Document of The World Bank...Indicator 2 : Portfolio satisfactory Value (quantitative or...

Document of The World Bank

Report No: ICR0000817

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-73210)

ON A

LOAN

IN THE AMOUNT OF US$ 149.750 MILLION

TO THE

STATE OF CEARÁ, BRAZIL

FOR A

CEARÁ MULTI-SECTOR INCLUSION DEVELOPMENT PROJECT

September 29, 2008

Poverty Reduction and Economic Management Unit Country Management Unit for Brazil Latin America and Caribbean Region

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CURRENCY EQUIVALENTS (Exchange Rate Effective April 3, 2008)

Currency Unit = Real

Real 1.00 = US$ 0.5799 US$ 1.00 = Real 1.7244

FISCAL YEAR

January 1- December 31

ABBREVIATIONS AND ACRONYMS APL Adaptable Program Loan ARCE Brazilian Water Regulatory Agency CAGECE Ceará Water and Sewerage Company CAS Country Assessment Strategy COGERF Fiscal and Results Based Committee COGERH Ceará State Water Resources Company CREDEs Regional Education Development Centers EEP Eligible Expenditure Program ESW Economic and Sector Work GOC Government of Ceará IDB Inter-American Development Bank IPECE Ceará Strategic Economic Research Institute MDG Millennium Development Goals PIU Project Implementation Unit SAEB Federal Basic Education Evaluation System SECON Controllers Secretary SEPLAN Planning Ministry SESA Secretary of Health SFAA State Fiscal Accountability Assessment SIL Sector Investment Loan SIRES State System of Information on Solid Waste Management SPAR State Procurement Assessment Report SPAECE Ceará Permanent State Education Evaluation System SRH Secretary of Water Resource Management SWAP Sector Wide Approach [SIL loan modality) TOR Terms of Reference WRM Water Resource Management UBSF Basic Family Health Units ZEE Economic and Environmental Zoning

Vice President: Pamela Cox Country Director: John Briscoe Sector Manager: Nick Manning Project Team Leader: Deborah Wetzel/Chris Parel ICR Team Leader: Deborah Wetzel

BRAZIL CEARÁ MULTI-SECTOR SOCIAL INCLUSION DEVELOPEMNT PROJECT

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

1. Project Context, Development Objectives and Design............................................... 12. Key Factors Affecting Implementation and Outcomes .............................................. 93. Assessment of Outcomes .......................................................................................... 194. Assessment of Risk to Development Outcome......................................................... 255. Assessment of Bank and Borrower Performance ..................................................... 256. Lessons Learned ....................................................................................................... 277. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 29Annex 1. Project Costs and Financing.......................................................................... 30Annex 2. Outputs by Component ................................................................................. 31Annex 3. Economic and Financial Analysis................................................................. 35Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 36Annex 5. Beneficiary Survey Results ........................................................................... 38Annex 6. Stakeholder Workshop Report and Results................................................... 39Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR..................... 40Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders....................... 41Annex 9. List of Supporting Documents ...................................................................... 42

MAP

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A. Basic Information Country: Brazil Project Name:

Ceara Multi-sector Social Inclusion Development

Project ID: P082142 L/C/TF Number(s): IBRD-73210 ICR Date: 09/30/2008 ICR Type: Core ICR

Lending Instrument: APL Borrower: STATE OF CEARA, BRAZIL

Original Total Commitment:

USD 149.8M Disbursed Amount: USD 149.8M

Environmental Category: A Implementing Agencies: Ceara State Planning Secretary Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual Date(s)

Concept Review: 03/25/2004 Effectiveness: 11/22/2005 11/22/2005 Appraisal: 06/02/2005 Restructuring(s): Approval: 07/12/2005 Mid-term Review: 11/22/2006 11/25/2006 Closing: 12/31/2007 12/31/2007 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Low or Negligible Bank Performance: Satisfactory Borrower Performance: Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Satisfactory Government: Satisfactory

Quality of Supervision: Moderately Satisfactory Implementing Agency/Agencies: Satisfactory

Overall Bank Performance: Satisfactory Overall Borrower

Performance: Satisfactory

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C.3 Quality at Entry and Implementation Performance Indicators Implementation

Performance Indicators QAG Assessments (if any) Rating

Potential Problem Project at any time (Yes/No):

No Quality at Entry (QEA):

None

Problem Project at any time (Yes/No):

No Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Satisfactory

D. Sector and Theme Codes

Original Actual Sector Code (as % of total Bank financing) General education sector 10 10 General public administration sector 35 35 General water, sanitation and flood protection sector 24 24 Health 20 20 Other social services 11 11

Theme Code (Primary/Secondary) Biodiversity Secondary Secondary Education for all Secondary Secondary Health system performance Secondary Secondary Managing for development results Primary Primary Public expenditure, financial management and procurement

Primary Primary

E. Bank Staff

Positions At ICR At Approval Vice President: Pamela Cox Pamela Cox Country Director: John Briscoe Vinod Thomas Sector Manager: Nicholas Paul Manning Ronald E. Myers Project Team Leader: Deborah L. Wetzel Chris Parel ICR Team Leader: Deborah L. Wetzel ICR Primary Author: Christine de Mariz Rozeira

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F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The Project Development (see pages 8 and 34 of the PAD) was to help the Ceara Government achieve fiscal sustainability and address key fiscal and social inclusion challenges across six critical sectors. On the fiscal side the project aimed to restore and strengthen Ceara's fiscal sustainability. On the social inclusion side, the aim was to improve service delivery in key sectros such as education, health and water & sanitation. Revised Project Development Objectives (as approved by original approving authority) PDOs were not revised. (a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Fiscal sustainability

Value quantitative or Qualitative)

State did not have financial resources to implement development agenda 2004-2009; fiduciary and fiscal management needed strengthening as well as expenditure quality

Primary surplus, portfolio, EEP expenditure levels and disbursement linked indicators ok.

Teh primary surplus was R$201.7m vs. target of R$147 mn, revenue/PIB ratio was 10.57% vs. target of 8.5%.

Date achieved 07/12/2005 07/13/2005 12/31/2007 Comments (incl. % achievement)

Indicator 2 : Social inclusion

Value quantitative or Qualitative)

Social inclusion programs and statistics (see intermediate indicators) require strengthening

Portfolio, EEP expenditure levels and disbursement linked indicators ok. Sector strategic plan recommendations in social inclusion mainstreamed.

EEP level increased substantially. Disbursement linked indicators increased public services in health , education and water. (See intermediate indicators)


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(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Primary surplus

Value (quantitative or Qualitative)

R$147 million in 2004

Meet target negotiated with STN or that grows 5% annually from baseline

Target met. Primary surplus was R$201.7 vs. target of R$147Mn.


Indicator 2 : Portfolio satisfactory


WRM (PROGERIRH) and Education Unsatisfactory, Rural Poverty (Sao Jose) Satisfactory

All three (or those that have not closed) are satisfactory.

All three projects rated satisfactory.


Indicator 3 : Eligible expenditure program expenditures at least 70% of budget


In 9 Eligible Expenditure Program, expenditures were about 28% of budgeted PPA amounts.

Eligible expenditure program expenditures at least 70% of EEP program budgets.

"70 percent rule"attained in all EEPs except biodiversity.


"70 percent expenditures rule" not met in biodiversity because of resources provided by Petrobras to support the biodiversity program. Ultimately. necessary expenditures were funded, just not directly by state government.

Indicator 4 : Technical Assistance Component implemented


TA program agreed and budgeted in loan

TA component implemented

Only a small potion of TA implmented: $614,000 out of approx US$ 4 mn.


Weaknesses in implementation of TA were significant. Some items carried out independently by Government, but many not achieved. See text of ICR.

Indicator 5 : Health--Increase (%) the number of pregnant women receiving 4 or more pre-natal consultations

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88.7% in 2004 90% in 2006 90 percent target achieved.


Indicator 6 : Health--% of hospital admissions of children 5 years old or younger for diarrhea Value (quantitative or Qualitative)

23.5%-- 2004 20%--2006 25.3 % - target not achieved.


There were issuesin the definition of the indicators. Although numbers of internments for diarrhea decreased significantly, changes in the denominator meant that ratio was not reduced. (See text of ICR).

Indicator 7 : Health--% of population covered by PSF (family health) teams certified by Sec. Health


52.5%2004 60%--2006 64.9 %


Indicator 8 : Education--Improve learning achievement through implementation of SPAECE and SAEB in alternate years


Done but preparation/follow-up not adequate. See below; 2003 SAEBE results available

Continue implementing cycles. Mainstream these activities so become part of annual education program

SAEBE results available. Implmentation continues.


Indicator 9 : Education--Improve efficiency of educational expenditures focusing on administration of CREDES and SEDUC


2004 Credes diagnosis/recommendations done--overstaffed; reductions needed. Diagnostic of SEDUC and reforms recommendations also needed. No prototype for

2006 -Implement SEDUC recommendations -Evaluate CREDES reform impact & implement recommendations

SEDUC recommendations under implementation. Implementation of CEDES evaluation under way. Evaluations of Directors under

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evaluating school directors.

-Complete directors/team evaluations; implement their 2005 action plans

way.


Indicator 10 : Education--Reduce illiterate population of 15 years old by targeted amounts based upon certification tests


80,000--2004 2006--100,000 101,378 for 2006


Indicator 11 :

WSS--Improve WSS coverage in state 1.1 water supply=# houses connected/year 1.2 sanitation=# houses connected/year


2004 1.1 24,476 HCs 1.2 17,584 HCs

2006 34,000 water and 18,550 sewerage HCs

70,812 water connections made and 18,550 sewer connections in 2006.


Indicator 12 :

WSS--Improve WSS coverage in state 1.1 water supply=# houses connected/year 1.2 sanitation=# houses connected/year


2004 1.1 24,476 HCs 1.2 17,584 HCs

2006 34,000 water and 18,550 sewerage HCs

Date achieved 12/08/2005 07/13/2005 Comments (incl. % achievement)

Indicator 13 : Improve WSS efficiency: CAGECE's working ratio (operating costs/operating revenue x 100%) reduced


<72.1% <70.7% CAGECE's working ratio 62.87 % in 2006.

Date achieved 12/08/2005 07/13/2005 12/31/2007

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Comments (incl. % achievement)

Indicator 14 :

WRM--Increase category of water user charges 1.1 % industrial users 1.2 % large users--irrigation 1.3 % aquaculture


2004 1.1 70% 1.2 <1% 1.3 <4%

2006 1.1 >80% 1.2 5% 1.3 40%

end 2006: 1.1 = 100 exceeds target 1.3 = 58.7 exceeds target But 1.2 = 2% below target


Partial waiver granted on this compound indicator because coverage on industrial users and aquaculture were exceeded, but that on irrigation not achieved (see ICR text)

Indicator 15 : Environment--Create 2 fully protected caatinga parks of 5,000 ha each


2004 No fully protected parks and no caatinga parks

2006 two 5,000 ha of fully protected caatinga parks

Achieved. One park greter than 10,000 hectares created and supported.


Indicator 16 : EEZ (Economic & Env. Zoning) done for critical state biomes


2004 Coastal EEZ contracted

Coastal EEZ completed (with law sent to assembly) Caatinga EEZ completed Humid Hills ZEE contracted

EEZs completed and follow on work begun. Law sent to assembly.


Indicator 17 : PSM--Prepare 6 Sector Strategic Plans vetted by Bank with concrete indicators drawing on Bank diagnostics--general disbursement condition for third disbursement


PPA and other indicators not well done and not relevant for planning, M&E

6 Plans completed and mainstreamed in planning, budgeting and M&E

Plans completed and mainstreamed in planning, budgeting and M&E

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Indicator 18 : PSM--Tax revenue/GDP maintained at or above 8.5 pecent Value (quantitative or Qualitative)

2004 9.7%

2006 8.5% 10.57% as of June

2007


G. Ratings of Project Performance in ISRs

No. Date ISR Archived DO IP

Actual Disbursements (USD millions)

1 12/21/2005 Satisfactory Satisfactory 64.37 2 12/22/2006 Satisfactory Satisfactory 114.66 3 06/28/2007 Satisfactory Satisfactory 114.66 4 12/19/2007 Satisfactory Satisfactory 114.00

H. Restructuring (if any) Not Applicable

I. Disbursement Profile

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1. Project Context, Development Objectives and Design

The Ceará Multi-Sector Inclusion Development Project was a loan of US$ 149.750 million to the Brazilian State of Ceará, one of the most important states in northeast Brazil. It was an innovative investment loan drawing on both the sector wide approach (SWAp) modality and the adaptable program loan (APL) modality. In addition, it built on the existing SWAp approaches by funding a multi-sector program and supporting the key issue of public management across these sectors. It was a model that drew great attention and support from the Federal Government in Brazil and has been replicated in the Second Minas Gerais Development Partnership Loan ($US 976 million, approved by the Board on May 31st.) and is being replicated in several other projects at the State level (Bahia, the Federal District and Pernambuco). The second phase of the APL (Ceará Inclusive Growth II, US$ 240 million) will be discussed at the Board on September 30th, 2008.

As with any new approach, implementation demonstrated aspects that worked well and others that did not function as well, which this ICR will address. In all, this project has been both successful and critically important to the development of a new instrument and new way of working, leading to increased demand by the Government for the World Bank’s assistance.

1.1 Context at Appraisal Background At appraisal, Ceará State confronted huge poverty and development challenges. Ninety-eight percent of its area was categorized as caatinga, an arid, thorny, dry vegetation biome that suffers serious draughts on average once every four years. The population living in northeastern Brazil’s caatinga was considered the poorest in Brazil. The region was marked by low educational levels, high infant mortality and a paucity of social and physical infrastructure and basic services. About 70% of Ceará’s population lived in the caatinga. The remainder was crowded into the narrow coastal strip. Ceará was poor in absolute terms and relative to many other Brazilian states. Its absolute ranking across states hovers generally around number 16 or 17 (out of 27 states) depending upon the index being used. However, a study by the Government’s research institute, IPEA, affirmed that of Brazil’s 27 states, Ceará progressed the most in the social areas over the decade 1993-2003, Ceará’s ranking across various composite poverty related indices based upon improvement included the following at appraisal:

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Under Governors Tasso Jereissati and Lucio Alcântara, the Government of Ceará was committed to state modernization. Governor Alcântara assumed office in 2003 and developed an ambitious fiscal, state modernization and social inclusion agenda. However, the economy at the national level undermined State’s efforts: low growth, reduced revenues and high interest rates over the previous 3-4 years plus the concentration of debt repayments (2004-2009) conspired to seriously prejudice the State’s fiscal situation and undercut implementation of its development efforts. The State cut programmed investment by more than 50 percent and expenditures on basic service delivery were constrained. Investments in 2004 were expected to be less than one third of budgeted amounts. Resource allocation to critical programs underpinning the State’s efforts to address poverty was seriously compromised by liquidity problems. Ceará needed an infusion of financial and technical support to strengthen its institutional reform efforts and maintain its ambitious development and social agendas. Faced with this difficult environment, the Government adopted a two-pronged strategy. First, it continued to contain costs and under-run programmed budget expenditures, while attempting to preserve the integrity of priority programs and reforms. Second, it approached the Federal Government and the World Bank to obtain support for a large State loan – the Ceará Multi- Sector Social Inclusion Development Project (‘usually referred to as the “Ceará SWApL’) – to support critical growth and social programs and ensure state modernization and fiscal sustainability in the medium term. The Bank CAS for 2003-2007 supported integrated operations in the impoverished Northeast region. Two key pillars of the CAS – strengthened human capital and social development for a more equitable Brazil and macro and public sector foundations -- were central to the proposed project. The project was thus emblematic of key CAS goals. The Bank loan was expected to play an important catalytic role by leveraging and guiding State efforts and resources to address critical development issues while helping to bridge the difficult fiscal situation over the period 2004-2009. In addition, Ceará had demonstrated a commitment to reform. The State’s fiscal performance compared favorably with many states and especially Northeastern states. As mentioned above, performance in the social areas over the previous decade was assessed as strong. In addition, Bank specialists rated health, water and sanitation, and water resource management as ‘good’ or ‘best’ practice in Brazil. Education had improved markedly in recent years and also compared favorably with other states in the Northeast region. Ceará had also been a leading recipient of Bank loans and thus Bank-state relations were very strong. The State’s strong collaboration in developing this demanding, results-based operation further underlined its reform commitment.

1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The Project Development Objective (see pages 8 and 34 of the PAD) was to help the Ceará Government achieve fiscal sustainability and address key fiscal and social inclusion challenges across six critical sectors. On the fiscal side the project aimed to restore and strengthen Ceará’s fiscal sustainability. On the social inclusions side the aim was to improve service delivery in key sectors such as education, health, water and sanitation. The CE loan was designed drawing on both the sector wide approach and adaptable program loan modalities. Like an APL it set out a medium-term program of actions to help the Government reach its objectives and as such, included a set of triggers for moving from one phase of the APL to the next. (See tables below).

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As in a sector wide approach, specific programs were developed in each sector to be assisted by the program (education, health, social inclusion & culture, water supply & sanitation, water resource management and environment.) In addition, public sector management was treated as an umbrella sector – cutting across the other sectors by applying a model of results–based management to all the project sectors. The approach built on the Government of Ceará’s continuing efforts to strengthen results-based management across the government. Each sector program built on diagnostics carried out by Bank specialists and Government counterparts and that identified a set of eligible expenditure programs (EEPs) that were of high priority to the Government. The Bank’s resources would disburse against evidence that at least 70 percent of the budgeted expenditures in each of these priority expenditure programs was attained (the so-called “70 percent rule”). The sector diagnostics and subsequent plans also identified a series of disbursement-linked indicators (DLIs) (defined for each sector) to be attained in order for disbursements to occur, as well as benchmarks, which were part of the Government’s program, but were not essential for disbursement. The project was organized around three “axes”: Public Sector Management, Human Development and Sustainable Resource Management. What follows sets out the axes and sectors with the key APL triggers and disbursement linked indicators for each sector. (See Annex 4 of the PAD for detailed descriptions based on the Sector Plans.) I. Public Sector Management Axis The thrust of this axis was to ensure prudent fiscal management and institutional strengthening both in the central and line secretaries through results based-management. In addition to the indicators below, maintenance of a primary surplus was also maintained as a disbursement-linked indicator throughout the project. Annual Disbursement-Linked Indicators

APL#2 Triggers

Maintain a ratio of (tax + own non-tax revenue)/GDP at no less than 8.5% in 2005 and 2006

• Maintain debt/net current revenue ratio not higher than 1.5

• Operationalize the Fiscal and Results-based Management Committee (COGERF) charged with short and medium term fiscal and financial planning and management

• Implement centralized, results-based performance management cycle for key Secretaries

• Improve External Audit (TCE) compliance with legal deadlines for issuing judgments on public administrators accounts ("contas de gestão") and reduce the backlog

The PSM had no large EEP type programs so normally it would be left out of a traditional SWAp and only addressed in DPL type loans or SILs. However, the team created the ‘umbrella sector’ of PSM with indicators and supporting TA to support principally Results-Based Management (RBM) and fiscal management.

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The loan also supported fiscal sustainability through incorporation of Sector Plan benchmarks in the State's Sector Strategic Plans for important fiscal problems such as tax and user charges, real estate and asset management, contingent liabilities from legal cases, establishment of an independent administrator ("gestor único") for pension administration and fiduciary oversight improvement. II. Human Development Axis

A. Education Sector The Sector strategy was supported by and supported the Bank's large basic education loan (BR-#45910) and "satisfactory" loan implementation was a disbursement condition. The strategy focused on learning achievement and strengthening of the Secretary's ability to efficiently administer resources and resolve issues outstanding from the decentralization of primary education to municipalities in compliance with the 1988 Constitutional requirement. Ceará was the state that had most decentralized education but difficult teacher and resource allocation problems needed to be resolved. Annual Disbursement-Linked Indicators APL#2 Triggers

• Improve learning achievement through the implementation of a testing (SPAECE/SAEB) cycle building on diagnostics, action plans and implementation

• Improve cost effectiveness of Secretary's operations focusing on administration, staffing, regional units (CREDEs) beginning with studies and elaboration of recommendations and legal frameworks followed by 2005-6 implementation of recommendations, monitoring and evaluation o f results

• Reduce illiterate population 15 years and older by 100,000/year for 2005-6.

• Resolve outstanding State: municipal coordination problems focusing on fiscal and regulatory issues deriving from school decentralization based in studies and collaboration agreements

• Improve state expenditure efficiency through completion and evaluation of semi-annual expenditure reviews, systems training and reporting

B. Health Sector The sector diagnostic conducted for the project pointed to infant and maternal mortality as Ceará's most pressing health problems. These were targeted by the loan along with institutional strengthening measures designed to ensure expanded coverage by basic health providers and increased targeting and efficiency of service provision. Annual Disbursement-Linked Indicators APL#2 Triggers

• Increase percentage of pregnant women receiving 4 pre-natal consultations to 89%/90% in 2005/2006

• Increase percentage of population

• Implement performance contracts between the Secretary of Health's regional bodies (CERES) and 30 regional hospitals in 2005 and 2006

• Implement Performance contracts

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covered by SESA certified Family Health Program teams to 57%/60% in2005/2006

• Reduce percentage of children below the age of five suffering from diarrhea admitted to hospitals with conditions treatable in clinics-21%/20% in 2005/2006

between SESA and 49/plus 64 municipalities in 2005/2006

• Implement Regulatory Centers with M&E and audit functioning in 3 micro-regions in 2005 plus 6 in 2006

The Sector Plan added benchmarks in areas of dental care and supply of basic pharmaceuticals plus several programs designed to strengthen basic care for the poor, especially as it affected infant and maternal mortality. These benchmarks were not linked to disbursement. C. Social Inclusion and Culture Sector The Human Development Axis included an APL trigger for the study of the rehabilitation of a multi-site historic and cultural corridor in the center of Fortaleza and it included a Sector Plan for the Social Inclusion and Youth Secretary in order to strengthen targeting, M & E, implementation of priority programs and State/municipality collaborations. The program did not have disbursement linked indicators. Annual Disbursement-Linked Indicators APL#2 Triggers • Rehabilitation of a multi-site historic

and cultural corridor in the center of Fortaleza.

III. Sustainable Resource Management Axis A. Water Resources Management Sector (WRM) Water is the critical natural resource in this arid state. Ceará ranks among Brazil's strongest states in water resource management. Even so, there was a huge institutional and development agenda that required implementation in order to optimize water resources management. Annual Disbursement-Linked Indicators APL#2 Triggers

• Manage water resources finance and demand through increasing percentages of industrial, irrigation, and aquaculture water users being charged-2005-06 benchmarks are fixed.

• Create 2 new Water Basin Committees by end 2005 and a third in 2006

• Water Basin Committees officially included in the State Water Resources Council CONERH.

The Castanhão water conveyance system was arguably the most important civil works in Ceará and would resolve a Fortaleza water problem and spur development along the coast. The water conveyance system was financed by a Bank loan and satisfactory completion of 80km and 120kmin 2005 and 2006, respectively, was a loan requirement for disbursements in this sector. Sector Strategic Plan items also included the establishment of a modern COGERH (the State water resources management company) system for water resource management with M&E of the

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quantity and quality of reservoirs' water and volume of river water, strengthened management information systems for managing water use including upgraded systems for registration of users, permits, and M&E, and the creation of reservoir management commissions. B. Water Supply and Sanitation Sector (WSS) Ceará has one of Brazil's best State water supply companies (CAGECE) and regulatory agencies (ARCE). As is the case in most states and municipalities, the critical sector objectives were expanding coverage, especially to the poor, and the fiscal sustainability of operations. Annual Disbursement-Linked Indicators APL#2 Triggers

• Increase water coverage by 23,600/34,160 new connections (67.7%/68.5%) in 2005/2006

• Increase sanitation coverage by 14,400/18,550 new connections (27%/27.6%) in 2005/2006

• Reduce CAGECE's working ratio (operating costs/revenue) to 71.4%/70.7% in 2005/2006

• ARCE to develop a reformed regulatory accounting system to be implemented by CAGECE

• Implement recommendations of a 2005 tariff and subsidy study

• Submit a new WSS law to the State Legislative Assembly

The Sector Strategic Plans supported expanding service coverage for small communities (through the SISAR system). It also addressed different reforms to strengthen financial sustainability and efficiency through upgrading CAGECE's internal functioning (HR, IT, expenditure reviews, reducing water loss), promoting the nexus between CAGECE, ARCE and municipalities, and exploring new business models (eg. floating CAGECE shares and public-private partnerships). C. Environment Sector Environment had not been one of the State's better managed sectors. Nevertheless, it was extremely important because of its impact on scarce water resources, predatory development of coastal biomes affecting the tourist industry, and degradation of the "caatinga" biome. The caatinga is the only biome unique to Brazil and is an exceptionally rich repository of biological diversity. Two of the world's ten most threatened bird species are found in the caatinga. Disbursement-Linked Indicators APL#2 Triggers

• Establish and manage Ceará's first two fully protected areas of 5,000 ha each in critical caatinga and carnauba biomes

• Finalize coastal and caatinga zoning (ZEE) including requisite laws/decrees, contract humid foothills biome in 2006; implement and report on biome management annually

• Implement coastal management in the East Coast and Metropolitan regions

• Submit a reformed environmental law to the Legislative Assembly

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The Sector Plan included a diagnostic of the State's dwindling forestry resources and a program to address the growing desertification problem. The Plan also added ambitious monitoring and evaluation programs (air and water quality, fish farming and licensing), cadastre updates (solid waste producers, forest raw material consumers) and strengthening of protected area management.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The PDO was not revised.

1.4 Main Beneficiaries, The main beneficiaries were the citizens of the State of Ceará at large with special attention to the poorest and vulnerable populations. It was intended that these groups would benefit from: a more effective primary, secondary and tertiary health care system; strengthened school systems, including rural and urban high school education; improved urban water and sanitation systems, as well as biodiversity programs. Direct, if secondary, beneficiaries of the project were members of central and line Secretaries since the project targeted public sector management reforms to improve fiscal sustainability and social inclusion goals in central (Finance, Planning, Administration and Controllers) and line Secretaries. The project played the role of an ‘integrating umbrella’ program that aimed at improving efficiency in all sectors. 1.5 Original Components (as approved) The CE SWApL design included two components: (a) reimbursement against expenditures in nine Eligible Expenditure Programs (EEPs) across six sectors requiring achievement of disbursement-linked indicators (Component 1); and (b) funding of specific technical assistance activities (Component 2). Component 1: Reimbursement of Eligible Expenditure Programs (US$ 145.750 million) Component 1 of the project was designed to support nine EEPs in the six sectors described in section 1.2 and as set out in the Ceará budget. These were (numbers correspond to the relevant budget line item): Primary Health Care (536); Secondary Tertiary Health Care (535); Ensino Médio (049); Basic School Operations (544); Municipal Participation from Fundef (060); Urban Water and Health (583); Eixo Castanhão-Galvão (576) and Biodiversity program (475). All disbursement of Component 1 was against spending in these EEPs. Reports on EEP spending were generated from the State of Ceará Treasury as part of their financial management information system (FMIS) and forwarded to the Bank. The Planning Secretariat forwarded reports on accomplishment of the disbursement-linked indicators in the various sectors. Achievement of the 70 percent spending rule and the disbursement linked indicators was required for disbursement. Five disbursements were anticipated in Component 1, all going to the Secretary Finance (Treasury Department) to be pooled with other resources of the State.

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Component 2: Technical Assistance (TA) (US$4 million) The loan included technical assistance valued around $4 million or about 3.3% of the loan amount. Most of this TA would go to support Public Sector Management Axis initiatives to strengthen state administration, including fiscal and results-based management in the central and line Secretaries. The anticipated studies, systems work and training are detailed below: I. Fiscal Sustainability

• Strengthen Fiscal Planning and Budget Management - Study information needs and processes to strengthen medium-term and day-to-day budget management and expenditure decisions - Study tax evasion indicators - Undertake a comprehensive expenditure review in the sanitation sector - Study revenue potential of State’s real estate holdings - Undertake a cost-benefit study of the Industrial Development Fund

• Strengthen Legal Protection of the State - Develop and implement a strategy for managing legal contingent liabilities (precatórios) including inventory, prioritization according to risk size and, performance indicators.

II. Efficient Government Transactions

• Upgrade Controllers Systems and Procedures - Develop a Treasury management framework focusing on systems, information flows and IT requirements - Develop a Single Account Framework - Contract expert advice to develop a performance monitoring framework, policies and methodologies supporting the Government’s performance-oriented internal control system including training and equipment needs.

• Strengthen Procurement - Contract expert advice to improve procurement of major categories of goods and services. - Develop an alternative contracting model for hospital management

III. Results Based Management

• Strengthen the Basis for Effective Performance Management - Contract expert advice on developing log-frames of social inclusion projects - Contract expert advice in developing sector strategic plans - Contract expert advice to perform M&E and develop performance reports - Train staff in selected central agencies in performance management - Obtain advice on good case experiences abroad (e.g., Canada, Chile)

• Strengthen Audit and Performance Monitoring

- Develop a framework and policies to strengthen SECON’s internal control and performance management capacities - Train SECON staff on the new framework including value for money audits - Acquire information system for M&E and internal audits and related audit software - Contract expert advice training in activity and program costing methods

IV. Other Sectoral Support

• Strengthen Water & Sanitation Sector Management in Line Secretaries

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- Undertake an in-depth review and reform of State WSS tariff and subsidy arrangements; develop a new WSS State information system, upgrade CAGECE’s accounting systems, and support other key organizational reforms at CAGECE.

• Support Cultural Heritage and Tourism - Develop a project to rehabilitate and integrate Fortaleza’s declining historic center.

• Provide for Project Implementation Unit and Contingency. - The PIU is budgeted for $1 30,000 to ensure it has sufficient resources for the many activities it must undertake and orchestrate. - A loan contingency of about $2.1 million has been included to cover eventual technical assistance needs including fiduciary oversight should IDB’s PROMOEX loan be delayed.

1.6 Revised Components There were no revisions to components.

1.7 Other significant changes There were no significant changes; the closing date was December 31, 2007 as initially planned in the PAD.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry The strengths and challenges of preparation, design and quality at entry were as follows: Investing in Collaboration and Ownership during project preparation. Since this was the first mulitsectoral SWAp at the state level, disbursing to Treasury, and involving a State with three Bank loans that were struggling, the team found it essential to ensure collaboration and ownership by line and central secretaries. Bank teams traveled to Ceará to develop proposals with sectoral counterparts and build program ownership. A three day stakeholders' workshop was held to discuss and finalize the Public Sector Management program. The program had also been formally vetted by participating Secretaries, the Governor and Vice Governor. The Secretaries were strong loan proponents since it supported implementation of their key programs. Because of the State fiscal situation at the time (the state was in a severely constrained situation) the sectors did not receive funds. Under the SWApL the sectors were assured of receiving 70% of their largest programs and support in attaining their key programs/indicators. The loan changed the internal dynamic: in place of arguing with the center to obtain budget, the sectors had an incentive to work on their programs as the Treasury would not get SWApL disbursements without giving funds to secretaries and getting indicator results. Ownership and efficient reporting line and authority: Having ownership was important and the project benefited from having key people with proper authority to make decisions. The main counterpart for this loan was Marcos Holanda of IPECE. Mr. Holanda reported to the Sec. of Planning Maia Jr. who was Vice Governor and the CEO of the State and they both bought into the loan from the very beginning. Creating disbursement incentives in the project design by drawing on other projects. The Mexican infrastructure SWAp contributed to the concept of disbursement-linked indicators. Mexico’s was in infrastructure and based on unit costs (the funds would be linked to the number of paved km). It helped to illustrate the notion of multi-sector (paving roads + 2 others).

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Obviously, the identical approach could not be fully replicated in this loan because unit costs could not be used for institutional strengthening. Brazil's Bolsa Família provided the idea of increasing disbursement amounts every year to strengthen results-based incentives. The incorporation of required EEP expenditure levels also came out of this discussion. Both these projects were helpful to understand the concept of disbursement-linked indicators. The choice of a multi-sectoral model and activities. At the time of project preparation, SWAps were predominately single program/sector loans. Yet Mexico had just completed a multi-sector SWAp and the Bank was emphasizing multi-sectoral approaches. This was echoed in the CAS, Bank ESW and Ceará's own development agenda. Hence, six key sectors were selected along with EEP and benchmarks with strong links to MDG, CAS and State priorities. Inclusion of the umbrella Public Sector Management Axis and identification of disbursement conditions, triggers and the technical assistance component assured that institutional reform synergies would take place across sectors. Easing disbursement mechanisms. The disbursement mechanism was designed in such a way that disbursements were made to the Treasury and not to the sectors. The Ceará SWApL followed the $572 million Federal Bolsa Família (BF) SWAP that disbursed to the Federal Treasury. BF was obliged to disburse to Treasury as the BF program had dedicated funding and funding could come from no other source. But it established a precedent that the team used and was fundamental for the loan (just as the Mexico Loan established payment for indicators even though the types of indictors used in Ceará were entirely different.) The Ceará loan safeguarded EEP expenditures by establishing annual minimum required levels and sectoral disbursement-linked indicators. It allowed the Government to manage its fiscal resources and allocations while forging a partnership between the central secretaries and the line secretaries who were responsible for meeting disbursement conditions and hence had to receive timely disbursements from Treasury. Innovation challenges and complexity of the operation. One of the consequences of synergies maximization is the complexity of this operation. The Ceará SWApL incorporated over a dozen lending innovations. Unlike traditional SWAps that normally support a single large Government sector program, this loan worked in six main line sectors. Two or three disbursement linked indicators were established in each sector. In addition, other ‘global’ conditionalities included completion of prototype sector strategic plans, primary surplus targets and satisfactory performance by the Bank’s other three loans to Ceará. Clearly the complexity of this operation made it challenging for resource people inside the Bank as well as on the counterpart side to prepare and implement it. Number of Indicators: Too many or just enough? The question of the adequate number of indicators was the source of intense internal discussion during project preparation. In the CE SWApL project, there were 13 disbursement-linked indicators, 3 cross-conditionalities on portfolio, and one global indicator (primary surplus) so a total of 17 indicators. In addition, there were 9 EEPs that needed to comply with the 70% rule. In sum, a total of 26 criteria needed to be monitored during project implementation. There was also a 3rd disbursement condition on Sector Strategic Plans. The sectors working with the project had worked with the Bank on sector diagnostics and plans. The indicators chosen were considered to be the key indicators for each sector (each sector has a set of secondary indicators on which it was working but these were not tied to disbursement.). The indicators chosen were also those that the government confirmed would be among those that it also was closely monitoring through the financial management information system or through oversight of Government programs.

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Designing the loan so that it created positive spillovers effects on the other World Bank projects in Ceará. By linking the Ceará SWApL loan with three ongoing Bank projects, the loan reinforced existing loans in the portfolio. Ceará had three Bank loans--education, water resource management, and rural poverty. Implementation had been prejudiced by weak management and fiscal constraints. Two projects were Unsatisfactory. The project picked up indicators related to both and used related EEP. Both loans turned around. The third Rural Poverty loan was never a problem. Cross conditionality was another innovation. Attending the requests of task managers, and because these loans support Ceará SWApL programs, "satisfactory" loan implementation was incorporated as a disbursement condition (see in Annex 4, Section C, Table 4.C. 1.of PAD) in the design of the project.

2.2 Implementation Implementation of Component 1 occurred over the expected period of time, with five tranches and closing on December 31, 2007. However, as is common in projects of this nature, not all programs fully met the disbursement linked indicators and therefore the amounts of disbursements differed somewhat from what was set out in the PAD. In addition, disbursement of the component 2 (TA) moved very slowly and in the end the TA program had significant issues in implementation. Estimated and Actual (Italics) Disbursement Schedule in US$ million Disbursement Nov 2005 May 2006 November 2006 May 2007 Retroactive disbursement (20 % against actual expenditures)

29 29

6 month disbursement advance against projected EEP expenditures

35 35

6 month disbursement advance against projected expenditures plus accomplishment of DLIs

25 25

25 24

Final disbursement Against actual EEP expenditures plus accomplishment of DLIs

30 35.7

TA component Approx 5.4 million US$ 614,000

While the first three disbursements in November 2005 were as expected, partial accomplishment of some of the disbursement-linked indicators meant that portions of the November 2006 disbursements were delayed. Waivers or partial waivers were also requested for the final disbursement.

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Of the 23 indicators required for the 4th disbursement, 13 were exceeded, 7 were complied with and 3 experienced some difficulties. All EEPs but one met the 70 percent rule. After submitting a request for partial waivers, a fourth tranche of US$ 24,076,912 was released. The details on the indicators not met are as follows: • The Ceará Integrated Water Resource Management Project (PROGERIRIH) was meant

to have Lots A & B contracts signed and invoices equal to 10 percent of the total value of each contract presented and paid by the borrower. A partial waiver was requested because, although all contracts were signed, only 6.5 percent of the contracts had been invoiced and paid. This was due to an unforeseen delay by sub-contractors. The problem was resolved in January of 2006, one month late, and by then the benchmark was exceeded. A waiver of the compliance date was requested and granted.

• The Ceará Basic Education Quality Improvement Project was required to have disbursed

R$17.5 million percent of loan proceeds, but by end-Dec 2005 R$17.3 million had been disbursed. In 2005 the project was upgraded to satisfactory and was extended, but the discussions on extension slowed disbursement for a period. A partial waiver was requested given the relatively small size of the shortfall, which would be made up in 2006.

• In the health sector the indicator, “Not more than 21 % of hospital admissions for children 5

years old or younger for diarrhea during CY 05,” was not attained. Hospital admissions were 25.3 percent and further diagnostic work into the issue suggested that the indicator was poorly defined and subject to many factors outside the sector. Field studies in at-risk municipalities followed by an in-depth study of the causes of non-compliance suggested that issued related to the water system had a significant impact on the indicator. A cross-sectoral committee set out a comprehensive work program to address the topic. Ultimately it is clear that the definition of this indictor was problematic and would unlikely be met during the loan.

• Spending on the Biodiversity program was required to reach R$6,000,000 in order to meet

the 70 percent rule. In 2005, 40 percent of the required amount was spent. The EEP overestimated the cost of creating of creating a park by some 23 times. The Government decided to create a single caatinga park of 10,005 hectars. The Bank supported this decision as a larger park is better for biodiversity conservation. The Government of Ceará obtained grant funds from Petrobrás of R$4.1 million. Combined with Government spending of R$1.7, spending totaled R$5.8 million. In the end this amount was sufficient to meet the goal of creating the Park and meeting the goals of the sector.

The fifth and final tranche release was for US$35,748,776. It included the delayed payments from the fourth disbursement on the childhood diarrhea indicator, as well as the resources for TA that had not been used (The option of rolling the unused TA money in the last disbursement was included in the Loan Agreement.). While the great majority of indicators were met or exceeded, the 5th disbursement requested six partial waivers: one on the execution of the TA component, two related to DLIs. Two related to portfolio indicators and two related to expenditure programs. The details of these are as follows (see the 5th disbursement documentation in IRIS for more detail.): • The PROGERIRH water conveyance system construction indicator (120 km) was met but

with a delay. A rainy season that was two months longer than normal disrupted construction

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and the Electoral Law constrained funding and resulted in the project being demobilized for a period of roughly six months. The target of 120 km was met, but with a delay.

• The indicator ‘children’s hospital admission for diarrhea’ remained flawed. It measured

a number of different health care phenomena and the use of a percentage resulted in non-representative and volatile results. The indicator was missed in 2006 despite the Government’s comprehensive program to address childhood diarrhea and despite having registered by far the lowest absolute number of internments since at least 2000. SWAp 2 will continue to track implementation of diarrhea program implementation.

• The charging of bulk water use was a composite indicator covering industrial, aquaculture

and irrigation water users. Performance exceeded targeted values for the first two and the third was partially met as the volume of water charged significantly surpassed expectations. This indicator will be refined to measure volume of water in the SWAp 2 operation.

• The election period in 2006 (and IDB procurement problems) also slowed implementation of

the SANEAR II program. Consequently, only 90% of the threshold EEP expenditure level was met. However, the indicator targets for the number of household water and sewerage connections were significantly exceeded. The indicator will also be continued in SWAp 2.

• Similarly, following from the fourth disbursement, the threshold expenditure target for the

Biodiversity Program was not met. About 72% of the threshold was spent or approved pending validation of land prices by the new administration. As mentioned the cost of establishing the Carnaubas Park—an important SWAp 1 achievement – was overestimated and inflated the threshold expenditure level. Furthermore, the expenditure exceeds by a multiple of 20 the level of Biodiversity Program expenditure at the inception of the operation and other environmental indicators were also met. Ultimately the objectives of the Biodiversity Program were met.

Implementation of the TA. The Bank team monitored and supported the implementation of the TA component, however, only $614,000 was actually spent over roughly three years leaving about $4.8 million to be reallocated to the SWAp component. There are a number of reasons for not having spent more TA component funds. • Contingency funds were to be reallocated including funds to cover a fiduciary oversight sub-

component that was developed by the Bank (as part of a state CFAA underway at the time) and that was included in early versions of the SWAp. The Government of Ceará took the component and transferred it to IDB’s PROMOEX loan. Contingency funds were set aside in the event the IDB loan was not finalized. These funds were never used.

• Owing to time constraints, a large water tariff study could not be completed prior to the closing date and required a COFIEX approved reallocation.

• About $130,000, was allocated for work on precatorios. However, the Executive has no control over the Procurador Geral do Estado (PGE—State Attorney General’s office) and that body only belatedly showed interest in the problem. None of the funds were spent. PGE was persuaded to make a trip to Paraná and brought back software for precatorios that is expected to help manage the problem.

• About $1.5m of activities were fully or partially carried out by the Secretaria de Planejamento (largely through IPECE –the Instituto de Pesquisa e Estratégia Econômica de Ceará) and the GOC with their own funds or funds from other sources.

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• The remainder of the funds to be reallocated pertains to activities which were not considered sufficiently high priority and/or did not have ownership.

In retrospect, it is clear that the TA program was too ambitious and did not take fully into account the Government’s ability or desire to do some things in-house. The need to carefully select TA activities to be included in the TA component and to link them closely to achievement of the DLIs is one of the lessons learned that has been incorporated into SWAp 2 and other SWAp operations. The final set of indicators used to assess implementation were the triggers for movement to the second phase of the APL. Table 2 presents the results on these indicators.

Table 2: Government of Ceará performance against APL triggers

Sector APL #2 Triggers Comments

1. Maintain debt/net current revenue ratio at 1.5 or lower

Results registered in December of each year: 2003=1.06, 2004=1.08, 2005=0.87, 2006=0.62

2. Begin operations of the Fiscal and Results-Based Management Committee (COGERF), charged with short- and medium-term fiscal and financial planning and management

COGERF was established by decree in 2004 (Diário Oficial do Estado (DOE), 09/08/2004). The Committee has met regularly, producing official actas or Deliberations that are duly sent to the relevant secretaries.

3. Implement centralized, results-based performance management cycle for key Secretaries

Sector results indicators are being monitored by SIAP (Sistema de Acompanhamento de Programas). Under the SWAp II, performance reports will be submitted by each Secretary.

Public Sector Management

4. Improve External Audit (TCE) compliance with legal deadlines for issuing judgments on public administrators’ accounts (contas de gestão) and reduce the backlog

The indicator for the reduction of the backlog (no. of contas vencidas) has been reduced to 25 percent.

5. Resolve outstanding State/ municipal coordination problems concerning fiscal and regulatory issues deriving from school decentralization

SEDUC established a Coordenadoria de Articulação com os Municípios. “Shared Management Agreements” have been created to oversee ceding of buildings and employees between the State and various municipalities, based in specific legislation (Regime de Colaboração). All 184 Ceará municipalities have signed a Protocol of Intention to participate in the Regime de Colaboração. In 2007 SEDUC continued this collaborative practice, creating a Unit for Municipal Coordination and Collaboration (Coordenadoria de Cooperação com os Municípios) and signing additional agreements to cede infrastructure and employees to municipalities, as well as to share responsibility for school transport.

Education

6. Improve state expenditure efficiency through semi-annual expenditure reviews, system

To systematically monitor public expenditure in education at the school, regional, and central levels, SEDUC developed the SADRE system (Sistema de

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training and reporting

Acompanhamento do Desenvolvimento da Rotina Escolar). Teams from SEDUC, CREDEs and schools were trained in the new system in 2005 and 2006; all schools now register their students in SADRE. Expenditure goals were set for 2005, by category and administrative unit (e.g., water, electricity, telephone). SEDUC plans to send monthly reports at the level of individual schools, beginning in 2008.

7. Implement performance contracts between the Secretary of Health’s regional bodies (CERES) and 30 regional hospitals in 2005 and 2006

As of June 2007, 32 regional hospitals had signed a Termo de Compromisso with SESA.

8. Implement Performance contracts between SESA and municipalities (49 in 2005; and 64 in 2006)

122 Termos de Compromisso were signed in 2006. Health

9. Implement Regional Health Regulatory Centers (Células Regionais de Saúde) with M&E and audit functions in 3 micro-regions in 2005, plus 6 in 2006

Three Centers were established in 2005 (Fortaleza, Juazeiro do Norte, and Sobral). One more was established in 2006 (Baturité). The remaining ones are still under development. As of June 2007 personnel selection procedures still had to be completed to fill the need for certain professional categories required for the proper operation of the Centers.

Social Inclusion and

Culture

10. Rehabilitation of a multi-site historic and cultural corridor in the center of Fortaleza

Not done.

11. Create new Water Basin Committees (2 in 2005, and a third in 2006)

One created in 2005 (Acaraú) and two in 2006 (Coreaú and Litoral)

Water resource

management (WRM)

12. Water Basin Committees officially included in the State Water Resources Council (CONERH)

A provision to include Water Basin Committees in CONERH is contained in a draft law that was sent to the legislative assembly.

13. ARCE to develop a reformed regulatory accounting system to be implemented by CAGECE

Technical assistance support was contracted to develop a regulatory accounting framework for the sector in Ceará, based on existing norms. The final report was delivered in December 2007.

14. Implement recommendations of a tariff and subsidy study

A study of tariffs and subsidies was initiated in 2007, with contributions from ARCE, SEINFRA and IPECE. The conclusion of the study (and recommendations) are expected in 2008.

Water Supply and Sanitation

(WSS)

15. Submit a new WSS law to the State Legislative Assembly.

A draft law was prepared by SEINFRA in 2006 and sent to the Procuradoria Geral do Estado for final drafting. However, this was overtaken by events when a Federal Sanitation Law (Lei 11.445/2007) was approved in January 2007. That law is still awaiting

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regulation by decree. ARCE revised the draft law and sent it to the Secretaria das Cidades in November 2007.

16. Implement coastal management in the East Coast and Metropolitan regions

The state’s 573 Km coastline (covering 33 municipalities) was divided into 4 sectors: Costa Leste (S-1), Fortaleza e Região Metropolitana (S-2), Costa Oeste (S-3) e Costa Extremo Oeste (S-4). Completed activities include: i) Macro-zoning and Socio-environmental Diagnostic of S-1 and S-3; ii) Macro-zoning of coastline; iii) production of maps; iii) preliminary management plans for S-1 and S-3; iv) cooperation agreements signed with mayors; and v) implementation of ORLA Project (Of the 20 municipalities with orla, 3 have developed plans. These are Fortaleza, Icapui, and Beberibe. Five more are expected to be completed in 2008, and 12 in 2009.)

Environment

17. A reformed environmental law submitted to the Legislative Assembly

Law nº 13.796 was published on June 30, 2006, instituting a State Policy for Coastal Management and a State Plan for Coastal Management. The implementing decree for this law was under discussion in 2007 through various public forums.

Although not without some delays and issues, the Government of Ceará substantially implemented the first component of the project, which included the critical sector programs. However the TA was not successfully implemented. Some of the key factors affecting overall implementation were as follows: No changes of key actors on counterpart side. The main counterparts remained the same during project preparation and implementation and had decision-making authority. This greatly facilitated project implementation and the resolution of problems. Relying on a small PIU. SWAps use existing client organizations and systems. Consequently a small Project Implementing Unit (PIU) of full-time staff under the immediate supervision of the head of the SEPLAN Research Institute (IPECE) – the main counterpart during loan preparation—managed the implementation. In fact, IPECE used its department staff as needed to help manage and report on the loan. Missed Indicators and uses of waivers. Some indicators were not met during project implementation. The use of waivers is a key issue of debate in the development of this type of project. On the one hand, one would like certainty. On the other hand, the reality is that teams make their best efforts at choosing indicators in extremely complex areas and some will be missed. Waivers provide some degree of flexibility and afford the Bank the opportunity not to punish governments when things that are out of their control sometimes occur. This project, the first of its kind, highlights the importance of carefully defining indicators. In each case where waivers were used, the broader sectoral goals were being attained. The consequences of elections. In the case of the PROGERIRH project WRM indicator/EEP, the elections effectively reduced project budgets the second half of 2006 and the laying canal was not

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completed. This required a waiver (see previous point). The elections played havoc with many things. In addition, the arrival of a new Governor creates some uncertainties. However, it is worth noting that despite (or thanks to) this situation of uncertainty (i) the key liaison staff in IPECE were retained; (ii) the implementation phase of the project was a very effective vehicle for engaging the new Governor; and (iii) by engaging the new Governor the Bank managed to establish a dialogue on SWAp II of the APL (which ended up at US$240m—much larger than the original $90m). Lack of focus on the TA component. Considerable TA was being leveraged through this operation. Alternative funding sources totaling over $2 million were found for technical assistance for key institutional development needs, originally a part of this loan. Education and WRM assistance would be funded through existing Bank loans. IDB loans (PROMOEX, PNAGE) were picking up other activities identified in Bank diagnostics. Government budget allocations would finance what remained. The program was far too ambitious with insufficient attention paid on both the Borrower’s and the Bank’s side to implementation of the TA.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization A thorough framework for monitoring and evaluation was developed during project preparation and used during project implementation. Monitoring and evaluation was an integral part of operational design. The disbursement-liked indicators and the M&E framework were developed collaboratively. The M&E was simplified for the Bank since the Government had to present evidence of fulfillment of disbursement-linked indicators in order to receive loan funds. For instance, a key indicator for the public sector component was to ensure primary surplus: “achieve primary surplus target no lower than R$134 million in 2005 and no lower than R$ 147 million in 2006” (PAD, Annex 3; p38). For the Monitoring and Evaluation of the targeted values, the primary balance baseline indicators and values during the project were calculated following the methodology used by the Fiscal Adjustment Program (PAF) agreed by STN and the GOC on May 25th, 2004; this enabled clear and reliable sources for monitoring the results. The M&E mechanisms were undertaken at different levels (EEP/triggers etc) and times (quarterly, continuously) to validate Eligible Expenditure Program, achievements of primary surplus, portfolio status, disbursement-linked indicators, and triggers as follows:

• Validation of Eligible Expenditure Program expenditures was undertaken annually in the 2nd and 4th quarters and was carried out for purposes of disbursement. EEPs were monitored every 6 months.

• Achievement of primary surplus and portfolio status, were monitored on a continuous basis. Since these conditions had disbursement implications, protocols were established for each. Evidence of satisfaction of the indicators had to be formally presented in written documents by the client.

• Progress on achieving APL triggers was continuously tracked through the life of the project. Protocols were established for triggers and results presented prior to project conclusion to allow time for decision and preparation of the second phase.

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2.4 Safeguard and Fiduciary Compliance

Safeguards

The Safeguards questions were resolved at the beginning of the project. The Ceará SWApL was in an “A” category rating owing to the fact that it supported an EEP that incorporated counterpart funding for the Bank’s “Ceará State Water Resources Integrated Management Program” (“PROGERIRH, BR-PE6449) which was an “A” project. PROGERIRH safeguard questions were therefore resolved in CY2000 when the loan was presented to the Board and implementation had been satisfactory. If not for PROGERIRH, the project would have received a “B” rating. The team also used the IDB safeguards for the SANEAR II loan counterpart, which was also in an EEP. Having safeguard arrangements in place with existing projects that influenced the EEPs substantially facilitated the discussion and implementation of safeguard policies.

Fiduciary Compliance

In general fiduciary compliance was adequate. Only a small Project Implementation Unit (PIU) was used. No Financial Management specialist was required. The PIU received and vetted quarterly reports from the Secretary of Finance used for determining disbursement against EEP expenditures prior to passing them on to the Bank. Audits, carried out by the State Chamber of Control (TCE-CE), were provided but with some delay. Sectoral audits were carried out within the State’s general accounts (Relatoria Annual das Contas do Governador). While the TCE-CE benefited from training from the TCE of Bahia, the TCE-CE would have benefited from further capacity building both in terms of audit standards and the assurances required in a SWAp. Strengthening of audit capacities at the state level is a high priority for Ceará, as well as for most other states in Brazil. The second phase of the loan will focus on this more directly.

Procurement under the TA component was organized in a small number of bidding packages: Ceará procurement of goods through shopping procedures; consulting services with firms following the QCBS method as established in the loan agreement; and individual consultants. Procurement during the project was decentralized to the line Secretariats. This combined with little procurement capacity in the PIU meant that overall procurement capacity for the project was very weak and that this is likely to have played a role in the limited disbursement under the TA. Weaknesses in procurement capacity also represented a high risk of mis-procurement (although in the end, there was no mis-procurement found.) The ex post review after project completion recommended that the PIU in IPECE play a more proactive role as a filter to ensure quality control of the procurement process. While a full time procurement consultant was not required, having a procurement consultant on retainer to assist line secretaries as needed would have helped project implementation. In addition, in order to ensure compliance with procurement conditions under the first component, the identification of potential eligible expenditures needed to be made at the “intenção de gasto “ phase and not at the stage of the “empenho” when contract values are verified.

2.5 Post-completion Operation/Next Phase The success of the first SWApL led to the preparation of a second operation (Phase II). As set out above, fifteen out of the 17 APL triggers were substantially met, so work began on the second loan. The Ceará Inclusive Growth Project SWAP II for US$240 million, to be discussed at the Board on September 30, 2008, is a continuation of the SWApL I loan. The first phase supported implementation of the state’s development agenda and sectoral investments between 2004-2007.

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This new loan does the same for the period of 2008-2011. The innovative design of the project elevated the importance of results-based management and provided an important model for inter-sectoral and inter-institutional management of key programs, demonstrating the state’s capacity for innovation. The proposed SWAp II remains focused on achieving key social objectives through institutional strengthening efforts and policy reforms. At the request of the Government of Ceará, this new operation also expands beyond the social sectors to address issues of growth and competitiveness. The Bank team, many of whom have participated in both projects, has interacted continuously with the Government over the closing of the first project and preparation of the second.

3. Assessment of Outcomes

The Ceará Multi-sector Social Inclusion Development Project faced many challenges, fostered innovative thinking, experienced some failures and many successes. Before going into details in this section, let us summarize the main characteristics of this project.

Notable achievements of the project include:

• The loan disbursed the entire amount (US$m 149.75) and closed on time. • The project helped the state financially by disbursing to Treasury and allowing the state to

smooth a spike in debt repayment and to create additional fiscal space. • The loan substantially met the majority the DLIs and triggers for the second phase. Those

triggers that were not met were counterbalanced by a signficant number of indicators in which targets were well exceeded.

• Some of the indicators are responsible for doing things that would not have been done—perhaps the most important are implanting the culture of results-based management and creation of the biodiversity park.

• The loan helped to reinforce other traditional investment projects in the State in water, education and rural development. Two of these investment loans were upgraded to satisfactory as a result of cross-conditionality.

• The loan had many precedent setting innovations, not least of which was a new loan modality. • Last but not least, the loan was repeated and upsized in Ceará and similar loans are now

approved or underway in Minas Gerais ($976 million, approved), Pernambuco ($155m), the Federal District ($130m). Other countries in the region are also deploying this model including Jamaica (ECD) and Barbados.

Areas in which the project was less successful and from which subsequent projects have learned are as follows:

• The scope of the project was very broad and, as a result, the component on Social Inclusion and Culture was not implemented. Although a sector plan was developed, there were no disbursement-linked indicators attached to this component, which was under the human development axis, and this meant that neither the Bank nor the relevant Government Secretary was keeping an eye on it. The trigger for the second APL was not met. In hindsight, it was clear that there was a desire from Bank management to include this component, though it had little real ownership and was not closely tied with other aspects of the project. While all other components were actively pursued and made great progress, this component probably should not have been included.

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• The project was less successful in implementing the TA component. Partly this was due to

the focus on meeting EEP expenditures and the disbursement–linked indicators. The TA would have benefited from being more tightly linked to the sector programs and DLIs to be met. It would have also benefited from more pro-activity from both the Bank team and the Government’s PIU. More involvement from the sectoral team members in supervision would also have helped to avoid this problem.

• While the project drew on existing financial management and procurement systems, more

could have been done to strengthen the Government’s capacities in these areas. The TCE of Ceará received some training and the audits were undertaken, however, they were sometimes late. Although a US$ 1 million component for these issues was included in the original design, the Government decided to support this through the IDB PROMOEX loan. This loan moved slowly and the contingency funds on the TA to cover this eventuality were never activated. There was little oversight on the procurement side, and while no mis-procurement occurred, an opportunity for further strengthening procurement was missed.

• Implementation of the project highlighted the need to put more and very careful attention into

definition of the indicators. Compound indicators, which included two or three parts created problems when there was success in one or two components of the indicator, but not the third. The indicator on hospital admission for children under 5 with diarrhea proved to have a number of issues – even though internments were going down the denominator of the indicator was fluctuating for other reasons and meant that the target was never reached even though hospitalizations were being reduced. Finally, there were some cases where indicators were affected by exogenous shocks, such as excessive rains, that meant that the indicator could not be achieved. Again, teams working on subsequent multi-sector SWAps have taken many of the lessons on indicators on board when defining their own projects.

One issue that has remained under discussion is the use of “waiver” requests while implementing the project. Teams & governments typically aim to define disbursement-linked indicators in a way that Governments can meet, but with an effort. While many in the Bank are opposed to any type of waiver, the team felt that the waiver mechanism was extremely useful for providing a mechanism in which the Government had an incentive to keep working on a problem. Typically a waiver request required the presentation of a work plan for meeting the relevant indicator. In many cases in the loan, indicators were met, but just a month or two behind schedule due to some factor outside of the Governments control. Waivers lent a degree of flexibility to the loan that was highly constructive. Overall, the project was the first of its kind and provides an example of an innovative response to client demands. It allowed the Government to focus on key sectoral issues while addressing critical public sector management issues across several sectors. The project was satisfactory in meeting its objectives and created a model for which there is great demand in Brazil.

Overall assessment: Satisfactory

3.1 Relevance of Objectives, Design and Implementation The objectives of achieving fiscal sustainability and increasing social inclusion were (and remain) highly relevant to state, national and Bank assistance strategies. The secondary objective of

21

strengthening results-based management in the state was also highly relevant to both the state and in the CAS. The Government had specified its development priorities in three documents: the Development Agenda, the Social Inclusion Indicators, and the Multi-Year Budget (“Plano Pluriannual 2003-2007) or “PPA”). Ceará’s Comprehensive Development Agenda groups activities and under four Development Axes which identify priority sectors and benchmarks. The Ceará SWApL reconfigured the priority sectors into three axes: (a) Public Sector Management, (b) Human Development, and (c) Sustainable Resource Management. The Public Sector Management Axis strengthened fiscal and results-based management, promoting sustained improvements in central and sector specific public administration. The Human Development and Sustainable Resource Management Axes directly or indirectly supported seven of eight MDG benchmarks including: extreme poverty eradication, universal primary education, reduced child mortality, improved maternal health, combating diseases, environmental sustainability, and global development partnership. The Ceará SWApL with its multi-sector emphasis on fiscal sustainability and social inclusion tracked directly three of four CAS priorities:

• The Human Development Axis (Education, Health, and Social Inclusion) addressed the CAS priority, a "More Equitable Brazil"

• The Sustainable Resource Management Axis (Environment, WRM, WSS) corresponded to the CAS’s "More Sustainable Brazil"

• The Public Sector Management Axis (Public Sector Management including fiscal, financial and efficient expenditure activities) corresponded to the CAS "Foundations of Economy & Governance" priority.

In this context, the operation addressed 20 of 40 targeted "medium-term outcomes" in the Brazil CAS "Results Framework" (Report No. 27043-BR, November 10, 2003). Its focus on the impoverished northeast was in line with CAS lending priorities and the multi-sector, integrated approach echoes the CAS emphasis on an `integrated' development approach- 12 of 17 sub-national loans in the CAS's 5-year lending program were integrated operations of which 6-8 would be in the Northeast. Its institutional strengthening activities would modernize the State and significantly improve the impact of key EEP and other State programs. Hence, the Ceará SWApL applied the CAS at the state level. Relevance of Objectives: Highly Satisfactory

3.2 Achievement of Project Development Objectives (including brief discussion of causal linkages between outputs and outcomes, with details on outputs in Annex 2)

The achievement of the PDO is rated as Satisfactory. Overall the project met its objective of improving Ceará’s fiscal sustainability. As a result of prudent fiscal management from 2003 to 2007, Ceará’s fiscal situation is very healthy. The state government has achieved increasing and substantial positive current savings that have permitted the state to increase public investment and to reduce significantly its indebtedness. Primary balances and net financing were also positive and increasing until 2005. In 2006, given its improved fiscal conditions, the state government promoted a strong expansion of public investment that led to a reduced primary balance (albeit, still positive) and to a small borrowing requirement. In 2007, the new state administration adopted a very tight fiscal

22

stance that increased the operating and primary balances and accelerated the decline in Ceará indebtedness. (see Figure 1). More details on Ceará’s fiscal and debt sustainability can be found in Annex 1 of the Project Appraisal Document for the second SWAp loan.

Figure 1 Ceará Fiscal Balances, 2003-2007

(in percent of net current revenues)

-10%-5%0%5%

10%15%20%25%30%

2003 2004 2005 2006 2007

Gross Operating Balance Primary Balance Net Lending / Borrowing

The project’s objectives were also largely met with respect to social inclusion. While attribution is always a thorny issue, the project can be said to have contributed directly to the following results:

• At least 90% of pregnant women have received 4 pre-natal consultations; • At least 60% of the population is covered by Family Health Program teams; • Implementation of national and state education testing cycles is completed and results

disseminated; • The illiterate population aged 15+ was reduced by over 100,000; • 120 km of the critical Castanhão-Fortaleza water conveyance system was completed; • 34,160 new household water connections and 18,440 new household sanitation service

connections were installed; • The ratio of CAGECE’s (water company) operating costs to operating revenues was less than

70.66%; • Industrial bulk water users (>80%), large irrigation users (5%) and aquaculture users (40%)

were charged for water use; • A caatinga (vulnerable and biodiversity rich biome) park of over 10,000 ha was established

with zoning and management plans; • Economic and environmental zoning studies were completed (caatinga, coastal) or contracted

(serras úmidas) and a report issued on implementation of the coastal program so important for the tourism industry.

Achievement of PDO: Satisfactory

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3.3 Efficiency Efficiency: NA No economic analysis was done for the project and efficiency is always difficult to measure especially for institutional reforms. As per the ICR guidelines, the efficiency in the Outcome rating asks whether the costs involved in achieving project objectives were reasonable in comparison with both the benefits and with recognized norms (“value for money”). It is worth noting that with an amount of US$149.75 million, the project leveraged a huge amount of money across 6 different sectors. In that perspective the project can be seen as very efficient. In addition, the design of an M&E system contributed to better efficiency.

3.4 Justification of Overall Outcome Rating (combining relevance, achievement of PDOs, and efficiency) The Ceará SWApL project was highly relevant, very innovative and has contributed to positive outcomes in interrelated sectors (public sector management, human development and sustainable resource management). As demonstrated above, both the fiscal sustainability and social inclusion objectives of the project were met. In addition, the project played a key role in supporting the development of improved public sector management building on results-based management. Key objectives in individual sectors were also accomplished. Finally, it also supported implementation of existing investment projects in the education, water and rural development. The project was not rated as highly satisfactory because: (a) 2 APL triggers were not met and, (b) the TA was not entirely done: a waiver for partial execution of the TA was provided (a number of studies were done in-house and elections interrupted some work). Resources allocated to TA in the project were not fully absorbed because TA needs and requests were not as fully integrated into the sectoral programs as desirable. In effect, they had no “owner”; and (c) the protocols for some indicators were not necessarily adequate. The indicators that were the most problematic were the subjective education indicators and the one related to diarrhea. In all, the project provided a new mechanism for responding to the needs of the State of Ceará, one that achieved very positive results and has been taken up by a number of other states in Brazil and other countries in the region. While not all indicators were fully met and there were issues with implementation of the TA, it is not surprising that a new model would experience some teething pains. Subsequent projects have aimed to incorporate the lessons of this project into their design. Rating: Satisfactory

3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development Poverty levels are still unacceptably high in Ceará, with more than half the population (53%) living below a poverty line of ½ minimum wage, and more than a quarter (26%) below an extreme poverty line (¼ minimum wage). It is not yet possible to determine the specific impact of the project on poverty levels -- the team will not be able to do so until the new round of the PNAD household survey is done. However, it is evident that sustaining social inclusion gains and obtaining a substantial reduction in current poverty levels will require more rapid economic

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growth. The new administration, inaugurated in January 2007, has placed a greater emphasis on “inclusive growth,” as part of its program. The project most targeted gender issues in the indicator on women receiving pre-natal care. At least 90 percent of women receive at least 4 pre-natal care visits. Efforts to extend both health care and education services, as well as better access to water, are all likely to have a positive impact on women and children, further strengthening social development. As noted above the social inclusion & culture leg of the human development axes had no disbursement–linked indicators and as a result this component had little impact. (b) Institutional Change/Strengthening The project focused on results-based management (RBM) and by the end of the project this theme has taken a huge leap, more than the team had initially contemplated. In the last year of the loan, the Governor used indicators throughout his Annual Address. See the 2006 “Mensagem a Assembléia Legislativa”: the State expanded from the loan’s six Sector Strategic Plans to cover all Sectors with Strategic Plans and indicators. Presentations also indicate that the RBM was extended at several levels:

• Government-level strategic results (39 indicators) • Sectoral Strategic Results (116) • Sectoral Programs (75) • Sectoral Products (234) • Operational Plan (SWAp Indicators)

The project also made an effort to strengthen financial management, procurement and auditing capacities. While some progress was made, further work is needed in these areas and has been included as part of the Second SWAp.

(c) Other Unintended Outcomes and Impacts (positive or negative) One positive outcome relates to the consequences that arose from an indicator that was not met and for which a partial waiver was granted. The percent of hospital admissions of 5 year olds or younger for diarrhea did not drop from 2005 and 2006. Upon further diagnosis it was clear that the indicator related not only to the health system but to water as well. A cross-sectoral group was established, a work program implemented and absolute numbers of children hospitalized for diarrhea declined significantly. The creation of the group also strengthened the Government’s capacity to work on issues in a cross-sectoral manner as opposed to in stove-pipes. Because this indicator was a disbursement indicator, additional efforts were put in place to understand why the indicator had not been reached and to work together more effectively across sectors.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops (optional for Core ICR, required for ILI, details in annexes) Although no formal beneficiary survey has been held, there have been on-going consultations with stakeholders in the preparation of Phase II of the project. Consultations have been held with respect to safeguard issues with the disclosure of the relevant frameworks for addressing safeguard issues. In addition, the Government has consulted broadly across the state on its overall programs and priorities. Feedback on improved services has been positive, but there is great emphasis on increasing incomes. As a result, at the request of the Government, the second Ceará

25

SWAp has included a greater emphasis on the growth and competitiveness of the State, while maintaining a focus on key social issues.

4. Assessment of Risk to Development Outcome As in most projects, the period of study is too short to be able to assess the development outcome or whether the outcomes are going to have a long lasting effect. However, some features were introduced in the project in order to sustain positive development outcomes. The timing of loan disbursement was calculated to ensure that the State could grow and implement its development agenda while achieving a sustainable and improving primary surplus. In addition, the Ceará SWApL indicators were projected for the second SWAp loan over a six year period, ensuring continuous improvement and solidifying them within the M&E framework. The risk to development outcomes is relatively low as sustained support of the development outcomes will be provided Ceará SWAp II, going to the Board on September 30th. Rating: Negligible

5. Assessment of Bank and Borrower Performance (relating to design, implementation and outcome issues)

5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry (i.e., performance through lending phase) Specific diagnostics were undertaken in each sector that enabled an effective prioritization of issues and partnership with Government counterparts. Although the design was innovative and complicated, it was thoroughly discussed in the Bank, both in DC and Brazil, with a full QER undertaken. The loan was fully aligned with the Bank’s strategy and was seen as an innovative approach to meeting the CAS’s goals on the ground. The project’s results monitoring framework was aligned with that of the CAS. Although the team new that there were risks to a new approach, they took measures to mitigate these risks. Rating: Satisfactory (b) Quality of Supervision (including of fiduciary and safeguards policies) Supervision was facilitated by the significant reporting requirements that had been built into the project. Supervision for disbursements in Component 1 was effective, but that for the TA was not. The Bank could have and should have been more effective on this front. In addition, supervision around disbursements was such that sector staff over time came to be less and less engaged in the project. This was partly due to limited resources, but also due to the focus of the project on IPECE, the PIU and counterpart for implementation. Finally, supervision of EEP spending reports was good, but supervision of financial audits was less strong. These were often received with some delay. The

26

project would have benefited if we the Bank team had been more proactive on supervision of financial and procurement side. Rating: Moderately Satisfactory (c) Justification of Rating for Overall Bank Performance The overall Bank rating for the project is satisfactory. Although supervision could have been improved for the TA component, the effort that went into sector diagnostics, design and preparation of a new and innovative project and the effective supervision of EEPs, disbursement-linked indicators and APL triggers all argue for a satisfactory rating. The SWAp has demonstrated itself to be an effective new lending modality and in high demand in Brazil. The Bank team deserves credit for its development. Rating: Satisfactory

5.2 Borrower Performance (a) Government Performance The Performance of the Borrower needs to be assessed taking into account the complexity of the project and the variety of monitoring reports that had to be produced on a regular basis. Different Secretariats of the Government worked hard to develop sector strategies, to reach disbursement –linked indicators and to understand what was causing difficulties when indicators were not reached. In addition they complied with significant reporting requirements. The Government as a whole was highly committed to the reforms and to the results-based management approach. While performance on implementing the TA could have been improved, as a whole the Government performance was satisfactory. Rating: Satisfactory (b) Implementing Agency Performance A small Project Implementing Unit (PIU) of full-time staff under the immediate supervision of the head of the SEPLAN Research Institute (IPECE) was the main counterpart during loan preparation and implementation. The team was dedicated and followed the project closely, with a “central command’ room where posters of progress were on the walls and where the frequent cross-sectoral meetings for project supervision were held. The PIU team was very pro-active and contributed extensively from supporting the design to maintaining a Committee with regular reports, to joining battle on tough problems, and transforming the RBM culture. More could have been done from the PIU’s side with respect to supporting implementation of the TA component and on oversight of delivery of the financial audits by the TCE-CE. In addition, it would have been useful for the unit to have had, at least on retainer, a specialist on procurement to assist when issues arose. Overall, the PIU’s performance was satisfactory. Rating: Satisfactory

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(c) Justification of Rating for Overall Borrower Performance Both the Borrower’s and implementing Agency’s performances were satisfactory making overall Borrower performance satisfactory. Rating: Satisfactory

6. Lessons Learned The Ceará Multi- Sector Social Inclusion Project was the first in Brazil to use a SWAp modality to support a multi-sector program. The Bank reimbursed key Eligible Expenditure Programs in line with results based on key sectoral indicators. The following lessons can be drawn from the experience in implementation of this project: 1. Despite its complexity, a multi-sectoral SWAp, can be very a very effective instrument, especially when addressing issues that cut across sectors, such as public sector reform. The Ceará SWApL allowed the Government to drill down into specific sector needs, but at the same time to focus on developing a framework for results-based management in all the sectors. This helped the Government to more effectively address its key development issues. However, given the complexity of the SWAp mechanism, care needs to be taken to assure that the scope is manageable and that there is ownership for all sectors included and of all components of the operation. Implementation suggests that there was little ownership for the Social Inclusion & Culture component and the ultimate impact of the project would not have changed had this component not been included. 2. The disbursement design created positive incentives. Disbursing against spending on priority programs and against achievement of key indicators worked well. In particular the notion that a disbursement can be pro-rated according to the number of indicators achieved (and so that an entire tranche is not held up when one indicator is missed) helped provide flexibility and incentives for different government actors to both achieve their own goals as well as to help others in achieving their indicators. Disbursement of Component 1 resources directly to the Treasury complemented these incentives. 3. State capacity needs to be taken into account. At the beginning of the project, there was a concern that the multi-sectoral, results-based APL approach could overwhelm the State's institutional capacity. Benchmarks might not be achieved, and the loan might not disburse. These concerns were mitigated by loan design features. EEP programs, disbursement indicators, APL triggers and Sector Plan benchmarks were jointly determined by Bank and client sector specialists and were by and large feasible. Having an efficient counterpart who understands the project and can implement it in a timely fashion is important and should be carefully assessed during project preparation. In particular, it is important to assess the strength of the financial management, auditing and procurement capacities. 4. Ownership matters. The program and indicators were developed and reflected the Borrower’s own program. Without full ownership, this project would not have had positive outcomes. The Government of Ceará took ownership and was committed to carrying out the program. The key counterparts remained the same throughout the project and had the authority to request information from other entities involved and to make decisions.

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5. Indicators require careful thought and design. Many issues related to the definition and design of indicators arose in the project. It is best not to use compound indicators where one or two aspects can be accomplished but another not, thus creating confusion with respect to whether the indicator is achieved or not. Care needs to be taken as well to assure that when ratios are used that both the numerator and denominator move consistently and are not subject to exogenous factors that can distort measurement of an outcome. Specific protocols indicting data source, periods for measurement and other key details should be included. 6. Have some flexibility throughout project implementation. EEP expenditures and disbursement conditions were reviewed throughout the project (and disbursed every 6 months). Projects should enable some small adjustments during project implementation. In the case of this project, partial waivers allowed for some degree of flexibility, but were only used in cases when overall goals of the sector were being achieved. “Waivers” should not been seen as a failure but rather as a way to foster discussion and bring together different stakeholders to solve a common issue. This happened for the indicator on hospital admissions for diarrhea in children under 5 years old. In the end, the problem was not related to the health sector and a multi-sector group, including water, was established, a work program was implemented and absolute numbers significantly declined. Beyond this example, the general issue is that designing real indicators means that some of them might be missed during the course of the project and this is something teams need to be prepared for. 7. The importance of a good M&E system to track results. The Government of Ceará and the Bank had embedded a strong M&E framework to support operations. The M&E was simplified for the Bank since the Government had to present evidence of fulfillment of disbursement indicators in order to receive loan funds. For instance, the first intermediate indicator for the public sector component was to ensure primary surplus: “achieve primary surplus target no lower than R$134 million in 2005 and no lower than R$ 147 million in 2006” (PAD, Annex3; p38). For the Monitoring and Evaluation of the targeted values, the primary balance baseline indicators and values during project were calculated following the methodology used by the Fiscal Adjustment Program (PAF) agreed by STN and the GOC on May 25th, 2004; this enabled clear and reliable sources for monitoring the results. 8. Close attention needs to be paid to the TA Program. The ability to include a TA component in a multi-sector SWAP is a key advantage of this type of instrument. However, it is critical that the TA be well-designed, closely linked to the achievement of results and owned by the government. Also, it is critically important to assure that the capacity for implementing TA exists 9. Importance of internal collaboration and adequate supervision funding. As described throughout this document, the project drew on several sectors and required the contribution of the sectoral, fiduciary and safeguard teams. The project was very innovative and would not have happened without the strong collaboration of all these teams. Attention needs to be paid to keep the full team engaged beyond project preparation. Sufficient supervision resources are critical, especially when a multi-sectoral loan is the only avenue for sectors to dialogue with a counterpart. It is particularly important to make sure that supervision on the fiduciary and safeguard side continue despite the reliance on state systems.

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7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies At the program design stage it is important that the main Government and Bank stakeholders to come up with an initial proposal to be presented and negotiated with the line secretaries. Therefore, the program final design is a result of mixed up-down / bottom–up negotiations. The sector teams should be aware that there is a trade – off when working with a multi-sector SWAP program. As you work with many sectors you have to be focused on few priority issues. On that matter it is important a close work between the Bank’s sector teams and the program TTLs (Bank and Government). The use of DLI (Disbursement Linked Indicators) is a shared risk-taking strategy between the Government and the Bank. As so, the waiver mechanism plays a key role and it very important to face real world uncertainty. (b) Cofinanciers N/A (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society)

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Annex 1. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent)

Components Appraisal Estimate (USD millions)

Actual/Latest Estimate (USD

millions)

Percentage of Appraisal

SWAp--7 sectors & 9 programs 144.00 147.40 103.00 TA component 4.10 0.70 17.00

Total Baseline Cost 148.10 148.10

Physical Contingencies 0.20

0.20

100.00

Price Contingencies 0.00

0.00

0.00

Total Project Costs 148.30 148.30 100.0 Front-end fee PPF 0.00 0.00 .00 Front-end fee IBRD 1.50 1.50 100.00

Total Financing Required 149.80 149.750 100.00

(b) Financing

Source of Funds Type of Cofinancing

Appraisal Estimate

(USD millions)

Actual/Latest Estimate

(USD millions)

Percentage of Appraisal

Borrower 500.00 0.00 .00 International Bank for Reconstruction and Development 149.75 0.00 .00

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Annex 2. Outputs by Component Component 1 – See Tables above on results Component 2 -

List of TA component - SWAP I / CE IBRD - 7321 / BR - October 18, 2005 to December 31, 2007

Amount Paid Nº

Contracting Secretariat

Category of

Expense

Description Goods / Services

Exchange rate day * R$ (US$)

Payment Date

1 IPECE/SEPLAN 1 Furniture PIU/SWAP 2,28 R$ 1.686,48 $739,68 15/12/2006

2 IPECE/SEPLAN 1 Equipment No break PIU/SWAP 2,28 R$ 620,53 $272,16 19/12/2006

3 IPECE/SEPLAN 1 Equipment data show PIU/SWAP 2,28 R$ 3.556,00 $1.559,65 19/12/2006

4 IPECE/SEPLAN 1 Equipment CD Record PIU/SWAP

2,28 R$ 67,50 $29,61 27/12/2006

5 IPECE/SEPLAN 1 Softwares Windows & Office PIU/SWAP

2,28 R$ 1.007,00 $441,67 27/12/2006

6 IPECE/SEPLAN 1 Equipment computer PIU/SWAP

2,28 R$ 1.580,00 $692,98 30/8/2007

7 IPECE/SEPLAN 1 Equipment printer PIU/SWAP 2,28 R$ 630,00 $276,32 30/5/2007

8 IPECE/SEPLAN 1 Equipment laptop PIU/SWAP 2,28 R$ 4.950,00

$14.097,51

$2.171,05

$6.183,12

27/12/2007

9 PGE 2

Professional Documentation Organization Services for PGE Archives

2,28 R$ 200.000,00 $87.719,30

26/11/2007 3/12/2007

20/12/2007 26/12/2007

2/01/2008

10 SECON 2

Information Technology Services (35 government auditing application licenses )

2,28 R$ 45.524,12 $19.966,72 27/12/2006

11 IPECE 2

Participation on Tercera Reunion de La Red Informal de Monitoreo Y Evaluacion (perdien)

2,28 R$ 1.965,24 $861,95 23/7/2007

12 IPECE 2

Participation on Tercera Reunion de La Red Informal de Monitoreo Y Evaluacion (Ticket MARCOS COSTA HOLANDA)

2,28 R$ 2.070,07

R$ 261.201,43

$907,93

$114.562,03

10/9/2007

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Amount Paid Nº


Category of

Expense



Payment Date

13 SEDUC 2

"SEMINÁRIO DE EDUCAÇÃO SANITÁRIA" - Participants cost of accommodation and Transportation

2,28 R$ 10.642,00 $4.667,54 28/9/2007

14 SEDUC 2

"SEMINÁRIO DE EDUCAÇÃO SANITÁRIA" - Participants lunch

2,28 R$ 1.000,00 $438,60 15/10/2007

15 SECON 3

Consultant Firm Services regarding auditing model for SECON

2,28 R$ 46.885,00 $20.563,60 15/12/2006

16 SESA 3

Consultant Firm services regarding diagnostic & recommendations for managing hospital waste

2,28 R$ 420.037,41 $184.065,47

08/11/2007, 12/11/2007, 20/11/2007, 20/12/2007

17 ARCE 3

Consultant Firm services regarding studies of water and waste regulatory accountability tariffs

2,28 R$ 239.723,94 $105.142,08 26/12/207

18 ARCE 3

Consultant Firm services regarding studies of water and waste tariffs regulation

2,28 R$ 260.180,00

R$ 966.826,35

$114.114,04

$423.885,18

31/08/2007 21/09/2007 14/11/2007 20/12/2007 20/12/2007 26/12/2007

19 IPECE 4

Individual Consultant services regarding PIU support from 12/01/05 to 5/31/06

2,28 R$ 16.827,25 $7.373,90 28/6/2006

20 IPECE 4


2,28 R$ 39.365,45

R$ 160.483,11

$17.250,42

$70.329,04

28/06/2006 30/06/2006 31/07/2006 31/08/2006 2909/2009

31/10/2006 30/11/2006 27/12/2006 09/02/2007 01/03/2007 02/04/2007 04/05/2007 01/06/2007

33


Amount Paid Nº


Category of

Expense



Payment Date

21 IPECE 4


2,28 R$ 18.000,00 $7.887,82

05/09/2007 05/09/2007 01/10/2007 01/11/2007 03/12/2007 26/12/2007

22 CIDADES 4

Individual Consultant services regarding Cidades do Ceará Program General Coordinator

2,28 R$ 16.190,41 $7.094,83 20/12/2007

23 CIDADES 4

Individual Consultant services regarding Cidades do Ceará Program Coordinator

2,28 R$ 18.000,00 $7.887,82 21/12/2007 26/12/2007

24 CIDADES 4

Individual Consultant services regarding Cidades do Ceará Program Economic Development Coordinator

2,28 R$ 8.000,00 $3.505,70 21/12/2007

25 CIDADES 4

Individual Consultant services regarding Cidades do Ceará Program Environment Coordinator

2,28 R$ 16.800,00 $7.361,96 21/12/2007

26 SECON 4

Individual Consultant services regarding Performance Auditing Implementation

2,28 R$ 8.100,00 $3.549,52 21/9/2006

27 SECON 4

Individual Consultant services regarding training course Performance Auditing

2,28 R$ 6.300,00 $2.760,74 19/9/2006

28 SECON 4


2,28 R$ 4.050,00 $1.774,76 19/9/2006

34


Amount Paid Nº


Category of

Expense



Payment Date

29 SECON 4


2,28 R$ 4.050,00 $1.776,32 19/9/2006

30 SECON 4


2,28 R$ 2.400,00 $1.052,63 19/9/2006

31 SECON 4


2,28 R$ 2.400,00 $1.052,63 19/9/2006

Total $1.402.608,40 $1.402.608,40 $614.959,37 $614.959,37 (*) Exchange rate day of withdraw Special Account

List of TA component SWAP I /CE - IBRD 7321-BR

Summary Amounts

Category Description Amount Paid US$

1 Goods $6.183,12

2 Non consultat services $114.562,03

3 Services of Consulting Firms $423.885,18

4 Individual Consultants $70.329,04

TOTAL $614.959,37

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Annex 3. Economic and Financial Analysis (including assumptions in the analysis) See above.

36

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/ Specialty

Lending Chris Parel Senior Public Sector Specialist LCSPS Task Team Leader Luiz Gabriel Azevedo Lead Water Resource Specialist ECSSD Fernando Andres Blanco Cossio Economist LCSPE Jose Augusto Carvalho Consultant LCSPT Dean A. Cira Sr Urban Spec. EASVS Tulio Henrique Lima Correa Financial Management Specialis LCSFM Martin P. Gambrill Senior Water Engineer LCSUW Daniel R. Gross Consultant ENV Linn A. Hammergren Consultant LCSPE Efraim Jimenez Consultant LCSPT Gerard Martin La Forgia Lead Health Specialist LCSHH Omowunmi Ladipo Lead Financial Management Spec LCSOS Yasuhiko Matsuda Sr Public Sector Spec. EASPR Aymeric-Albin Meyer Sr Transport. Spec. LCSTR Suhas D. Parandekar Senior Education Economist LCSHE Maria-Valeria Pena Consultant LCSEN Manuel Felipe Rego Consultant LCSSD Jeffrey James Rinne Public Sector Mgmt. Spec. LCSPS Fernando Rojas Lead Public Sector Management LCSPS Joachim von Amsberg Lead Economist/Sector Leader EACIF

Supervision/ICR Musa S. C. Asad Sr Financial Analyst LCSEN Fernando Andres Blanco Cossio Economist LCSPE Regis Thomas Cunningham Sr Financial Management Specia LCSFM Martin P. Gambrill Senior Water Engineer LCSUW Gerard Martin La Forgia Lead Health Specialist LCSHH Marta Elena Molares-Halberg Lead Counsel LEGLA Chris Parel Consultant LCSDE Luis R. Prada Villalobos Sr Procurement Spec. LCSPT Carmen L. Romero Junior Professional Associate LCSPS Ricardo Rocha Silveira Sr Operations Off. LCSHE Rajeev Kumar Swami Sr Financial Management Specia ECSPS Morag N. Van Praag Senior Finance Officer LOADM Fanny Weiner Consultant LCSPS Deborah L. Wetzel Lead Public Sector Specialist LCSPS TTL from Sept 2006

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(b) Staff Time and Cost Staff Time and Cost (Bank Budget Only)

Stage of Project Cycle No. of staff weeks USD Thousands (including

travel and consultant costs)Lending

FY03 7 38.38 FY04 29 214.59 FY05 45 187.85 FY06 1 2.16 FY07 0.00 FY08 0.00

Total: 82 442.98 Supervision/ICR

FY03 0.00 FY04 0.00 FY05 0.00 FY06 16 86.19 FY07 15 98.87 FY08 3 30.19

Total: 34 215.25

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Annex 5. Beneficiary Survey Results (if any) NA

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Annex 6. Stakeholder Workshop Report and Results (if any) NA

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Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR

The ICR addresses the key points of the project in a balanced and fair way.

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Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders

NA

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Annex 9. List of Supporting Documents

See files in IRIS under P082142.

Document of The World Bank...Indicator 2 : Portfolio satisfactory Value (quantitative or...

Documents

Transcript of Document of The World Bank...Indicator 2 : Portfolio satisfactory Value (quantitative or...