.27 School Improvement and Innovation Facility (SIIFP. The SIIF is a tool for pedagogic decentralization and for targeting, with two windows. At the National level, it will pilot-test alternative new approaches to issues of national relevance. This window will be managed by PISU, in liaison with DECS Units. At the Divisional level, SIIF will target resources at "marginalized" schools to engage them in diagnosing their problems and in defining and implementing their own improvement plans. All schools (and clusters) will be classified in one of three risk categories based on agreed criteria and will compete on the basis of two-year school improvement plans (SIPs) emphasizing school-based quality enhancement. About 1,700 grants, ranging between US$ 1,000 - US$3,000 equivalent, will be awarded. 3.28 The District and Division Supervisors will be trained respectively, to support preparation of the proposals, and to review them. Two thirds of the grants will be for clusters, so that about 4,000 schools (out of 9,500) could benefit. The SIIF proposals will be subject to rigorous monitoring by the DOs, and spot-checks by PISU. NGOs may be involved in an implementing or monitoring capacity. The advocacy campaign will disseminate success stories, and there will be a vearly stock-taking exercise. SIIF Guidelines, which are part of the TEEP Guidelines, have been finalized and will be tested during PYI, and deployed by PY2. Annex 11 and the TV provide details, including eligibility criteria. The Bank Loan will fund the demand-side interventions (paras. 3.38-3.39), and OECF, the remainder of SIIF activities. 3.29 Below are examples of SIIF proposals, which are detailed in Annex 11, Table 11.1: * School Empowerment to encourage schools and their communities to diagnose their problems and define their own strategies. * School Improvement Plans, including experiments such as a more flexible approach to school attendance, environmental measurement, exchanges between schools, etc. * Indigenization of Material and Curriculum and training of indigenous teachers to assist with the transition from the vernacular to the languages of instruction, and to promote culturally appropriate minority education (Annex 11, Part Two).  - 23 - * Community-based, Early Childhood Development Pilots to test different organizational models (e.g. center vs. home-based). . Addressing the needs of children in especially difficult circumstances (due to exploitation, disabilities, etc...). . Special, demand-side programs including school health and nutrition, modular programs for migrant and nomadic children, etc. * Vouchers to retain poor children in school (para. 3.39). Sub-Component Two: Divisional Elementary Education Development plans (US$421.2 million) Improving Learning Achievements 3.30 Quality improvements are the best strategy to make school more interesting and retain children. They can also generate savings through a more efficient flow of pupils. The project will: (a) ensure the availability of textbooks and instructional materials in remote schools; (b) revitalize in-service training (INSET) and refocus it on schools and pupil achievements; and (c) use SIIF to support school-based experiments. 3.31 Textbooks and Instructional Materials. TEEP will: (a) ensure that every teacher and every other pupil in the 26 provinces gets a basic set of quality books and instructional materials at the beginning of the school year and knows how to use them; (b) support the policy and institutional measures required to ensure an orderly transition to a fully private publishing sector. An Instructional Materials Support Team will be trained in DECS-CO with assistance from PISU. Until June 1998, textbooks will be reprints of books developed by the Instructional Materials Development Center (IMDC), procured following Bank procedures. By SY98-99, textbooks will have been published by the private sector based on DECS specifications and approved by a team of DECS evaluators. Procurement will follow GoP procedures, under which schools will choose from approved DECS lists. DECS is receiving technical assistance from the Asian Development Bank to develop a full textbook distribution system. 3.32 For all of the 26 provinces, TEEP will provide since PYl one set (= 4) of textbooks for two pupils. Although less than presently prescribed by DECS, this is considered adequate, is more sustainable, and will promote prioritization on core disciplines. To contain costs and promote individual learning, the Grade I - III books will be in an abridged, modular form. In multigrade schools each classroom will each receive a science corner and a reading corner to facilitate independent or small group work, and for each pupil, a set (= 3) of learning guides and workbooks. Each one of the project's classroom and 9,500 schools will receive a kit of instructional material. Monograde schools will be equipped with a supplementary library (two copies of 200 books each). Teachers, principals and supervisors will be trained, for the short- term, in a more creative use of textbooks and other reading material, and for the medium-term, when schools have choice, in the selection of textbooks. The Loan will finance paper and a reprint of the above materials in all 26 provinces in PY1, and school/classroom kits of instructional materials. For the remaining PYs, the textbooks will be GoP-funded. Assurances were received at negotiations that GoP shall, by March 31, 1997, prepare, in consultation with  - 24 - the Bank, a textbook distribution plan with the goal ofproviding a set of two textbooks per pupil in allpublic elementary schools including in the most remote areas and implement it thereafter. 3.33 INSET for Teachers, Principals and Supervisors. To create more adaptive, effective schools that produce independent, critical thinkers, the project will revitalize INSET in the 26 provinces. School and cluster-based, the new INSET will develop teachers into learning facilitators capable of responding to pupils' diverse needs, and principals/supervisors into proactive team-leaders. Thus, it will emphasize pedagogy along with subject matter. Some 50,000 teachers and 2,000 administrators, i.e., all staff, will participate. Divisions will become codesigners and "clients", instead of mere participants in INSET. The INSET program was designed to support a pedagogical reform characterized by: (a) a heightened role for district supervisors in providing instructional leadership to remote rural schools; (b) the clustering of schools; (c) school-based management, with various degrees of fiscal and pedagogical autonomy given to schools, their principals, school-management advisory committees and communities. The TV provides a detailed plan for implementing the reform. 3.34 The INSET program, which will rely on a four-tiered referral system and an horizontal resource network system, involves three distinct phases. PYI will be a phase of planning and capacity-building. Support teams consisting of three to four people at the national level, and three to four for each Region/Division will be formed and trained for three to four weeks by national and international consultants. Divisional mobile teams of four trainers for 30 teachers will be trained by the support team with assistance of consultants such as TEIs. Overtime, the plan is to increasingly outsource INSET. Beginning in PY2, the mobile teams will deliver the training to schools and clusters, at the rate of five days p.a. This five-days on-site training will be complemented by five days residential training p.a., normally at the district level, clinic-style. In parallel, school and cluster-based "Learning Action Cells" (or LACs) will begin meeting once a month, operating as professional networks. Formative team evaluation and feedback will be built-in, and a full impact evaluation, scheduled for the mid-term review (2000). The third phase will integrate distance education into the face-to-face program, to accelerate coverage and improve sustainability. It will begin with a one-year research-action phase, initially limited to two carefully selected districts per province. The pace and modalities of expansion will be reviewed annually. The TV contains the full INSET and distance education programs. 3.35 The Loan will finance workshops, equipment, training materials, especially TEEP Training Guidelines, vouchers for the DOs to purchase training services, 10 days per annum, for a cumulative total of 52,000 teachers, supervisors and principals; (b) provision of simple technologies in the 500 district-level lead schools (VCRs, cassettes on good teaching practice). No honoraria will be paid, but trainees will earn credits towards promotions. 3.36 SIIF Activities. School Empowerment, School Improvements Plans, Curriculum and Materials Indigenization, and Early Childhood Development programs are effective strategies to improve learning (paras. 3.27 and 3.29). All will be piloted under the SIIF (Annex 11).  - 25 - Raising Completion Rates 3.37 Table 2.2 suggests that a full drop-out reduction strategy must also (a) support special programs and demand-side interventions to address the issues of health, high cost of public schooling, and need for children to work; (b) mobilize communities; and (c) bring a complete, better equipped elementary school closer to the "barangay" (village). 3.38 Demand-Side Interventions. To address the demand-side issues identified in the DEDPs, the project will pilot special programs and fund them under SIIF because many of them, while critical, are not mainstream to public education. GoP has committed up to five percent of total DEDP base costs to these activities. The adoption and eventual expansion of pilot programs will be conditional upon demonstrated LGU financial commitment and compliance with national policies. As part of the participatory planning process, indigenous people will be encouraged to voice their felt needs for culturally sensitive educational programs. 3.39 A priority intervention under this heading is demand-side financing. While TEEP's quantity and quality improvements will make education more attractive, this pilot will make it more affordable to the poor by offsetting direct and indirect private costs. The objective will be to determine: (a) within a randomized, experimental setting, the relative effectiveness and the feasibility of generalizing different demand-side interventions; and (b) the subsidy level that would prove sufficient to induce enrollment without distorting other economic decisions. Based on models from Latin America and Asia, the pilot will experiment with (i) small scholarships to cover direct and indirect schooling costs; (ii) vouchers in lieu of tuition at any local school (DECS approach for secondary education); and (iii) community vouchers to build and equip schools where none exist. The impact on retention will be discussed at the joint annual reviews. The Bank Loan will provide SIIF grants as seed money to develop, and mainstream if justified, demand-side pilot interventions. Assurances were received at negotiations that GoP shall, (a) by September 30, 1997, prepare and furnish to the Bank for its review and comment, a proposed strategy to address demand-side issues; (b) follow the criteria and procedures set forth in the TEEP Guidelines for the informed participation of, and consultation with, a variety of representative communities, in particular communities with indigenous peoples and ethnic minorities, to ensure that the design and implementation thereafter of the DEDPs adequately addresses the needs and cultural preferences of such communities. 3.40 Community Mobilization. The induction and training offered to provincial level stakeholders (para. 3.26) will also be available to Municipal LGUs, School Management Advisory Committees (elected from PTAs) and communities. Topics will include techniques to ensure the sound operation of these bodies and partnerships. 3.41 Providing Complete Village Rural Schools and Improving the Physical Environment These two interventions fall under the School Building Program, discussed below.  - 26 - Expanding Access to Quality Elementary Education 3.42 School Construction and Equipment. The project will: (a) reduce the drop-outs caused by distance from a complete school; (b) restore a classroom physical environment that is safe and conducive to learning; and (c) expand access to reasonable quality education in poor rural areas. 3.43 Under (a), TEEP will provide all 6-12 year olds in the 26 provinces access to a complete school less than one hour walk from home. This means promoting small multigrade schools as a viable alternative. GoP is introducing hardship allowances for teachers and TEEP will fund cost- effective packages of inputs designed to equalize quality between multi and monograde schools. DECS has started developing for each province, in cooperation with UNICEF, two demonstration multigrade clusters, adapted from Colombia's successful "Escuela Nueva" model. The program will be based on the participatory school mapping exercise initiated during preparation. The exact numbers, to be determined during implementation, fall under the total in (c). Under (b) TEEP will, based on a province-by-province inventory of facilities, finance repairs and rehabilitation of about 23,700 classrooms, the construction of toilets in 1,900 schools; desks and furniture. To break the isolation of some of the more remote schools (25 km away from the nearest District), it will test, where technically feasible, simple communication devices such as cellular phones and one-way radios (two districts/province). The LGUs will provide water or electricity connections. Under (c), TEEP will build about 6,300 new classrooms and replace about 2,850 existing ones, using an index-based approach which combines real needs, effectiveness, and the creation of economic opportunities through community construction. The school mapping and community mobilization exercise will be repeated for each new TEEP province. It will promote small multigrade, complete schools (3 classrooms, 6 grades) with a catchment below one hour's walk, rather than large schools with a wider catchment. Moving away from standardized models poorly adapted to local conditions, six school prototypes have been developed -- for mono and multigrade classes, with variants for different terrains and climatic conditions. The new norms are cost-conscious but integrate new pedagogical standards, such as larger classrooms for multigrade and teacher quarters. The costing also reflects the distances over which materials have to be carried. 3.44 Implementation will be delegated to the Municipalities through their Engineering Departments, as this is likely to raise construction quality through more frequent supervision. Details are in Annex 12 and the Technical Volume. For the GoP, this will ease the transition towards devolution of school construction and maintenance, planned to be introduced in 1997, and heighten Municipalities' commitment to the financing, management, and delivery of quality elementary education. For the LGUs, it will improve the coherence of basic social services delivery, promote synergy between the activities of the various municipal boards (education, health), and, in the case of isolated barangays, create employment through the use of community construction ("pakyaw"). Each DEDP will specify the scope of the civil works program, the titling situation, the method of construction selected. The GoP has approved and adopted a Framework for Resettlement which establishes principles and procedures. At negotiations, assurances were obtained from GoP that it shall apply the Framework for Resettlement for purposes of providing compensation, resettlement and rehabilitation measures to persons affected by land acquisition. The Loan will finance civil works contracts, materials and furniture.  - 27 - 4. PROJECT COSTS, FINANCING, AND IMPLEMENTATION A. COST ESTIMATES 4.1 Summar of Costs. Total project cost, including duties and taxes, is estimated at about Pesos 16.9 billion, or US$569.4 million equivalent. The net of tax cost would be US$518.6 million. Investment costs are 87 percent and incremental recurrent costs, 13 percent of total baseline costs. The cost breakdown by component and categories of expenditures is given in Tables 4.1 and 4.2. Table 4.1: Summary Costs by Component (Peso Million) (USS 000) Total Total Base Base Local Foreign Total Costs Local Foreign Total Costs A. Capacity Building at NatnI & Reg'nl Levels National Management Structure 128 42 170 1 5,024 1,657 6,681 1 Support to Policy/Decision Making 233 12 245 2 9,165 478 9,643 2 Support to Decentralization 244 55 299 2 9,580 2,157 11,736 2 Subtotal Capacity Building at Nat'ni & Reg'ni Levels 605 109 714 6 23,769 4,292 28,061 6 B. Elem. Educ. Improvement in 26 Prov. Capacity Building at Provincial Level 708 119 827 7 27,800 4,682 32,482 7 DEDPs 8,292 2,428 10,719 87 325,809 95,389 421,198 87 Subtotal Elem. Educ. Improvement in 26 Prov. 8,999 2,547 11,546 94 353,610 100,070 453,680 94 TOTAL BASELINE COSTS 9,604 2,656 12,260 100 377,378 104,362 481,740 100 Physical Contingencies 891 261 1,153 9 35,019 10,266 45,285 9 Prce Contingencies 2,953 551 3,504 29 35,832 6,544 42,376 9 TOTAL PROJECT COSTS 13,449 3,468 16,917 138 448,229 121,173 569,402 118 4.2 Basis for Cost Estimates. Estimated costs for civil works are based on current unit costs for construction which vary from US$180 (for classrooms) to US$250 (for Divisional Offices) per square meter of gross floor area of construction. These costs are reasonable compared to similar Bank-assisted construction in the Philippines. Costs of professional services also reflect the fee scale established for similar services provided by local consulting firms. The cost estimates for equipment, vehicles and educational materials are based on lists prepared by the GoP. Furniture and consumable material costs are based on GoP estimates and reflect current prices. The cost of teacher/pupil manuals are based on DECS experience with regard to those to be reprinted, and on current publishing market prices with regard to those to be published; Estimated salaries of additional staff are based on basic pay scales including standard allowances. 4.3 Duties and Taxes. All imported goods are to customs duties and taxes. The total amount, includes import duties and taxes, is estimated at about US$50.8 million.  - 28 - 4.4 Contingency Allowances. Project costs include physical contingencies (US$45.3 million) at 10 percent of all physical components, operation costs and maintenance, and at five percent for technical assistance and salaries. They also include price contingencies (US$42.4 million) based on the standard regional and Bank-wide guidelines on inflation factors. Table 4.2: Summary Costs by Category of Expenditure (Peso Million) (US$ '000) % % Total Foreign Base Local Foreign Total Local Foreign Total Exchange Costs I. Investment Costs A. Civil works 1. School Buildings 3,729 414 4,144 146,536 16,282 162,817 10 34 2. Other Buildings 196 22 218 7,695 855 8,550 10 2 Subtotal Civil works 3,925 436 4,361 154,231 17,137 171,367 10 36 B. Equipment/Furniture 1. Equipment 65 1,765 1,830 2,547 69,342 71,889 96 15 2. Furniture 213 - 213 8,384 - 8,384 - 2 Subtotal Equipment/Furniture 278 1,765 2,043 10,931 69,342 80,273 86 17 C. Textbooks and Inst. Materials 1. Instructional material 558 363 921 21,938 14,253 36,191 39 8 2. Communication material 54 6 60 2,117 235 2,352 10 - Subtotal Textbooks and Inst. 612 369 981 24,054 14,488 38,542 38 8 Materials D. Specialist Services 613 86 699 24,089 3,395 27,484 12 6 E. Training 2,187 - 2,187 85,929 - 85,929 - 18 F. Special Programs & Grant 450 - 450 17,663 17,663 - 4 Total Investment Costs 8,065 2,656 10,721 316,898 104,362 421,260 25 87 II. Recurrent Costs A. Personnel 281 - 281 11,051 - 11,051 - 2 B. Operating Costs 584 - 584 22,961 - 22,961 - 5 C. Supervision missions 26 - 26 1,016 - 1,016 - - D. Management sessions 0 - 0 14 - 14 - - E. Maintenance 647 - 647 25,438 - 25,438 - 5 Total Recurrent Costs 1,539 - 1,539 60,481 - 60,481 - 13 TOTAL BASELINE COSTS 9,604 2,656 12,260 377,378 104,362 481,740 22 100 Physical Contingencies 891 261 1,153 35,019 10,266 45,285 23 9 Price Contingencies 2,953 551 3,504 35,832 6,544 42,376 15 9 TOTAL PROJECT COSTS 13,449 3,468 16,917 448,229 121,173 569,402 21 118 4.5 Foreign Exchange Component. This component--US$121.2 million--was estimated based on the following foreign exchange proportions: (a) civil works: 10 percent; (b) equipment: 90 percent; (c) instructional materials: 35 percent; (d) international consultants: 100 percent; (e) consumables, operation and maintenance costs: 5 percent. Annex 14 shows additional cost tables. B. FINANCING PLAN 4.6 The estimated project cost will be financed as follows: (a) The GoP will finance US$307.4 million (54 percent of total project costs including taxes and duties), and the LGUs, US$43.9 million equivalent (7.7 percent of total project cost);  - 29 - (b) The proposed IBRD Loan of US$113.4 million will finance 21.9 percent of total project costs net of taxes and duties; it will be made to the Republic of the Philippines which will make the funds available to DECS and the LGUs to implement the project. The level of local cost financing by IBRD (17.5 percent) is deemed appropriate; and (c) The OECF soft Loan of US$104.8 million equivalent will finance 20.2 percent of total project costs net of taxes and duties. Retroactive financing of up to US$3.0 million is proposed for eligible expenditures incurred after July 1, 1996 under all disbursement categories except SIIF grants (category 5). 4.7 The financing plan by disbursement category is summarized in Table 4.3. Table 4.3: Financing Plan by Disbursement Categories and Financiers (US$ OoO) Government of the IBRD OECF LGUs Philippines Total Duties & Amount % Amount % Amount % Amount % Amount Taxes 1. Civil Works 51,165 25.0 51,165 25.0 43,855 21.4 58,475 28.6 204,660 20,466 2. Equipment & Furniture 31,104 33.6 9,101 9.8 - - 52,384 56.6 92,588 3,717 3. Materials, Kits&Textbooks 13,442 29.3 2,540 5.5 - - 29,847 65.1 45,830 4,311 4. Training 13,638 13.3 - - - - 89,239 86.7 102,877 10,288 5. Specialist Services 1,825 5.9 26,254 85.3 - - 2,704 8.8 30,783 2,704 6. Special Programs & Grant 2,204 11.1 15,743 78.9 - - 1,994 10.0 19,940 1,994 7. Operation & Maintenance - - - - - - 60,109 100.0 60,109 6,011 8. Personnel - - - - - - 12,616 100.0 12,616 1,262 TOTAL 113,377 19.9 104,803 18.4 43,855 7.7 307,367 54.0 569,402 50,752 4.8 Since the LGUs' Internal Revenue Allotment (IRA) will increase from 35 to 40 percent of Internal Revenue Collections in 1997, the GoP proposes, in line with the provisions of the LGC, to introduce through TEEP a cost-sharing between the Central and the Local Governments for the School Building Program (SBP). This will (a) facilitate the transition towards the SBP's full devolution; (b) allow GoP to target resources at poor LGUs, while expanding the resource base by tapping the affluent LGUs. TEEP is the incentive for the 26 provinces to agree to the cost-sharing. For the rest of the country, the incentive is that it will accelerate devolution of the SBP. For TEEP purposes, the LGU share was estimated at 25 percent of total SBP cost on average, with a range of 10-30 percent C. PROCUREMENT 4.9 Procurement of all goods, works, SLIF grants and services funded under the Bank Loan will be carried out in accordance with Bank procurement guidelines ("Guidelines for Procurement under IBRD Loans and IDA Credits" of January 1995 revised in January and August 1996, and "Guidelines for the Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency" of August 1981). Procurement of consultants, equipment,  - 30 - training, SIIF and civil works funded in parallel by OECF will be carried under procedures satisfactory to OECF. The procurement arrangements are shown in Table 4.4. 4.10 Civil works, equipment, vehicles, furniture, and educational materials will be bulked to the extent possible and procured as follows: (a) individual contracts for the purchase of goods estimated to exceed US$250,000 equivalent, will be procured by International Competitive Bidding (ICB) using the Bank's Standard Bidding Document (January 1995). Under ICB, domestic manufactures would be eligible for a margin of preference in bids evaluation of 15 percent of the c.i.f. costs of the competing imports or the applicable customs duty, whichever is lower. No civil works contracts are expected to be procured under ICB; (b) individual civil works contract estimated to cost between US$500,000 equivalent and US$50,000 equivalent and individual contracts for the purchase of goods with an estimated value between US$250,000 and US$50,000 equivalent will be procured under National Competitive Bidding (NCB) using procedures acceptable to the Bank; (c) individual civil works contracts estimated to cost less than US$50,000 equivalent, will be procured through simplified procurement procedures similar to national shopping applying government procedures by comparing at least three price quotations to be obtained through local advertising from small contractors within the locality; (d) individual contracts for construction materials, in packages of less than US$50,000 equivalent, will be procured through simplified national shopping applying government procedures by comparing at least three price quotations to be obtained through local advertising from small contractors within the locality; (e) works and goods (including 50 percent of school furniture) required for the SBP will be directly contracted with community groups to increase sustainability through community labor; (f) labor for small scale works in remote schools can be carried out by Municipalities through Force Account e.g., using their own personnel and equipment, if no contractor is interested in performing the works at a reasonable cost and no community is interested in and/or capable of, performing the work. 4.11 Procurement Management. A Procurement Team to be established in the PISU at DECS- CO will be directly responsible for ICB and will oversee/provide support to the 26 DOs, who will handle all other procedures. Procurement will be handled by the Prequalification Bids and Awards Commission (PBAC) which by law is mandated to oversee the bidding process. For ICB, to be handled by DECS-CO, the PBAC is chaired by one Under or Assistant Secretary and includes technical staff and a lawyer. For the DOs, procurement will be handled by DECS-DO  - 31 - PBAC, with technical assistance from the Provincial Engineers/DPWH, and a legal counsel. Procurement of school construction and repairs will be handled by the Municipalities, with DECS-DO monitoring. Except for community works which will be contracted directly, Municipalities will procure works and construction materials through the Municipal PBAC in which representatives of the concerned communities/schools will participate. Annex 12 describes the civil-works management arrangements. Technical oversight/support will be provided at DECS-CO and DO levels until pre-agreed benchmarks of performance are met. 4.12 Civil Works. (a) The construction of 14 DOs, with an aggregate amount of US$3.1 million, and an estimated unit cost per site of about US$240,000 for the new office buildings, will be carried out through NCB procedures acceptable to the Bank. Due to the phased implementation and the wide dispersion of sites, works cannot be aggregated under large contracts and will not be attractive to foreign contractors. Procurement will be managed by the respective DECS-DO PBACs with technical assistance from the Engineering Offices/DPWH, which are familiar with works of comparable scale and will receive procurement training from PISU; (b) construction/expansion of functional rooms in thb- 238 District Offices, with an average unit cost of US$24,000 for each, and partial refurbishing of all other DOs, ROs and Baguio Training Center (for Education Personnel), with an average unit cost of US$46,000 for each, will be carried out through simplified procedures similar to national shopping (para. 4.10.c) by the respective DECS-DO PBACs. The aggregated amount is estimated as US$6.5 million. (c) Other civil works are the construction of 9,150 classrooms, 1,900 school office rooms for school heads and staff, 2,000 school toilets and rehabilitation/repair of 23,700 existing classrooms, with an total aggregated amount of US$194.9 million, and unit costs estimated at: (i) US$21,600-32,000 for each site of two to three new classrooms, (ii) US$4,800 and US$1,120 for each school office room and set of school toilets, respectively; (iii) US$1,600 and US$4,800 for classroom rehabilitation's and repairs, respectively. All those works will be carried out under the responsibility of Municipal Engineering Offices following one of four options, based on the criteria given in para 4.10 (c) through (f) and ranked by decreasing order of preference: flnl, simplified procurement procedures similar to national shopping through their respective municipal PBAC; second, direct contract with communities; third, combination of simplified procurement procedures similar to national shopping for the supply of site materials and direct contract with communities for labor (Pakyaw); and, fkih, Force Account, with an aggregated amount not to exceed US$39 million. The most appropriate options will be determined during DEDP preparation and will be specified in the Memoranda of Agreement to be signed by the LGUs and DECS DOs to become an integral part of the DEDPs (Technical Volume, Annex 10). 4.13 Goods (Equipment, kits. instructional materials. furniture). (a) The items to be procured through ICB (total: US$71.0 million) are: computers for central, regional, divisional and district offices; equipment and vehicles for distance education; copiers, textbooks and/or textbook paper and printing and distribution contracts; 50 percent of the standardized school/classroom kits; (b) items to be procured through NCB (total US$28.4 million) are: the remaining 50 percent of the school/classroom kits, based on individual school needs and on an annual phased basis (with a unit average amount estimated at US$170,000 by each of the 26 DOs); 50 percent of the school furniture, with individual value per contract between US$50,000 and US$250,000; (c) other procurement methods (total US$10.7 million) will apply to contracts managed by each DO on a  - 32 - phased annual basis, with an individual value below US$50,000, including: (i) the remaining 50 percent of the school furniture, which will be purchased through national shopping with comparison of at least three price quotations, or direct contracts with communities in order to involve them through the use of local labor; (ii) other equipment for the Divisions/Districts, to be procured through national shopping. 4.14 Local and Foreign Consultancy Contracts (US$31.1 million). The bulk of consultant services will be funded by the OECF Loan under procedures acceptable to OECF, and includes: (a) the technical assistance to DECS-CO and the 26 DOs; (b) contracts with NGOs for the yearly independent participatory audit; (c) the Eminent Educators Group, which will meet with the TEEP Management Advisory Committee at least twice a year or at the request of the Project Director, (d) assistance to management training, Monitoring and Evaluation and IEC. Consultancies funded by IBRD include: (a) MIS development, implementation and training and (b) contract services for INSET. Consultants' services contracts shall be awarded in accordance with the "Guidelines for Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency" (August 1981). For complex, time-based assignments, such contracts shall be based on the standard form of contract for consultant services issued by the Bank. 4.15 IBRD Review. Contracts for goods estimated at US$1.0 million or more, and consultant services contracts in excess of US$100,000 for firms (US$50,000 for individuals) will be subject to prior review by IBRD. With respect to all consultant services contracts in particular, irrespective of value, prior review will be required for (a) terms of reference; (b) single source contracts; (c) all assignments of critical nature (because of environmental safety or public health considerations); and (d) contracts amendments raising the value to US$100,000 or above for firm, (US$50,000 or - above for individuals). No civil works contracts are expected to reach the Bank threshold of US$5.0 million for prior review. Works will be carried out under NCB procedure. For each Division, each year the first NCB contract for works and the first two NCB contracts for goods will be subject to prior review by IBRD. All the ICB and NCB contracts which are not pre-reviewed, will be post reviewed by the Bank. For national shopping and direct contracts (SBP), the post-review process by the Bank will cover an estimated 25 percent of the total contracts in the first two years and, if the result is satisfactory, may be gradually reduced the following years, to not less than five percent. The percentage of total contract values that will be covered by the Bank's prior review will be 70 percent for goods and 1.5 percent for works. 4.16 Procurement information will be collected and recorded as follows: (a) prompt reporting of contract award information by the Borrower; (b) comprehensive quarterly reports from PISU to IBRD covering: (i) revised cost estimates for individual contracts and the whole project; (ii) revised timing of the procurement actions, including advertising, bidding, contract awards and completion time for individual contracts and (iii) compliance with aggregate limits on specified methods of procurement.  - 33 - Table 4.4: Procurement Arrangements In Millions Of Dollars, Including Provisions Procurement Method International National Procurement Elements Competitive Competitive Other' NBF2 Total3 Bidding Bidding School Buildings - -B 194.9 - 194.9 (48.7) (48.7) Other Buildings - 3.1 6.5 - 9.6 (0.8) (1.6) (2.4) Computers 3.1 - - - 3.1 (2.5) (2.5) Reproduction Equipment 0.6 - - - 0.6 (0.0) (0.0) Communication 0.9 0.9 0.0 - 1.9 (0.8) (0.8) Other Equipment - - 3.1 - 3.1 School Furniture - 4.8 4.8 - 9.6 (1.2) (1.2) (2.4) Other Fumiture 0.0 0.2 - - 0.2 (0.0) (0.0) School and classroom Kits 50.0 22.4 - - 72.4 (17.5) (7.9) (25.3) Vehicles 1.7 - - - 1.7 Instructional Materials (published) 5.2 - 28.4 33.5 (4.7) (4.7) Instructional Materials (reprint) 6.7 - 6.7 (6.1) (6.1) Textbook Paper 2.7 - - - 2.7 (2.7) (2.7) Communication Materials - - 2.8 0.4 3.2 (0.1) (0.1) Training - Accommodation - - - 48.3 48.3 Training Mat & Trainers - - 48.1 - 48.1 (12.0) (12.0) Workshop - - 5.8 - 5.8 (1.4) (1.4) SIIF 10.4 - 10.4 (2.2) (2.2) Assessment - - 5.5 - 5.5 Research - - 4.1 - 4.1 Consultants - 0.1 31.1 - 31.1 (0.0) (1.9) (1.9) Personnel - - - 12.6 12.6 Maintenance - - - 53.4 53.4 Operating Cost - - - 6.7 6.7 Total 71.0 31.5 317.1 149.8 569.4 (33.5) (10.7) (69.1) (0.1) (113.4) 1 Other Procurement methods apply to contracts of individual value below US$50,000 that include: (i) National Shopping for annually phased procurement of small scale works and site-materials, (ii) Direct contracts with local Communities (pakyaw) for labor-intensive works as classroom constructions and furniture, (iii) Municipal force account when works are too small or in areas too remote to attract contractors; and consultant services. 2 NBF means "non Bank financed". Figures in parentheses are the anounts financed by IBRD; totals may not add up exactly due to rounding.  - 34 - D. DISBURSEMENTS 4.17 Disbursement Profile. The proposed IBRD Loan will be disbursed over seven and a half years, to reflect the standard profile for PHR projects in the Philippines, plus the fact that the last "batch" of provinces will be appraised in PY3. The project is expected to be completed on December 31, 2003 and the Loan, closed on June 30, 2004. The experience with other education projects reinforces the justification for a standard disbursement profile. Annex 16 shows forecasts of expenditures and disbursements. 4.18 Disbursement Percentages. The IBRD Loan will be disbursed as follows: Disbursement Category IBRD Allocation % of Expenditure to be in US$ million Financed by the Loan 1) Civil Works 46.5 50% 2) Goods (other than textbooks and instructional materials) (a) School and classroom kits 23.0 35% (b) School furniture 2.2 50% (c) Other goods 3.1 100% of foreign expenditures, 100% of local expenditures (ex-factory cost) and 90% of local expenditures for other items procured locally 3) Textbooks and instructional materials 12.2 100% of foreign expenditures, 100% of local expenditures (ex-factory cost) and 90% of local expenditures for other items procured locally 4) Training 12.4 100% of foreign expenditures and 25% of local expenditures 5) SIIF Grants 2.1 90% 6) Consultants' services 1.8 100% 7) Unallocated 10.1 Total 113.4 4.19 Documentation requirements. Disbursements will follow two parallel channels: (a) DECS for all TEEP expenditures other than the School Building Program (SBP, covering school construction, rehabilitation and repair); and (b) the Municipal Development Fund (MDF) for the SBP. AAA. Non-SBP disbursements will fall under three categories: (i) for training and workshops, they will be made against Statements of expenditures (SOEs) prepared by DECS- DOs and consolidated by DECS-CO for submission to the Bank (and OECF); (ii) for goods and services under contracts of less than US$1.0 million for goods and US$5.0 million for civil works, they will also be made against SOEs, with supporting documentation retained by the DOs for review by IBRD supervision missions; (iii) all other disbursements will be made against fully documented withdrawal applications. BBB. For SBP expenditures, the initial payments to contractors will be made directly by the Municipal LGUs, in tranches (4 per school) out of their own resources (which in turn could be covered partly by MDF advances out of GoP counterpart funds). At monthly intervals, they will be reimbursed by the MDF (through the Offices of Local Treasurers). The Municipalities will maintain complete records, by site, of works completed and funds disbursed, including Certificates of Completion signed by the Municipal Engineer and  - 35 - countersigned by the Mayor and the Division Superintendent or his/her designated Representative. 4.20 Special Accounts. To accelerate disbursements and, in the case of DECS, allow for direct payment of other eligible local and foreign expenditures, GoP will open and maintain two Special Accounts (SA) within an Authorized Government Deposit Bank (AGDB): (a) one to be managed by DECS-CO; and (b) the other one managed by the MDF. Both SAs will be in US Dollars and will have an Authorized Allocation (AA) of US$3 million each, based on four months of expected expenditures. IBRD will make an initial deposit of US$1.5 million on each SA. For each SA, the full amount of the AA will be released when disbursements for their respective components equal or exceed US$20 million. Applications for replenishment of the SAs supported by appropriate documentation will be submitted monthly by DECS-CO and MDF. IBRD will replenish the SAs upon receipt of satisfactory proof of incurred eligible expenditures. Similar arrangements will be made for OECF funds. 4.21 GoP Advances to the TEEP Provinces. AAA. DECS-DOs will make payments related to all non SBP expenditures planned in their approved DEDP, while the MDF will be responsible for SBP-related payments. For DECS-managed expenditures, in each Division, there will be two separate accounts, one funded by the DECS SA--called WB Project Account (WBPA)--and the other for GoP counterpart funding--called Government Project Account (GPA). In each TEEP province, DECS-DO will open a WBPA in the AGDB local branch, and DECS-CO will transfer to it, from the SA, an initial advance equivalent to 90 days of estimated expenditures. The DECS-DOs will be responsible for transmitting to DECS-CO satisfactory proof of incurred eligible expenditures for preparation of replenishment applications. In parallel, DECS-CO will delegate to each DECS-DO their approved DEDP budget allocation except for the SBP expenditures, and DBM will transfer the funds to each Division-level GPA. BBB. For SBP- related expenditures, budget allocations will be deposited into an MDF GPA at the central level. The Bank's MDF SA will be used only to reimburse expenditures already financed out of the GoP's SBP counterpart funds (deposited in the MDF GPA). No advances will be made out of the MDF SA to the lower LGU levels. The MDF will make to the Municipalities an initial advance from the GOP counterpart account, not to exceed 25 percent (on average) of the total cost of the SBP for the year and LGU in question. Subsequent MDF transfers to the Municipalities will be reimbursements of actual expenditures. Similar procedures will be followed for OECF. E. AUDITS AND ACCOUNTING 4.22 Project expenditures will be recorded using the central Government's accounting procedures as promulgated by the Commission on Audit (COA). Audits of project accounts, both SAs and all PAs will be currently audited by the appropriate level of COA, according to GoP's procedures which are acceptable to the Bank. The current recording system will be slightly modified to easily segregate the project accounts and facilitate audit later on. Documentation processes will also follow the GoP's procedures.  - 36 - 4.23 Civil Works Audits. Every month the MLGUs will summarize project transactions and send copies of them, together with supporting evidence, to DECS-DOs. The MLGUs will prepare the corresponding SOEs and transmit copy of them to COA for certification prior to their submission to MDF for replenishment. Local COA will establish ex-post whether its standards have been complied with. Should COA determine that this is not the case, the corresponding amounts will be automatically deducted from the next invoice submitted by the MLGU. 4.24 Audits of Project Accounts. The Statement of Expenditures and the Special Accounts will follow a well developed procedure acceptable to the Bank. SOE supporting documentation will be maintained at least a year after the completion of the audit for the fiscal year in which the last withdrawal was made. The audit report covering a one year period will be submitted to the Bank not later than six months after the end of the audit period. 4.25 Participatory Performance Audits (PPA). Every year, the joint annual review will be based on a report combining the traditional financial indicators and a PPA to be conducted (four month prior to the review) by NGOs in all the active TEEP Provinces. The PPAs will focus on (i) delivery and use of instructional materials; and the use of beneficiary assessment techniques to identify stakeholders' perception of problems and acceptable resolutions; (ii) delivery and classroom impact of the INSET program; (iii) implementation of the SBP; (iv) frequency and impact of contacts between school and community; and (v) progress in making teaching/learning process more interactive. TORs are in the Technical Volume. F. IMPLEMENTATION 4.26 Project implementation will be characterized by piloting, phasing, and incremental levels of complexity, as project entities(DOs, schools...) demonstrate increases in absorptive capacity. Because the last batch of TEEP provinces will come on stream in PY3, implementation will last a total of seven years. Annual resource allocations based on national and divisional work plans and budgets, will allow detailed implementation monitoring. During PYI, implementation will be limited to the national level and the first six pilot provinces; it will concentrate on capacity- building, and on testing the pilots, procedures, and systems, developed during preparation, including the contracting of service suppliers, the MIS, the development of demonstration school and clusters, and devolution of school construction/maintenance to LGUs. Preparation of the next "batch" of 8 provinces will be initiated, building on lessons learned from the pilots. 4.27 Project Launch Workshops (PLWs). One initial PLW will be organized with donor participation, followed by province-specific PLWs by the DECS Team. The goal will be to ensure that (a) all stakeholders have a common understanding of all project components, (b) donor procedures for procurement, disbursement, accounting, auditing, and legal aspects are fully understood; (c) all implementors are clear about their work program for PYI; (d) lessons from the preparation process are learned for the benefit of the next batch of provinces. In subsequent years, donors will participate selectively in PLWs. Video-cassettes will be taped for the Bank's input.  - 37 - 4.28 Joint Annual Reviews. Each year the Project Director, based on the technical recommendation of the PISU, and on the monitoring reports of the Regional Officials and Project Management Advisory Committee, will conduct, by September 30, (a) a review of new DEDP proposals on the basis of the TEEP Guidelines and (b) a review of on-going DEDPs based on physical, qualitative and financial data collected through the participatory performance audit (PPA). The review will look at work plans and budgets against progress as reported by PISU and donors. The format for progress reporting and workplans is presented in the TEEP Guidelines. By March 30 of each year, another review will focus on budget requirements for the next FY. At negotiations, GoP gave assurances that based on agreed Terms of Reference, it shall furnish to the Bank. (i) a quarterly Progress Report by February 28 (Budget Review), May 31, August 31, and November 30 of each year; (ii) a full annual Report by August 31 of each year; and (iii) a mid-term Report on or about August 31, 2000. 4.29 Mid-term Review. This review, to be held by September 30, 2000, will assess: (a) the status of implementation, (b) the likelihood that the objectives will be achieved at the end of the project; (c) the project's likely impact after completion; (d) sustainability. It will determine the work/study program for the rest of TEEP's life, including a draft plan for ensuring sustainability. 4.30 Supervision. The Supervision Plan is in Annex 13. The PISU will organize two supervision - cum - training missions/year per province. The donors will conduct semi-annual missions and may join any of the PISU missions to the Provinces. This will require the use of PISU national consultants whose reports will be shared with the donors. The main annual review with donors will be based on the PPAs. Donors supervision missions will be thematic. TEEP Guidelines will be reviewed in light of experience. Changes will have to be endorsed by the Steering Committee and reviewed by the donors. A special focus of supervision will be the quality of the appraisals conducted by PISU for the second and third batch, and the effectiveness of the PPAs to be conducted partly by NGOs. 4.31 Implementation Completion Report. Within six months of the Closing Date, PISU will submit project data required by the Bank to prepare an ICR, including a sustainability plan. This will be a participatory exercise. The findings will be shared to learn from the experience. G. MONITORING AND EVALUATION 4.32 Baseline data were established for all project components, although an important capacity-building exercise during PYI will be to validate these data to strengthen monitoring. Starting from this base, the instruments to be used to monitor project implementation and its impact on the sub-sector in the targeted provinces include: * Student assessments to be conducted in PY2, PY4 and PY6 * The research program, especially a survey of school-based determinants of quality and drop-out, to begin in PYl * The MIS, which includes a module to track physical, qualitative and financial performance against Divisional work plans and budgets (Technical Volume)