The World Bank FOR OFFICIAL USE ONLYdocuments.worldbank.org/curated/en/258391468231854219/pdf/637640… · the world bank for official use only report no: 63764-cl project appraisal

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: 63764-CL

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LOAN

IN THE AMOUNT OF US$40 MILLION

TO THE

REPUBLIC OF CHILE

FOR A

TERTIARY EDUCATION FINANCE FOR RESULTS PROJECT III

FEBRUARY 9, 2012

Human Development Sector

Bolivia, Chile, Ecuador, Peru and Venezuela Country Management Unit

Latin American and the Caribbean Regional Office

This document has a restricted distribution and may be used by recipients only in the

performance of their official duties. Its contents may not otherwise be disclosed without World

Bank authorization

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CURRENCY EQUIVALENTS

November 29, 2011

Currency Unit = Chilean Pesos

CLP522 = US$1

CLP1 = US$0.002

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

AFD Direct Fiscal Grant

APL Adaptable Program Loan

CAE State Guaranteed Student Loan Program, acronym in Spanish

CD Convenios de Desempeño, Performance Agreement

CDI Convenio de Desempeño Institucional, Institutional Performance Agreement

CDF Convenio de Desempeño Mediano, Focused Performance Agreement

CFT Technical Training Centers

CGR Contraloría General de la República, Supreme Audit Institution

CONICYT Comisión Nacional de Investigación Científica y Tecnológica, National Council

for Scientific and Technological Research

CONFECH Conferederación de Estudiantes de Chile, Chile‘s Student Confederation

COREHEG Tertiary Thematic Group

CPS Country Partnership Strategy

CRUCH National Council of Rectors of Chilean Universities

CUT Country‘s main trade union

DAG Departamento de Administración General, General Administration Department

DC Direct contracting

DFI Department of Institutional Financing

DIPLAP Dirección de Planificación y Presupuesto

DIPRES División de Presupuestos, Division of Budget

DIVESUP División de Educación Superior, Division of Higher Education

FA Framework Agreement

FECH Federación de Estudiantes de Chile, Chile‘s Student Federation

FIC Innovation Fund for Competitiveness, acronym in Spanish

FM Financial Management

FMA Financial Management Assessment

GoC Government of Chile

ICB International Competitive Bidding

ICU Institutional Coordination Units

IFR Interim financial report

IP Professional Institute

IPPF Peoples Planning Framework

ISA International Standards on Auditing

MH Ministry of Finance

MINEDUC Ministry of Education

NCB National Competitive Bidding

NPV Net Present Value

OECD Organization for Economic Co-operation and Development

OP/BP Operational Policies and Bank Procedures

ORAF Operational Risk Assessment Framework

PAD Project Appraisal Document

PDO Project Development Objective

PIU Project Implementation Unit

PMI Plan de Mejoramiento Institucional, Institutional Improvement Plan

POA Project Annual Operational Work

POM Project Operational Manual

PSU Prueba de Selección Universitaria (University Selection Test)

R&D Research and development

SEPA Procurement Plan Execution System

SIES Tertiary Education Information System

SIGFE Sistema de Información para la Gestión Financiera del Estado, National

Integrated Financial Management System

SOE Statement of Expenditures

TEI Tertiary Education Institution

TEIs Tertiary Education Institutions

TFP Total factor productivity

UCI Unidades de Coordinación Institucional, Institutional Coordination Units

UCP University-Community Partnerships for Social Action Research

Regional Vice President: Hasan A. Tuluy

Country Director: Susan G. Goldmark

Sector Director: Keith Hansen

Sector Manager: Chingboon Lee

Task Team Leader: Michael Crawford

CHILE


TABLE OF CONTENTS

Page No.

1. STRATEGIC CONTEXT .................................................................................................1

A. Country Context ............................................................................................................ 1

B. Sectoral and Institutional Context ................................................................................. 1

C. Higher Level Objectives to which the Project Contributes .......................................... 4

2. PROJECT DEVELOPMENT OBJECTIVES ................................................................5

A. PDO............................................................................................................................... 5

B. Project Beneficiaries ..................................................................................................... 5

C. PDO Level Results Indicators ....................................................................................... 5

3. PROJECT DESCRIPTION ..............................................................................................5

A. Project Components ...................................................................................................... 5

B. Project Financing .......................................................................................................... 6

Lending Instrument ............................................................................................................. 6

Project Cost and Financing ................................................................................................. 6

C. Lessons Learned and Reflected in the Project Design .................................................. 6

4. IMPLEMENTATION .......................................................................................................7

A. Institutional and Implementation Arrangements .......................................................... 7

B. Results Monitoring and Evaluation .............................................................................. 8

C. Sustainability................................................................................................................. 9

5. KEY RISKS AND MITIGATION MEASURES ............................................................9

A. Risk Ratings Summary ................................................................................................. 9

B. Overall Risk Rating Summary .................................................................................... 10

6. APPRAISAL SUMMARY ..............................................................................................10

A. Economic and Financial Analyses .............................................................................. 10

B. Technical ..................................................................................................................... 11

C. Financial Management ................................................................................................ 12

D. Procurement ................................................................................................................ 13

E. Social (including Safeguards) ..................................................................................... 14

F. Environment (including Safeguards) .......................................................................... 14

Annex 1: Results Framework and Monitoring .........................................................................15

Annex 2: Detailed Project Description .......................................................................................18

Annex 3: Implementation Arrangements ..................................................................................21

Annex 4: Operational Risk Assessment Framework (ORAF) .................................................40

Annex 5: Implementation Support Plan ....................................................................................43

Annex 6: Economic and Financial Analysis ..............................................................................45

PAD DATA SHEET

Chile


PROJECT APPRAISAL DOCUMENT .

Latin American and the Caribbean Region

Human Development Unit

Basic Information

Date: February 9, 2012 Sectors:

Tertiary education (100%)

Country Director: Susan G. Goldmark Themes: Education for the knowledge economy (100%)

Sector Manager/Director: Chingboon Lee / Keith Hansen EA Category: C

Project ID: P111661

Lending Instrument: SIL Team Leader(s): Michael F. Crawford

Does the project include any CDD component? NO

Joint IFC: .

Borrower: Republic of Chile

Responsible Agency: Division of Higher Education, Ministry of Education

Contact: Juan José Ugarte Title: Director, Division of Higher Education, Ministry of Education

Telephone No.:

(56-2) 390-4401 Email: [email protected]

.

Project Implementation Period: Start Date: 06/15/2012 End Date: 10/31/2016

Expected Effectiveness Date: October 31, 2012

Expected Closing Date: October 31, 2016 .

Project Financing Data(US$M)

[ X ] Loan [ ] Grant [ ] Other

[ ] Credit [ ] Guarantee

For Loans/Credits/Others

Total Project Cost : 160.00 Total Bank Financing : 40.00

Government: 120.00 Financing Gap : 0.00 .

Financing Source Amount(US$M)

BORROWER/RECIPIENT 120.00

IBRD 40.00

IDA: New

IDA: Recommitted

Others

Financing Gap

Total 160.00 .

Expected Disbursements (in USD Million)

Fiscal Year 2012 2013 2014 2015 2016

Annual 5 10 10 10 5

Cumulative 5 15 25 35 40 .

Project Development Objective(s)

The objective of the Project is to improve quality and relevance for students in tertiary education by strengthening the link between funding of tertiary

education institutions and accountability for performance. .

Components

Component Name Cost (USD Millions)

1. Performance Agreements

2. Policy Support and Project Management

Total estimated cost: US$155 million; Bank: US$38 million

Total estimated cost: US$5 million; Bank: US$2 million

.

Compliance

Policy

Does the project depart from the CAS in content or in other significant respects? Yes [ ] No [ X ] .

Does the project require any exceptions from Bank policies? Yes [ ] No [ X ]

Have these been approved by Bank management? Yes [ ] No [ ]

Is approval for any policy exception sought from the Board? Yes [ ] No [ X ]

Does the project meet the Regional criteria for readiness for implementation? Yes [ X ] No [ X ] .

Safeguard Policies Triggered by the Project Yes No

Environmental Assessment OP/BP 4.01 X

Natural Habitats OP/BP 4.04 X

Forests OP/BP 4.36 X

Pest Management OP 4.09 X

Physical Cultural Resources OP/BP 4.11 X

Indigenous Peoples OP/BP 4.10 X

Involuntary Resettlement OP/BP 4.12 X

Safety of Dams OP/BP 4.37 X

Projects on International Waterways OP/BP 7.50 X

Projects in Disputed Areas OP/BP 7.60 X .

Legal Covenants

Name Performance Subprojects Recurrent Yes Due Date N/A Frequency Throughout

For the purposes of carrying out Part 1 of the Project, the Borrower, through MINEDUC, shall after having selected a Performance

Subproject in accordance with the criteria, guidelines and procedures set forth in the Operational Manual, and prior to the carrying out of

said Performance Subproject by the pertinent TEI, enter into an agreement with said TEI (―Subproject Agreement‖), for the provision of a

Grant for the implementation of a Subproject, under terms and conditions approved by the Bank and included in the Operational Manual.

Name Safeguards Recurrent Yes Due Date N/A Frequency Throughout

1. The Borrower, through MINEDUC, shall and shall cause the TEIs to: (a) implement the Project in accordance with the IPPF, when

applicable; (b) comply with the procedures detailed in said IPPF for screening, evaluation, implementation and monitoring of Performance

Subprojects; and (c) implement the pertinent indigenous peoples development plans, in accordance with their terms and in a manner

acceptable to the Bank.

2. The Borrower, through MINEDUC, shall, and shall cause the TEIs to ensure that any works to be financed under the Performance

Subprojects do not involve any Resettlement.

Name Special Provisions Recurrent Yes Due Date N/A Frequency Throughout

In addition and without limitation to any other provisions set forth in this Section or the Procurement Guidelines, the following principles of

procurement shall expressly govern all procurement of goods, Non-Consulting Services and works under National Competitive Bidding

procedures:

The lowest evaluated bid shall be selected for contract award.

There shall be no prescribed minimum number of bids to be submitted in order for a contract to be subsequently awarded.

ChileCompra, provided that the bidding documents are acceptable to the Bank.

The Mercado Público Framework Agreements (MPFA) may be used as an alternative to Shopping, as determined by the Bank,

provided that: (A) the specific MPFA does not restrict foreign competition, and is limited to a maximum duration of 3 (three)

years; and (B) the maximum aggregate amount for the use of an specific MPFA by each TEI set in the procurement plan is in no

case higher than the applicable Shopping maximum amount, and shall be agreed with the Bank.

In addition and without limitation to any other provisions set forth in this Section or the Consultant Guidelines, the following principles of

procurement shall expressly govern all employment of consultants:

There shall be no prescribed minimum number of proposals to be submitted in order for a contract to be subsequently awarded.

For small assignments not exceeding US$200,000 equivalent, the procedures of ChileCompra may be followed as a consultants'

selection method acceptable to the Bank. .

Team Composition

Bank Staff

Name Title Specialization Unit

Michael F. Crawford TTL Senior Education Specialist LCSHE

Maria Paulina Mogollón STC Technical Project Design & Safeguards LCSHE

Christopher Sharp STC Consultant LCSHE

Diego Ambasz Operations Officer Operations Officer LCSHE

Francisco Rodriguez Procurement Specialist Procurement LCSPT

Ana Lucía Jimenez Financial Management Specialist Financial Management LCSFM

Mariana Montiel Senior Council Lawyer LEGLA

Maria Elena Paz Gutzalenko ACS Program Assistant LCSHE

Guillermo Toral JPA Operations LCSHE

Non Bank Staff .

Locations

Country First Administrative

Division

Location Planned Actual Comments

.

1

1. STRATEGIC CONTEXT

A. Country Context

1. Chile is an upper middle income country which recently acceded to full membership in

the OECD. It has one of the most politically stable systems in Latin America, strong institutions

and a solid record of economic growth during the last two decades. A center-right administration

took office in March 2010, following on 20 years of continuous center-left governments. Despite

differences in political stance, the current Government is pursuing largely centrist policies with

overall goals similar to those of previous governments: promoting reforms to boost growth,

investing in human capital, and tackling poverty and inequality. Within this context, Chile is

challenged to reverse declining relative growth performance and insufficient innovative capacity

so that it can grow the size and wealth of its middle class. Chile's growth has slowed from an

average of 7.6% during the period of 1986-1997 to 3.9% in the period of 2000-2010.1

2. The Government of Chile (GoC) has launched a development agenda which sets the stage

for achieving high-income status by 2018. The strategic areas that the GoC is emphasizing to

reach this goal are: i) achieving greater competitiveness, including modernization of the state; ii)

improving job creation and job quality; and iii) promoting investment, including in human

capital. The Government has embraced increased investment and increased policy attention to

education at all levels as a key pillar of economic and social progress. While the Government

seeks to implement this agenda, it faces youth who want to see educational opportunity and

educational quality improved immediately and who are impatient for change.

B. Sectoral and Institutional Context

3. Chile‘s tertiary education system is diversified geographically and institutionally. Its

tertiary education institutions fall into three categories: Technical Training Centers (CFTs),

Professional Institutes (IPs) and Universities. Universities are further divided into two categories:

the traditional public and private universities who are members of the National Council of

Rectors of Chilean Universities (CRUCH for its acronym in Spanish), and the newer universities,

typically founded after the 1980s, who do not belong to it. Degree programs in Chile range from

short technical degrees to full doctoral programs. Degree length usually varies by the category

of tertiary education institution (TEI): CFT training typically lasts two years, IP professional

degree courses four years and university degree courses five years. Universities also offer

graduate programs and diplomas, including Master‘s and PhD programs. In 2010, 87 of Chile‘s

approximately two hundred (200) tertiary education institutions were accredited.

4. With a population close to seventeen million people, Chile has almost one million

students in tertiary education. A third of these attend CRUCH universities, a third private

universities, and the remaining third IPs and CFTs. Equity has improved significantly over the

past decade, with the number of students from the lowest two quintiles tripling to reach 25% of

total enrollment.

1 Rodrigo Fuentes & Fabián Gredig & Mauricio Larraín, 2007. "Estimating the Output Gap for Chile," Working

Papers Central Bank of Chile 455, Central Bank of Chile.

2

Institution Type Enrollment (2010)

CRUCH Universities 310,890

Private Universities 323,843

IPs 224,339

CFTs 128,571

Total 987,643

5. The Government finances TEIs via several mechanisms: (i) the Direct Fiscal Grant

(Aporte Fiscal Directo, AFD), which accounts for one-third of tertiary education public

resources and is allocated to CRUCH institutions; (ii) the Indirect Fiscal Grant (Aporte Fiscal

Indirecto, AFI), which accounts for about 5% of public spending and is a type of voucher

provided to the top 27,500 scorers on the university entrance exam; (iii) the competitively-

allocated funds available for R&D and quality improvements; and (iv) the student financial aid

packages (grants and loans) which are transferred to TEIs in students‘ names.

6. While Chile has made commendable progress in expanding access and improving equity,

the system still faces numerous challenges. The OECD/World Bank Review of Tertiary

Education (2009) noted that Chile now requires a ―second generation‖ of reforms that focus on

more complex challenges such as linking funding to performance and accountability, and

improving the quality and relevance of classroom instruction. Low quality has been linked to

the low percentage of PhD holders in Chile‘s professorate; raising this percentage is an objective

of policy and has been for more than a decade.

7. More closely linking funding to performance is a pressing need. In 2010, ~87% of

resources given directly to TEIs were allocated according to historical criteria and not

necessarily to merit.2 The Government can leverage progress on specific challenges like quality

and relevance if it ties incremental funding to progress against agreed indicators. In a complex

system like tertiary education, quality and relevance overlap considerably and their improvement

is multidimensional. By making funding competitive and linking it to accountability, the

Government incentivizes a range of responses. Each response is appropriate to the individual

institution while contributing to improved quality and relevance in the aggregate.

8. Chile‘s challenges for quality relate to (i) how to make curriculum and teaching practices

more rigorous and effective; (ii) how to promote institutional management that both facilitates

and requires high quality teaching and learning; and (iii) how to raise academic readiness for

students—especially first generation students—who may have had mediocre secondary

education and are not prepared to succeed in tertiary-level courses. Improving the quality of

pedagogy schools, which train the nation‘s primary and secondary teachers, is a critical corollary

to this.

9. With respect to relevance, the challenges involve (i) replacing the mandatory theoretical

content in many degree programs with content that promotes the skills and competencies

2 Calculated as funds from the Direct Fiscal Grant (AFD) over funds from MECESUP and the AFD. For year 2010

in Chilean pesos: 146,464,177 / 167,970,490.

3

required by employers; (ii) reaching a critical mass of highly qualified professors who can devise

and deliver curricula that, inter alia, connect to labor market needs; and (iii) shifting policy to

encourage students to seek technical and other non-academic degrees, through shorter programs

with closer connections to employment prospects.

10. Despite tremendous recent progress, concerns for equity remain a key issue. Social

expectations regarding government provisions of tertiary education have risen, tolerance for debt

has dropped, and policy mechanisms are challenged to respond.

11. Finally, the sector requires stronger institutional and regulatory capacity, especially in the

Ministry of Education. The size and complexity of Chilean tertiary education has grown

considerably in the last twenty-five years, creating the need for corresponding changes in the

institutional and regulatory agencies.

12. The Government is pursuing a four-pronged strategy to address the challenges in the

sector: (i) increasing resources for the sector; (ii) maximizing the use of performance-based

funding; (iii) improving institutional and regulatory capacity; and (iv) making student finance

more concessionary to address equity concerns.

13. The Government has recognized the need to invest more heavily in tertiary education, as

part of a plan to improve resources for all levels of education. The proposed budget for tertiary

education for 2012 represents a 15% increase over the previous year. The upward trajectory of

real resources for the sector is expected to continue.

14. The Government‘s strategy for the education sector has sought to maximize the use of

performance-based funding mechanisms to channel additional resources to it. By making

institutions compete for incremental resources, and by linking funding to agreed targets in

priority areas, the Government intends to leverage improvements in the quality and relevance of

education, and in the management of educational institutions.

15. The Government has also recognized the need for improved regulatory capacity. It is

seeking to create an Under-Secretariat for Tertiary Education to allow a higher profile for policy

and more resources to be dedicated to policy formulation and implementation. Within the

Under-Secretariat, it has sought to formalize the creation of the Department of Institutional

Financing (Departamento de Financiación Institucional, DFI), with the explicit mandate of

rationalizing and optimizing direct public funding of TEIs. Finally, the Government seeks to

create a Superintendence for Tertiary Education as an agency that can implement policies to

increase transparency and accountability.

16. As part of the strategy to make continued progress on equity, the Government created the

State Guaranteed Student Loan Program (Crédito con Aval del Estado, CAE) in 2005—300,000

qualified students from lower income families have benefitted to date—expanded existing

scholarship (grant) programs, and created two new ones to serve low-income students. Currently

the Government is seeking to lower the real interest rate on CAE loans from 5.6% to 2%. It has

also sought to change the legal sanctions facing 110,000 borrowers from the University Credit

4

Solidarity Fund (Fondo Solidario de Crédito Universitario, FSCU) who are in default. Such

changes remove punitive sanctions on current and future borrowers in default.

17. Over the past few years, the Government has also sought the World Bank for advice and

resources. The World Bank has supported Chile‘s tertiary education sector since 1997 through

the 1998 – 2005 Higher Education Improvement Project – MECESUP1 (Ln.4404, P055481) and

the 2005-2010 Tertiary Education Finance for Results Project – MECESUP2 (Ln.7317,

P088498). Through these projects, quality improvement was competitively funded, performance

agreements were piloted, and the accreditation system and the tertiary education information

system were created, among others. On the knowledge front, in 2009 the World Bank and the

OECD published a review of the tertiary system, ―Reviews of National Policies for Education:

Tertiary Education in Chile‖. The publication was widely disseminated and discussed in Chile.

In 2010, a subset of the World Bank/OECD team carried out a review of the Becas Chile

Program, ―Human Capital Formation Abroad: A Review of Chile‘s Higher Education

Scholarships Programme‖. In 2011, the World Bank analyzed the effectiveness of the CAE

Program, resulting in ―Chile‘s State-Guaranteed Student Loan Program: Analysis and

Recommendations‖. Throughout this period, the World Bank drew on its deep, evidence-based

tertiary education work in Latin America and beyond, and on the combined knowledge of the

Tertiary Education Thematic Group (Coreheg).

18. The rationale for Bank involvement in Chilean tertiary education stems from the lengthy

and substantive partnership that Chile has forged with the Bank in tertiary education since 1997.

The duration and intensity of this partnership is a testament to the fit between the Bank global

knowledge and skills and Chile‘s needs. It has involved fourteen years of continuous co-

financing and technical assistance on the gamut of policy issues. Along with the OECD, the

Bank is one of the non-Chilean institutions with the deepest knowledge of Chilean tertiary

education. The Bank has also been a conduit for Chile to profit from international best practice

in tertiary education and to share its innovative reforms globally. The Bank is active in every

region of the developing world promoting increased quality, relevance, and access to tertiary

education; its networks and knowledge products create value for clients seeking innovative

reform.

C. Higher Level Objectives to which the Project Contributes

19. By helping the Government implement its plan for increasing quality and relevance at

participating TEIs, the Project would continue to develop Chile‘s human capital. This, in turn,

would contribute to the higher level objectives of creating more and better socially and

economically useful skills for the country and its people.

20. The current World Bank Group's Country Partnership Strategy (CPS), for the Period FY

11-FY16, Report 57989, discussed by the Executive Directors on January 11, 2011, aims to

support the GoC‘s vision of becoming a high-income country by 2018. A key factor in

achieving this vision is improving the quality of education. The CPS focuses its intervention in

three areas: (i) Public Sector Modernization, (ii) Job Creation and Equity Improvement, and (iii)

Sustainable Investment Promotion. This Project advances the second of these by scaling up the

use of performance-agreements that improve the quality of tertiary education and focus it on

priority areas relevant to increased competitiveness and employment.

5

2. PROJECT DEVELOPMENT OBJECTIVES

A. PDO

21. The objective of the Project is to improve quality and relevance for students in tertiary

education by strengthening the link between funding of tertiary education institutions and

accountability for performance.

B. Project Beneficiaries

22. The primary target groups are:

(a) Current and future tertiary education students. Students will benefit from increased

quality of education, more remedial classes and services, shorter degree programs,

more coherent curricula, more online course material, new and better PhD programs

and teachers, and more exchange opportunities with other universities both

domestically and abroad.

(b) Academics and staff. Academic staff will benefit from more investments in their

human capital, an increased ability to conduct research and development with better

equipment, and more exchange opportunities with academics in other universities

both domestically and abroad.

C. PDO Level Results Indicators

23. The proposed MECESUP3 project will seek to: (i) improve faculty qualifications; (ii)

shorten actual time to graduation; (iii) increase retention of first-year students; and (iv) raise

employer perception of quality and relevance of graduates of MECESUP3-supported TEIs, as a

proxy for increased employability and wage premiums. This will be done by increasing the

amount of public funding executed under performance-based agreements.

3. PROJECT DESCRIPTION

A. Project Components

24. The Project would achieve its development objective through the implementation of the

following two components.

25. Component 1. Performance Agreements (Total: US$155 million, Bank: US$38

million). Provision of support to TEIs to strengthen the link between funding and accountability

for performance, through the carrying out of Performance Subprojects.

26. Component 2. Policy Support and Project Management (Total estimated cost: US$5

millions; Bank: US$2 millions).

6

a. Provision of policy support and studies needed for the design and implementation of the

tertiary education reforms and potential institutional arrangements.

b. Provision of support to DIVESUP in the administration, monitoring, coordination and

supervision of the Project.

B. Project Financing

Lending Instrument

27. The lending instrument used would be a Specific Investment Loan (SIL) at the

Government‘s request.3 This is appropriate given the flexible nature of the instrument and the

specificity of the investment.

Project Cost and Financing

28. The total cost of the Project is estimated at US$160 million, US$120 million of which

constitutes the GoC‘s contribution.

Project Components Project cost

(US$M)

IBRD Financing

(US$M) % Financing

1. Performance Agreements

2. Policy Support and Project

Management

155

5

38

2

24.52%

40%

Total Project Costs

Interest During Implementation

Front-End Fees

Total Financing Required

160

40

25%

C. Lessons Learned and Reflected in the Project Design

29. The previous MECESUP1 and MECESUP2 provided valuable learning opportunities

regarding tertiary education reforms, leaving lessons that have proved useful in the design of

MECESUP3. The primary lesson from MECESUP2 is that performance agreements are

successful in changing institutional culture. These agreements were public commitments of

individual institutions to seek improvements in exchange for a Government commitment to fund

them. The experience of the MECESUP2 pilot CDs is that the process of taking such a public

decision, signing a contract, and committing an institution to specific changes is a powerful

catalyst to change. Some observers believed that the public commitment trumped the financial

resource as the true engine of change in the MECESUP2 pilot CDs. Once institutions have

publicly committed to a program of reforms, they are motivated to deliver on the promises.

3 The previous MECESUP2 Project constituted the first phase of an Adaptable Program Loan. However, as made

clear by the Implementation Completion and Results Report for that Project (Report No ICR00001840, June 24,

2011, page 10), the Government requested a change to a more adequate lending instrument.

7

30. Competent and stable leadership and team are a key component of success. The General

Coordination of MECESUP already had institutional experience with the MECESUP1 project,

which facilitated implementation of MECESUP2. More importantly, however, the team was

composed of competent and well-prepared professionals committed to Project goals. Little

turnover allowed for continuity and good leadership facilitated Project coordination, execution

and credibility. This same team is in charge of implementing MECESUP3.

31. Realistic timelines for implementation require taking into account the Borrower‘s cycle

for budgetary approval in Congress and the internal approval processes for the various legal

documents needed throughout the life of the Project. In MECESUP2, resources awarded in one

fiscal year could only be disbursed the following year, initially triggering some implementation

delays. The time required for internal approval processes is highly variable, and adequate

flexibility has been included in MECESUP3 project timelines.

32. Execution of performance-based funding requires experienced staff to mediate between

the TEIs implementing the agreements and the Ministry of Education. As implemented, the

performance agreements depended heavily on negotiators hired specifically to mediate between

the TEI Presidents and the Ministry of Education. Without suitable negotiators, national policy

goals would have been difficult to reconcile with the reality of the institutional environments

where they were meant to be implemented. The highly qualified negotiators helped the

agreements gain traction. Generally these were former Presidents or academic Vice-Presidents of

universities themselves, familiar with and well regarded in the academic community. Their past

experience gave them credibility with both parties to the negotiations, and allowed the

negotiations of performance metrics to be productive and grounded in the reality of the situation

of each institution. Further, these negotiators were instrumental in developing specific goals for

each university and the detailed indicators used to measure progress in achieving them. These

negotiators would be an integral component of MECESUP3 CDs.

4. IMPLEMENTATION

A. Institutional and Implementation Arrangements

33. The agency responsible for the implementation of both Components 1 and 2 would be

DIVESUP. The group of people within DIVESUP in charge of implementation, referred to as the

General Coordination of MECESUP, have 13 years of experience working with the World Bank

in the previous MECESUP1 and 2 projects. Stable leadership continues at its helm and

continuity characterizes its team.

34. The General Coordination of MECESUP has four technical directorates (one for each CD

type) and three support units (Administration, Analysis and CD support, and Communications)

to perform its tasks. Each of these has clearly defined tasks in their respective area of

responsibility.

35. Competitive rounds would be held to select those TEIs with which the Ministry of

Education signs performance agreements. All accredited TEIs may compete for funds by

submitting project proposals with clearly defined and measurable objectives, strategies, action

plans, milestones, goals, and performance indicators.

8

36. Proposals would be evaluated by Evaluation Committees, one for each CD type, which in

each case would be led by the technical directorates of the General Coordination of MECESUP

and would include at least five prestigious professionals selected by the Head of DIVESUP. The

Evaluation Committees, on the basis of a closed list of evaluation criteria, would submit their

recommendations for selection to the Selection Committee.

37. The Selection Committee would be responsible for selecting, on the basis of the

recommendations from the Evaluation Committees, those proposals that would be invited to

negotiate and sign a CD. The Selection Committee would be led by the Head of Division of

Higher Education, and would be composed of one professional selected by the Subsecretary of

Education, the General Coordinator of MECESUP, and at least three prestigious professionals

selected by the Head of DIVESUP. Formally, the selection is made by the Minister of Education,

upon recommendation of the Selection Committee. Selected TEIs are invited to fully develop

their proposals, negotiating directly with the Ministry of Education to establish the contractual,

budgetary and technical terms of their agreements.

38. TEIs would carry out the activities as per the CDs and would be responsible for

conducting procurement and financial management in accordance with the stipulations of the

Operational Manual and the requirements of the General Coordination of MECESUP (and of the

Bank). MECESUP2 sponsored the creation of Institutional Coordination Units (ICU) in TEIs

receiving project funds. ICUs had an upstream role of helping TEIs prepare funding proposals

and a downstream role focused on implementation, fiduciary management and monitoring and

evaluation. ICUs would continue in MECESUP3, with additional ICUs sponsored in TEIs that

lack one. There would be significant capacity-building efforts on behalf of the MECESUP team

to strengthen and upgrade CD management.

B. Results Monitoring and Evaluation

39. The majority of the selected MECESUP3 PDO level and intermediate results indicators

(partially stated above and in Annex 1 respectively) are currently tracked by Chile‘s Tertiary

Education Information System (Sistema de Información para la Educación Superior, SIES). The

MECESUP2 project financed the establishment of SIES, which collects, analyzes, tracks and

disseminates a variety of information and statistics related to tertiary education and labor market

outcomes for graduates by institution. These include faculty qualifications, duration of study

across degree programs, retention rates, overall enrolment by institution and degree program,

employment rates and expected salary levels at graduation and over time. TEIs report data

directly to SIES and 99% of institutions are compliant with the system. The SIES statistical

compendium allows for straightforward analysis of the impact of changes in policies on high-

level metrics, hence making monitoring and evaluation for the Project both easy and reliable.

40. At the TEI level, Institutional Coordination Units (ICU) would monitor and evaluate the

progress of performance agreements. In addition to yearly revisions of each performance

agreement to verify progress against goals, midterm reviews of each CD would be conducted

with national and international experts.

9

C. Sustainability

41. The GoC demonstrates a strong commitment to and ownership of the MECESUP

program and its relevant policies. Since the closing of MECESUP2 on December 31, 2010 the

Government has continued to finance the activities of the General Coordination of MECESUP. It

will continue to do so until MECESUP3 is effective. In addition, the Ministry of Education

recently institutionalized MECESUP, absorbing the team, renaming it informally as the

Department of Institutional Financing (DFI), and giving it responsibilities for all public funding

of TEIs. This type of arrangement shows the continuity and permanence of MECESUP activities

for the GoC.

42. The GoC has also addressed factors that are critical to the sustainability of the Project.

(a) Upgrading human capital: DIVESUP continues to upgrade the quality of its human

capital and improve its internal efficiency. Several new PhDs have been brought on

board, including two within the General Coordination of MECESUP, and one in

charge of managing the newly created Center for Higher Education Studies. This

center will further improve internal efficiency by providing opportune evidence and

information for policy decisions.

(b) Increasing the reach of accountability for results: Beyond MECESUP3 funds, the

Government is exploring ways to change the way base funding is allocated to public

universities. The President and Minister of Education have discussed a proposal to

move towards a performance-based system for an additional percentage of base

funding.

(c) Increasing access and equity: The GoC has enhanced access and equity in tertiary

education through student scholarships and loans. CAE has grown exponentially

and now has over 300,000 borrowers (more than a fourth of Chile‘s undergraduate

students), and over 60% of them come from the lowest two income quintiles.

5. KEY RISKS AND MITIGATION MEASURES

A. Risk Ratings Summary

Stakeholder Risk Substantial

Implementing Agency Risk Low

- Capacity Low

- Governance Low

Project Risk Low

- Design Low

- Social and Environmental Moderate

- Program and Donor N/A

- Delivery Monitoring and Sustainability Low

10

Overall Implementation Risk Moderate

B. Overall Risk Rating Summary

43. The overall risk rating of the Project is considered to be moderate, largely driven by the

substantial stakeholder risk. The political context for tertiary education has turned volatile since

student protests in June 2011 resulted in major social and political conflict. The protesters have

won notable concessions from the Government, most which have constituted an acceleration or

intensification of planned policy changes. However, students have articulated demands that seek

fundamental change. The initial call for greater quality and equity has been augmented by calls

for ―a new model‖ where tertiary education is publicly provided (―free‖ for students), of high

quality, and where de facto and de jure profits are prohibited. Nevertheless, to date student

leaders have not rejected the idea that increased investment would be accompanied by greater

accountability for results. In fact, greater investments in quality are a key demand of protesters,

especially in public universities. In this sense, the MECESUP Program is aligned with most

stakeholder demands. A small likelihood exists that either: (i) demands could reverse this

position and reject accountability measures; or (ii) strikes could continue indefinitely, preventing

TEI administrators from carrying out normal Institutional Improvement Plans. For both, the

likelihood is low but the impact would be high. The risks associated with the protests are being

mitigated mainly through Government negotiations with the main Chilean stakeholders, and also

through continuous Bank policy dialogue and demand-driven knowledge services.

6. APPRAISAL SUMMARY

A. Economic and Financial Analyses

44. The economic and financial rationale behind the project is sound. On the one hand,

analyses show there is high return on the investment, and on the other, the Project is not expected

to have any short-term macroeconomic consequences.

45. The expected economic value of the project has been assessed through three distinct net

present value (NPV) calculations, each focusing on an expected outcome associated with

MECESUP3. The economic analysis shows that the Project would have to realize only moderate

progress toward its goals to generate a positive return. If the project funds of US$160M are

disbursed evenly across four years, the NPV threshold for a positive return would be ~US$153M

in 2011 currency. Below, the progress required to generate a positive return is detailed:

(a) A shortening of time to graduation would result in time savings and increased

career earnings for graduates. A reduction of approximately one third of a month in

average time to graduation would result in an NPV of ~US$150M (2011).

(b) An increase in the quality of tertiary education is expected to lead to an increased

premium for wage earners with tertiary education. An increase in the premium of

approximately 0.14% would result in a project NPV of ~US$150 M (2011).

11

(c) An increase in first-year retention would be expected to result in a concomitant

uptick in overall graduation rates. An increase of first year student retention of 4%

would result in an NPV of US$~150M (2011).

46. The progress outlined above details the change within each area that would be required to

independently justify the project. In reality, progress towards all goals is expected, and thus only

moderate progress toward each of the goals would likely lead to full recovery of the NPV of the

disbursed funds, along with a sizeable return.

47. With regards to financial impact, the Project poses no risk to Chile‘s macroeconomic and

fiscal stability. In 2010 Chile‘s GDP was US$256 billion and its foreign direct investment (FDI)

was US$15 billion. This US$160 million project, disbursed over the course of four years,

represents 0.016% of GDP and 0.27% of FDI per year. This suggests that inflationary and

monetary pressures created by the project will be marginal, if existent at all. Moreover, there is

no doubt the Government of Chile will be able to provide counterpart funding and fulfill its debt

servicing responsibilities given its strong copper revenues and its low levels of indebtedness

(8.8% debt to GDP in 2010).

B. Technical

48. The rationale for the selected technical approach is based on both local and international

evidence of its effectiveness. Locally, evidence is based on the pilot performance agreements

conducted under MECESUP2. Internationally, evidence is based on the increasing move towards

results-based financing in the tertiary education sector.

49. The history of the MECESUP1 and MECESUP2 projects is key for understanding the

design of MECESUP3. In 1997, MECESUP was conceived as a project that would competitively

fund innovative subprojects to improve the quality of tertiary education. Mostly, academics

submitted applications directly. TEIs did minimal vetting and prioritizing, mostly because they

lacked the tradition and capacity to do so. In 2005, MECESUP helped promote the creation of an

accreditation and quality assurance system that obliged institutions to analyze themselves and to

designate priorities for improvement. At the same time, the MECESUP2 project sought to

transfer greater responsibility to the institutions so they could determine where and how to

improve. This was done by piloting the use of performance-based agreements (CDs) in four

institutions. MECESUP3 seeks to continue that transfer of responsibility by making CDs a

permanent feature of the Chilean tertiary education funding system. This is important because

performance agreements are the most effective means for incentivizing the difficult micro-level

changes in classroom practice and institutional management that raise quality. Most of the

challenges still present in Chile‘s tertiary education can be mitigated or eliminated through the

constituent activities of the CDs. TEIs in Chile will know they are expected to:

(a) Evaluate themselves routinely and create institutional improvement plans, based

substantially on the feedback from their individual accreditation processes.

(b) Compete for resources to implement positive change, to the extent their goals are

consistent with the country‘s overall policy goals (improved teaching and learning,

12

lower dropout, shorter time to degree, improved human capital and research

capacity, among others).

(c) Account for progress and receive funding upon reaching the agreed goals.

50. Internationally, a recent review of tertiary education systems in 24 OECD countries

highlights trends in the evolution of mechanisms to fund educational institutions. One of the

more significant trends is a marked shift to allocation mechanisms that are more performance-

based. Performance agreements, performance set-asides, competitive funds and payments for

results are all performance-based methods of funding.4

51. To sum up, competitive funding of grants and performance agreements has been found to

be the best way to change tertiary education institutions. Tertiary education must serve a great

diversity of aims. Most modern labor markets have thousands of different careers and highly

specialized human capital needs. Centralized control of tertiary education has a terrible record of

meeting these or other social needs. By contrast, systems wherein tertiary education institutions

seek their own niche and develop specific comparative advantages tend to function best.

Competitive funding for quality improvement allows each TEI to propose a program of

improvement. At the same time, it reserves for the government the prerogative to choose the

portfolio of proposed investment that most closely reflects policy goals. This mechanism—

especially when combined with consequential accreditation processes—has been recognized as

the most effective incentive regime for tertiary education improvement.

C. Financial Management

52. Project financial management will seek to be simple, straight-forward, usable, and easy to

understand for TEIs, DIVESUP, and the World Bank. It will seek to include a reporting system

for beneficiaries and a system for classifying expenditure categories, distinguishing between

those that are procurable and those that are not. It will provide an appropriate degree of

granularity for management to review and make decisions. Past experience has informed the

design of Financial Management (FM) procedures, such that things that worked well have been

built upon and solutions for those that could be improved have been sought. The Operational

Manual will further elaborate on these.

53. As part of project preparation, a Financial Management capacity Assessment to evaluate

adequacy of financial management arrangements under the Project was performed from May 19,

2011 to November 30, 2011. In accordance with the implementation arrangements defined, the

project will be implemented by the Division of Higher Education (DIVESUP) of the Ministry of

Education (MINEDUC). Within DIVESUP, financial management function would be undertaken

by the General Coordination of MECESUP5, with the support of the Ministry‘s General

Administrative Unit (DAG), the Planning and Budgeting Unit (DIPLAP) and selected Chilean

Tertiary Education Institutions (TEIs).

4 Santiago, Tremblay, basru and Arnal (2008) Tertiary Education for the Knowledge Society, Volume 1. OECD.

Available on: http://oecd-conference-teks.iscte.pt/downloads/OECD_vol1.pdf 5 Former UCP under Mecesup1 & 2. The GoC has sought to formalize the General Coordination of Mecesup as the

Department of Institutional Financing. The latter would seek to optimize direct public funding of TEIs.

http://oecd-conference-teks.iscte.pt/downloads/OECD_vol1.pdf

13

54. The General Coordination of MECESUP has gained experience implementing World

Bank financed projects, has increased its number of qualified and experienced staff familiarized

with Bank procedures, and has piloted performance-based subprojects under the former

MECESUP1 and MECESUP2 projects. Considering that current project design involves scaling

up of the use of performance-based funding subprojects, using more decentralized arrangements,

and large numbers of TEIs with diverse capacity; strengthening measures based on the lessons

learned from the pilot projects in MECESUP2 have been agreed upon. These include: having

straightforward procedures to implement subprojects (including strengthened criteria to qualify

compliance with agreed targets) and enhancing financial reporting at the project level.

55. On the basis of the review performed and the actions taken by DIVESUP to complete

pending requirements that will be also followed-up during implementation, the FM team

concludes that proposed FM arrangements are acceptable.

D. Procurement

56. Achieving the objectives of the performance agreements requires the Project to finance

both procurable (goods, services, and consultants‘ services, etc.) and non-procurable items (such

as scholarships and personnel).6 In each case the Operational Manual will specify the appropriate

documentation necessary for TEIs to keep and to submit as part of the regular reporting process.

57. The overall principle regarding procurement will be to have sufficient definition to allow

the World Bank to fully carry out its fiduciary responsibilities, while recognizing the time and

effort invested by beneficiaries for its processes and reporting. The Operational Manual will

specify when, how and which procurement procedures ought to be carried out.

58. An assessment of the capacity of the General Coordination of MECESUP to implement

procurement actions for the Project was updated in October 2011 and a detailed action plan was

prepared to address all risks identified (see Annex 3). The General Coordination will maintain its

capacity for selecting consultants and procuring goods and services for MECESUP3. As part of

the Project‘s preparation, the Operational Manual has been updated to provide detailed

procurement information for implementation. The corrective mitigating measures proposed are:

(i) adjust acceptable sample bidding documents for NCB and shopping; and (ii) establish a

system to monitor and expedite TEI Procurement Plans.

59. The Borrower has prepared an acceptable Procurement Plan (PP) which will be made

available through a Procurement Plans Execution System (SEPA). TEI Procurement Plans will

be incorporated into SEPA using a second level approval mechanism, where the General

Coordination and the Bank will approve the PPs of the TEIs. Procurement for the proposed

Project would be carried out in accordance with the Bank‘s ―Guidelines Procurement of Goods,

Works and Non-Consulting Services under IBRD Loans and IDA Credits & Grants by World

Bank Borrowers‖, dated January 2011; the Bank‘s ―Guidelines Selection and Employment of

6 Examples of recurrent costs include scholarships (tuition, maintenance, etc.), national and international

transportation, personnel and equipment insurance, per diems, registration fees, appearance fees, staff salaries,

pedagogical expenses, maintenance and services, basic services, taxes, permits and patents.

14

Consultants under IBRD Loans and IDA Credits & Grants by World Bank Borrowers‖, dated

January 2011; and the provisions stipulated in the Loan Agreement.

E. Social (including Safeguards)

60. DIVESUP has disseminated MECESUP3 plans in several dedicated meetings with

stakeholders. The first of these meetings took place on April 13, 2011 in an auditorium with 50

TEI Presidents and over 250 people. The scale-up of Performance Agreements and their broad

policy goals were shared with the TEI community. Similar meetings have taken place since then,

both in Santiago and beyond, as part of an effort to encourage TEIs to begin thinking about their

Performance Agreement proposals and the application process.

61. The Project's overall approach to strengthening quality and relevance in tertiary education

involves action at all levels and types of TEIs. OP/BP 4.10 (Indigenous Peoples) is triggered,

given that Indigenous peoples are present in the Project area (since coverage of the project is

nationwide) and can potentially benefit from Project activities.

62. The Project has designed an Indigenous Peoples Planning Framework (IPPF), which was

disclosed November 17, 2011 through Infoshop and on December 8, 2011 through MINEDUC‘s

website (www.mecesup.cl). Its main areas of focus are:

(a) Alignment of select project activities with the relevant areas of the GoC‘s national

Araucanía Plan, a strategy for the region where most of Chile‘s indigenous

population is concentrated.

(b) Close monitoring of the participation of indigenous students in Project activities.

(c) Promotion of learning quality and relevance at participating TEIs with indigenous

students.

(d) Continuity with the efforts of the previous MECESUP2 project, particularly in

remediation initiatives. Remediation initiatives are important because they focus on

strengthening basic core competencies—math, science, reading comprehension, and

study skills, among others—to increase student success in tertiary education.

Remediation caters to students with weak secondary education, most of which are

from lower socioeconomic backgrounds, municipal schools and rural areas. Given

that indigenous Chileans are, lamentably, over represented in this target category,

remediation activities benefit them directly.

F. Environment (including Safeguards)

63. Civil works for MECESUP3 will be limited to minor refurbishments in existing buildings

(cosmetic changes and/or minor internal renovations) to facilitate new equipment or proper

ventilation for scientific equipment, as appropriate. No new structures will be built in

MECESUP3.

http://www.mecesup.cl/

15

Annex 1: Results Framework and Monitoring

CHILE: Tertiary Education Finance for Results Project

Results Framework

Project Development Objective (PDO): To improve quality and relevance for students in tertiary education by strengthening the link between funding of tertiary education institutions and

accountability for performance.

PDO Level Results Indicators*

Co

re

Unit of

Measure Baseline

Cumulative Target Values** Frequency

Data Source/

Methodology

Responsibility

for Data

Collection

Description

(indicator

definition etc.) 2012 2013 2014 2015

Indicator One: Number of full-

time-equivalent faculty members

who hold PhDs.

# 4,148 4,300 4,500 4,700 4,900

Annual SIES:

Academics.

Baseline data

from May

2011

SIES PhD professors

hired for ≥39

hours a week at

a TEI.

Indicator Two: Average actual

duration of undergraduate studies

until the degree is awarded.

# of

semesters Univ.

12.9

IPs

9.3

CFTs

7.2

Annual SIES:

Graduates.

Current data

is from 2007.

SIES The formula is

currently being

updated.

Indicator Three: Retention rate:

first-year undergraduate students

that remain at the institution in the

second year.

% 69.5% 70% 72% 74% 76%

Annual SIES:

Enrolment.

Baseline data

from 2010

SIES First-year

students in year

t who continue

studying in year

t+1, divided by

first year

students in year

t, multiplied by

100. (Formula

is being

updated.)

Indicator Four: Employers‘

perception of quality and

relevance of graduates of

MECESUP 3-supported TEIs, as

a proxy for increased

employability and wage

premiums.

Semi-

Annual

Employers

surveys

DESUP Consultancy

services will be

hired to develop

employer

surveys.

The baseline

will consider the

16

likely

distribution of

disciplines and

degree programs

in MECESUP3

and will

anticipate best

ways to survey

likely employers

of graduates

who have

attended TEIs

and programs

benefitting from

CDs. Futuro

Laboral will

help identify

representative

samples of

employers.

INTERMEDIATE RESULTS

Intermediate Result (Component One):

Intermediate Result indicator

One: Number of signed

performance agreements.

# N/A Teacher

Training:

6

Academic

Innovation:

7

Technical

& Profess.:

5

Small

Projects:

14

Teacher

Training:

12

Academic

Innovation:

12

Technical

& Profess.:

10

Small

Projects:

24

Annual DESUP

registers

DESUP


Two: Rate of fulfillment of

indicators included in the CDs

% N/A Annual TEI DESUP Average

percentage of

fulfillment of

indicators (sum

of percentage of

17

fulfillment of

CD indicators,

divided by

number of

indicators.) Each

indicator may

vary from 0 to

100%.


Three: Direct Project beneficiaries

(number), of which women

(percentage).

# and % Students

Acade-

mics

Students

Acade-

mics

Students

Acade-

mics

Students

Acade-

mics

Students

Acade-

mics

Annual Number of

students and

academics at

TEIs that hold at

least one CD.


Four: Number of students

completing remediation classes.

# Annual TEIs DESUP


Five: Number of full-time-

equivalent faculty members who

hold PhDs in pedagogy schools.

# Annual SIES:

Academics.

DEMRE PhD professors

at pedagogy

schools hired for

≥39 hours a

week at a TEI.

Intermediate Result indicator Six:

Number of graduates from

domestic PhD programs

# 433 460 480 500 530 Annual SIES:

Graduates,

data from

2010

SIES Domestic PhDs

graduates.


Seven: Number of new technical

programs.

# Annual SIES:

Degree

programs

SIES New ―Técnico

de Nivel

Superior‖

programs

Intermediate Result (Component Two):


One: Number of policy notes and

studies carried out.

# 0 1 2 3 Annual. Number of

policy notes

and studies.

DESUP Policy notes and

studies delivered

with Project

support.

18

Annex 2: Detailed Project Description


1. Component 1. Performance Agreements (Total: US$155 million, Bank: US$38

million). Provision of support to TEIs to strengthen the link between funding and accountability

for performance, through the carrying out of Performance Subprojects.

This component will scale up the use of innovative performance-agreements with TEIs.

These performance agreements, piloted under the MECESUP2 project, are written agreements

between the Government and a given TEI which stipulate an amount of funding to be provided to

finance activities that will allow the TEI to reach agreed milestones for improved quality and

relevance. Performance agreements (CDs) will improve the quality and relevance of tertiary

education by linking funding to accountability in TEIs. The activities that the CDs will finance

include: (i) remediation activities, including special classes for those with academic deficiencies,

and other programs that will help strengthen students‘ basic core competencies in math, reading

comprehension, and study skills, among others; (ii) actions that strengthen managerial capacity

and improve institutional analysis, such as the creation or improvement of offices of institutional

analysis; and (iii) programs to improve quality and relevance in specific priority areas including

training of future school teachers, promotion of academic innovation for student-centered

learning, improvement of technical-professional education, and the encouragement of discrete

new ideas for quality through small projects. The inputs to these activities, to be financed by the

project, include recurrent costs for more intensive employment of TEI academic staff and senior

management, goods such as software, hardware, and equipment for research and pedagogical

activities.

2. There will be four types of CDs, each responding to specific Government priorities.

(a) CDs for Improvement of Teacher Training. These CDs will finance efforts to reform

departments of pedagogy and schools of education within tertiary institutions, so

they can better prepare graduates to become effective school teachers at the early

childhood, primary and secondary school levels. They will finance, inter alia,

greater incorporation of educational research into curricula, efforts to reform and

improve the quality of teaching and learning in Math, Language and Science,

remediation activities, and actions that strengthen managerial capacity and improve

institutional analysis.

(b) CDs for Academic Innovation. These CDs will finance incorporation of innovative

and student-centered learning techniques into the curricula, revision and updating of

degree program length and contents, increases in student mobility through the

implementation of the Chilean Credit Transfer System (SCT-Chile), remediation

activities, and actions that strengthen managerial capacity and improve institutional

analysis. These CDs may also include thematic modules, such as the (i) development

of world-class PhD programs via international exchanges of PhD students, joint PhD

programs with foreign doctoral schools, and increased research, among others, and

the (ii) training of (new) engineers.

19

(c) CDs for the Improvement of Technical-Professional Education. These CDs will

finance the development of updated and innovative technical degree programs that

are aligned with the labor market, and allow for expanding the provision of highly-

quality training of technicians. Activities financed may include, inter alia, revisions

to the content and length of programs, outreach to the private sector, updating of

tools and equipment, remediation activities, and actions that strengthen managerial

capacity and improve institutional analysis.

(d) CDs for Small Projects (SP). These CDs will finance capacity-building initiatives

and discrete activities that improve the quality of tertiary-level teaching, learning

and management. These CDs are similar to the CDs for Academic Innovation,

except they will focus on discrete new ideas and pilot initiatives for organization of

instruction that may be scalable, rather than a full program of interventions to raise

the quality of education throughout the institution.

3. It is expected that the Project fund 93 CDs. Each CD will be allocated funds of up to

US$4 million, and its implementation period will last up to 4 years. Table 1 presents a rough

approximation of the length and resources for each CD type, as well as the expected number of

agreements per type.

Table 2 – Estimated number of CDs and funds, by year

Number of CDs Budget Length

2012-

1

2012-

2

2013 Nº de

CDs

US$ million

per CD

Total US$

million

Years

Teachers training 6 6 6 18 2.5 45 3-4

Academic Innovation 7 6 6 19 4.0 76 3-4

Technical-Professional Education 5 5 5 15 1.0 15 3-4

Small Projects 14 12 12 38 0.50 19 1-2

Total CDs 32 29 29 90

Total cost (US$ million) 55 50 50 155

155

4. Calls for proposals for CDs. Applications will be done through open, competitive

Calls-for-Proposals managed by the Ministry of Education, through DIVESUP. These will

inform perspective proponents of the opportunities available and the requirements for submitting

proposals, the selection criteria, the evaluation process, and the negotiations process for

transforming selected proposals into CDs. All the information in the Calls-for-Proposals will be

drawn from the Project‘s Operational Manual. The Calls-for-Proposals will authorized after the

appropriate budget allocations have been made and will take place according to the calendar

indicated in the Operational Manual. The calendar envisions the emission of Calls-for-Proposals

(and the subsequent selection of winning proposals) in both the first and second semesters of

2012, as well as in the first half of 2013.

20

5. Prerequisites for submitting proposals for CDs. TEIs that participate in calls for

proposals must present the following minimum prerequisites. These are detailed in the

Operational Manual.

a. A preliminary Institutional Improvement Plan (Plan de Mejoramiento

Institucional, PMI) or plans for its development. When fully fleshed out, a PMI is

a strategic plan that identifies the strengths, weaknesses, threats, and opportunities

faced by a TEI and outlines a plan of action to address them.

b. A set of goals and indicators that are relevant, measurable, and verifiable, and that

are to be reached during the CD‘s lifespan. These indicators, which will be

closely related to the activities to be financed under the CD, will feed into the

quality or relevance indicators detailed in Annex 1.

c. A preliminary budget.

6. Evaluation and Selection of Proposals. The proposals will be evaluated by the

Evaluation Committees and recommended for selection by the Selection Committee, in

accordance with the procedures in the Operational Manual. These processes are described in

Annex 3: Implementation arrangements.

7. Implementation of the CDs. The CDs will contain a full description of the activities

to be carried out, the calendar of activities, and the milestones to be reached. The CDs will be

implemented by the respective TEIs in accordance with the terms of the contract. Supervision

arrangements are described in Annex 3.

8. Component 2. Policy Support and Project Management (Total estimated cost: US$5

millions; Bank: US$2 millions). This component has two subcomponents:

a. 2.1 Policy Support. Provision of policy support and studies needed for the design

and implementation of the tertiary education reforms and potential institutional

arrangements. These may include the transition to a new Under-Secretariat of

Tertiary Education, the design of a Student Financial Aid Agency, and efforts to

strengthen accreditation and quality assurance, including strengthening of the

SIES, among others.

b. 2.2 Project Management. Provision of support to DIVESUP in the administration,

monitoring, coordination and supervision of the Project. Specifically, it would

finance equipment and software required for high-level performance (i.e.

computers, computer systems, and information system software, among others),

personnel training, professionals, and dissemination activities to help carry out

Component 1 activities.

21

Annex 3: Implementation Arrangements


Project Institutional and Implementation Arrangements

1. The Project will be administered by the General Coordination of MECESUP in the

Division of Higher Education of the Ministry of Education. This General Coordination has

evolved from the Project Coordinating Unit for MECESUP1 and 2, and is expected to be

formalized as the Department of Institutional Financing (DFI). The General Coordination Unit of

MECESUP is led by a General Coordinator who is the Bank‘s principal operational counterpart

(Project Coordinator). The General Coordination Unit of MECESUP has four technical

directorates (in teacher training, academic innovation, technical and professional education, and

small projects) and three support units: Administration, Analysis and CD support, and

Communications.

2. The basis for these institutional arrangements has been the successful implementation of

the previous two projects over the past 13 years. It has had a notable stability of personnel, and

the tenure of the Coordinator extends to the original MECESUP1 Project design phase and has

become a recognized international expert on performance-based funding.

Project administration mechanisms

3. The distribution of responsibilities within the General Coordination of MECESUP3 will

be as follows:

a. The technical directorates, in conjunction with the General Coordinator of

MECESUP and under the Supervision of the Head of the Division of Higher

Education, will be responsible for all the substantial and technical aspects of

implementation. These directorates will rely on the Analysis and CD Support Unit

to prepare the calls-for-proposals for the CDs, organize the Evaluation and

Selection Committees, review for technical completeness all submitted proposals,

lead the negotiations of the CDs, and carry out the technical supervision of the

progress toward stated goals. This includes the monitoring of the PDO and

intermediate indicators, and the overall sectoral monitoring and evaluation.

b. The Administration Support Unit will be responsible for all the fiduciary aspects

of the Project related to financial management. It will help transfer resources to

the TEIs under the terms of the CDs and will receive and validate financial

management information. It will also be responsible for, inter alia, supervision of

procurement by the TEIs and for organization of the overall procurement plan.

c. The Communications Support Unit will disseminate Project opportunities,

maintain fluid communications with stakeholders and keep up the MECESUP

webpage, among others.

22

4. The procedures for the submission, evaluation, selection, negotiation and

implementation of Performance Agreement proposals will be the following.

a. Calls for proposals will be made and publicized by DIVESUP.

b. TEIs will present proposals, specifying which CD type they are pursuing.

c. Proposals will be checked to ensure they are complete and meet minimum

requirements.

d. Complete proposals are submitted to the corresponding Evaluation Committee.

i. Composition of Evaluation Committees. The Evaluation Committee for

each call for proposal will be led by the relevant technical directorates

within the General Coordination of MECESUP. There will be four

committees, each including at least five professionals selected by the Head

of DIVESUP. The Evaluation Committees will be allowed to (i) form sub-

committees and (ii) invite external consultants from Chile and abroad, in

order to better develop their tasks.

ii. Responsibilities of Evaluation Committees. The Evaluation Committees

are responsible for assessing the proposals according to the evaluation

criteria outlined below, and submitting a recommendation for selection to

the Selection Committee.

iii. Evaluation criteria. Proposals will be evaluated according to three

criteria: the impact of the objectives, the impact of the proposal on

students, and the overall viability of the proposal. These criteria are

detailed in the Operational Manual.

1. Impact of objectives. Proposals will be chosen based on their: (a)

alignment with Project objectives to improve quality and

relevance, (b) alignment with regional and national development

priorities; and (c) clarity and cohesion between the PMI and the

goals and indicators for the Performance Agreement.

2. Impact of the proposal on students. Proposals will be chosen based

on their orientation towards students‘ needs, with special emphasis

on: (a) the development of a TEI‘s academic and institutional

capacity, which ultimately increases the quality of its education,

and (b) the development of students‘ basic and general skills and

competencies, which ultimately increases the relevance of their

education.

3. The viability of the proposal. Proposals will be chosen based on (a)

the degree of institutional commitment for implementation,

including that of student and faculty stakeholders; (b) the

23

institutional capacity for implementation; and (c) the ability to

implement with economy and efficiency.

e. Evaluation Committees submit to the Selection Committee their recommendation

for proposal selection. Their recommendations must take into account the overall

assessment of each proposal as well as the assessments of Subcommittees

regarding thematic modules (i.e. developing world-class PhDs).

f. The Selection Committee will submit to the Minister of Education a

recommendation for the selection of proposals. The selection must be made by the

Minister of Education.

i. Composition of the Selection Committee. The Selection Committee will

be led by the Head of DIVESUP. It will be composed of one professional

selected by the Subsecretary of Education, the General Coordinator of

MECESUP, and at least three prestigious professionals with proven

experience in the management of TEIs, selected by the Head of

DIVESUP.

ii. Responsibilities of the Selection Committee. The Selection Committee

is responsible for submitting to the Minister of Education a

recommendation for the selection of Performance Agreement proposals.

iii. Selection criteria to be used by the Selection Committee. In making its

recommendation, the Selection Committee will consider the overall

proposal submitted by the TEI and the evaluation and recommendations of

the Evaluation Committee. A detailed list of additional criteria that may be

considered by the Selection Committee will be included in the Operational

Manual.

g. The Minister of Education selects the proposals and invites the TEIs to prepare

and negotiate their final versions, which will include the allocation of resources

for its implementation and the achievement of an agreed set of targets.

h. Negotiations take place once proposals have been selected. The negotiation

processes gives both parties a sense of ownership of the final Performance

Agreement, in an atmosphere of mutual interest and commitment that maximizes

the chances of success. Negotiations will be under the responsibility of

Negotiation Managers, who will be professionals—often employees of the

General Coordination of MECESUP itself—with enough qualifications and

experience to ensure an effective and balanced outcome.

i. Once the budget and the terms of implementation have been agreed upon, the

legal Performance Agreement contract between MINEDUC and the

corresponding TEI can be celebrated.

24

j. TEIs will carry out the activities as per the CDs and will be responsible for

conducting procurement and financial management in accordance with the

stipulations of the Operational Manual and the requirements of the General

Coordination of MECESUP (and of the Bank).

5. The following rules will govern the process of submission and selection of CD proposals

throughout the life of the Project:

a. Only accredited TEIs will be eligible for funding under the Project. The

Operational Manual includes additional prerequisites for each CD type.

b. Restrictions for proposal submissions exist at the institutional unit level for large

TEIs7 and at the TEI level for medium and small TEIs.

i. Institutional units may not have, at any given time throughout the Project,

more than two Performance Agreements for each of the larger CD types:

Teacher Training, Academic Innovation, and Technical and Professional

Education.

ii. Institutional units may have more than one Small Project.

iii. TEIs may not be granted in any specific call for proposals more than 18%

of the funds allocated for that call.

6. In accordance with Chilean legislation, making Performance Agreements a reality

requires a variety of formal, legal procedures to be carried out. These involve the participation of

a various actors, including the Ministry of Education, the Ministry of Finance, the Presidency,

and the Treasury, among others. Table 3 lists the steps required and the actors involved in each.

Table 3. Activities Legally Required

Activity Actors Involved

Dissemination of Terms of Reference Ministry of Education

Processing the legal basis for Performance Agreements (―reglamento‖) Ministry of Education; Ministry of Finance;

Presidency; Comptroller General

Processing rules for the call for proposals (―Bases del concurso‖) Ministry of Education; Comptroller General

Issuing calls for proposals and closing the period for the submission of

applications Ministry of Education

Selecting TEIs for negotiation Ministry of Education

Negotiating with selected TEIs Ministry of Education

Processing final terms and budget allocation for Performance Agreements Ministry of Education, Comptroller General

Processing and legalizing the Performance Agreements Ministry of Education; Comptroller General

Transferred fund to the TEIs Ministry of Education; Ministry of Finance;

Comptroller General, Treasury

7 An institutional unit is defined as a full disciplinary campus with a semi-autonomous, semi-independent

management structure. The possibility of considering ‗institutional units‘ instead of TEIs aims at recognizing the

specificities of some universities in Chile that are especially large and have a high degree of internal differentiation.

25

Financial Management, Disbursements and Procurement

Financial Management and Disbursements

7. As part of project preparation, a Financial Management capacity Assessment to evaluate

adequacy of financial management arrangements under the Tertiary Education Finance for

Results Project was performed from May 19, 2011 to November 30, 2011. In accordance with

the implementation arrangements defined, the project will be implemented by the Division of

Higher Education (DIVESUP) of the Ministry of Education (MINEDUC). Within DIVESUP,

financial management function would be undertaken by the General Coordination of MECESUP,

with the support of the Ministry‘s General Administrative Unit (DAG), the Planning and

Budgeting Unit (DIPLAP) and selected Chilean Tertiary Education Institutions (TEIs).

8. The General Coordination of MECESUP has gained experience implementing WB-

financed projects, has increased its number of qualified and experienced staff familiarized with

Bank procedures, and has piloted performance-based subprojects under the former MECESUP1

and MECESUP2 projects. Considering that current project design involves scaling up of the use

of performance-based funding subprojects, using more decentralized arrangements, and large

numbers of TEIs with diverse capacity; strengthening measures based on the lessons learned

from the pilot projects in MECESUP2 have been agreed upon. These included: having

straightforward procedures to implement subprojects (including strengthened criteria to qualify

compliance with agreed targets) and enhancing financial reporting at the project level.

9. The Project‘s residual inherent and control risk are rated as moderate, therefore overall

project FM risk is also considered moderate. This takes into account the experience developed by

DIVESUP through the General Coordination of MECESUP regarding projects and WB

requirements; the project design which foresees performance-based funded subprojects in a large

scale and participation of TEIs with diverse capacity; and the need to strengthen financial

management procedures to implement subprojects.

10. On the basis of the review performed and the actions taken by DIVESUP to complete

pending requirements that will be also followed-up during implementation, the FM team

concludes that proposed FM arrangements are acceptable.

11. Organization and staffing. The financial unit within the General Coordination of

MECESUP includes three experienced staff which will be in charge of daily implementation,

follow-up of budgetary, accounting information, flow funds and disbursement activities in

coordination with DIPLAP and DGAD. Based on existing capacities, there is no need for

additional FM staff at this stage. TEIs at a decentralized level will undertake responsibility for

subproject implementation and for project purposes a financial management professional would

be designated. Specific training for TEI‘s financial management professionals is provided under

the Operational Manual.

12. Programming and Budgeting. The preparation of the annual program and budget will

follow regulations and budgetary framework submitted by the Division of Budget (División de

Presupuestos, DIPRES) in the Ministry of Finance. DIVESUP would be responsible for project

26

budget preparation in coordination with DIPLAP. The Budget is operated under the National

Integrated Financial Management System (Sistema de Información para la Gestión Financiera

del Estado, SIGFE). Once the Project budget has been approved by DIPRES, the commitment

and implementation of activities will take place.

13. Accounting and information systems. All project transactions will be processed and

recorded in SIGFE at an aggregate level in accordance with local regulations. Complementarily,

the UCI information system (developed under Mecesup2), will be used to record project

transactions under component 1 and Excel spread sheets will be used to record project

transactions under component 2. The project will utilize the cash basis of accounting for project

information purposes. Project transactions will be exported to Excel to obtain consolidated

information by project component, activities and cost categories. This same approach was used

under the preceding project, and proved to be acceptable since DIVESUP was able to put in

place adequate internal control arrangements to ensure project transactions processed in SIGFE

are timely and systematically recorded in Excel.

14. To this end, information recorded in the UCI information system (an operational tool that

allows recording and control of subproject under Component 1) will be also disaggregated in

Excel, to be reflected in the corresponding financial reports, on which performance ratings will

have to be reflected. Although DIVESUP is planning to update the information system for

subprojects with one that has more functionality; the UCI system will be used until then, utilizing

internal control mechanisms acceptable to prepare project information. Once the new software is

installed, it will require World Bank FM review (under project Supervision) to confirm its

adequacy.

15. Project Operational Manual and Internal Controls. Overall processes and procedures

followed during the second project were adequate to process payments and disbursements to

subprojects; monitor Performance Agreement implementation, collect financial information;

record information into UCI and generate financial information on a timely basis. Some

adjustments to strengthen those procedures have been discussed and agreed and are reflected in

the final version of the Operational Manual.

16. Financial Reporting. At TEI level (component 1), TEIs would be requested to submit—

for review and later consolidation by the General Coordination of MECESUP—semester

financial reports comprising: Statement of Sources and Uses of Funds; detailed data on the

sources and use of resources; and a reconciliation of the bank account accompanied by the bank

statement not later than 45 days after the end of each semester. These reports would be directly

prepared from UCI system.

17. At the Project level, the General Coordination of MECESUP will be responsible for the

preparation of consolidated unaudited interim financial reports (IFRs) and financial statements

for the Project. On a semi-annual basis, for monitoring purpose, the General Coordination of

MECESUP will prepare IFRs and send for Bank review—not later than 45 days after the end of

each semester—comprising: i) a statement of sources and uses of funds and cash balances; (ii)

statement of cumulative investments; and (iii) report on subproject status (comprising detailed

information by each TEI on funds transferred, documented and not documented; performance

27

ratings), and (v) explanatory notes to the financial statements. IFRs must be submitted to the

Bank by the General Coordination of MECESUP. On an annual basis, the General Coordination

will have to prepare annual financial statements for the project, comprising the same financial

statements mentioned above which must be audited. Core content and frequency of IFRs have

been reviewed and agreed with the Bank.

18. Audit Arrangements. Audit of project annual financial statements will be conducted by

independent private sector auditors, acceptable to the Bank. Audit fees may be covered with loan

proceeds. DIVESUP will be responsible for submitting timely financial annual audits on the

project for Bank‘s review, not later than six months after the end of each fiscal year. The audit

would comprise an opinion: (i) on the project financial statements; (ii) on Statement of

Expenditures; and (iii) management letter on internal control. The audit review would also

include a sample of TEIs.

19. Funds Flow Arrangements. The General Coordination of MECESUP will have to ensure

funds will be used only for the intended purposes and consolidate project reporting information.

The funds flow arrangements under Component 1: Performance Agreements will follow

decentralized arrangements. Component 2: Policy Support and Project Management will have

centralized funds flow arrangements and would be fully financed with loan proceeds. All project

activities would be pre-financed with GoC‘s own funds and then reimbursed by the WB Loan

account to the MEF‘s General Treasury bank account maintained in the Central Bank of Chile.

20. Disbursement Arrangements. The operation will use the reimbursement method where

the GoC would pre-finance project expenditures and request reimbursement for the WB‘s share

of the financing. All reimbursements will be deposited in the bank account of the General

Treasury of MEF maintained in the Central Bank de Chile.

21. Request for reimbursement under Component 1 will be made on the basis of customized

Statements of Expenditure (SOE) reflecting disbursements from MINEDUC to TEIs and

performance ratings. To receive the first reimbursement, all administrative pre-requisites would

have to be accomplished. Subsequent reimbursements will be made after a review of the

technical progress of the individual CD in question, using a system of technical ratings with

three categories: Satisfactory, Satisfactory with flag, and Unsatisfactory (S, S-with flag and U).

Only those projects with a rating of Satisfactory or Satisfactory with flag would receive

reimbursements; while subprojects rated as unsatisfactory would be either suspended or

cancelled. In addition, any reimbursement would be treated as eligible expenditures for Bank‘s

disbursement purposes, and would require that the technical review have been carried out in

accordance with arrangements established in the PAD and Operational Manual. A customized

SOE has been agreed upon and appears in the Operational manual; it will be used for request for

reimbursement.

22. Requests for reimbursements under Component 2 will be made on the basis of Statements

of Expenditure (SOEs) for consulting services, goods, non consulting services and operational

costs to support project operation and GoC reforms.

28

23. Loan proceeds will be reimbursed against the expenditure categories in the disbursement

table of the Loan Agreement, reproduced below. The Disbursement Letter will establish

requirements for reporting eligible expenditures for disbursement processing.

Category

Amount of the Loan

Allocated

(expressed in USD)

Percentage of Expenditures to be

financed

(inclusive of taxes)

(1) Goods, works, Non-consulting

Services, consultants‘ services,

Scholarships, Training and Operating

Costs required for Performance

Subprojects, under Part 1 of the

Project

38,000,000 Up to 100% of the amounts disbursed

under the relevant Grant

(2) Consultants‘ services, Non-

consulting Services, goods,

Operating Costs and Training (except

those covered by Category (1)

above) required for Part 2 of the

Project

1,900,000 Up to 100%

(3) Front-end Fee 100,000 Amount payable pursuant to

Paragraph 2.03 of this Agreement in

accordance with Section 2.07 (b) of

the General Conditions

(4) Interest Rate Cap or Interest Rate

Collar premium

-0- Amount due pursuant to Paragraph

2.07 (c) of this Agreement

TOTAL AMOUNT 40,000,000

24. Supervision Plan. Financial Management supervision would include on-site and off-site

supervisions. On site supervision missions will be carried twice a year to the extent possible, to

review adequacy of financial management arrangements implementation. Off-site supervisions

will comprise desk reviews of interim financial reports and audited financial statements.

Procurement

A. General

25. Procurement for the proposed Project would be carried out in accordance with the World

Bank‘s ―Guidelines Procurement of Goods, Works and Non-Consulting Services under IBRD

Loans and IDA Credits & Grants by World Bank Borrowers‖, dated January 2011; the World

Bank‘s ―Guidelines Selection and Employment of Consultants under IBRD Loans and IDA

Credits & Grants by World Bank Borrowers‖, dated January 2011; and the provisions stipulated

in the Loan Agreement. For each contract to be financed by the Loan, the different procurement

methods or consultant selection methods, the need for pre-qualification, estimated costs, prior

review requirements, and time frame are agreed between the Borrower and the Bank in the

Procurement Plan. The Borrower, through the General Coordination of MECESUP, has prepared

a Preliminary Procurement Plan for the entire scope of the Project and a detailed and

comprehensive procurement plan, that includes all contracts for which bid invitations and

29

invitations for proposals are to be issued in the first 18 months of Project implementation. The

Procurement Plan will be available at the Procurement Plans Execution System (SEPA). Goods,

works (subprojects) and non-consulting services shall be procured under contracts awarded on

the basis of International Competitive Bidding, National Competitive Bidding, Shopping, Direct

Contracting and Framework Agreements. Consultants‘ services shall be procured under

contracts awarded on the basis of Quality and Cost-based Selection, Quality-Based Selection,

Selection under a Fixed Budget, Least Cost Selection, Selection Based on the Consultants‘

Qualifications, Single Source Selection and, Procedures set forth in Section V of the Consultant

Guidelines for the Selection of Individual Consultants, including single-source Selection for

Individual Consultants.

26. Framework Agreements (FA) of the Public Market (Mercado Público) of ChileCompra

would be used for the procurement of goods and non-consulting services as an alternative to the

Shopping: (a) goods that can be procured off-the-shelf, or are of common use with standard

specifications; (b) non-consulting services that are of a simple and non-complex nature and may

be required from time to time by the DIVESUP or the TEI.

B. Assessment of the agency’s capacity to implement procurement

27. Country. The risk associated with the Bank portfolio in Chile should be considered low;

government contracts in Chile are conducted transparently and efficiently thanks, in part, to a

modern and transparent electronic procurement system (the Public Market of ChileCompra);

although procurement processes, outside the use of this system could be lengthy at times, the

robustness and capacity of institutions in charge of procurement make Chile one of the countries

with the most reliable and transparent procurement system in the region.

28. Agency. In accordance with the implementation arrangements, the General Coordination

of MECESUP will be responsible for the administration of the Project, including procurement at

the central level and monitoring and supervising procurement conducted by the TEI. The

General Coordination is adequately staffed and will maintain its capacity to conduct Procurement

under this new operation. The TEI would use their Institutional Coordination Units (ICU) to

oversee project activities, including fiduciary responsibilities. As part of the Project preparation,

the General Coordination of MECESUP has prepared the Operational Manual which provides

detailed procurement information for the Project‘s implementation. The General Coordination of

MECESUP has the experience and capacity from the previous operations to manage a large

project, implement Bank fiduciary procedures, monitor implementation and provide technical

assistance to beneficiaries. An assessment of the implementation agency‘s capacity to implement

procurement actions for the Project was finished on October 2011. The capacity assessment

looked into the General Coordination of MECESUP‘s: (a) organizational structure, (b) facilities

and support capacity, (c) qualifications and experience of the staff that will work in procurement,

(d) record-keeping and filing systems, (e) procurement planning and monitoring/control systems

used, and (f) capacity to meet the Bank‘s procurement contract reporting requirements. It also

reviewed the procurement arrangements proposed in the Procurement Plan.

29. Considering the country‘s and the agency‘s capacity to implement procurement, as

outlined above, the overall project risk for procurement is Moderate (M).

30

30. The corrective mitigating measures proposed are:

MITIGATING MEASURES STAGE

Update the Procurement capacity assessment Completed

Configurate SEPA as the system to monitor and expedite TEI‘s

Procurement Plans (SEPA) Completed

Adjust sample bidding documents for NCB and shopping Completed

Update the Operational Manual to include the new Procurement

methods approved for this new operation

Completed

C. Special Provisions

(a) In addition and without limitation to any other provisions set forth in this Section or the

Procurement Guidelines, the following principles of procurement shall expressly govern all

procurement of goods, Non-Consulting Services and works under National Competitive Bidding

procedures:

(i) The lowest evaluated bid shall be selected for contract award.

(ii) There shall be no prescribed minimum number of bids to be

submitted in order for a contract to be subsequently awarded.

(iii) ChileCompra, provided that the bidding documents are acceptable to the Bank.

(iv) The Mercado Público Framework Agreements (MPFA) may be used as an

alternative to Shopping, as determined by the Bank, provided that: (A) the

specific MPFA does not restrict foreign competition, and is limited to a

maximum duration of 3 (three) years; and (B) the maximum aggregate amount

for the use of an specific MPFA by each TEI set in the procurement plan is in no

case higher than the applicable Shopping maximum amount, and shall be agreed

with the Bank.

(b) In addition and without limitation to any other provisions set forth in this Section or the

Consultant Guidelines, the following principles of procurement shall expressly govern all

employment of consultants:

(i) There shall be no prescribed minimum number of proposals to be submitted in

order for a contract to be subsequently awarded.

(ii) For small assignments not exceeding US$200,000 equivalent, the procedures of

ChileCompra may be followed as a consultants' selection method acceptable to

the Bank.

31

D. Procurement Plan

I. General

31. Date of the Procurement Plan: January 20, 2012

32. Date of General Procurement Notice: After effectiveness, 2012.

33. Period covered by this Procurement Plan: 18 months.

II. Goods, Works and non-consulting services

34. Prior Review Threshold: Procurement Decisions subject to Prior Review by the Bank as

stated in Appendix 1 to the ―Guidelines: Selection and Employment of Consultants by World

Bank Borrowers‖:

Thresholds for procurement methods and prior review (thousands of USD)

Expenditure

Category

Contract Value

(Thresholds) US $

thousands

Procurement

Method

Contracts

Subject to Prior

Review by the

Bank

Contracts Subject to

Prior Review by the

General Coordination of

MECESUP

1. Works >350 NCB First All

<350 Shopping First First of each TEI

NA DC >50 All

2. Goods and

Non-Consulting

Services

>750 ICB All All

100-750 NCB* First two First of each TEI; >200

<100 Shopping First First two of each TEI

<100 (for each FA

of each TEI)

Convenio

Marco NA NA

NA DC >25 All

Note: ICB = International Competitive Bidding

NCB = National Competitive Bidding

DC = Direct Contracting * Mercado Público portal may be used for advertisement and processing provided that the bidding documents

are acceptable to the Bank.

Reference to Project Operational/Procurement Manual:

35. The Borrower through the General Coordination of MECESUP, as part of the Project‘s

preparation, has updated the Operational Manual which provides detailed procurement

information for Project implementation.

32

Summary of the Procurement Packages for Works and Goods

(based on Procurement Plan of January 20, 2012) 1 2 3 4 5 6 7

Ref.

No.

Description Estimated

Cost US$

million

Packages Domestic

Preference

(yes/no)

Review by

Bank

(Prior/Post)

Comments

WORKS

1 NCB –

Remodeling

0,350 NA NO PRIOR

2 Shopping –

Remodeling

(around 10

processes)

0,505 NA NO First

GOODS

1 ICB - Scientific

Equipment

0,760 NA NO PRIOR

2 NCB –

Scientific

Equipment (6

processes

approx.)

0,713 NA NO First two

3 Shopping of

different items

(around 250

processes)

0,745 NA NO First

4 Framework

Agreements

(aggregate

amount that will

be split in the

Procurement

Plan in SEPA)

0,495 NA NO NA

5 Direct

Contracting of

particular items

(Books,

Scientific

Magazines, etc)

0,137 NA NO Prior >0,025

NON-CONSULTING SERVICES

1 Shopping of

different items

(around 40

processes)

0,285 NA NO First

2 Framework

Agreements

(aggregate

amount that will

be split in the

Procurement

0,285 NA NO NA

33

Plan in SEPA)

III. Selection of Consultants

36. Prior Review Threshold: Selection decisions subject to Prior Review by Bank as stated in

Appendix 1 to the Guidelines Selection and Employment of Consultants:

Thresholds for methods and prior review (thousands of USD)

Consulting

Services

Contract Value

(Thresholds) US $

thousands

Procurement Method


Prior Review by the

Bank


Prior Review by the

General Coordination

of MECESUP

Firms

>300 QCBS, QBS, FBS, LCS >300 ;

100-300 Terms of

Reference

First of each method of

each TEI; >100; 100<

Terms of Reference

<300 QCBS, QBS, FBS, LCS,

CQS

<200 Mercado Publico First two

NA SSS >25 All

Individuals

Comparison of 3 CVs in

accordance with Chapter V

of the Guidelines

>100 First of each TEI; >25

NA SSS >25 All

Note:

QCBS = Quality- and Cost-Based Selection

QBS = Quality-Based Selection

FBS = Fixed Budget Selection

LCS = Least-Cost Selection

CQS = Selection Based on Consultants' Qualifications

SSS: Single Source Selection

37. Short list comprising entirely of national consultants: Short list of consultants for

services, estimated to cost less than $500,000 equivalent per contract, may consist entirely of

national consultants in accordance with the provisions of paragraph 2.7 of the Consultant

Guidelines.

34

Consultancy Assignments with Selection Methods and Time Schedule

(based on Procurement Plan of January 20, 2012)

1 2 3 4 5 6

Ref.

No. Description of Assignment

Procurement

Method

Estimated

Cost US$

million

Processes

Review by

Bank

(Prior/Post)

Firms

1 Studies and Researches QCBS 0,655 9 Prior >0,3

2 Study QBS 0,040 1 Post

3 Studies and Researches CQS 0,270 5 Post

4 Study LCS 0,100 1 Post

5 Studies and Researches ChileCompra 0,201 5 First two

6 Studies and Researches SSS 0.150 2 Prior

Individuals

1 Individual Consultants (approx.

97)

Individual

Consultants

2,129 97 Prior >0,1

38. In addition to the prior review supervision to be carried out from Bank offices, the

capacity assessment of the General Coordination of MECESUP has recommended annual

supervision missions to visit the field to carry out post review of procurement actions. The size

of the sample for post-review will be not less than 1 in 10 contracts.

Environmental and Social (including safeguards)

39. The IPPF for the MECESUP3 project is likely to promote the quality and relevance of

tertiary education in some TEIs determined to have significant populations of current and

potential future indigenous students. This IPPF will build on the efforts of the previous

MECESUP2 project, particularly in remediation initiatives, by closely monitoring the

participation of indigenous students in Project activities. It will also seek to align select Project

activities with the applicable GoC initiatives where relevant. The goal is that these actions

ultimately lead to increases in the academic success of indigenous students in tertiary education,

at least in the same proportions as corresponding students who are not indigenous Chileans.

35

40. IPPF activities will focus on TEIs where indigenous students represent more than 14% of

the total student body.8 The set of TEIs that fall into this category will be henceforth referred to

as ―TEIs with a vocation for the education of indigenous students‖. Table 4 shows the total

number and percentage of indigenous undergraduate students to total undergraduate students in

select TEIs. Universidad Católica de Temuco has the highest percent of enrolled indigenous

students, at 18.7% for 2011.

Table 4. Indigenous Undergraduate Enrollment in Select TEIs9

Source: Unit of Institutional Analysis in each of the aforementioned universities

41. TEIs deemed to have a vocation for the education of indigenous students must design and

implement an Indigenous People‘s Plans (IPPs) if they are to participate in the MECESUP3

Project. This IPPF offers the aforementioned TEIs the ability to implement pro-indigenous

actions in a variety of ways. Importantly, it allows those TEIs to determine, in consultation with

representatives of indigenous students and/or relevant local indigenous leadership, which pro-

indigenous actions best fit the educational mission of the TEI and the situation and context of the

students.

42. A suggested ―menu‖ of pro-indigenous actions is detailed in Table 5 below. TEIs deemed

to have a vocation for the education of indigenous students may choose one or more activities

from the column labeled ―Actions‖, and then conduct its corresponding ―Diagnosis‖ and

―Results Monitoring‖. This menu of options is not exclusive: TEIs can develop their own

activities to further the academic success of their current and future indigenous students.

Importantly, however, monitoring the participation of indigenous students in overall

Performance Agreement activities will be a requirement.

43. Among the options listed, remediation initiatives are particularly important for the

Government of Chile and for the World Bank because they focus on strengthening basic core

competencies—math, science, reading comprehension, and study skills, among others—to

increase student success in tertiary education. Remediation caters to students with weak

secondary education, most of which are from lower socioeconomic backgrounds, municipal

schools and rural areas. Given that indigenous Chileans are, lamentably, over represented in this

target category, remediation activities benefit them directly.

8 This percentage was determined with the Division of Higher Education based on in-depth knowledge of Chile‘s

TEIs and data provided by various Institutional Analysis Units in the TEIs themselves. 9 Information for all TEI is not yet available.

Undergraduate

Enrollment

Indigenous

Students

% of

Indigenous

Students

Undergraduate

Enrollment

Indigenous

Students

% of

Indigenous

Students

U. de Tarapacá 7,991 1,270 15.9% 7,903 1,325 16.8%

U. C. Temuco 6,400 1,091 17.0% 6,767 1,268 18.7%

U. de La Frontera 8,025 1,322 16.5% 8,263 1,483 17.9%

U. del Bío Bío 10,597 259 2.4%

Total 22,416 3,683 16.4% 33,530 4,335 12.9%

Institution

2010 2011

36

Table 5. “Menu” of Pro-Indigenous Actions Theme Diagnosis Action Results Monitoring

Overall

Performance

Agreement

Monitoring the participation of

indigenous students in Project

activities (required)

Increasing the

quality of the

tertiary

education

experience

Diagnosing the level and

quality of the skills of

incoming indigenous students.

Offering remediation classes to

academically poorly prepared students,

which often include a large portion of

indigenous students. These should include

ICT tools and the different ways in which

their use can be optimized.

Tracking of the academic

progress of indigenous students

throughout their degree,

including potential reasons for

dropping out.

Introducing pre-tertiary education

orientation to ease the integration of

indigenous students already admitted into

TEIs.

Offering special in-school services to

indigenous students, including those that

address integration challenges both on a

cultural level and on a language level. This

can be accomplished through an advising

program specifically geared towards the

challenges faced by indigenous students in

tertiary education.

Surveying career prospects and

current levels of employability

and salaries of indigenous

graduates.

Creating stronger links between indigenous

students and potential employers through

more tailored career services and internship

opportunities.

Tracking of the employability

and salary levels of indigenous

students.

Increasing

tertiary

education

access

Diagnosing the reasons for

which otherwise qualified

indigenous students choose not

to enroll in the TEI, or are

rejected by the TEI, and action

plan to address them.

Increasing the awareness of tertiary

education financing options, including

indigenous-specific student aid, through on

campus and off campus advertisement and

outreach.

Tracking of the number of

indigenous students which apply

and gain admission to the TEI.

Introducing specific affirmative action

criteria in the TEI student admission

process.

Adding to the

content and

relevance of

research and

instruction

Surveying the academic

research related to indigenous

issues to identify potential gaps

and/or areas that require

further clarification.

Encouraging academic research related to

indigenous culture, indigenous language,

and/or issues that specifically affect

indigenous populations.

Tracking academic production

related to indigenous issues.

Surveying the content and

relevance of indigenous issues

in the curriculum and in

educational policies, in order

to identify potential gaps

and/or areas that require

further clarification.

Including issues relevant to the racial and

ethnic diversity of Chile in applicable

courses and curriculum.

Tracking the amount, the quality

and/or relevance of indigenous

issues included in the curriculum

and in educational policies. Increasing the relevance of existing

educational policies for indigenous

students.

37

Diagnosing the extent of

teacher training in intercultural

bilingual education and

indigenous culture, and

drawing up an action plan to

improve it.

Improving teacher training in intercultural

bilingual education and indigenous culture.

Tracking the number and quality

of teachers trained in

intercultural bilingual education

and indigenous culture.

Surveying the awareness of

indigenous students regarding

their rights as indigenous

people.

Increasing the awareness of indigenous

students regarding their rights as

indigenous people.

Measure the awareness of

indigenous students regarding

their rights as indigenous

people.

44. Once the broad parameters of the Performance Agreement between the TEI and the

Ministry of Education are established, TEIs deemed to have a vocation for the education of

indigenous students will hold consultations with representatives of indigenous students and/or

relevant local indigenous leadership to determine which pro-indigenous actions best fit the

educational mission of the TEI and the situation and context of the students. TEIs may wish to

create an indigenous consultative committee beforehand in order to discuss and incorporate said

actions in an efficient manner. In order to avoid creating false expectations, consultations are

best carried out after TEIs have been selected for a Performance Agreement and as part of the

negotiation process between the TEI and the Ministry of Education.

45. Once the consultations are carried out and the options chosen, the ―Plan‖—known as the

―Indigenous Peoples Plan‖ or IPP—will be submitted to the Division of Higher Education, in

charge of implementing the MECESUP3 Project. Plans will:

i. Describe the consultation processes and their outcomes;

ii. Summarize the results of any stakeholder analysis or social assessment performed;

iii. Describe the pro-indigenous actions that will be carried out, their respective timelines,

baselines, success indicators, and monitoring processes, and the support they have

garnered from indigenous students.

46. DIVESUP in the Ministry of Education will review the IPP proposed by each TEI during

the Performance Agreement negotiation process. Final plans will be forwarded to the World

Bank for their ―No Objection‖ and their subsequent publishing in the information website

(―Infoshop‖).

47. Each TEI with an IPP will be in charge of implementing the pro-indigenous actions

specified in its Performance Agreement. Each TEI will report their progress through their

designated M&E unit, with the same periodicity with which they reports progress of the

Performance Agreement as a whole.

48. The Division of Higher Education will supervise the Performance Agreements and carry

out their Midterm Reviews. Through these Reviews the Division will evaluate the progress of the

IPP and determine, in conversation with the TEI, whether any action is needed.

38

Monitoring & Evaluation

49. Advancement of the PDO and the pursuit of result indicators would be measured for the

two components at least annually and would be publicly disclosed. Data would be obtained from

a number of sources, including SIES, DIVESUP, university registers and the National Council of

Scientific and Technological Research (Comisión Nacional de Investigación Científica y

Tecnológica). Significant capacity for data collection and indicator tracking has been identified

both at universities and other bodies like SIES, as proved by the collection, processing and

dissemination of information regarding tertiary education by institution. Standardized testing at

the tertiary level would be piloted to better measure student learning and outcomes.

50. DIVESUP would monitor and evaluate the implementation of the CDs, the progress

towards goals, financial management, and procurement. It would also involve regular

communication with ICUs regarding M&E activities undertaken, and offer cooperation and

support as needed for the achievement of Performance Agreement objectives. Visits will be

arranged for each beneficiary TEI, with the number of visits between one and three per year. The

technical divisions of the General Coordination of MECESUP will be responsible for the

technical supervision of the CDs. Fiduciary supervision will be carried in accordance with that

stipulated in Annexes 5 and 6 and the Operational Manual.

51. Each CD will be subject to an annual progress evaluation that determines whether

resources continue to flow to the corresponding TEI. The technical evaluation of CDs will

consider:

a. The use of allocated resources, to the date, in relationship to what was agreed upon

in the CD.

b. The progress of activities and indicators, and especially progress toward the targets

established in the CD. As progress toward targets in many cases is not linear, this

assessment will be based on the overall judgment of the technical staff of

MECESUP, not an application of a formulaic algorithm to judge progress toward

indicators.

c. Indicators of institutional commitment to the CD, such as time and energy expended

by key TEI staff to carry out the activities and keep the implementation of the CD on

schedule.

52. Each semester each CD will be rated as either Satisfactory, Satisfactory with flag, or

Unsatisfactory. Satisfactory CDs will be those that are making progress toward overall

objectives. Satisfactory with flag will be those where progress may have stalled, but institutional

efforts are adequate. Unsatisfactory CDs will be those where progress is stalled and institutional

effort is inadequate. A project receiving a rating of Satisfactory with flag will be informed that

it risks being rated in the next iteration as Unsatisfactory. Disbursements will be suspended to

Unsatisfactory CDs, and, if the subsequent rating does not restore the CD to at least satisfactory

with flag, the CDs risks to be cancelled. The technical ratings (S, S with flag, or U) will be

reported in various fiduciary reports and in the SOEs so that disbursement staff can ensure that

disbursements are not made to CDs with U ratings.

39

53. At the TEI level, Institutional Coordination Units (ICU) would monitor and evaluate the

progress of Performance Agreements. ICUs will present progress reports to DIVESUP twice a

year, describing the achievement of results, financial management, and procurement.

54. Regarding overall Project monitoring and evaluation, the Bank Team would work closely

with the Project Coordinator, as well as with TEIs, to evaluate Project implementation progress

during supervision missions.

55. An International Advisory Committee (CAI, Comité Asesor Internacional) made up of

tertiary education experts would be created to provide feedback to the Project as desirable and

appropriate.

40

Annex 4: Operational Risk Assessment Framework (ORAF)

Chile: Tertiary Education Finance for Results 3 Project

Stage: Board

Project Stakeholder Risks Rating Substantial

Description :

There is a risk students continue to hold the Cruch

universities for an extended period. This would

prevent the normal functioning of TEIs and the

ability of students to pursue their education.

There is a risk that groups of TEIs may persuade

Congress to restrict institutional eligibility for Project

resources.

Risk Management : The Task Team has contributed as technical advisors on

issues under discussion. It will continue to provide these technical inputs for draft

legislation. The primary risk management strategy on behalf of the Government is

a call for dialogue with the students and continuous reasonable policy responses to

the evolving situation.

With regards to TEIs, it is unclear what current protests have done to the balance

of power between different TEI types. Insufficient TEI funding has been a primary

complaint of students and the Government has pledged to increase it substantially.

Promotion of Ministry of Education dialogue with Dipres, and the relevant

Congressional committees will be key to ensure that the implementation of

Government policies are not obstructed through targeted lobbying.

Resp: Government

of Chile

Stage: Ongoing

Dialogue Due Date : N/A

Status:

ongoing /

evolving

Capacity Rating: Low

Description :

There is a risk that workload overwhelms the General Risk Management :

During preparation, the Team will seek to ensure that there is sufficient early

41

Coordination of MECESUP, which is in charge of

executing all funds allocated to TEIs. Since funds

will increase several-fold as a result of the

Government‘s new commitments vis-à-vis tertiary

education, the General Coordination of MECESUP

may find the increase in workload to strain its

capacity.

There is a potential risk of insufficient capacity in

some beneficiary institutions, particularly those who

have not benefitted from previous MECESUP 1 & 2

projects.

planning and budget resources to allow Project Management to avoid bottlenecks,

conduct routine reporting, and maintain a high level of efficiency.

An assessment of sample beneficiary institutions has been finalized and results

indicate reasonable capacity. Findings have informed the Operational Manual,

which will seek to include clear and detailed information to facilitate and guide

fiduciary administration by beneficiary institutions. During implementation, the

General Coordination of MECESUP will provide support for weaker institutions.

Resp: World Bank

task team and the

General

Coordination of

MECESUP

Stage: Completed Due Date :

Appraisal

Status: Completed

Resp: Stage: Due Date : Status:

Project Risks

Design Rating: Low

Description :

There is a risk that Performance Agreements become

bureaucratized by policies and procedures that are

additional to those specified in the Project

Documents.

Risk Management :

During preparation, sufficient personnel and time for negotiation and

implementation of Performance Agreements has been built into Project guidelines

and timelines.

During implementation, the Team would conduct a special technical audit to

ensure that procedures specified in Project documents are used and not being

duplicated.

Resp: World Bank

task team and the

General

Coordination of

MECESUP

Stage: ongoing Due Date :

Implementation

Status:

ongoing

Social & Environmental Rating: Moderate

Description :

There is a negligible risk that indigenous peoples

Risk Management :

The Project has designed an Indigenous Peoples Planning Framework (IPPF) in

which main areas of focus are alignment of select project activities with the

42

concerns are not addressed because they are typically

aligned with those of Project beneficiaries: poor

Chileans students from municipal schools and rural

backgrounds. This group benefits through the

increase in quality at pedagogy schools and through

remediation initiatives at TEIs aimed to strengthen

basic competencies.

There is a negligible risk of environmental damage

because civil works supported by the Project will be

limited to minor refurbishments in existing buildings.

relevant areas of the GoC‘s upcoming national Araucanía Plan for indigenous

people, continuity with the efforts of the previous MECESUP2 project,

particularly in remediation initiatives, close monitoring of the participation of

indigenous students in Project activities, and subsequent promotion of learning

quality and relevance at participating TEIs with indigenous students. The Project is

also encouraging investments in improvements of tertiary education that to varying

degrees focus on issues relevant to the racial and ethnic diversity of Chile and

consistent with Project development objectives.

During implementation, the Implementation Agency will ensure environmental

measures are included in the minor works that are taken on with Project funds.

Resp: World Bank

task team and the

General

Coordination of

MECESUP

Stage: preparation Due Date :

Implementation

Status:

ongoing

Resp: Stage: Due Date : Status:

Delivery Monitoring & Sustainability Rating: Low

Description : There is a risk that failure to adopt

electronic record keeping procedures delays contract

management.

Risk Management: During implementation, the Team would encourage adoption

of specific practices that would facilitate electronic record keeping for contract

management.

Resp: World Bank

task team and the

General

Coordination of

MECESUP

Stage: preparation Due Date :

Implementation

Status:

ongoing

Implementation Risk Rating: Moderate

Comments: Chileans currently believe that education is one of the most important challenges facing the country (upwards of 70% felt

this way in a national poll conducted in August). As such, support for the Project, as well as the enabling political environment, will

undoubtedly be strong. Nevertheless, student protests will pose challenges.

43

Annex 5: Implementation Support Plan


Strategy and Approach for Implementation Support

1. This Implementation Support Plan (ISP) has been developed on the basis of the

specificities of the Project and its risk profile. It aims at making implementation support to the

client both flexible and efficient. In order to do so, it focuses on the implementation of the risk

mitigation measures identified in the ORAF, particularly in the areas with a risk rating moderate

or significant (i.e. stakeholder risk and social risk).

2. Regarding stakeholder risk, the Team‘s approach to implementation support strongly

emphasizes open and regular communication with the Government of Chile, including technical

advice on some of the issues that are under discussion.

3. As for social and environmental risk, the Team has devised an Indigenous Peoples

Planning Framework (IPPF), which focuses on the alignment of selected Project activities with

the relevant areas of the GoC‘s upcoming Araucanía Plan for Indigenous peoples, among others.

Moreover, continuity is being given to efforts previously made in the framework of the

MECESUP2 Project, particularly regarding the undertaking remediation activities and the close

monitoring of Indigenous students‘ participation in Project activities. Furthermore, during

implementation the General Coordination of MECESUP will ensure that due environmental

measures are included in the minor works that could be financed with Project funds.

4. In general, the Team has identified significant capacity for implementation and for M&E

at DIVESUP, as the agency responsible for Project Implementation. Furthermore, a sample of

beneficiary institutions has been analyzed and the Team has concluded that they have reasonable

implementing capacity. Therefore, the Bank‘s approach for implementation support in this

Project focuses on (i) devising a detailed, unambiguous Operational Manual altogether with the

General Coordination of MECESUP in order to govern the process of implementation, and (ii)

ensuring the supply of capacity building in those few cases where institutional weaknesses have

been identified.

5. The strategy for implementation support in this Project places strong emphasis on close

supervision and good communication between the Bank, on one hand, and the General

Coordination of MECESUP, on the other hand. The Project benefits of and builds on the trust,

communication channels, and experience of previous MECESUP1 and 2 projects.

Implementation Support Plan

6. The Bank will closely supervise the implementation of the Project‘s Components and

Subcomponents and will provide guidance to the relevant agencies regarding technical,

fiduciary, and social issues. Formal supervision and field visits will be carried out semi-annually,

and will focus on:

44

(a) Technical inputs. The Bank‘s team will focus especially on the follow up of

subprojects under Component 1 (CDIs and CDFs). In particular, close work with the

General Coordination of MECESUP as well as with a sample of universities‘

implementing teams will help ensure that implementation progresses adequately.

(b) Fiduciary requirements and inputs. Training as needed will be provided by the

Bank‘s financial management specialist and the procurement specialist before Project

effectiveness and during Project implementation. This will allow building capacity in

matters of FM and Procurement matters, particularly regarding Bank procedures.

Supervision of financial management and procurement arrangements will be carried out

semi-annually as part of the project supervision plan and support will be provided on a

timely basis to respond to client needs.

(c) Safeguards. On the social side, supervision will focus on the implementation of the

agreed IPPF to ensure compliance with safeguard policy on Indigenous Peoples (OP/BP

4.10). Field visits will be made on a semi-annual basis. On the environmental side,

supervision will focus on ensuring that the minor civil works to be financed are done

with respect to environmental norms.

(d) Client Relations. The Task Team Leader will coordinate the Bank Team to ensure

project implementation is consistent with Bank requirements, as specified in the legal

documents. Moreover, the TTL will meet with senior officials on a regular basis to

keep them apprised of project progress and issues requiring resolution at their level. As

stated above, constant channels for information exchange will be maintained with all

major actors, taking advantage of trust and communication capacity built during Project

preparation.

7. The tables below present the main areas of focus in implementation support (Table 1) and

the staff skills mix required for implementation support (Table 2).

Table 1 – Staff Skills Mix Required

Skills Needed Number of Staff Weeks Number of Trips

Task Team Leader 20 SW the first year then 15 SW 4 the first year, then 2

Higher Education

Specialist

10 SW annually 2 per year

Finance expert 10 SW annually

Financial Management

Specialist

4 SW annually 2 per year

Procurement Specialist 6 SW annually 2 per year

45

Annex 6: Economic and Financial Analysis


1. The expected economic value of the project has been assessed through three distinct net

present value (NPV) calculations, each focusing on an expected outcome associated with

MECESUP-3. The approach builds on the same concepts used to derive the returns of the

previous project, MECESUP2. The economic analysis shows that the project would have to

realize only moderate progress toward its goals to generate a positive return. If the project funds

of US$160M are disbursed evenly across four years, the NPV threshold for a positive return

would be ~US$153M in 2011 currency.10

Below, the progress required to generate a positive

return is detailed:

A shortening of time to graduation would result in time savings and increased career

earnings for graduates of tertiary education. A reduction of approximately one third of a

month in average time to graduation would result in an NPV USD of ~$150M.

An increase in the quality of tertiary education is expected to lead to an increased

premium for wage earners with tertiary education. An increase in the premium of

approximately 0.14% would result in a project NPV USD of ~$150 M.

An increase in first-year retention would be expected to result in a concomitant uptick

in overall graduation rates. An increase of first year student retention of 4% would

result in an NPV USD of $~150M.

2. The progress outlined above details the change within each area that would be required to

independently justify the project. In reality, progress towards all goals is expected, and thus only

moderate progress toward each of the goals would likely lead to full recovery of the NPV of the

disbursed funds, along with a sizeable return. Annex 3 outlines in detail the methodologies

underlying the above assessments. Although project improvements are expected to endure, for

the purposes of NPV calculations, the financial effects of the project were only considered for

students graduating within the next decade. Finally, all analyses are restricted to graduates of

CRUCH universities, disproportionate recipients of previous aid programs. This will likely have

the effect of understating project returns, as graduates of other institutions are also likely to

benefit in similar ways.

Increased Earnings from Shortened Education Duration

3. A significant focus area of the project will be shortening the duration of tertiary education

in Chile. Historically, university study has required an investment of approximately seven years.

If the project succeeds in reducing time-to-completion, students will be required to spend both

less money and less time in acquiring their education. Additionally, overall lifetime earnings will

increase because the avoided study time can be productively allocated to work. The NPV of the

project can be calculated in part by examining the value of these incremental earnings.

10

All US dollars have 2011 value.

46

4. To calculate the NPV of these incremental earnings, a number of assumptions needed to

be made; they are as follows:

The size of each year‘s graduate cohort is based on the average growth rate in CRUCH

graduates from 2002 to 2009, which was 5.2%. This was used to project the number of

graduates expected from 2013-2022.

The employment rate of future graduates was assumed to be 81.8 percent, which was

the weighted average employment of graduates from all university programs in 2009

from the SIES database.

The weighted average salary earned by 2009 graduates was also based on SIES data,

and was determined to be CLP622, 694.

First year wages were assumed to grow at an annual rate of 2.5%, (the per capita

growth of the economy).

The discount rate is taken as 6%, as in the previous PAD, and the exchange rate is taken

as CLP475.

Savings were calculated based on three potential reductions in time until graduation:

one third of a month, one month, and three months.

5. Table 1 shows these assumptions would result in an NPV ranging from US$150 – 750

million in increased earnings for 2013-2022 graduates. It is expected that a number of factors in

addition to the project will influence reductions in time until graduation, so the actual returns of

the project will have to be considered to be only a fraction of the figures below.

Table 1. Earnings from Decreased Education Duration

Year Projected

Graduates

Projected

Employed

NPV of Earnings Increase from

Decrease in Career Length of:

1/3 of a

Month 1 Month 3 Months

2013 41,601 34,030 15,265,839 46,260,117 138,780,351

2014 43,765 35,799 15,529,390 47,058,759 141,176,276

2015 46,040 37,661 15,797,492 47,871,188 143,613,565

2016 48,434 39,619 16,070,222 48,697,644 146,092,931

2017 50,953 41,680 16,347,661 49,538,367 148,615,101

2018 53,603 43,847 16,629,890 50,393,605 151,180,815

2019 56,390 46,127 16,916,991 51,263,608 153,790,823

2020 59,322 48,526 17,209,048 52,148,630 156,445,891

2021 62,407 51,049 17,506,148 53,048,932 159,146,797

2022 65,652 53,703 17,808,376 53,964,777 161,894,331

Total: 165,081,057 500,245,628 1,500,736,883 Note: considers graduates from Consejo de Rectores universities, assumes new graduates growing at 5.2% (average 2002 to

2009), initial mean wage in 2009 of M$1,132, grown at 2.5% annually, employment rate of 81.8%, US$ 1.0 = CLP550.

47

Increased earnings from Higher Tertiary Wage Premium

6. A significant focus area of MECESUP3 will be increasing the quality of tertiary

education by improving the faculty qualifications. Additionally, the project anticipates raising

the perception of quality among future employers by increasing relevance and quality of degree

programs. As the quality and relevance of tertiary education increases, the wage premium for

having completed tertiary education is expected to rise, with employers willing to pay increasing

premiums for graduates with well developed and highly relevant skills. The NPV of the project

was calculated in part by examining the value of these incremental earnings.

7. If the wage premium paid to tertiary education graduates increases faster than the

historical average, a portion of that premium can be attributed, in part, to the success of this

project. A number of assumptions were made to assess the potential impact of such a premium

on the earnings of university graduates over the decade from 2013 to 2022. Because the

graduates are expected to benefit from the wage premium over their entire career [30 years

assumed], the assumptions calculate the present value of the wage premium in the year of

graduation; future year premiums are discounted. The rest of the assumptions are detailed below.

8. The same assumptions used for calculating increased wages from shortened study-spans

are used here, as well as a few supplementary assumptions:

In addition to the 2.5% annual growth rate applied to first year wages, through the 30

year employment span, a 1.5% annual lifecycle earnings increase was projected.

As in the PAD, a discount rate of 6% is applied. This rate is used to normalize present

value earnings from 2013-2022 back to USD 2011 and to calculate the 30-year present

value of the wage increase for each graduation cohort.

The wage premium attributable to the project was varied from 0.15%-0.45%.

9. Table 2 shows these assumptions can result in returns ranging from an NPV of $170-510

million in increased earnings for 2013-2022 graduates. A variety of factors can influence the

premium associated with higher education, and given the variety of increases in funding to

higher education and the ongoing transformation of the Chilean economy, it is expected that a

larger premium than 0.45% will be observed, of which only a portion will be attributable to the

project.

48

Table 2. Increased Wage Premiums Associated with Tertiary Education Quality

Note: considers graduates from Consejo de Rectores universities, assumes new graduates growing at 5.2% (average 2002 to

2009), initial mean wage of M$1,132, employment rate of 81.8%, US$ 1.0 = CLP550, assumes 2.5% continued initial salary

growth, with incremental 1.5% lifecycle growth.

* = projected

Increased Earnings from Higher Graduation Rates

10. The final source of returns from the project is associated with increasing retention rates of

students. Tertiary education graduates enjoy a significant wage premium over non-graduates,

earning approximately double what drop-outs can be expected to make. Thus increasing the

graduation rate would have the effect of moving more wage-earners into a higher income group.

11. Reliable data to develop a historical baseline for graduation rates is limited. Accordingly,

the metric targeted by the project is a reduction in first year attrition, an area with more reliable

statistics. This analysis was based on a number of assumptions, including:

CASEN survey data to determine the magnitude of the premium for completion of

tertiary education vs. partial exposure to tertiary education. The premium was

determined, based on 2009 CASEN data, to be ~ $85/month.

Ongoing growth in the premium associated with higher education of ~3.3% per year, in

line with growth in the premium from the 2000-2009 CASEN surveys.

Because the NPV analyses are limited to the near-term decade, and because Chilean

university education on average lasts 7 years, only a handful of graduating classes are

expected to be influenced over the course of the next decade. Specifically, the enrolling

classes of 2012-2015 are expected to graduate between 2019-2022. If the analysis

included more cohorts, the NPV would grow correspondingly.

The first year drop-out rate was based on reported statistics; longer term graduation rates

were derived by extrapolating a steady state graduation rate by excluding first year

enrollees and extrapolating the retention rate necessary to generate the observed number

Year Projected

Graduates

Projected

Employed NPV of Wage Premium Increase of:

0.15% 0.30% 0.45%

2013 41,601 34,030 15,717,559 31,435,117 47,152,676

2014 43,765 35,799 15,988,909 31,977,818 47,966,727

2015 46,040 37,661 16,264,944 32,529,888 48,794,831

2016 48,434 39,619 16,545,744 33,091,488 49,637,233

2017 50,953 41,680 16,831,392 33,662,785 50,494,177

2018 53,603 43,847 17,121,972 34,243,944 51,365,916

2019 56,390 46,127 17,417,568 34,835,137 52,252,705

2020 59,322 48,526 17,718,268 35,436,536 53,154,804

2021 62,407 51,049 18,024,159 36,048,318 54,072,477

2022 65,652 53,703 18,335,331 36,670,661 55,005,992

Total: 169,965,846 339,931,692 509,897,538

49

of university graduates. The graduation rate excluding first year dropouts appears to be

~90%; when first year drop-out rates are included, the graduation rate falls to ~70%.

12. Table X shows these assumptions can result in returns ranging from NPV USD of $57-

170 million in increased earnings for 2019-2022 graduates. A variety of factors can influence

changes in retention and graduation rate. Ultimately, the project will likely only accrue a portion

of its overall NPV from a decrease in drop-out rates.

Enrollment

Year

First Year

Students

Graduation

Year

NPV of Lifecycle Earnings Increase for First Year

Retention Increase of:

1.5% 3.0% 4.5%

2012 66,065 2019 13,698,516 27,397,032 41,095,549

2013 69,368 2020 14,021,142 28,042,284 42,063,426

2014 72,837 2021 14,351,366 28,702,733 43,054,099

2015 76,479 2022 14,689,368 29,378,736 44,068,105

Total: 56,760,393 113,520,786 170,281,179

Total Project Returns

13. If the project performs similarly to the previous MECESUP2 project, the leverage from

the US$153M is expected to be 5-7x, implying the potential for significant overall returns.