Document of

The World Bank

Report No: 25571

PROJECT APPRAISAL DOCUMENT

ONA

PROPOSED IDA GRANT

IN THE AMOUNT OF SDR 3.3 MILLION (US$ 4.5 MILLION EQUIVALENT)

TO

KOSOVO, SERBIA AND MONTENEGRO

FOR

'EDUCATION PARTICIPATION IMPROVEMENT PROJECT

April 14, 2003

Human Development Sector UnitEurope and Central Asia Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective April 10, 2003)

Currency Unit = EUROEURO 1.067 = US$1.00

US$1 = EURO 1.067

FISCAL YEARJanuary I -- December 31

ABBREVIATIONS AND ACRONYMS

CAS Country Assistance StrategyCDF Community Development FundCFAA Country Financial Accountability AssessmentCPE Central Procurement EntityCQ Consultant QualificationDC Direct ContractingECA Europe and Central AsiaEMIS Education Management Information SystemEPIP Education Participation Improvement ProjectFMR Financial Management ReportingGDP Gross Domestic ProductGFMIS Government Financial Management Information SystemGPN General Procurement NoticeIBRD International Bank for Reconstruction and DevelopmentIC Individual ConsultantICB International Competitive BiddingIDA International Development AssociationIFAC International Federation of AccountantsIS International ShoppingISA International Standards on AuditingKEC Kosovo Education CenterKCB Kosovo Consolidated BudgetKFOS Kosovo Open Society FoundationLCS Least Cost SelectionLSMS Living Standard Measurement SurveyMDG Millenium Development GoalMED Municipal Education DirectorMEST Ministry of Education, Science and TechnologyMFE Ministry of Finance and EconomyMSGT Municipal School Grant TeamNCB National Competitive BiddingNGO Non-Governmental OrganizationPAD Project Appraisal DocumentPIO Principal International OfficerPISG Provisional Institutions of Self-GovernmentPMU Project Management UnitPOM Project Operating Manual

cont......

QAG Quality Assurance GroupREO Regional Education OfficerSA Special AccountSDP School Development PlansSGAB School Grants Approval BoardSDG School Development GrantsSOE Statement of ExpendituresSRSG Special Representative of the Secretary-GeneralSS Sole SourceSTA Single Treasury AccountUNICEF United Nations International Children's Emergency FundUNMIK United Nations Interim Administration Mission in Kosovo

Vice President: Johannes F. LinnSector Director: Annette DixonSector Manager: Maureen McLaughlin

Task Team Leader/Task Manager: Peter Darvas

KOSOVOEDUCATION PARTICIPATION IMPROVEMENT PROJECT

CONTENTS

A. Project Development Objective Page

1. Project development objective 22. Key performance indicators 2

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 22. Main sector issues and Government strategy 23. Sector issues to be addressed by the project and strategic choices 6

C. Project Description Summary

1. Project components 82. Key policy and institutional reforms supported by the project 93. Benefits and target population 104. Institutional and implementation arrangements 10

D. Project Rationale

1. Project alternatives considered and reasons for rejection 112. Major related projects financed by the Bank and/or other development agencies 133. Lessons learned and reflected in the project design 144. Indications of recipient commitment and ownership 145. Value added of Bank support in this project 14

E. Summary Project Analysis

1. Economic 142. Financial 153. Technical 164. Institutional 165. Environmental 186. Social 187. Safeguard Policies 19

F. Sustainability and Risks

1. Sustainability 202. Critical risks 203. Possible controversial aspects 21

G. Main Grant Conditions

1. Effectiveness Condition 212. Other 21

H. Readiness for Implementation 22

I. Compliance with Bank Policies 22

Annexes

Annex 1: Project Design Summary 23Annex 2: Detailed Project Description 25Annex 3: Estimated Project Costs 41Annex 4: Cost Benefit Analysis Summary, or Cost-Effectiveness Analysis Summary 42Annex 5: Financial Summary for Revenue-Earning Project Entities, or Financial Summary 50Annex 6: (A) Procurement Arrangements 51

(B) Financial Management and Disbursement Arrangements 61Annex 7: Project Processing Schedule 66Annex 8: Documents in the Project File 67Annex 9: Statement of Loans and Credits 68Annex 10: Country at a Glance 70

MAP(S)IBRD 30432R

KOSOVOEducation Participation Improvement Project

Project Appraisal Document

Europe and Central Asia RegionECSHD

Date: April 14, 2003 Team Leader: Peter DarvasSector Manager/Director: Maureen McLaughlin Sector(s): General education sector (100%)Country Director: Orsalia Kalantzopoulos Theme(s): Education for all (P)Project ID: P079260Lending Instrument: Specific Investment Loan (SIL)

tProjet'Financing Data - -

] Loan [ ] Credit [XI Grant [ ]Guarantee [ ] Other:

For Loans/Credits/Others:Amount (US$m): 4.5

mianding Plan-(US$m)..:- -~ 7 r .- Lbcal-. Foregn- aTotil. BORROWER/RECIPIENT 0.00 0.10 0.10IDA GRANT FOR POST-CONFLICT 0.00 4.50 4.50Total: 0.00 4.60 4.60

Borrower/Recipient: UNMIKResponsible agency: MINISTRY OF EDUCATIONMinistry of Education, Science & TechnologyAddress: Mother Tereza Street, Eximkos Building, Room 802or Student Center, Room 314Prishtina, KosovoContact Person: Avni SahitiTel: 00 381 38 244 974 Fax: 00 381 38 244 975 Email: Asahiti-Wb@hotmail.Com

Estimated Disbursements ( Bank FY/US$m):FY --004 6 . j 1- - -. -- *2 016 -' ' -

Annual 1.16 1.68 1.66Cumulative 1.16 2.84 4.50

Project implementation period: 2003-2006Expected effectiveness date: 07/01/2003 Expected closing date: 12/31/2006

A. Project Development Objective

1. Project development objective: (see Annex 1)

The objective of the proposed Project is to improve educational attainment at primary and secondaryeducation levels and to enhance access of vulnerable groups to education.

2. Key performance indicators: (see Annex 1)

o Reduction of dropout rate in the targeted schools;o Improvement in the survival rate between grades and completion rate at primary level (currently nine

years) in the targeted schools;o Improved attendance rate in the targeted schools at primary level;o Improved net and gross enrollment rates to primary education in targeted non-Serb and non-Albanian

communities; ando Higher level transition to and attainment at secondary level especially by girls in the targeted

communities.

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1)Document number: No. 24275 - KOS Date of latest CAS discussion: July 25, 2002

The Transitional Support Strategy emphasizes the importance of increasing enrollment rates in primaryand secondary education, and enhancing access of girls and vulnerable groups to education. Theproposed Education Participation Improvement Project (US$ 4.5 million) operationalizes the TransitionalSupport Strategy with the explicit objective of improving access and attainment levels.

2. Main sector issues and Government strategy:

In Kosovo, prior to the 1998-1999 conflicts, around 90 percent of the total population of 1.8 to 2.1million people (the last census was carried out in 1991) were Albanians. During the 1990s, this sectionof the population had no official education services in the Albanian language. From 1989, the officiallanguage of the formal education system was Serbian. The Albanians were forced to resort to anunofficial education system at the primary, secondary and tertiary levels. The unofficial system was inparallel to the official system, and became known as the "parallel system." Running a parallel systembased on informal financing and makeshift physical arrangements showed that students, teachers and thewhole Albanian ethnic community are strongly committed to education.

During the period of intensified conflict education provision was severely curtailed in the affected areas.During the NATO Campaign, education services were by and large suspended. Following the conflict,some 100,000 Kosovo Serbs left the province. The intemational community was left to rebuild thepublic sector, including education. In 2001, elections were held for Kosovo province. An Assembly wascreated, and new Provisional Institutions of Self-Govermment (PISG) of Kosovo were established. Thenew authority had a mandate, together with the international community, to establish its own publicadministration and run its public services.

In its effort to rebuild education, the newly established provisional government in Kosovo andintemational authorities face a number of challenges including rebuilding a system of educationadministration and finance, ensuring education for all children, reforming curriculum, and rebuildingeducation infrastructure. The World Bank has been heavily involved over the past three years in helpingthe United Nations Intenm Administration Mission in Kosovo (UNMIK), and Kosovar authonties to

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establish a new education governance and financing system. Efforts have been directed towardsdecentralizing authority and funding to Kosovo's 30 municipalities. Recently, the Bank has also assistedinternational and Kosovar authorities to begin defining sector priorities and a medium-term strategy, bypreparing a medium term expenditure study that makes recommendations for improving effectivenessand efficiency, and ensuing fiscal sustainability in the education system (reports are available uponrequest). A sumniary of key sector issues relevant to the project is provided below.

Education Administration

Education administration, like the rest of public administration, is in transition. As of September 2002,responsibility for provision of education has been transferred to the PISG Ministry of Education, Scienceand Technology (MEST), with UNMIK officials playing a supportive, capacity-building role. Theeducation governance and funding system created by UNMvIIK with World Bank support provides theframework for the devolution of about 80 percent of the education resources to municipalities on thebasis of a per student funding formula. Local authorities are responsible for budgeting, expenditurecontrol, and personnel management for teachers, school directors, and non-teaching staff, while theMEST focuses on monitoring performance and targeted development programs. In 2002, under theMinistry sponsorship, a Handbook on Municipal Education Governance and a Kosovo School FundingHandbook were issued, describing the role of the different level of administration agencies and theprocedures of formula-based financing. International donors need to continue building adequate legaland institutional planning, monitoring and management capacities at central and local levels, theobjective being to help focus on effective service delivery, education quality, the efficient use of publicresources, as well as to promote equity in access and attainment.

Education Expenditures

Government spending on education was 3.7 percent of the per capita GDP in 2001, one of the lowest inthe Central and Eastern European region. Education is clearly under-funded considenng that the studentage share of the population is the highest in Europe. In'EU, average spending is about 5.3 percent of theper capita GDP. In Kosovo's consolidated recurrent budget education is by far the largest category at19.8 percent of the total. Personnel expenditure accounts f'or about 70 percent of the budget. TheKosovo Poverty Assessment of 2001 shows that public expenditures are regressive given the strongcorrelation between poverty and utilization of education services particularly at secondary level. By andlarge, efficiency indicators are comparable to European averages with a 19:1 pupil-teacher ratio at bothprimary and secondary levels, and with minimal administrative overhead in 2001 (more on publicexpenditures in Annex 4).

While on average public unit costs for primary school education were around 120EUROs, householdexpenditures (including out-of-pocket contributions, travel, clothing, etc.) were almost the same level atnearly lOOEUROs. For secondary education public unit costs were 140EUROs whereas householdexpenditures were as much as 200EUROs per student. Although the per capita funding introduced thisyear may help to alleviate inequities in funding, the government should consider providing some fundingto compensate-for some of the expenses especially for the poorest households, or find alternatives toprovide targeted support for them.

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Literacy, Educational Enrollment, Attainment and Completion

The lack of access to formal education during the 1990s resulted in an increase in illiteracy (15 to 22percent) among the 16 to 25 year olds. Given the present high level of enrollment in primary education,illiteracy is expected to drop down to below 5 percent. Also, during the 1990s, average educationalattainment (number of years in school completed) fell significantly for the non-Serb population.Inequalities in educational attainment still persist between ethnic groups, by gender, by poverty and bythe urban-rural divide.

Although official information is lacking, the Poverty Assessment of 2001--based on a household surveycarried out during the 1999/2000 academic year--indicated that there are gaps both in access, incompletion and in attainment at primary and secondary education. Aggregate data show relatively highlevels of enrollment in primary education, although if disaggregated, there are differences among ethnicgroups with respect to attendance and completion. At the primary level, gross enrollment during the1999/2000 school year was 97 percent. It is likely that many over-aged children were then enrolled asthey missed many years of education during the 1 990s. If this is the case, it also means that children whoare supposed to be enrolled now are not in the school system (a rapid social assessment based on anempirical survey and secondary analysis of the LSMS data has been finalized).

The Living Standard Measurement Survey (LSMS) showed significant problems with completion ofprimary education, one of the comerstones for achieving the Millennium Development Goals (MDG) andto establish basic human capital if the province is to succeed in becoming competitive in the mediumterm. The survey showed that as many as I I percent of children age 14 are not in school, meaning that ishighly unlikely that these children will ever complete primary education. Among girls, close to 10percent of the 13 year olds and 17 percent of the 14 year olds are not in school.

The LSMS data also provides information on completion and confirms that a large portion of differentage cohorts do not complete eight years of primary education:

Table M. Primary Education Completion byage cohort by gender and geographical location

completion of 8 years or higher for different age groupsage groups all boys girls rural urban rural boys rural girls

15 82.91 85.67 80.06 83.08 82.57 83.05 83.1216 87.42 94.1 81.18 87.19 87.82 96.66 78.5317 89.53 89.34 89.69 89.24 90.07 89.51 88.9718 91.88 94.01 89.66 90.57 93.91 94.14 86.5819 89.4 94.17 84.31 88.2 91.73 95.21 80.09

Source: Kosovo Living Standards Measurement Survey (LSMS).

As the data shows, roughly 10 to 12 percent of the different age groups from age 16 do not completeprimary education and this average is about 2 to 10 percent worse for those living in rural areas and forgirls. For rural girls, the completion rate typically does not reach 90 percent.

Among those who are out of school, 29 percent suggested it was too expensive, 20 percent found littleinterest in school, and 17 percent referred in 1999 to safety reasons. However, the issue of safety wassignificant largely among those living in urban areas. This also coincides with the children coming fromextreme poverty. These are also predominantly Roma children. Among the poor, the most criticalreasons are the out-of-pocket costs, the lack of interest and the need to participate in agricultural labor. It

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is also noteworthy that while out-of-pocket payment is the dominant reason among boys, among girls themost important reasons for not being in school were the lack of interest and security issues.

The lowering of the minimum entry age from seven to six years was implemented from academic year2001. To add to the challenge, as of September 2002, compulsory primary education has been extendedto nine years (instead of the previous eight years). As a result, secondary education has been reduced byone year. The introduction of nine years of compulsory primary level schooling was carried out withoutadequate planning of the physical and human capacities necessary, and without adequate curriculumplanning (including textbooks, training, etc.). In some parts of Kosovo, the ninth grade schooling isbeing provided in designated secondary schools and, especially in rural areas, a significant portion of thestudents do not have access to it, given the relatively large distance from secondary schools.

At secondary level, the overall enrollment rate is low and there are significant gaps in enrollment amonggirls, children from rural areas, children from poor families as well as children from some ethnic groups.Gross enrollment data reveal enrollment rates of 74 percent of Albanian boys as opposed to 56 percent ofAlbanian girls; 78 percent of children from urban areas as opposed to 59 percent from rural communities;and 36 (rural) percent to 62 (urban) percent of those coming from the lowest expenditure decile asopposed to 76 (rural) percent to 89 (urban) percent of those coming from the highest expenditure decile.Key factors are transition from primary to secondary education, choice of secondary education tracks andsuccessful completion of secondary programs. The key reasons include: high out-of-pocket payments (asdiscussed earlier), security problems and distance to school, plus the lack of incentives and sufficientattention to local level issues relating to enrollment, attendance and completion.

Educational content, curriculum, teaching and learning standards

So far, neither the Government nor the lead donor agencies have worked on quality standards in terms ofthe content, the output and outcomes of public education. The first steps have been made by the leaddonor agencies which have been assigned responsibility for various inputs and levels of education,including: UNICEF for curriculum development and pre-school education, the Government of Canada forteacher development, the German Government for secondary technical/vocational, the FinnishGovernment for special education, and the World Bank for assessments and management. In thiscontext, the Canadian Government has worked with the Government to define quality performancestandards for teachers. The German support via GTZ helped define new structure for vocationaleducation. The Finnish Government helped define quality objectives for special education. The WorldBank's support for the Standards and Assessment Unit is expected to establish the basic capacities fortesting and quality assessments. For a complete list of donor agencies and areas of support, please referto Section D, sub-section 2.

Reforms have progressed especially in teacher training and in curriculum matters for early primarygrades, thanks to support from the Canadian Government, the Soros Foundation, and UNICEF.Meanwhile, reform of secondary education has not been started. Enrollment at secondary level is one ofthe lowest in Europe. Curriculum is teacher-centered. Supplies of materials, equipment and training areseverely limited. Vocational programs are targeted towards narrow specializations. Vocationalsecondary education is not aimed at broad competencies, those that give young people the types offlexible skills that will be needed in Kosovo's dynamic, informal job market.

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School Infrastructure and Rehabilitation

As in most countries in the Balkans, many schools are organized into clusters under one administrationwith one central school providing education for eight grades linked to satellite schools providingeducation for the first four grades. In many areas, the recently introduced ninth grade classes at primarylevel are being provided in separate institutions. Of the 961 registered schools in 2001, 554 were centralschools. At secondary level, out of the 147 schools, 10 were central schools. Primary schools hadabout 322 pupils on average whereas secondary schools had about 638 pupils.

Reports indicate significant deterioration prior to the conflict and destruction of school infrastructureduring the conflict. Between 1999-2001, about one fourth of the schools were rehabilitated with donorassistance, including the Japanese and Swiss Governments, as well as by the Islamic Development Bank.However, donor funding has declined over the last two years and is expected to further decline in thenear future. Meanwhile, the fast growing student population and the status quo of the educationinfrastructure suggest that in the near future, Kosovo will have increasingly overcrowded schools.

3. Sector issues to be addressed by the project and strategic choices:

The objective of the proposed Project is to improve educational attainment at primary and secondaryeducation levels and to enhance access of vulnerable groups to education. With the youngest populationand the highest birthrate in Europe, it is critical that the future labor force in Kosovo is adequatelyeducated, and that individuals and groups have social mobility and opportunity to avoid poverty. Thegrowth in student-age population requires special attention at all levels to the challenge of full enrollmentand full completion of primary education. Schools are becoming overcrowded in urban areas and in somerural areas.

At the state level, more government spending is needed for education as the low level Governmentfinancing will not sustain the system for a country with a high proportion of school-age children. Theextension of primary/compulsory education to nine years further increases the challenge. The recentlyintroduced capitation formula helps allocate the public resources to the municipalities where the studentpopulation is the largest. However, further training in the use of the guidelines is needed so thatmunicipalities allocate resources to schools in line with demand.

At the community and school level, adequate information needs to be collected about who is in and outof school. Many children do not attend primary education at all or attend for just a few years. This isespecially the case for children from small ethnic groups, from rural areas (especially girls), and frompoor communities. Not coincidentally, schools are most overcrowded in the same communities andschools have difficulties coping with demand. Many classrooms are small, under-equipped, textbooksare not available, and teachers are unable to cope with the large number of children. Children andfamilies will not be motivated to enroll or to attend school if: (a) getting to school or staying in schoolare difficult or is considered unsafe; (b) they have no interest in education; and (c) it incurs expenses thatfamilies cannot afford (clothes, extra meals, school materials, etc.).

The 2001 Poverty Assessment showed that some of the key factors affecting enrollment and attendanceare significant out-of-pocket payments, lack of interest in education, safety concerns and distance toschool especially in secondary education and especially for girls and among minorities. Of those, five to14 year olds who were not enrolled in 1999-2000 (when the security situation was difficult), 28.75percent quoted (c) 20.72 percent quoted (b) and 20.95 percent quoted (a), while some 10 percent of thechildren of this age group reported their education to be completed. Meanwhile, surprisingly, among theextremely poor and for those living in urban areas, the main concern was safety (42 percent and 49

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percent respectively). For those living in rural areas, the dominant reasons are expenses and lack ofinterest. Among girls, lack of interest dominated whereas among boys, expenses were the mainconstraint.

There are also indications that the most risky periods are transition from 8th to 9th grades and fromprimary to secondary education. There are indications that these transitions are especially challengingfor specific groups, especially for girls and for those living in rural areas. Some data also show that thesituation is not improving and for some groups it is actually worsening. These trends suggest thatimprovement in the quality of learning and effectiveness of schooling could have a positive impact on thecompletion rate for primary education and on these transitions.

At secondary level, there are problems with demand for schooling. Children from non-Serb ethnicminority groups are not continuing their education because of low quality primary education, andconsequent inadequacy in basic literacy and numeracy skills. These gaps have resulted in significantdifferences in education attainment. There are also indications of further declines at least for someminority groups (mainly Roma, Turks, Bosnians and other non-Serb Slavs).

Some of these issues are difficult to address through an education investment project. Also, the amountplanned for the proposed Project does not allow for significant improvement of physical access (i.e.,building roads and schools), although schools could take some steps to facilitate travel arrangements,expand classrooms, or to improve school safety. Given the level of IDA financing (US$ 4.5 mllion)available for investment, a decision has been made to design a highly focused project, which will targetonly the access issue and will not directly target quality improvement. While the proposed Projectinterventions--school level planning and the implementation of small school-based projects-could beexpected to have a positive impact on education quality and relevance, as well as on communityparticipation in the education process, these outcomes will be defined for purposes of this project asincentives to increase participation in the education system. The success or failure of this highly focusedproject will be measured on the basis of increased enrollments, attendance and completion of grades andeducational levels.

It is important that both supply and demand challenges are addressed by appropriate service delivery.Schools and school/municipality partnerships are best positioned to monitor problems related to demand,i.e., dropouts, those not enrolled, those that do not attend or have consistently low performance levels,and to assess why some children or families are more pre-disposed to doing so than others. If demandcould be improved by facilitating travel or safety arrangements, these may also be best addressed locally.

The proposed Project is largely designed on the recognition that, in addition to the underlying socialchallenges, improving the quality and relevance of educational services is also essential to increasingenrollments. Particularly at the secondary level, programs need to be more attractive and flexible to meetlocal need. At all levels, teaching methods could be improved, some materials, equipment provided, andextra services (for instance for parents) introduced to make education more attractive, and some minorimprovements in the infrastructure may be initiated (i.e., to improve hygiene or make classrooms bettersuited for education, etc.) where these factors are identified as problems affecting access or attendance.

School-based initiatives are likely to be the best way to assure that improvements in access andattainment are sustainable in the medium term so that school management, school boards andmunicipalities learn how to track children, and how to connect effectiveness (measured for instance

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by number of dropouts, numbers attending school) with measures to improve services. Strengthening therecently established decentralized institutional framework and defining adequate mandates for schoolsand municipalities are, therefore, key for sustainability.

Since the Education and Health Project (approved in 2000) helped to decentralize education financingand administration, the proposed Project will continue the process by addressing the above challengeslocally. Financial incentives to schools will be provided using a school grant scheme. It is expected thatthese incentives would motivate school management to engage in activities that help improve access andattainment. In order to achieve this, the proposed Project needs to help strengthen local planning andmanagement capacities, strengthen the role of school boards, and the participation of municipalities.While the primary goal remains the improvement of attainment and access, implementation andsustainability will require improved local planning, management and participation.

Maintaining adequate records of trends influencing attainment and access - including enrollment,attendance, year-end and school-end completion, require improved education management informationsystem (EMIS) as part of a sustained effort to monitor and evaluate indicators. Reinforcing thesustainability of the EMIS established in the context of the ongoing Education and Health Project is alsoa priority.

C. Project Description Summary

1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed costbreakdown):

(a) School Development Grants (SDG): The objective of the SDG component is to provide fundingto schools to help increase enrollment, attendance, and retention in primary and secondary education.Through the SDG process, approximately US$ 3.4 million in grant finding will be awarded in targetedsmall grant contracts to approximately 50 percent of the 550 primary schools and 110 secondary schoolsin Kosovo's 30 municipalities. Primary schools will be eligible for grants up to US$10,000 andsecondary schools will be eligible for grants up to US$ 15,000. The grants will be awarded on the basisof school development plans and grant proposals, which will be evaluated by Municipal School GrantTeams (MSGTs) and approved by a central School Grants Approval Board (SGAB). All schools selectedfor the program will receive technical assistance and training in the areas of school development planningand proposal writing. Schools will be selected for the program by municipal education officials on thebasis of documented access and retention problems in the school's catchment area. Selection criteria willfocus largely on enrollment, drop out, and attendance statistics. Grant proposals, prepared by theselected schools, will be evaluated by the MEST on the basis of how effectively they address access andretention problems. The grants will finance training, community outreach activities, educationalmaterials and school supplies, and some small works aimed at improving security and the educationalenvironment. Random special purpose audit of the school grants will be carried on a yearly basis toensure that the school grants are being used for the purposes intended.

(b) Improving the Education Management Information System: The objective of this componentis to help strengthen and ensure the sustainability of the EMIS, which was designed and initiated underthe ongoing Education and Health Project. More specifically, the EMIS will help monitor enrollment,attendance, repetition, dropout and completion, as well as try to account for children in the targetedmunicipalities, who are not participating in the school system. The proposed Project will finance localand intemational technical assistance, extemal training, and limited equipment and furniture of centrallevel and municipal offices.

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(c) Project management: The objective of this component is the effective implementation,monitonng and evaluation of the proposed Project. The implementing agency for the Project is theMinistry for Education, Science and Technology (MEST). A small team of professional staff will form aProject Management Unit (PMU) for the implementation of the proposed Project. The PMU will beheaded by a national Project Director who has been hired under the ongoing project as Deputy Director.He is receiving on-the-job training from an international Project Director of the education component ofthe Education and Health Project. The national Project Director recruited for the proposed Project has abackground and experience in financial management. Most of the staff have already been contractedunder the ongoing Education and Health Project and were involved in the preparation of the proposedProject. Perfornance of the local professional staff has been satisfactory to date and the team forimplementation of the proposed Project will be maintained to ensure continuity and preserve the skillsand knowledge gained under the ongoing project. The PMU will also be responsible for monitoring andevaluation of results under the school development grants component. The component would financetechnical assistance, limited computer and office equipment, and training of staff.

During negotiations it was agreed that UNMIK/MEST will ensure that the PMU is maintained underterms of reference satisfactory to IDA and is provided with adequate resources, staff and facilities. ThePMU will have responsibility for day-to-day Project management and supervision, and will report to thePermanent Secretary, MEST and the Principal International Officer within MEST of UNMIK.

,,; - -.--. -. ...,.-=.-- r -*... ,.- - !- E l ndicative.~ --- . ;" .E-- Component,,. .h pnB,> 'nk- , Costs --_- * .Inad pi

=- - _ -. .f, if, i - .. (US$M) Total,' 'qUSM .financing:1. School Planning and School Development Grants 3.79 82.4 3.70 82.22. Education Management Information System 0.30 6.5 0.29 6.43. Project Management 0.51 11.1 0.51 11.3

Total Project Costs 4.60 100.0 4.50 100.0Total Financing Required 4.60 100.0 4.50 100.0

2. Key policy and institutional reforms supported by the project:

The proposed Project will target the following policy issues

(i) Improving equity in terms of access, retention and completion: The primary goals of theschool development grants are to attract students whc are not enrolled to school, createincentives for schools to reduce the incidence of non-attendance and dropouts, and to increaseprimary completion at 9th grade and secondary completion.

(ii) Strengthening school level education planning: School management and school boards will betrained to develop school development plans. These plans will be pre-requisites for schools toparticipate in the school grant process.

(iii) Improving the effectiveness of schools to maximize enrollment, attendance, survival-rate andcompletion: Grants will support school-based initiatives to improve learning conditions, schooleffectiveness and the quality of teaching and learning, and, especially at secondary level, therelevance of education.

(iv) Strengthening central and local government capacity: The education management informationsystem will be strengthened to track student flows, school attendance, completion of classes andgrades, monitor the outcomes of the system, enrollment, attainment and monitor the school grant

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process as well as school based initiatives will set models for the central government to designand implement targeted interventions. In addition, the school grant scheme could be sustainedeither to continue improving access and attainment but also to target directly qualityimprovements in the system.

3. Benefits and target population:

o Through the improvement of access and attainment, the project will primarily benefit the poorest,those who live in rural areas, girls, and non-Albanian, non-Serb minorities, who, in general, have hadmore limited access and lower attainment;

o Through the improvement of effectiveness, quality and relevance, the whole student population in theselected schools will benefit; and

o Through the improved planning, management and strengthened participation, local stakeholders willbenefit from the project.

4. Institutional and implementation arrangements:

The project implementation arrangements established under the Education and Health Project willcontinue under the Education Participation Improvement Project. The PMU will comprise a ProjectDirector/Financial manager, Procurement Specialist, and an Accountant. The PMU Director, satisfactoryto IDA, has been selected, and has been hired as Deputy Director of the ongoing Education and HealthProject, on the understanding reached with IDA that he will be appointed as PMU Director immediatelyfollowing Grant effectiveness. It is planned that an Education Specialist/Deputy Director,Accountant/Financial Management Specialist and a Procurement assistant will be selected once theproject is effective.

Project financial management will be handled by an international financial manager who was hired underan on going Education and Health Project with primary responsibility to monitor and prepare projectmanagement reports for all bank projects and who is located in the MFE. The MFE will be responsiblefor the financial management and reporting requirements of the project. The MFE has in place afinancial management system that is capable of producing Project Management Reports as required byIDA. This system has been utilized for other IDA-financed projects. As part of its responsibilities, theMFE will open and maintain the project's Special Account in a commercial bank acceptable to IDA as ithas done for several other IDA projects. All payments will be made by the MFE. The PMU establishedat the MEST will prepare all the relevant documents and obtain the required clearances and coordinatevery closely with the MFE. The PMU will be responsible for implementation functions such asprocurement, progress reports, annual work programs and budgets and monitoring of implementation ofthe School Grants. Relations between the MFE and the MEST have been exemplary under the ongoingproject.

Retroactive Financing. Retroactive financing under the EPIP, to a maximum amount of US$ 60,000 forschool grants under the Education and Health Project, will be made to the MFE in accordance with IDApolicy.

During negotiations, MEST adopted an Operating Manual (dated March 31, 2003) that is satisfactory toIDA. The POM will facilitate project management and implementation. The Operating Manualcontains:. (i) detailed project objectives and components description; (ii) key implementation issues andstrategies; (iii) summary of procedures for monitoring project implementation; (iv) methods ofprocurement to be followed as per Procurement Schedule in the Grant Agreement; and (v) a ProcurementHandbook (as a separate volume), including detailed procedures and forms to be used for procurementunder the Schools Grants component. UNMIK/MEST/PMU shall not make changes to the POM without

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written no objection approval from IDA. The PMU will organize training for all municipalitiesparticipating in the project to ensure understanding of the procedures specified in the POM.

(a) School Development Grants

The school grant process will position the schools and the local communities in the center of theimplementation process. Schools will engage in development planning and development of grantproposals, which target improvements in access, attendance and completion. School management and theschool boards in the selected schools will be expected to take a key role in defining the schooldevelopment plans. These plans will define benchmarks in terms of student numbers, retention,completion, performance and use of resources to achieve these benchmarks. The selection will be donein consultation with municipal authorities (more details are provided in Annex 2).

Under the ongoing Education and Health Project a pilot of the school grants process is currently beingcarmed out. The ongoing Education and Health Project finances a small contract with a local NGO, theKosovo Education Center (KEC), to provide training to schools and facilitate preparation of the grantproposals and school development plans. An agreement has been reached between the Kosovo OpenSociety Foundation (KFOS) and the Bank during appraisal on joint financing of the contract with KECfor the school grant component. A total budget for technical assistance and outreach services is estimnatedat about US$ 290,000. It is planned that KFOS will provide about US$ 100,000 (to cover fees of KECstaff and overheads) and the remaining US$ 190,000 (for contracting local facilitators, training of schoolteams, covering in-country transportation and lodging expenses for the training events participants) willbe financed from the IDA Grant. The terms of reference have been jointly agreed by IDA and KFOS;both donors will disburse the funds through separate contracts with KEC based on the agreed terms ofreference.

Details and procedures for selection of schools, submission and evaluation of grant proposals, monitoringand supervision of the grants implementation, etc. are given in Annex 2, and are included in theOperating Manual. Procurement arrangements are summarized in Annex 6 and spelled out in detail inProcurement Handbook of the Operating Manual.

(b) Education Information Systems

Development of an EMIS which was started under the ongoing project will be continued under theEducation Participation Improvement Project. The objective will be to ensure that the new MEST is ableto monitor systemic performance in the areas of access and retention. Financing will be focused toensure the sustainability of the EMIS. This will be done through capacity building of internal MEST(which is constrained by the inability of public services to pay and retain qualified staff), and possibly byoutsourcing technical information services to a local contractor to ensure sustainability of the systemafter the project completion.

D. Project Rationale

1. Project alternatives considered and reasons for rejection:

The Poverty Assessment pointed towards several constraints to improving access and attainment.Accordingly, several types of interventions and institutional arrangements have been considered:

(a) Compensating for out-of-pocket payments: Family support through cash payments mayadequately compensate for household expenditures, improving demand for education. However, social

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assessment showed that out-of-pocket expenditures are only one of the reasons for children not going toschool. It does not explain why children drop out, which is more related to gender and location ratherthan to poverty. As a stand-alone instrument, cash payments would not be instrunental in addressingquality and effectiveness issues. Cash payments may be considered as a good complementary measure toassist marginalized families with the added incentive to make sure children from these families enroll andattend school. However, local capacities to account for these children need to be established, access toschools for some of the children (especially at secondary level) need to be facilitated, and educationalprograms, as well as the learning environment, need to be improved to make the effect of payments moresustainable. In addition, conditional cash transfers for now are not part of the Government's socialassistance policy agenda.

(b) Facilitating better physical access to schools: In order to improve access to schoolingcommensurate transportation arrangements will also be required. The provision of major works tofacilitate physical access (roads, transportation) and/or more schools or classrooms may be appropriate toremedy limited access. However, the available project grant would not be adequate to address largetransportation infrastructure issues or school construction. Therefore, building schools, roads orextended public transportation systems should be considered for other projects or donors. Surveysundertaken as part of project monitoring and evaluation will, however, identify areas in whichtransportation infrastructure or school space is an enrollment constraint. Also, schools may use theproposed development grants to support better transportation of the children especially at secondarylevel, and in limited cases, to extend classroom space.

(c) Central provision of non-salary inputs: Kosovo lacks adequate textbooks, materials and othersmall equipment. These are presently paid mostly by parents. Central provision of these, however,would not be fiscally sustainable, and would not help promote planning and priorntization of needs atschool level. Instead, schools may use the development grants to purchase textbooks, materials and smallequipment.

(d) Focus on supporting central government capacities versus municipalities or schools:Making sure that all children have access to education, and that public expenditures are fairly distributedare the basic responsibilities of the Govermnent. The institution-building that had started during theEducation and Health Project should continue, and the Government needs to refine its financing to makeit more pro-poor and policy oriented. Further, the Government should develop capacities and methods toprovide assistance for the poorest e.g., subsidized textbooks or compensating out-of-pocket expenditures.However, the decentralization process that has been started during the first project requires furtherinstitutional and capacity building at the local level. As a complement to central capacity building,municipalities should take a key role in making sure that all eligible children are accounted for and givenaccess to education. This in turn needs to be complemented by improving school effectiveness and thequality of learning/teaching to make sure increased access is sustained. Consequently, the main focus ofthe project is on improving municipal and school capacities, and on extending schools' mandates toimprove access and attainment.

(e) Focus on primary versus secondary education: The data show that secondary education hassignificant inequities and gaps in enrollment and attainment, whereas in primary education the aggregateinformation on gross enrollment shows no serious quantitative challenges. However, in primaryeducation, while the gross enrollment rate is estimated at 97 percent, net enrollment may be significantlylower and there is evidence that specific minority groups do have low enrollment rates, which will needto be urgently addressed if Kosovo is to meet the EFA/MDG goals. Also, low attendance, low quality ofeducation and similar problems at primary level have negative effects on secondary education enrollment

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and attainment. The planned social assessment should help define an adequate balance betweenassistance targeted at primary and secondary levels, respectively.

(f) Competition versus targeting: There are several ways of identifying eligible schools to receiveschool development grants. One possibility, followed in other countries in the region, is to make theschool grant scheme competitive, based on the adequacy of the school development plans and grantproposals. However, this option could result in the most advanced/able schools receiving the grants andnot the ones where the enrollment/attendance problems are concentrated. Therefore, the project needs touse targeting procedures and criteria, which empower municipal authorities to identify schools forsupport under the project.

(g) Why a grant and not a credit: Kosovo is currently under administration by the United Nationsaccording to UNSC 1244, and the resolution of its final stalus may take some time. It is not currentlypossible for IDA to lend to Kosovo, and thus an IDA grant is the only financing mechanism available forthis project. UNMIK will be the recipient of the IDA grant.

(h) Public-Private institutions: The Project will opeiate through the public education system, andis designed to build on and reinforce systemic reforms, especially decentralization and managementcapacity-building, that were established in the current Kosovo Education and Health Project. The maininstitutional functions, therefore, are based at each level in public sector institutions. Privately providededucation in Kosovo is not significant. Nevertheless, as with the ongoing Kosovo Education and HealthProject, a certain number of the institutional capacity-building activities will be provided through NGOsand the private sector, with support from international expertise where required.

2. Major related projects financed by the Bank and/or other development agencies (completed,ongoing and planned).[ K>_. .~i-t -- r- - ~ .u :.: '- -- _.Latest Supevsion

d .i..:.Sector lssue.- -Pj -. .Ratings .,,-_. -__ . L - B kfir d poj6Ets-only)-

Implementation Development

Bank-financed Progress (IP) Objective (DO)

Education admmnistration and Kosovo Education and Health S Sfinancing ProjectDesign of basic safety net and Social Kosovo Social Protection S Swelfare system ProjectOther development agenciesUNICEF Curriculum Development and

Capacity Building ProgramUNICEF--Japanese Government School reconstruction,

Rehabilitation and RepairProgram

UNICEF Training on InteractiveLearning Project

UNICEF and Government of Finland Special Needs EducationalProgram for children in LapjeSelo and in Shtime/Stimlje

CIDA Kosovo Educator DevelopmentProject (various dimensions ofteacher training and capacity

- 13-

building)EC/EAR Vocational Training in

Electronics and BusinessAdnnnistration

UNDP--Japanese funded ADRA School ReconstructionProgram

Islamic Development Bank Reconstruction ProgramSwiss 2001 Reconstruction ProgramEAR Program on General

Refurbishment of theUniversity of PrishtinaBuildings, including thechemistry, agriculture andengineering faculties

German Technical Cooperation Vocational Education

IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory)

3. Lessons learned and reflected in the project design:

The first Education and Health Project in Kosovo helped to establish a decentralized educationadministration system and a core Education Management Information System. It helped to empowerlocal authorities but also showed that partnership is needed with schools to establish incentives toachieve tangible education outcomes. The Bank has had a long experience working with school grants inmost regions including in ECA and - in particular -- in the Balkans. Project implementationarrangements have been designed to take into account comments made in the recent QAG review of theKosovo Social Protection Project.

4. Indications of recipient commitment and ownership

A school grant pilot is being carried out under the ongoing project. Discussions about the pilot withgovernment and UNMIK authorities, and with a range of education stakeholders, have demonstratedcommitment at all levels to the project concept and objectives, as well as to the implementation andinstitutional arrangements.

5. Value added of Bank support in this project:

The Bank's experience with school grants particularly in the South East European region provides aunique opportunity to adjust the project design based on lessons learned elsewhere. The Bank's ongoingrole in supporting education financing and administration reform in Kosovo will also help make theproject objectives an integral part of the policy agenda.

E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)

l. Economic (see Annex 4):J Cost benefit NPV=US$ million; ERR = % (see Annex 4)

_ Cost effectiveness

0 Other (specify)See economic analysis in Annex 4.

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2. Financial (see Annex 4 and Annex 5):NPV=USS million; FRR = % (see Annex 4)N/A

Fiscal Inpact:

The planned project costs of US$ 4.6 million represents on average about USS 1.5 million for each of thethree project implementation years (2003-2006). Total project costs represent about 6 percent of the2002 education allocation in the Kosovo general budget. This is equivalent to just over one percent ofthe total general budget. Total counterpart funding in the amount of less than US$ 100,000 is relativelysmall and would not have a significant impact on the education budget. The counterpart funds requiredfor the proposed Project cover 5 percent of operational costs. The increase in recurrent costs (to maintainthe EMIS component and the school grants component) resulting from the project would also berelatively small. If following project implementation MES1' finds that the impact of school grants ispositive, and has helped to improve access and attainment, MEST could consider continuing to providetargeted subsidies in the form of school grants through the education budget. This would largely vary bymunicipality depending on the geographical location of the schools, and the school development plansfor the schools benefiting from the Project. The government is addressing recurrent cost issues withrespect to the operation of the sector on the basis of recommendations outlined in the recently completedWorld Bank report, Kosovo: Medium Term Public Expenditure Priorities. Further research on ways todecrease costs and increase teacher efficiency is urgently required, particularly following the socialtensions relating to education employees--a strike which paralyzed the education system for three weeksin October 2002.

The fiscal impact of the project may also be measured in relation to different budget categories in theeducation budget. The project has three components: (1) School Development Grants; (2) EducationManagement Information System (EMIS); and (3) Project Management. The school development grantscomponent (82 percent of total project costs) is expected to improve enrollment, attendance, andcompletion rates. Project costs will not finance recurrent expenses such as salaries and wages. Relativeto goods, services and capital investments (24 percent of total budget for education), the school grantsrepresent about 5 percent of the 2002 general budget. The World Bank's Medium Term ExpenditurePriorities for Kosovo concluded that spending on goods, services and capital investments is notsufficient. Additional spending through the project is expected to have a positive impact on the structureof the education budget. School grants will be used as incenitives for school management and municipalgovernance. This is in line with international trends of using public expenditure to stimulateperformance, efficiency, and quality. Improving enrollment and completion rates requires improvementsin efficiency and lower per capital expenditures. Given the current budget structure, school developmentgrants are expected to act as a positive incentive in terms of fiscal sustainability.

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3. Technical:N/A

4. Institutional:

The proposed Project will be implemented over a three year period and all implementation arrangementswill be governed by the guidelines and procedures set out in the Project Operating Manual (POM) and inaccordance with the Project Implementation Schedule. The POM is aimed at supporting the overallachievement of project objectives. However, except as IDA shall otherwise agree, UNMIK shall not, andwill ensure that the MEST and the PMU do not, amend, suspend, abrogate, terminate or waive anyprovision of the Operating Manual without the prior written consent of IDA.

4.1 Executing agencies:

The Development Grant Agreement will be signed with UJNMIK. UNMIK will delegate theresponsibility for project execution to the Principal International Officer of the MEST. The day-to-dayoperations of project implementation will be handled by the PMU on behalf of MEST.

4.2 Project management:

An assessment of the institutional capacity of the PMU of the Education and Health Project (AttachmentI to Annex 2) revealed that with minor modifications, including strengthening of the procurement andfinancial management capacity, the PMU of the ongoing Education and Health Project will be able tomeet the demands of managing the proposed Project.

The Project Management Unit's (PMU) main focus will be on: (1) providing assistance to the schoolsand municipalities on implementation, procurement and financial management (2) coordinating betweenthe local and central levels and (3) monitoring and evaluating implementation at the institutional leveland for the project overall. The core PMU capacities established under the Education and Health Projectwill be strengthened in these areas and will continue to be responsible for the implementation of theproposed Education Participation Improvement Project. The PMU will comprise a Project Director,Procurement Specialist, and an Accountant. It is planned that a Education Specialist/Deputy Director,Accountant/Financial Management Specialist and a Procurement assistant will be selected once theproject is effective. Project financial management will continue to be handled by an internationalfinancial manager who was hired under an on going IDA-financed Grant with primary responsibility tomonitor and prepare project management reports for all Bank projects and who is located in the MFE. ASchool Grants Approval Board (SGAB) composed of various stakeholders will be established to monitorimplementation of the school grants program. The PMU Director will also function as the Secretary ofthe SGAB. The capacities of the PMU will be continuously be monitored to see if the responsibilities interms of coordination, monitoring and reporting are adequately met.

4.3 Procurement issues:

Procurement. Retroactive financing for School Grants for schools that participated in the school grantpilot and received funds from the MFE budget prior to EPIP effectiveness will be carried out inaccordance with para 1.9 of the Advance Contracting and Retroactive Financing of ProcurementGuidelines under IBRD Loans and IDA Credits. The procurement procedures will conform to theprovisions of the Procurement Handbook for School Grants. The Procurement Handbook will beformally cleared by IDA prior to the commencement of any steps to initiate the procurement process.The amount of grants that were provided to schools participating in the pilot will be reimbursed

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retroactively in one lumpsum payment amounting to a maximum of US$ 60,000 to the MFE followingGrant effectiveness.

Details of procurement issues are provided in Annex 6(A).

4.4 Financial management issues:

A review of the Financial Management arrangements for the proposed Project was undertaken in October2002 and revised in February 2003 to determine whether the financial management arrangements areacceptable to IDA. As of end-December 2002, the Central Fiscal Authority (CFA) has been merged withthe Ministry of Finance and Economy (MFE). Along with the merger the staff, duties andresponsibilities of the CFA were passed on to the MFE. MFE has a financial system in place, that isbeing used for other IDA-financed grants. This system is capable of providing accurate and timelyinformation regarding project resources and expenditures, including planning, procurement accountingand financial reporting. Prior to negotiations, UNMIK/MFE confirmed that the project records, accountsand financial statements will be audited each year, commencing with the accounts for the year endingDecember 31, 2003. Furthermore, UNMIKIMFE confirmed that the Project chart of accounts has beenentered into MFE's Free Balance System of accounting. Once this is completed, the FinancialManagement assessment will be revised to conclude that the project meets the IDA's minimum financialmanagement requirements.

During negotiations it was agreed that the financial management arrangements in place at the MFE forthe ongoing IDA grant-financed operations would be maintained for purposes of the Project.UNM1IMEST agreed that the same Financial Monitoring Report (FMR) formats will be used for EPIPreporting purposes, which formats have been included in Volume I of the Project Operating Manual.

Furtherrnore, during negotiations it was agreed that intemational standards on auditing would apply tothe records, accounts and financial statements maintained and prepared for the Project. The IDA teamconfirmed that the audit services could be financed from the Grant proceeds. UNMIK/MEST agreed thatthe auditor chosen by MFE to audit the ongoing IDA grant-financed projects (Deloitte and Touche)would be retained to audit the Project accounts. It was also agreed that the auditors would carry outrandom, special-purpose audits of the School Grant Component on an annual basis to ensure that thefunds under this component are being used for the purposes agreed. The audit TORs included in theOperating Manual have been amended to reflect the special-purpose audit for the School Grant.Component. It was agreed that IDA would be provided with the first set of audited financial statementsby June 30, 2004.

Retroactive Financing to a maximum amount of US$ 60,000 for school grants authorized under theEducation and Health Project will be made to MFE in accordance with IDA policy.

Details on financial management issues are provided in Annex 6(B).

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5. Environmental: Environmental Category: C (Not Required)5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (includingconsultation and disclosure) and the significant issues and their treatment emerging from this analysis.

N/A

5.2 What are the main features of the EMP and are they adequate?

N/A

5.3 For Category A and B projects, timeline and status of EA:Date of receipt of final draft:

N/A5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EAreport on the environmental impacts and proposed environment management plan? Describemechanisms of consultation that were used and which groups were consulted?

N/A

5.5 What mechanisms have been established to monitor and evaluate the impact of the project on theenvironment? Do the indicators reflect the objectives and results of the EMP?

N/A

6. Social:6.1 Summarize key social issues relevant to the project objectives, and specify the project's socialdevelopment outcomes.

A household survey showed that parental contributions are a major impediment to sending children toschool and keeping them in school, especially in the case of girls and minority groups. It is inevitablethat budgetary constraints will continue to make significant parental contributions-particularly for inputssuch as textbooks, basic materials and school maintenance-a necessity in Kosovo, as in nearly all othercountries in the region. Therefore, limited subsidies for books and materials provided by central fundingsources or by donors should be targeted towards those families that cannot afford to pay for these inputs.Sustainable funding will not be available to permit the PISG or donors to subsidize these inputs for allparents. It is also important to develop mechanisms to regulate parents' contributions and to make themmore transparent. Non-compulsory fees should be regulated and safeguards introduced to make sure thatthey are not used to keep children out of school.

As part of project design and preparation, a social assessment was finalized. The conclusions of thesocial assessment were that: (i) school non-attendance and dropout is a significant problem in Kosovo;(ii) at secondary level, the overall enrollment rate is low and there are significant gaps in enrollment forgirls, children from rural areas, children from poor families as well as children from some ethnic groups;(iii) significant inequalities exist in enrollment and attendance by gender; (iv) efforts should be made toimprove gender equality in the eduation sector through long-term planning that incorporates both generalpublic awareness-raising programs, as well as more targeted campaigns to address the causes of genderimbalances; (v) additional steps must be taken to integrate all segments of Kosovar society into the neweducational system; (vi) public awareness campaigns should be undertaken to gradually change publicperception and increased support for children with special needs and their teachers; (vii) private cost ofeducation remains a serious obstacle for educational attainment; and (viii) there is a strong correlationbetween educational attainment and variables such as ethnicity, gender, income and geographicallocation.

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6.2 Participatory Approach: How are key stakeholders participating in the project?

The key focus of the proposed Project is on strengthening local community participation in schoolactivities via school boards. At the municipal level, the Municipal School Grant Team (MSGT) willfacilitate stakeholder participation. At the central level, the School Grant Approval Board (SGAB) is thekey institution in which governmental and professional organizations will play an active role inimplementation .

6.3 How does the project involve consultations or collaboration with NGOs or other civil societyorganizations?

The proposed Project is being prepared with a local non-governmental organization Kosovo EducationCenter (KEC) that is taking a lead role in piloting school grants under IDA and Soros Foundationprojects. An independent evaluation of the school pilot concluded that the NGO's work was satisfactory.It is proposed that KEC will continue to take a lead in the training and outreach part of the school grantscomponent of the proposed project.

6.4 What institutional arrangements have been provided to ensure the project achieves its socialdevelopment outcomes?

A School Grants Approval Board (SGAB) will oversee implementation of the school grant scheme,monitor and evaluate activities and outcomes.

6.5 How will the project monitor performance in tenns of social development outcomes?

Project monitoring indicators to assess performance in terms of social development outcomes have beenagreed at appraisal and are provided in Annex 1. Monitoring indicators will include tracking net andgross enrollment rates, completion rate at primary level, rate of transition from primary to secondarylevel, and participation rates of students from ethnic groups facing problems with respect to enrollment,attainment, and completion.

7. Safeguard Policies:7 1 Are anv of the following safeguard policies triggered bv the project?;'''., . Policy . : . - - |riggered p

Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) Yes No

Natural Habitats (OP 4.04, BP 4.04, GP 4.04) U Yes * NoForestry (OP 4.36, GP 4.36) U Yes @ NoPest Management (OP 4.09) (9 Yes * No

Cultural Property (OPN 11.03) (9 Yes * NoIndigenous Peoples (OD 4.20) U Yes @ NoInvoluntary Resettlement (OP/BP 4.12) U Yes * No

Safety of Dams (OP 4.37, BP 4.37) U Yes * No

Projects in International Waters (OP 7.50, BP 7.50, GP 7.50) (U Yes * No

Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60)* () Yes * No

7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies.

There is no physical construction or civil works associated with the proposed Project. Therefore, theproposed Project is rated as environmental category "C".

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F. Sustainability and Risks

1. Sustainability:

As Kosovo's education system is being decentralized, the roles and responsibilities of municipalauthorities and school authorities will increase. Schools have increasing responsibility to workeffectively: reach out to all eligible children, make sure pupils attend and complete successfully theireducation. Municipalities have increasing responsibility to make sure access is provided equally to alland financing of schools is adequate in that it also assures non-recurrent expenditures. In that sense, theschool grant component helps to improve management and planning capacities, tests a feasible form ofincentive to schools to effectively manage service delivery and also tests a transfer mechanism to coversome recurrent expenditures, finance equipment and materials, training and small capital improvements.Municipal and school leaders will develop the capacity to plan and deliver small scale developmentprojects, and the central government will establish capacity to carry out project management andevaluation, as well as introduce incentives for improved effectiveness and development. The schoolgrants will support the strengthening of school level management, the broadening of school levelauthority, local community and municipal capacities to make sure all children are enrolled, attend school,complete primary education and, preferably, transfer to secondary education. This capacity building willhelp to sustain the local institutional basis for improving the effectiveness of schools in the targeted areasof access and attainment.

To the extent the grants help to achieve the stated objectives of the school grants component, anddemonstrate the need for targeting resources to the poorest populations, MEST may consider financingthis type of activity beyond the project's lifetime. The school grant mechanism may be continued tosupport the project's original objectives, but could also be used in the future to directly target qualityimprovements in the system. However, the scope of future need for Government or donor financedschool development grants aimed at improving access and attainment cannot be judged at this point.Governments in the region and international donors frequently use school grants to support school basedinitiatives and to stimulate efficient and effective service delivery. Therefore, effective implementationof the project may demonstrate the usefulness of this mechanism to support future policy agendas andquality improvements.

2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1):

Risk R Risk&Ring Ri-k Militigation MeasureFrom Outputs to ObjectiveReduction in security and transportation N There is peace in Kosovo, and security isproblems constrain students from provided by international forces. Furtherattending school. improvements in security are expected.

Schools do not respond to the challenge; M Grants are likely to establish significantschool principals are too busy dealing incentives for school principals and schoolwith daily problems to engage in boards to participate. Extensive training andschool-based initiatives or outreach strengthened local participation (school boardsactivities. School planning and and municipalities) will help strengthenmanagement capacity is not adequate to capacities.meet the challenge.Municipalities and parents do not M Plans and school grant proposals will be signedbecome sufficiently involved in the by both municipalities and by school boardsplanning and school grant process.Government will not sustain the M The per capita based financing and increasing

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Education Management Information attention paid to the MDG goals wouldSystem. motivate the Government to sustain the EMIS.Schools and municipalities do not M TA for the pilot municipalities would help tomonitor enrollment and attendance by the develop an adequate monitoring system forchildren from families receiving cash municipalities.benefits.

From Components to OutputsThere is a risk that grant activities will M The pilot planning and grant activities will benot bring about the planned outcomes in thoroughly evaluated, and training to schoola short period. management and boards will be adjusted based

on the lessons learned.

There is a risk that the Ministry or local M The student based allocation formula plus theadministrative agencies might not update school planning process will create incentivesthe information system on a regular basis, not only to regularly collect information butor use adequately the available also to rely on it in planning and managementinformation. decisions.

Overall Risk Rating M

Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk)

3. Possible Controversial Aspects:

None.

G. Main Grant Conditions

1. Effectiveness Condition

The IDA Grant will be subject to the policies and procedures applicable to all IDA Credits/World BankLoans. Grant disbursement will begin only after IDA conveys to UNMIK a notice confirmingeffectiveness.

2. Other [classify according to covenant types used in the Legal Agreements.]

(a) Disbursement of the school grants:

* The MEST and/or the Recipient shall have established by all necessary legal and administrativemeasures the School Grants Approval Board pursuant to lerms of reference satisfactory to theAssociation and shall have appointed persons to such Board as members.

* UNMIKJMEST shall have adopted and/or promulgated all necessary legal measures, satisfactory toIDA, to establish the cnteria and procedures, satisfactory to IDA, for the selection and appointmentof school directors, and UNMIK/MEST, in accordance with such criteria and procedures, shall haveselected and appointed such number of school directors as may be necessary to fill all vacancies asmay exist in any schools in Kosovo.

(b) Project Implementation:

* UNMIK/MEST to ensure that the Project Management Unit with staffing, funds and facilities and

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other resources satisfactory to IDA is maintained until the completion of the Project;o UTNMIK/MEST shall ensure that project implementation is carried out in accordance with the agreed

procedures, as detailed in the Operating Manual;o Procurement: updated detailed procurement plan satisfactory to IDA shall be submitted for each

following year of project implementation one month prior to the beginning of the year.

H. Readiness for Implementation

D 1. a) The engineering design documents for the first year's activities are complete and ready for thestart of project implementation.

1 1. b) Not applicable.

E 2. The procurement documents for the first year's activities are complete and ready for the start ofproject implementation.

S 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactoryquality.

L 4. The following items are lacking and are discussed under loan conditions (Section G):

UNMIK/MEST has adopted an Operating Manual, dated March 31, 2003 that is satisfactory to IDA.

1. Compliance with Bank Policies

N 1. This project complies with all applicable Bank policies.D 2. The following exceptions to Bank policies are recommended for approval. The project complies

with all other applicable Bank policies.

Peter Darvas Maureen McLaughl a Ogs haalant OsTeam Leader Sector Manager/Director Cou t Direct r

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Annex 1: Project Design Summary

KOSOVO: Education Participation Improvement Project

f-4' ."' -, .KeymPerf&rran'e2'7 ,tDataCollection_Strftegy i*. -; .eHierarchy of Obje.ctives'- ' Indicators''. ---. -. .Critical -Assumnptions -:

Sector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission)to increase enrollment rates in Net and gross enrollment Household survey, poverty Relatively stable political andprimary and secondary rates, completion rate at assessment macroeconomic situation andeducation primary level, rate of Published information system continued Govemment

transition from primary to data comnumtment to fund educationsecondary level Ministry reports on school thereby allowing greater

effectiveness participation in education

to enhance access of girls and Participation rates by students Household survey, poverty Kosovo adopts the MDG goalsvulnerable groups to education from at risk groups assessment,

Project Development Outcome / Impact Project reports: (from Objective to Goal)Objective: Indicators:The objective of the project is * reduction of dropout rate * Published Education Govemrnment remainsto improve educational in the targeted schools; Statistics committed to increasingattainment at primary and * improvement in the * School Grant Project access for all, improvingsecondary education levels survival rate between progress reports quality as well as budgetand grades and completion rate * Report from the management.to enhance access of at primary level (currently Education Management Schools and localvulnerable groups to 9 years) in the targeted Information System on communities find feasibleeducation. schools;; attaimment, completion solutions for using the grants

* improved net and gross and enrollment rates effectively to improveenrollment rates to attainment and completionprimary education intargeted non-Serb andNon-Albaniancommunities,

* higher level transition toand attainment atsecondary level especiallyby girls in the targetedcommunities.

Output from each Output Indicators: Project reports: (from Outputs to Objective)Component:Increasing enrollment in Enrollment rates, dropout Project report on enrollment, Enrollment, dropout,pnmary and secondary rates, average number of years dropout, attendance at pnmary attendance improve, impactingeducation, especially among in the education system and secondary level. on attainment and completionthe marginalized groups, (9 years). Schools recordDecreasing dropout and thoroughly and reliablyincreasing attendance in dropout and attendanceprimary and secondary information.

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education.

Increasing accountability and School Development Plans Evaluative reports of school Consensus on local policyparticipation via active school completed in about 300 development plans by objectives is developed;boards and school-municipal schools. Municipal Management Schools involve parents andgovernment partnerships. Teams and PMU. local conimunity in grant

activities and monmtoring.Inreasing accountability and Education Management Report on EMIS Government remainsadministrative effectiveness Information System has implementation. committed to sustain thevia strengthened management established data on dropout, EMIS.system. attendance and completion (9

years) is available.

Project is effectively managed. School Grant process is Regular project progress Cooperation between projectimplemented in a timely reports. management, ministry andmanner. UNMIK remains close.

Project Components / Inputs: (budget for each Project reports: (from Components toSub-components: component) Outputs)School Planning and 3,790,000.00 Formal progress and financial Pilot school grant programDevelopment Grants reports evaluated, adjustments are

made in the manual, technicalassistance to training andinstitutional development isprocured, implementation isregularly monitored.

Education Management 300,000.00 Supervision Aide memoire Technical assistance isInformation System procured, central and local

government has the capacity tocollect and use information

Project Management 510,000 00 Supervision Aide Memoire Ministry and UNMIKcooperation is effective

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Annex 2: Detailed Project DescriptionKOSOVO: Education Participation Improvement Project

Project Objective:

The objective of the project is to improve educational attainment at primary and secondary educationlevels to enhance access of vulnerable groups to education.

By Component:

Project Component 1 - US$3.79 millionProviding School Development Grants

Introduction

The objective of the School Development Grant (SDG) component is to provide funding to schools tohelp increase enrollment, attendance and completion in primary and secondary education.

During the project, about US$ 3.4 million in grant funding will be awarded in targeted small grantcontracts to approximately 50 percent of the 550 primary schools and 110 secondary schools in Kosovo's30 municipalities. Primary schools will be eligible for grants up to US$ 10,000, and secondary schoolswill be eligible for grants up to US$ 15,000. The grants will be awarded on the basis of schooldevelopment plans and grant proposals, which will be assessed by Municipal School Grants Teams(MSGTs) and approved by a central School Grants Approval Board (SGAB). All schools selected for theprogram will receive technical assistance and training in the areas of school development planning andproposal writing. Schools will be identified for the program by municipal education officials on the basisof documented access and attainment problems in the school's catchment area. Schools will be selectedfor participation in the project by each MSGT from this initial list on the basis of secondary criteria, andgiven access to capacity-building support for the development of school grant proposals. Grant proposals;prepared by the selected schools, will be assessed by the MSGTs and approved by the SGAB on the basisof how effectively they propose to address access and retention problems. The grants will financetraining, community outreach activities, educational materials, school supplies, and small works aimed atimproving security and the educational environment. Grant contracts will be signed between the schooldirector, the MSGT, and the MEST, as represented by the Project Manager (see description below)

The aggregate amount of SDG funding will be allocated across municipalities on a per student capitationbasis. A percentage share of funding for each municipality will be agreed at appraisal, using 2002-2003student numbers.

A pilot of the school grants process is currently being carried out under financing from the ongoingEducation and Health Project. A small contract (about US$ 20,000) was signed with the local KosovoEducation Center (KEC) - a local NGO established by the Soros Foundation - and training provided inschool development planning and proposal writing and to develop a grants manual, a grant application,and evaluation/targeting criteria for about 20 preselected primary and secondary schools. These schoolswere proposed by KEC and approved by the MEST on the basis of documented access and retentionproblems in the schools' catchment area. Due to limited funding under the ongoing project, only tenschools will be awarded grants in the amount of $5,000 under the pilot phase. An interim School GrantsApproval Board, already established, has reviewed all proposals and ranked them in terms of quality.Best practice proposals from the pilot will be shared with all schools in the program as models. Schools

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that did not receive grants during the pilot phase may resubmit their proposals during the first phase ofthe full project implementation. Due to the small amounts of the pilot grants, schools receiving grantsunder the pilot may also apply for new grants during the full SDG implementation.

An external evaluation of the outreach phase of the school grant pilot has been carried out by expertsfrom Lithuania, Slovenia and Albania and the first draft of the evaluation has been reviewed by the Bankteam. The overall conclusion of the evaluation is that the outreach process has had a positive impact onthe schools and that both school and municipal officials are well focused on dealing with problems inenrollment, attendance and student retention. Following the implementation of the grants, which arecurrently being awarded, there is every expectation that measurable increases in enrollment, attendanceand retention will result in the coming years. The evaluation makes useful recommendations forimproving the implementation of the training and school development planning process and forincreasing the role, capacity and commitment of the stakeholders in the project. Among the report'srecommendations are: to strengthen the role of the School Boards in providing outreach to the localcommunity, to extend the training provided to mumcipalities, and to involve more actively the RegionalEducation Officers working on the school grant program at the level of municipalities.

Institutional Arrangements

Detailed institutional and procedural arrangements for the SDG component are described below. Theseprocedures and arrangements have been developed in the context of the ongoing pilot and its evaluation,and may continue to evolve as more lessons are learned in respective phases of the project.

Each of Kosovo's 30 municipalities will establish a Municipal School Grants Team (MSGT). The teamswill include Regional Education Officers (REOs), which are appointed by the central MEST, andMunicipal Education Directors (MEDs), which are elected in the municipality, as well as other keycommunity leaders. The MSGT will be in charge of selecting the schools on the basis of establishedcriteria, assessing proposals before they are evaluated in comparison with other municipalities, andmonitoring implementation. Specific criteria for the selection of schools in the program, which focuseslargely on enrollment, drop out and attendance statistics, will be reviewed and agreed at appraisal.Municipalities and local communities, through the MSGTs, will identify the schools and communitieswhere problems of enrollment, attendance and completion are most serious. An outreach program willalso help the municipalities in this process. If there are disagreements among different stakeholdersabout the schools to be selected, these will be resolved by the central level SGAB (see below).

In the special case of Mitrovica North, as well as of other Serbian enclaves in Kosovo, the MitrovicaRegional Education Board is expected to provide outreach services, including preselection of schools andmonitoring, mentoring planning, proposal writing and implementation. The Mitrovica RegionalEducation Board will be assisted by a regional outreach coordinator, and jointly supervised by the ProjectDirector, PMU and by the Principal International Officer (PIO).

Selected schools will receive training and outreach from a technical assistance provider. This technicalassistance will help strengthen the capacity of school management, school boards, and municipaleducation officials to (i) define school development plans aimed at improving performance andeffectiveness, especially in terms of enrollment, attendance and retention of students; (ii) develop grantproposals; (iii) set targets for increasing access to schooling, improved attendance and attainment; and(iv) help monitor enrollment, attendance and completion, as well as the implementation of theschool-based projects. The Bank has agreed that the technical assistance will be provided by the KosovoEducation Center (KEC), which has successfully organized the pilot phase. The KEC outreach activitieswill be cofinanced by the Kosovo Foundation of Open Society (KFOS). A detailed breakdown of

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activities to be financed by KFOS and those to be financed under the IDA funding has been agreed.

Based on the training, school management, in close cooperttion with the school boards will beresponsible for (a) producing school development plans focusing on access and retention issues, (b)developing grant proposals, and (c) directly managing the small grant contracts. Grant funding will bebased on activities detailed in School Development Plans (SDPs) and grant proposals that address bothpedagogical and material needs in the context of why children drop out, do not enroll, or do not attendschool. School boards and school management will consult with other interested stakeholders, whereappropriate, in the development of school plans and grant proposals.

The grant proposals will be developed on the basis of a School Grant Manual and a grant applicationwhich were developed under the pilot phase of the project and further refined to suit the EPIP. TheSchool Grant Manual and the grant application have been updated taking into account the findings of thepilot evaluation. Grant proposals will contain sections covering the objectives and rationale of theproposal, the activities that are going to be undertaken to achieve the objectives, who will be responsiblefor carrying out the activities, and a budget indicating what resources are needed. The basic aim is toensure that the proposal outlines priority projects within the School Development Plan that wouldimprove student enrollment, attendance and completion.

The School Grant Proposals (SGP) and the School Development Plans (SDPs) will be reviewed andassessed by the respective MSGTs. These teams will determine whether or not the school proposalscover the most significant access and retention problems experienced in the municipality, whether theyare realistic in terms of the capacity of the municipality, and whether they have appropriate school leveland municipal monitoring mechanisms. SGPs will either be referred back to the school withrecommendations for modification, or recommended for approval by the SGAB. MSGTs will consist ofthree core members (the REO, MED and technical assistance NGO) and other members (e.g. local NGOor women's groups etc.), by invitation of the core team, to assist in addressing specific issues in thatmunicipality.

Grant applications submitted by the schools and assessed by the MSGT will be forwarded for approvalby the central level SGAB. The approval board is chaired by the Permanent Secretary of the MEST andhas the PMU Director as ex-officio member, includes three more representatives of the MEST andrepresentatives of the lead international donor agencies as well as of the local NGOs active in education.The SGAB will approve criteria for preselection of schools, approve the school grants, and makerecommendations as to how to improve the school grant process. The board will also mediate conflicts, ifnecessary, and will help monitor the success of the overall grants program. It is expected that about 50schools will receive outreach support in each of three annual phases beginning with the first half of 2003.The SGAB is, therefore, expected to evaluate about 150 grant proposals in each of the first two years ofthe project. Table 1 shows the role and structure of various agencies in the school grant scheme atdifferent administrative levels.

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Table 1. Kosovo School Development Grants: Level, lInstitution, Responsibilities, and Membership

Level Institution Responsibilities Members (nominated by)Central School - Oversees, monitors and advises on MEST Permanent Secretary

Grants the School Grants process. (Minister of Education, MEST)Approval -Reviews and approves selection of 2 MEST senior officialsBoard schools for participation in the (Permanent Secretary)(SGAB) Project in terms of selection I UNMIK international advisor

criteria. (PIO)- Reviews and approves PMU Director (ex officio)

recommendations from municipal 2 representatives ofschool grant management teams on international agencies (UNICEFaward of school grants and KEDP 1/2 vote each)

- Receives and comments on regular I representative of the KosovoProgress Reports prepared by Parents Council (KAPC)PMU for presentation at SGAB The International Fieldmeetings Officer/Head of Communities

- Recommends to PMU Division (PIO)improvements or amendments toprocedures.

-- Advises MEST on policies thattarget access and attainment

Project Overall project management and PMU DirectorManagement Unit supervision Procurement specialist(PMU) -Secretariat to SGAB Education Specialist/Deputy

-Submits Progress Report to each DirectorSGAB Meeting Accountant/Financial-Compiles School Grant Proposals wit Management Specialistecommendations from MSGTs fo Translator/Procurement Assistant

submission to SGAB Office manager/administrative-- Manages grant disbursement, assistantmonitoring and reporting Driver-- Administers procurement and takeoverall responsibility for supervision oprocurement at the municipal and schoolevel under the school grant component

Municipal Municipal - Identify project schools according Core Members:School Grants to approved Selection Cnteria Municipal Education DirectorManagement - Receive School Grant Proposals (MED)Team (MSGT) and assess in terms of approved Regional Education Officer

assessment cnteria (REO)- Forward Grant Proposals with Capacity-Building NGO (by

assessments and recommendations NGO/ROSO)to SGAB via PMU

- Refer back to schools and In consultation with (byCapacity-Building NGO Grant invitation):Proposals that do not meet Local PTC/PTA (where existing)assessment cntena Director of Centre for Social

- Monitor implementation of school Welfaregrants and training and outreach Local Handikos Office (whereprovided by Capacity-Building existing)NGO. Other local stakeholders

- Refer problems, quenes or

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recommendations to PMU.-- Under supervision and guidance

from the PMU, carry out -

procurement under School Grantscomponent up to the thresholdsagreed with IDA and spelled out inthe School Grants Manual

School School Board -- Participates in capacity-buildmg for As provided in Generalschool development planning Education Law):provided by Capacity-Building NGO Parents (elected)

Teachers (elected)-Prepares SDPs and SG Proposals Students (secondary school --Approves and sign SG Proposals, elected)

and submit to MED/REO Secretariat (School Director)- Implements approved projects in

line with contract and according tothe School Grant Manual

- Prepares School Grant CompletionReports

-- Administers small valueprocurement up to the thresholdsagreed with IDA and stipulated inthe School Grant Manual

School Director - Serves as Secretanat of the School School DirectorBoard. Secretary/Book keeper (assigned

- Prepares SDP in consultation by School Board)with School Board and submits toSchool Board for approval.

- Manages implementation ofapproved projects in accordancewith the School Grant Agreement,and in consultation with SchoolBoard.

-- Is responsible for reportingexpenditures for school grantactivities.

Operational Procedures

The school grant proposal and standard covering letter of application will be signed by both the schoolboard and the MSGT before submission to the SGAB. The criteria that the board will use to evaluate thegrant proposals are defined in the School Grant Manual.

The School Grant Manual (SGM) provides schools with a proposal structure, additional guidelines withrespect to the nature of the proposed school activities, and formats for reporting on the implementation ofthe school grants project. This list of proposed activities is not mandatory, but serve as guidelines forschools in terms of what may be most helpful to consider in improving access and retention. Theseactivities could include improvement in the learning environment, in-service training for staff, new orimproved equipment and instructional materials, and new educational or extra-curricular services. Someprovisions could also be made to assist families for which out-of-pocket payments create an obstacle toparticipation in the system. These investments would include assistance for transportation, school lunchor personal learming materials (books, pens, notebooks, etc.), or minor repairs in the infrastructure.

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Schools will be required, as a condition for receiving a grant, to agree to participate in extemalevaluation, as well as to conduct internal self-evaluation of their grant projects. In addition to monitoringthe effectiveness of school-based project implementation, schools and municipalities will monitor thechanges in the targeted indicators of enrollment, attendance, and completion. Municipalities will providethe data gathered to the central Education Management Information System (EMIS).

A grant agreement or contract will be signed with each school which is awarded a grant indicating theamount of funds available and allowable usage of funds. Only small procurement packages of equipmentand materials will take place under the grants. Such procurement will be undertaken by the schoolsthemselves, based on community-based procurement procedures which are outlined in the School GrantManual. Community-based procurement procedures will call for three quotations, where feasible, for allprocured goods, services and works and, in justified cases, direct contracting.

The primary responsibility for implementation of the grants rests with the schools under the direction ofthe School Director, with the oversight of the School Boards. Arrangements for interested stakeholders(parents, local businesses, NGOs, etc) to participate in the oversight of the grants will be encouraged.Sufficient advisory and technical support to the schools will be arranged via the outreach technicalassistance through the contract with KEC, co-funded by the Soros Foundation.

Schools will receive disbursements on the basis of due diligence procedure outlined in the Project Flowof Funds in the Project Operating Manual (POM). The evaluation and selection process for grants willbe monitored by the Project Management Unit (PMU). The PMU will ensure that established criteria areapplied by MSGTs and reviewed and approved by the School Grants Approval Board. The SGAB willalso select a random sample of projects to review in detail in each round to verify that criteria andprocedures are being applied.

The Bank and the PMU will ensure that grant recipients understand procedures for contracting. For thispurpose, the Bank and the PMU will review the first set of awarded contracts. Furthermore, grantrecipients will continue to be monitored following the award of contracts on a sample basis to ensurecompliance with procurement and disbursement procedures as per School Grant Manual. Randomspecial purpose audit of school grants will be carried on a yearly basis to ensure that the school grants arebeing used for the purposes intended.

An evaluation of the first two phases of school grants will be carried out in early 2004 to ensure thatprogress is being made in accordance with school development plans and the grant proposals. Schoolsreceiving grants will provide a self-evaluation report about project activities and progress made inrelation to school development plans, as well as provide specific details on enrollment, attendance,retention, and completion data. The respective municipal MSGTs will also evaluate the schools'self-evaluation reports and prepare a consolidated report on the outcomes of the activities of the first twophases. The consolidated reports will be sent to the PMU for final scrutiny and preparation of asummary. The PMU will submit the summary report to the SGAB and to IDA. This process will berepeated in the form for a final evaluation of the SDG process following completion of the project. Seethe summary of operational procedures in Table 2.

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Table 2. Summary of Operational Responsibilities

-Sub-Components Activities Responsibility In Consultation with Output1.1 Establishing 1.1.1 Define roles and Project MEST, UNMIK List of SGAB rolesinstitutional responsibilities of the SGAB. Preparation and responsibilitiesframework and Team, PMUdesign for schooldevelopment grants

1.1.2 Identify membership of Project MEST, UNMIK List of SGAB rolesSGAB Preparation and responsibilities

Team, PMU1.1 3 Convene SGAB to define PMU MEST, UNMIK Timetable fortimelines for school development school grantsgrants proposals receipt and proposalsapproval process1.1.4 Develop criteria for PMU MEST Distnbution criteriaallocation of grant funds acrossmunicipalities.

1 1.5 Revise School grant PMtl Project --Revised schoolmanual and design advisory preparation team, grant manualservices. Local TA --List of advisory

services1.1.6 SGAB review of school SGAB, PMU --Approval ofgrant manual school grant

manual1.1.7 Prepare draft training PMU KEC (TA) Draft trainingmaterial for capacity building by materialsNGOs.1.1.8 Mount public information PMU WB-TTL Public informationcampaign for school grant campaigncomponent

1 2 Selection of 1.2.1 Distribute School Grant PMLt MEDs, REOs, Bnefing lettersschools Manuals, preselection criteria, NGOs and/or meetings

with municipal allocationceilings and relevant EMIS datato MEDs, REOs and NGOs1.2.2 Using EMIS data, other MEr) with REO NGO, relevant List of preselecteddata and local knowledge Community schoolsidentify schools in greatest need interests (PTC,of support using the criteria SW, Handikos,provided in the School Grant etc.)Manual, and invite SchoolDirectors concerned to apply toNGO for capacity-building

1.3 Training and 1 3.1 Arrange capacity-building NGOs MED, REO, Draft SDPs andSchool workshops and outreach targeted Community SGPs for eachDevelopment support for preselected schools interests (PTC, schoolPlanning and to assist in, (a) Election of SW, Handikos,Proposal Writing School Boards (where etc.)Process necessary); (b) Development of

School Development Plans(SDPs); (c) Preparation of

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School Grant Proposals.1.3 2 Articulate a vision and Selected schools NGOs -- School grantlong-term program for school - School proposaldevelopment, improving access Director, School -- Schoolto schooling, promoting Board Development Planattendance, ensuring completion - Application forof schooling, and improving grantquality of teaching and learning;1.3.3 Prioritize problem areasand plans for solutions.1.3.4 Outline plans forself-evaluation, to establish amodus operandi for school levelmonitoring of quality, attendanceand attainment, incorporatingschool self-evaluation andeffectiveness critena1.3.5 School Boards approve School Director School Board, Signed Schooland submit School Grant NGO Grant ProposalsProposals (with SDP annex) toMEDs, REO, copied to NGOsfor review.1.3.6 MED/REO/KEC jointly MED/REO/KEC School grantreview School grant proposals (MSGT) proposals withand forward, within 7 days, to municipal levelSchool Grants Approval Board recommendations(SGAB) with recommendationsvia PMU (as secretariat)

1.4 Grant Approval 1.4.1 PMU (as SGAB secretariat) PMU Chair, SGAB Meeting ofreceives School grant proposals SGABfrom MED/REOs and, inconsultation with Chair, convenesmeeting of SGAB.1.4.2 SGAB reviews School SGAB List of approvedgrant proposals against school grantestablished criteria, and either proposalsapproves or refers back toSchool Board, copied to relevantNGO, MED.1.4.3 PMU Director signs PMU Signed contractscontracts for each approved and authorizationschool grant proposal, and for release of fundsforwards for release of firsttranche (see Flow of Funds in theSchool Grant Manual (Vol. 11 ofPOM) and the Project OperatingManual (Vol. 1)).1.4.4 Schools sign contract and School Director, Signed contractreceive authonzation to use grant School Boardfunding from MSGT. representative

1.5 Implementation 1.5.1 School Boards implement School Board NGOand Monitoring school grant projects as per

contracts.1.5.2 NGOs provide outreach NGOs MED Progress reports

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support and guidance. l

1.5.3 Implementation reports School Board First trancheand first tranche results (in terms implementationof improved access and reportsattendance) of school grantactivities from first trancherecipients for SGAB review1.5.4 NGOs audit and control PMU Report on findingsaccounts and projectaccomplishments beforedisbursement of the grant'ssecond tranche, under PMU andcoordinating Agencysupervision, in coordination withthe Central Fiscal Authority (seeflow of funds in the POM).1 5.5 PMU and coordinating PMU and MEST Supervision andAgency monitor and control the Coordinating coordination ofwhole project cycle Agency school grantimplementation by NGOs and project supportother actors.1.5.6 School Boards prepare School Board NGO Project Completionself-evaluation or Project Reports orCompletion Reports-first self-evaluationtranche results (in terms ofimproved access and attendance)for submission to MED, REO.1.5.7 MED, REO review school MED, REO Municipal levelself-evaluation reports and summary reportprepare summary formumcipality for submission withrecommendations to SGAB viaPMU.1 5.8 SGAB evaluates and PMU, SGAB Approval ofapproves self-evaluation/ second trancheimplementation report summary offirst tranche results for release ofsecond tranche.1.5.9 PMU submits periodic PMU, SGAB Oversight, Advice,progress reports to SGAB and MonitoringSGAB reviews Progress Reportsand makes recommendations toMEST and PMU formodifications to improve projectperformance; SGAB advisesMEST on policies that targetaccess and attainment

MEST-Ministry of Education, Science and Technology; PMU--Project Management Unit;NGO--Non-government Organization; MED-Municipal Education Director; REQ-Regional EducationOfficer; SGAB-School Grants Approval Board; PTC-Parent Teacher Councils; TORs-Terms ofreference; WB-TTL-World Bank Task Team Leader.

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Project Component 2 - US$0.30 millionImproving the Education Management Information System.

The objective of this component is to help strengthen and ensure the sustainability of the EMIS whichwas designed and began implementation under the ongoing Education and Health Project.

Beginning in 2000, a database was designed for Kosovo's new education system that included moduleson education statistics, personal and payroll. A procedure was developed, and included in the MunicipalEducation Governance Handbook, for biannual (September and April) updating of the database by theschools and municipalities. Training was also provided to municipal officials and school directors bothon the mechanics of providing and entering the information and on the use of education data inmanagement and decision making. The database initially included data from the 2000-2001 school yearand has been updated for the 2001-2002 and 2002-2003 school years. In addition to providingstakeholders and donors with detailed information on the Kosovo school system, student data from theEMIS is used to drive the allocation of funding to the municipalities in Kosovo's using the formulafunding mechanism. Following delays with contracting, dedicated software has been designed by a localcompany, and the database is currently being transferred from Excel to the new software, which will bemade available at the municipal and central levels.

Despite this progress, the sustainability of the system and its pay off in terms of using information tomonitor system progress and performance is not assured. Local consultants who, together withinternational technical assistance, designed and updated the database and provided training to localauthorities on system operation have proven unwilling to accept positions at low public sector salarylevels in the newly created Ministry of Education, Science and Technology. The new ministry willrequire additional support to maintain, update, and expand the new software in the coming years. Inaddition, the new ministry will require support for better performance monitoring and for communicatingsystemic issues and analysis back to lower administrative levels and education stakeholders. Given thegoals of the Education Participation Improvement Project (EPIP), further investment in the EMIS willfocus principally on developing, maintaining and communicating access, attainment and retentionindicators, such as enrollment, attendance, repetition, dropout and completion rates. Bringing studentperformance data such as assessment results into the EMIS is a medium term goal that will not beaddressed directly in this project.

In view of the difficulty encountered during implementation of the first project in hiring qualified staff inthe MEST, the MEST has decided to enter into an outsourcing arrangement, to be financed initially underthe project with a local information technology firm. Under terms of reference finalised at appraisal, thelocal firm will be contracted to provide the MEST with the equivalent of two full-time staff per year whowould be responsible for two EMIS updates per year, the production of local and English languagesreporting on system performance to be shared with municipalities, and the training of staff at the centralMEST and in municipalities on technical manipulation of the system. Technical assistance will also beprovided in the first year to support the roll out of EMIS software and required training. The outsourcingarrangement is expected to cost the MEST approximately US$ 20,000 per year to be financed from thisgrant on a declining basis. A contractor will be selected on in competitive basis.

In addition to the outsourcing arrangement, the project will finance the services of an individualintemational consultant who will make periodic visits to Kosovo to (a) assist with initial supervision ofthe outsourcing contract, (b) participate in training design and delivery for both the MEST andmunicipalities, and (c) assist the MEST to undertake analysis based on EMIS data and indicators and toproduce reports for system stakeholders and donors. As mentioned above, special focus will be given to

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access, attainment and retention indicators in the Ministry's EMIS reporting. A terns of reference will bereviewed at appraisal. The Ministry will assign a staff member who will be principally responsible formanaging the outsourcing contract, as well as be the primary counterpart of the international technicalassistant. The responsible MEST staff will be expected to have an education policy background (or bewilling to be trained), and not an IT background. External training will also be included under theproject. A terms of reference for this assignment will be reviewed at appraisal. Limited equipment andfurniture will be included under the component for a central MEST office and to upgrade municipaleducation offices.

Project Component 3 - US$ 0.51 millionStrengthening Project Management

The objective of this component is the effective implementation, monitonng and evaluation of theproposed project. The Project Management Unit (PMU) that has been established under the ongoingKosovo Health and Education Project will assume administration and implementation responsibilities forthe proposed project. The PMU will report to the Principal International Officer (PIO, UNMIK) and thePermanent Secretary, Ministry of Education, Science and Technology (MEST). The contracts of thePMU staff will be extended under the new project. In addition to supporting project implementation incooperation with UNMIK authorities responsible for financial management and procurement, the PMUwill be responsible for monitoring and evaluation of results under the school development grantscomponent..

The PMU will be primanly responsible for organizing and coordinating all school grant activitiesincluding authorizing grant payments, guiding technical assistance, managing the school developmentteams, and publicizing the grants component. It will also oversee the EMIS implementation and, asduring the implementation of the ongoing project, will make sure that the reports of the EMIS system areregularly published and distributed.

The Project Management Unit (PMU) will include the followving staff: (a) PMU Director; (b)Procurement specialist; (c) Education Specialist/Deputy Director; (d) Accountant/Financial ManagementSpecialist; (e) Translator/Procurement Assistant; (f) Translator/Procurement Assistant; (g) Officemanager/administrative assistant; (h) A driver. All PMU staff will be hired on a consultancy basis. TheDeputy Director for the ongoing project will assume the position of the Director, PMU during EPIPpreparation and during the first months following project effectiveness (until June 30, 2003). Under theDirector's supervision, a Deputy Director will be hired. S/he will assume the responsibilities as PMUManager after June 30, 2003, when the ongoing project is expected to close. The Deputy Director will bein charge of the preparation of the SDG component and will be trained on-the-job in IDA projectimplementation and procurement procedures by the staff of the ongoing project. The terms of referencefor the Director's position have been approved and the selection process has commenced. A DeputyDirector will be selected by a Committee including the Minister, the Permanent Secretary and thePnncipal International Officer. Other PMU staff will be hired prior to Project effectiveness.

The Grant will finance PMU office rent throughout project implementation, operating costs of the PMU,and an additional vehicle to be used by the PMU during project implementation.

The PMU staff will coordinate efforts to complete a Project Operating Manual, which will be developedby Ministry and PMU staff and local experts. The POM will address the roles, responsibilities,accountabilities, and reporting requirements of various parties--municipalities, municipal level selectioncommittees, school directors, and school boards.

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Appendix 1. Institutional Assessment

1. PURPOSE

The purpose of this assessment is to establish the extent to which the institutional capacity inKosovo will be able to support implementation of the EPIP project, and to make recommendationson how any shortcomings might be addressed. This assessment does not focus on financialmanagement or procurement capacity as this is dealt with elsewhere in the PAD.

2. METHODOLOGY

The assessment is based on interviews conducted during the mission with key stakeholders at central,municipal and school level, and on documents and reports made available during the mission.

3. COMPONENTS FOR ASSESSMENT

The central thrust of the project is the disbursement of small grants to schools that have preparedapproved (three-year) School Development Plans and (one - two-year) Project Proposals. This will bethe major focus of this assessment.

A second component of the project is the strengthening of the Education Management InformationSystem (EMIS) that was developed with Bank support under the present Education and Health Project.Effective implementation and monitoring of the school grants scheme will require the EMIS system todeliver timely and reliable management information.

The third component of the project is the strengthening of the existing Project Management Unit into aProject Management Unit to ensure that it has the capacity to ensure effective implementation of theproject, including the coordination, monitoring and reporting requirements.

4. INSTITUTIONAL FRAMEWORK

4.1 System levels

The implementation and monitoring of the project will require institutional mechanisms at three levels ofthe system: at the school level, where the resources will be applied, at the municipal level, where keytargeting, coordination and monitonng functions are located, and at the central level, which will managethe grant approvals process, disbursement of grants, and coordination and reporting.

4.2 Public and private sectors

The project operates through the public education system, and is designed to build on and reinforce thesystem reforms, especially decentralization and management capacity-building, that were established inthe current Education and Health Project. The main institutional functions, therefore, are based at eachlevel in public sector institutions. However, as with the current project, a certain amount of theinstitutional capacity-building activities will be provided through NGOs and the private sector, withsupport from international expertise where required.

4.3 Institutional ElementsThe review assesses institutional capacity in terms of institutional structure (including policies,

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procedures and manuals), human resources, and information capacity.

5. CENTRAL LEVEL INSTITUTIONS

The role of central government institutions in the implementation of the project is limited by the fact thatmost of the activities and expenditure of funds occurs at the level of the school.

5.1 Ministry of Education, Science and Technology

The Ministry of Education Science and Technology (MEST) supported by the Principal InternationalOfficer appointed by UNMIK will be responsible for overall oversight of the Project. In terms of humanresources, the newly established Ministry of Education, Science and Technology has limited institutionalcapacity to take on additional tasks related to the project. Newly appointed senior staff (includingPermanent Secretary and Head of Education) are still settling into their posts, and the process ofhand-over of responsibility from the international staff is still under way.

Recommendation

The proposed School Grants Approval Board should be established to meet this institutional capacitylimitation. The PAD makes provision for this body and describes its constitution and function.

In terms of institutional structure, the obvious unit for locating responsibility for implementation,monitoring and supervision is the existing Project Management Unit. Assessment of the capacity of thePMU indicates that with minor modifications, including strengthening of the procurement and financialmanagement capacity, it should be able to meet the demands of management of this project..

Recommendation

The existing Project Coordination Unit, operating within the MEST, should be developed andexpanded into a Project Management Unit as provided for in the Institutional Arrangements sectionof the PAD.

The policy framework for financial delegation to municipalities and schools is well established and issupported by concise and helpful Manuals developed during the first project. Since the project operateswithin the provisions of the new policy and is in line with the General Education Law, it does not requiremodifications of existing policy. However, since the implementation of the EPIP will require theinvolvement of a range of inexperienced officials and some personnel not in MEST, there is a need for anoperations manual that provides clear guidance on implementation, and relates it where appropriate toexisting policy and regulations.

Recommendation

The Project Operating Manual currently under development be finalized and reviewed in good time toensure that it is available to provide the necessary guidance.

In terms of information and system resources, the project will depend for targeting, management andmonitoring on information from the Education Management Information System, which was establishedas part of the current project. While the EMIS has reached a fairly advanced stage, it will not be able tomeet the information requirements of the project without further development, consolidation, transferfrom spreadsheet to database format, and additional arrangements to ensure that the necessary skilled

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technical personnel can be drawn on to ensure that the EMIS develops at the pace needed to deliverinformation for the project.

Recommendation

The second component of the project makes provision for the further development and refinement ofthe EMIS, and this process should be expedited. The technical aspects of development of the EMISshould be contracted out as the salary limitations in the public service make it difficult to retain theservices of skilled computer personneL Contracting out will also provide some flexibility with regard toaccessing technical skills as and when needed, instead of on an ongoing full-time basis. OveraUlresponsibility for the EMIS, and ownership of the data, should remain in MEST.

6. MUNICIPAL LEVEL ENSTITUTIONS

The decentralization reforms supported by the Bank provide for substantial decentralization ofresponsibilities, especially in terms of financial management. The existing School Funding Handbooksupported by ongoing training will help to build and consolidate capacity at this level. Interviews withMEST and UNMIK financial managers indicate that many municipalities are still not managing to spendthe resources assigned to them. Other reports indicate that some schools may not be receiving their shareof the per capita grant from municipal education authonties. The project does not envisage theinvolvement of the municipal authorities in direct disbursement of school funds, although they will havea role in momtoring and reporting on expenditure of grants.

The "two level system" whereby certain functions are delegated to the Municipal Director (MED), andothers remain the responsibility of the Regional Education Officer (REO), is operating unevenly. In somemunicipalities lack of cooperation between these officials could present problems to the implementation.The municipalities have a key role in implementing the targeting strategy according to the criteriaapproved by the School Grants Approval Board.

Recommendation

Small Municipal School Grant Management Teams, consisting of the MED, the REO and arepresentative of the NGO responsible for capacity-building and outreach in that municipality beestablished as providedfor in this PAD. Part of the Terms of Reference for Capacity-Building NGOsshould be to participate in these teams, and to identify and alert the PMU to problems that might arisefrom limited or poor collaboration between MED and REO. These teams should also review SchoolDevelopment Plans and School Grant Project Proposals before they are submitted to SGAB forapproval.

7. SCHOOL LEVEL [NSTTITUTIONS

The most significant institutional demands for the implementation of the School Grants component fall atthe level of the school. The pnncipal institutional structure involved is the School Board, which includesrepresentatives of teachers, parents, and in the case of secondary schools, of students. The school directorserves as secretariat ex officio.

The School Board is a new institution and very few have been established, so it is difficult to establishthe possible problems they may confront. The new General Education Law provides a policy frameworkthat consolidates several official circulars and official instructions issued by the Department of Educationand Science. There exists no manual for operation of School Boards, although the Kosovo School

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Funding Handbook provides some guidance.

There is some history in the parallel system (1990 - 1999) oi school committees that played a significantrole in mobilizing resources for schools; these were similar in constitution and function to schoolcommittees that operated in schools under the authority of the (Serb) provincial authorities. In addition,since 1999 there is a wide range of different school level structures established with the support ofvarious NGOs, including PTAs and Parent Teacher Councils (PTCs). The latter operate at both schooland municipal level with support from Catholic Relief Services (CRS). Thus many communities claim tohave experience and background in supporting or participating in school management, and mobilizingand administering resources.

However, while there may be some experience to build on, there is no experience of constituting andmanaging school level goveming bodies of the type provided for in the School Board regulations, andearly indications from the Pilot Project are that considerable amount of support, in the form of training,procedures manuals and follow-up will be required. This would normally be a function of the MEST, butit is unlikely that this kind of support will be available in time for implementation of the project.

Recommendation

It is recommended that the School Grant Manual currently under development in the Pilot Project bemodified and updated in light of experience gained. The current draft Manual serves as both aprocedures manual and as a training resource. On the basis of the experience in the Pilot, a decisionwill have to be made on whether this guidance would be better provided in theform of one manual orseparate manuals.

It is recommended that the proposed capacity-buildingfunction include guidance to school Directorsin the establishment of School Boards, as well as intensive training of schoolpersonnel and SchoolBoard members in School Development Planning, project proposalpreparation andprojectimplementation. The capacity buildingfunction must includefollow-up outreach to schools.

8. NGO AND PRIVATE SECTOR INSTITUTIONS

Kosovo has a strong, if short, history of NGO activity. The current decline in international funding hasled to many intemational NGOs withdrawing or scaling back activities, and many local NGOs arestruggling to survive. There is thus a surplus of NGO capacity in terms of human resources, and, giventhe right stimulus, it is clear that several NGOs could quite quickly scale up their institutional capacity toprovide services for the Project. The project design envisages NGOs provision of the capacity-buildingincluding school outreach and follow-up that will be required for School Boards to ensure delivery ofSchool Development Plans and School Grant Project Proposals.

However, while the capacity exists and could quickly be mobilized, there are very few NGOs withcoverage throughout Kosovo. Many NGOs did operate on a regional basis based on the five UNMIKregions. Thus the project design assumes that a number of NGOs will be contracted to provide services toschools in municipalities grouped on a geographic basis. Possible problems could anse in coordination ofa number of contracting NGOs, and mechanisms must be in place to ensure that they operate within acoherent and consistent framework, while giving them the flexibility to adapt according to circumstances.

Recommendation

It is recommended that the TORsfor the Capacity-Building NGOs specify quiteprecisely the

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institutional capacity and performance requirements. If this function is provided through partnershipwith KFOS, then this provision must be made clear in the memorandum of understanding. Inaddition, the Project Operating Manual must make very clear these requirements, and the ProjectManagement Unit must be vigilant in ensuring that the capacity-building service is being provided ona coherent and consistent basis.

The contracting out of the technical aspects of the EMIS development and maintenance to a localconsultant will draw on private sector capacity. This assessment did not involve any examination of thecapacity in the private sector, but the demands of this contract, are quite limited, and it is not envisagedthat there will be senous constraints provided that the services are paid for at market related rates, whichcannot be done while the function is performed by personnel in MEST.

9. CONCLUSION

The EPIP project was designed to make minimal demands on the severely constrained institutionalcapacity of the central and provincial education authorities, and draws heavily on capacity, much ofwhich needs to be developed, at the school level. It is, therefore, appropriate that significant resources aretargeted at institutional capacity-building at the school level.

The Project builds significantly on the institutional capacity developed through the support of the currentEducation and Health Project, especially the financial decentralization to municipalities and schools, themanagement development programs and the information management system. The Project ManagementUnit has demonstrated consistently high institutional capacity and has a good record of implementationeffectiveness, and this also constitutes a significant institutional asset for the project to build on.

As far as possible the project makes use of existing institutional capacity and mechanisms, especiallywith regard to financial management, project management and grant disbursement, but effectiveimplementation of the project will require the creation of a high level board (SGAB) at the central level,and small Project Management Teams at the municipal level. The School Boards, which are establishedin terms of the new legislation/regulation, are not project institutions, but they are new institutions and itis unlikely that MEST will be able to support the establishment and quick capacity-building. It will,therefore, be necessary for the project to commit significant resources to building the capacity of thesekey institutions in the project schools.

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,Annex 3: Estimated Project Costs

KOSOVO: Education Participation Improvement Project

'~~~'. -'.' Pt,B .,C mponent'>' ;; ~$dlr* .', ,,-'io. -R

I. School Development Grants (SDGs) 0.00 3.79 3.792. Education Management Informnation System 0.00 0.30 0.303. Project Management 0.00 0.51 0.51Total Baseline Cost 0.00 4.60 4.60Physical Contingencies 0.00 0.00 0.00Price Contingencies 0.00 0.00 0.00

Total Project Costs' 0.00 4.60 4.60Total Financing Required 0.00 4.60 4.60

tB'Ctor --. s -<A s - ' - lg

- ~ ~ ~ ~~. ~~~~~ ~~~US--$'illioh, EUP;$rii fi6i1~ US.$nfli

Goods 0.00 0.16 0.16Works 0.00 0.00 0.00Services 0.00 0.65 0.65Training 0.00 0.00 0.00School Grants 0.00 3.38 3.38Incremental Operating Costs 0.00 0.41 0.41

Total Project Costs 0.00 4.60 4.60Total Financing Required 0.00 4.60 4.60

** Figures may not add up due to rounding.

Identifiable taxes and duties are 0 (USSm) and the total project cost, net of taxes, is 4.6 (US$m). Therefore, the project cost shanng ratio is 0% oftotal projeLt cost net of taxes

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Annex 4: Economic and Fiscal Impact AnalysisKOSOVO: Education Participation Improvement Project

Introduction

The objective of the proposed Project is to improve children's access and educational attainment atprimary and secondary education levels. The Transitional Support Strategy emphasizes the importanceof increasing enrollment rates in primary and secondary education, and enhancing access of girls andvulnerable groups to education. The proposed Education Participation Improvement Project (US$ 4.6million) operationalizes the Transitional Support Strategy (TSS) with the explicit objective of improvingaccess and attainment levels. As the project costs are only US$4.6 million, the proposed Project willfocus almost exclusively on the broadly defined issues related to attainment and access to education.

A. Economic Analysis

Rate of Return Analysis

Results from global research on rates of return to investment in education indicate that, in general, thehighest social and private returns are to be found at the primary level. Both social and private returns fallat the secondary level, and private returns rise again at the higher education level while social returnsdeclines further. Reasons attributable to this are that primary education is relatively cheap to provide andthat the opportunity cost of young children attending school is relatively low.

Results from comparative research show that the level of economic development greatly influences therates of return from expanding educational coverage. They show that low-income countries benefit mostfrom investments to expand primary education, while in middle-income countnes, investments to expandsecondary education brought the highest social returns.

Cost-Benefit Framework

Cost-benefit analysis of any project must be based on a comparison of the with-project andwithout-project comparison.

Without the project, the status quo of schools in Kosovo would be maintained without school basedinitiatives to improve enrollment, attendance, attainment, and completion. Meanwhile, there areindications that schools have significant problems in these areas, even though they don't have thecapacity nor the incentive to deal with them. In addition, given the recent introduction of 9th grade,schools are expected to have increasing challenges regarding the successful completion of primaryeducation. These challenges will also be accompanied by absence of methods to account for school agechildren, absence of processes and incentives to motivate communities and schools to keep them or bringthem back to school.

With the project, both the Government and the schools will have improved capacities, model incentivesto initiate school-based activies or to develop government policies to improve access and attainment ineducation. The improved local capacities will help assure that communities focus on absenteeism,school effectiveness (in terms of coverage) and, eventually, the overall strength of the local communitieshuman capital and employment prospects. There will also be a balanced and concerted effort (as well ascapacities) by central and local authorities to assure that education is provided to all.

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The primary quantifiable benefit of the project is expected to be increased number of students beingenrolled in schools, greater numbers attending school regularly, more students completing the primaryand secondary cycles of education as a result of improvements in overall safety measures, rehabilitationof schools, improved heating and protection from climatic changes especially during the winter monthswhich will be supported through the school development grants. While the project will have a directquantifiable impact on the targeted schools, the impact on the overall school system will be more limited.If, for instance, the completion rate from 8th grade will improve by 4 percent, that would mean an overallimprovement of roughly 2 percent on the whole province. In terms of attainment, or the average numberof years completed, the quantiative improvement will be even more limited. In addition, there are anumber of targets, for which an initial baseline data need to be established to show improvements. Theseinclude the enrollment of those who have not been participating in public education, the attendance rateor the participation rate of eligible students in 9th grade education. These will require significant initialworks so that quantitative targets were to be set.

Meanwhile, the School Development Grants (SDGs) and the Education Management Information System(EMIS) components will contribute to significant social benefits and institutoinal improvements, whichare expected to far outweigh the quantifiable benefits. Large externalities are attributable to the SDGsand EMIS components. The Project will focus on school improvement, social inclusion, communityefficiency, and peace building in a post war environment. The school grants are expected to improveefficiency of resource use in primary and secondary schools by strengthening local capacity, and byfinancing essential inputs not currently financed by municipal budgets.

The SDGs will help schools to: (a) Build on and reinforce decentralization of school management; (b)Build capacity at local levels to develop a vision and work on school development plans; (d) Identifypriorities areas that need attention-be it pedagogical improvements, infrastructure improvements,training of teachers and other quality oriented changes focused on bringing children who are at risk ofbeing excluded or not completing primary or secondary education, back to school; (e) Promote increasedflexibility and responsiveness of schools to the pressing issues of communities with respect to sendingchildren to school; (f) Procurement and financial management training; and (g) add SDGs to the studentfunding formula, introduce more flexibility, better model for spending and accounting for funds,experiment with new policy, compensatory financing or more resources.

The SDG process will help communities to: (a) Increase their participation in the decision-makingprocess at the school level through School Boards thereby empowering them;

The SDG process will help municipal level decision-makers to: (a) Perform their roles andresponsibilities more responsibly by holding them accountable for selecting and distributing schoolgrants to the most needy schools; (b) Be conscious of fiscal responsibility; provide guidelines formunicipalities on how to allocate resources.

The SDG process will help central level authorities to: (a) Monitor the education system better with theuse of the Education Management Information System (EMIS); and (b) Have better oversight over thedistribution of funding for education.

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SDGs are not costly to administer. Significant capacity is expected to be built at all levels of thesystem-school level, municipal level, and central level to manage the education system, and introducereforms aimed at improving enrollment, attendance, attainment, and completion in primary andsecondary education. The investment in capacity building is expected to improve efficiency withininstitutions. The SDG process will, therefore, contribute to increased autonomy and accountability ofinstitutions, in planning, management and resource allocation. These benefits are process related arequantified below. The SDGs will introduce flexibility into the system, for schools and communities todefine priority areas for development of schools.

B. Fiscal Impact Analysis

Education as a percentage of GDP was estimated to be 3.7 percent in 2002, and 19.8 percent as apercentage of the general budget for Kosovo. Although the share of education in the GDP is low relativeto comparable countries or regions in Europe, and even in Central and Eastem Europe, education as apercentage of the general budget of Kosovo is high. Table 1 provides data on the actual education budgetby level of education for the years 2000, 2001, and the estimated budget for 2002.

Table 1. Education Budget by Level of Education

2000 2001 2002Program

Actual Percent Actual Percent Actual Percent('000 Euros) ('000 Euros) ('000 Euros)

Preschool Education * 1,307 6 2.3% 2,298.0 3.8% 3,232 8 4.4%Primary Education * 36,870.2 64.9% 37,684. 62.8% 45,080.1 60.8%Secondary Education * 11,315.2 19.9% 12,258.7 20.3% 13,427.4 18.1%Boarding Facilities/Dormitory 157 7 0.3% 254.0 0.4% 124.1 0.2%Special Needs Education institutions 641.5 1.1% 469.0 0.8% 815.5 1.1%University and Higher Education 6,154.9 10.8% 6,395. 10.6% 9,890.9 13.3%National University Library 139.5 0.2% 242.0 0.4% 265.4 0.4%Educational Administration 251.2 0.4% 732.0 1.2% 1,012.0 1.4%Teacher Training .. . .. .. 191.7 0.3%Currculum Development .. .. .. .. 65.0 0.1%Total Budget for Education 56,837.9 100.0% 60,332.7 100.0% 74,105.0 100.0%Total General Budget 220,264.5 255,646.0 374,100.0Education as a percentage of total 25.8% 23.60/ 19.8%budgetEstimated Kosovo GDP 1,414,000 1,756,00 1,984,000Education as a percentage of GDP 4.0% 3.4% 3.7%Sources Kosovo: Medium Term Expenditure Review, October 2002, World Bank, Washington, D.C.

CFA Kosovo Budget 2001, Kosovo Budget 2002, Education Funding Formula.a Preschool, pnmary and secondary includes funds spent by Municipalities.

Significant donor funding was provided over the three year period 1999, 2000, and 2001. The fundinghas been channeled mainly for reconstruction and rehabilitation of school buildings, with significantamounts to compensate for the lack of investment and maintenance over the past decade, and to fullyrebuild or rehabilitate infrastructure damaged during the 1999 crisis. Table 2 provides the breakdown.

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Table 2. Donor funding for the education sector ('000 Euro)

1999 2000 2001 TotalBuilding, reconstruction and 5,526.5 37,478.2 11,400.6 54,405.3rehabilitationOther * 120.2 4,021.7 2,152.5 6,294.4Total donor funds 5,646.6 41,499.9 13,553.2 60,699.7Relative to public spending on n.a. 73% 23%educationRelative to estimated GDP n.a. 3% 1% ISources: Kosovo Medium Term Expenditure Priorities, October 2002, World Bank, Washington, D.C.

Ministry of Finance and Economy, RIMS - amounts spentKosovo: Medium Term Expenditure Review, October 2002, World Bank, Washington, D.C.

Ministry of Finance and Economy, RIMS - amounts spent.* Other category includes some minor reconstruction projects.

Since 2001 and from 2002 onwards, donor funding for education is expected to decline sharply. In 2002donor assistance is expected to be channeled towards quality issues rather than on infrastructurerehabilitation or on maintenance.

Education is under funded considering that the student age share of the population is the highest inEurope. In EU, average spending is about 5.3 percent of the per capita GDP. In Kosovo's consolidatedrecurrent budget education is by far the largest category with 27.5 percent of the total. Personnelexpenditure accounts for about 80 percent of the budget. T he Kosovo Poverty Assessment of 2001shows that public expenditures are regressive given the strong correlation between poverty and utilizationof education services particularly at secondary level. By and large, efficiency indicators are comparableto European averages with a 19:1 pupil-teacher ratio at both primary and secondary levels, and withminimal administrative overhead in 2001.

Wages and salaries of teaching and non-teaching staff accounted for approximately 68 percent of thegeneral budget in 2002 (About 16% of wages and salary payments go for non-teaching staff). This is byand large in line with other European countries. The share of wages have also considerably decreasedover the last three years. Table 3 provides the estimated education expenditure by economic type.

Table 3. Estimated Education Expenditure by Economic Type ('000 Euro)

2000 Actua Percent 2001 Budget Percent 2002 Budget PercentWages and Salaries 46,646 2 82% 46,305 1 76.8% 50,754.1 68%Teaching _ __ _ 38,925 6 53%Non-teaching ._ _ _ 11,828.4 16%Goods and Services 9,169 2 16°/ 11,475 19 0% 14,451 0 20%Capital _ __ 2,551.3 4.2% 3,171 0 4%Reserves 2. 1,022.6 2% _ __ 5,729.0 8%Total 56,837 9 100% 60,332.4 100% 74,105.1 100%Sources: Kosovo- Medium terrn Expenditure Review, October 2002., World Bank, Washington, D C.

CFA Kosovo Budget 2001, Kosovo Budget 2002, Education Funding FormulaI Includes budget grant to Municipalities.2 2002 reserves are designated for 'excess' Serb teachers, refugees and returns.

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Almost half of 2002 education budget has been earnarked for education decentralized allocations to the30 municipalities in Kosovo. The devolution of budgetary responsibility with respect to teacher salarieswas brought into effect in July 2002, and for administrative and support staff in January 2002. In 2003the salary budget component will be entirely transferred to municipalities. Calculations for theallocations are based on a per student formula and are planned to increasingly finance the regularoperations of schools. In 2002 the education budget will cover operating costs: (i) goods and services upto 80 percent decentralized); (ii) limited capital funds for minor repairs and maintenance (up to 50percent decentralized); (iii) salaries for support staff and administration staff including school directorsfor 12 months; and (iv) salaries for teaching staff for 6 months from July 2002. UNMIK's recurrentbudget, however, is almost exclusively developed as a function of the number of students. Thestudent-teacher ratio has increased since 1999 from 18:1 to 21:1 for the Albanian majority. Contributingfactors include: (a) the structurally low studentlteacher ratio in the Serbian populated areas, caused by theexodus of student populations to Serbia (8: 1); (b) The diversity of ethnic groups and teaching languagerepartition over Kosovo territory; (c) A strong school age demographic profile (the highest in all Europe);and (d) The steady return of families on exile.

Approximately 87 percent of the general budget is earmarked for schools, most of which is delegated tomunicipalities in the form of block grants. The remaining 13 percent is allocated to centraladministration and to tertiary education. The general budget spending does not include a number ofsignificant, indispensable expenditures for running costs that will have to be met in the next fewyears-e.g., capital spending on school buildings and facilities required to meet acceptable standards andreduce overcrowding, and non-recurrent expenditures to finance teaching equipment, pedagogical tools,student and teacher books, staff training, maintenance materials, infrastructure, etc. There are explicitguidelines for municipalities on how to allocate their funds to schools, and municipal authorities havebeen trained on school budget distribution and management. Municipalities have standard guidelines fortransfer of funds to schools. However, school budget allocations are often made on a case by case basiswith insufficient control from the Central Ministry (MEST). Municipalities are not monitoredsufficiently. Overcrowded schools represent a significant "saving" for municipalities, who have nostrong interest in addressing the issue as is considered to be expensive and politically sensitive.

Cost recovery is notfeasible. Primary and secondary education is officially free of charge. However,there is information about widespread private contribution to be high as a result of unauthorized fees forextra tuition, exam preparation, additional textbooks, and other charges at secondary and tertiaryeducation levels. While on average estimated unit costs for a public primary school education werearound 120EUROs in 2001, household expenditures (including out-of-pocket contributions, travel,clothing, etc.) were almost the same level at nearly IOOEUROs. For public school secondary educationunit costs were 140EUROs whereas household expenditures were as much as 200EUROs per student.Although the per capita funding introduced this year may help to alleviate inequities in funding, thegovernment should consider providing some funding to compensate for some of the expenses especiallyfor the poorest households, or find alternatives to provide targeted support for them. The EducationParticipation Improvement Project is an IDA Grant to Kosovo. No cost recovery measures have beenrecommended or will be addressed through project implementation. From a supply side perspective, theGrant will focus on building schools' capacity to improve enrollment, attendance, attainment, andcompletion. From a demand side perspective, it is anticipated that parents from remote and marginalizedcommunities will respond positively to quality improvements in schools and increased security measuresby sending their children to school.

The planned project costs of US$ 4.6 million represents on average about $1.5 million for each of the

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three project implementation years (2003-2006). Total project costs represent about 6 percent of the2002 education allocation in the Kosovo general budget. This is equivalent to just over one percent ofthe total general budget. Total counterpart funding in the amount of less than USS 10,000 is relativelysmall and would not have a significant impact on the education budget. The counterpart funds requiredfor the Project cover 5 percent of operational costs. The increase in recurrent costs (to maintain theEMIS component and the school grants component) resulting from the project would also be relativelysmall. If following project implementation MEST finds that the impact of school grants is positive, andhas helped to improve access and attainment, MEST could consider continuing to provide targetedsubsidies in the form of school grants through the education budget. This would largely vary bymunicipality depending on the geographical location of the schools, and the school development plansfor the schools benefiting from the Project. The government is addressing recurrent cost issues withrespect to the operation of the sector on the basis of recommendations outlined in the recently completedWorld Bank report, Kosovo: Medium Term Public Expenditure Priorities. Further research on ways todecrease costs and increase teacher efficiency is urgently required, particularly following the socialtensions relating to education employees--a strike which paralyzed the education system for three weeksin October 2002.

The fiscal impact of the project may also be measured in relation to different budget categories in theeducation budget. The project has three components: (1) School Development Grants; (2) EducationManagement Information System (EMIS); and (3) Project Management. The school development grantscomponent (82 percent of total project costs) is expected to improve enrollment, attendance, andcompletion rates. Project costs will not finance recurrent expenses such as salaries and wages. Relativeto goods, services and capital investments (24 percent of total budget for education), the school grantsrepresent about 5 percent of the 2002 general budget. The World Bank's Medium Term ExpenditurePnorities for Kosovo concluded that spending on goods, services and capital investments is notsufficient. Additional spending through the project is expected to have a positive impact on the structureof the education budget. School grants will be used as incentives for school management and municipalgovernance. This is in line with international trends of using public expenditure to stimulateperformance, efficiency, and quality. Improving enrollment and completion rates requires improvementsin efficiency and lower per capital expenditures. Given the current budget structure, school developmentgrants are expected to act as a positive incentive in terms of fiscal sustainability.

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Attachment I

Kosovo: Education Participation Improvemnent ProjectChecklist of Regional Guidelines for

Economic Analysis of Education Projects

1. Proiect Coherently set in the CAS and ESW

See Section B (1) and (2) of the PAD.

2. Quantitative Analysis of Alternative Project Design

Refer to Section D (1) in PAD.

3. Fiscal Impact and Cost Recovery

See Section E (2) and Annex 4 of the PAD for fiscal impact.

4. Completeness and Internal Coherence of Cost-Benefit analysis or Other Selection Criteria

See Annex 4 of the PAD.

5. Sensitivity Analysis

None.

6. Institutional Capacity and Risk Analysis

See Section E (4) for institutional capacity and Section F (2) of PAD for critical project risks.

The institutional capacity strengths and weaknesses, and measures to address them in the project wereassessed in detail during the pre-appraisal mission and confirmed at appraisal (see Annex 2 of the PAD).

7. Poverty and Gender Analysis

The Project will target those geographical areas and school communities where problems of enrollment,attendance and completion are the most acute. The Kosovo Poverty Assessment shows that these areasand communities to be the poorest population in the state. The Project will provide the necessaryfinancing to bring out-of-school children to school, and help them to complete primary education andaccess to secondary education. Through the school development plans and the grant proposals, schoolswill have the opportunity to focus on options such as improved transportation to bring out-of-schoolchildren to the nearest convenient schools, make improvements in the physical infrastructure to schoolsto ensure that proper heating and ventilation is available to bring children back to school, and focus onsecurity issues to make schools a safe place for parents to send their children, especially girls.

An important part of the school development grants will improving gender equality in schools. Thesensitive issue with regard to security will be addressed through the project since schools need to address

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this issue to focus on improving school enrollment, attendance, and completion. The project will focuson Improving access for girls to pnmary education and secondary education,

8. Environmental Analysis and Linkage to Economic Analysis

None.

9. Economic Performance Criteria

See Annex 1 of PAD for key performance indicators.

10. Overall Assessment

Based on the above aspects, it can be concluded that the project contributes to the overall development ofthe education system in Kosovo, particularly from the perspective of the Millennium Development Goals(MDGs). In the current environment where the education system is heavily funded through grants fromdonors, sustainability issues need to be addressed from a macroeconomic perspective to provide a wayforward for the newly formed Ministry of Education, Science and Technology (MEST) to receivegovermment budget to sustain the developmental impacts of the education projects in Kosovo.

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Annex 5: Financial Summary

KOSOVO: Education Participation Improvement Project

Years EndingFY2004-FY2005

I Year I Year2 2 Year 3 Year4 I_Year 5 Year6 I Year 7Total Financing Required

Project CostsInvestment Costs 1.2 1.7 1.7 0.0 0.0 0.0 0.0

Recurrent Costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0Total Project Costs 1.2 1.7 1.7 0.0 0.0 0.0 0.0Total Financing 1.2 1.7 1.7 0.0 0.0 0.0 0.0

FinancingIBRDIIDA 1.2 1.7 1.6 0.0 0.0 0.0 0.0Government 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Central 0.0 0.0 0.0 0.0 0.0 0.0 0.0Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0User Fees/Beneficiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total Project Financing 1.2 1.7 1.6 0.0 0.0 0.0 0.0

Main assumptions:

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Annex 6(A): Procurement ArrangementsKOSOVO: Education Participation Improvement Project

Procurement

This section describes the procurement arrangements under the Education Participation ImprovementProject financed by IDA Grant. IDA- financed Goods contracts under the project will be procured inaccordance with the World Bank Guidelines Procurement under IBRD Loans and IDA Credits, datedJanuary 1995, revised in January and August 1996, September 1997 and January 1999 (henceforthreferred to as Procurement Guidelines). IDA-financed contracts for Consulting Services required for theproject will be awarded following the World Bank Guidelines Selection and Employment ofConsultants by World Bank Borrowers, dated January 1997, revised in September 1997, January1999 and May 2002 (henceforth referred to as Consultant Guidelines). Project activities andprocurement contracts not financed by IDA will be procured in accordance with the local regulations ineffect in Kosovo. The project inputs, estimated costs and procurement methods are summarized inTables A and Al and described in more detail in the Project Operating Manual (POM) in Volume II"Procurement Handbook". The project Procurement Plan is presented in Table B1. Other procurementinformation, including prior review thresholds for IDA financed contracts, and summary assessment ofthe procurement capacity of the implementation unit and IDA's review processes is presented in Table B.The sample procurement documents and forms developed in ECA Region for small value procurementwould be adapted to suit the Project needs for procurement, especially under the School GrantsComponent.

Notification of Business Opportunities

A General Procurement Notice (GPN) will be published in May 2003 issue of the Development Business.There are no procurement of goods under ICB and selection of consultants under QCBS proceduresunder this project. The local advertisement procedure (at municipal and community level) in a locallanguage would be used for all small value procurement of civil works, goods and services under theSchool Grants component. The local advertisements for consultant contracts for all project componentswill placed in the Public Procurement Bulletin of UNMIK as well as at least in one newspaper of widecirculation in Kosovo.

Implementation/Procurement Management

The Central Procurement Entity (CPE) within the Department of Public Services under the UnitedNations Interim Administration Mission in Kosovo (UNMIK) is normally responsible for handlingprocurement under IDA-financed projects in Kosovo. However, because of the limited capacity of theCPE to handle a very large number of small value contracts envisioned under the project, it is plannedthat responsibility for handling of all procurement activities under the EPIP would be delegated to theEducation Project Management Unit (PMU) established within the Kosovo Ministry of Education,Science and Technology (MEST).

The PMU will work in coordination with and assistance from the procurement specialist of the MEST.The MEST national procurement specialist, under supervision of an international UNMIK staff, handlesall procurement up to EURO25,000 value for the Ministry of Education system. For contracts aboveEURO25,000, especially when a centralized procurement for schools is required (such as textbooks,computer equipment, school furniture), he works in a team with the CPE procurement experts. There isa small procurement unit established in each municipality and is overseen by an intemational staff of

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UNMIK (located in each municipality). The unit normally comprises one procurement specialist (headof procurement unit) and an assistant/secretary. The level of capacity of each unit varies frommunicipality to municipality. Municipal procurement units are responsible for procurement of smallworks, goods and services for schools in their respective municipalities up to EURO25,000 value percontract.

In anticipation of the start of the project implementation, the PMU has drafted (with an assistance fromthe Bank team) Operational Manual, including Procurement Handbook, and will start conducting "selfassessment capacity tests" for each procurement unit (in 30 municipalities) to verify the level ofprocurement capacity in each municipality (details description of the test, forms and questionnaire isincluded in Procurement Handbook of the Operating Manual). Depending on the outcomes of theassessment, the PMU would finalize training and supervision plan for each municipality, identifying theintensity of supervision and assistance required from the PMU.

The PMU has one full time local procurement specialist with experience in implementing Health andEducation Project, and who is familiar with the basic Bank procurement guidelines and standarddocumentation but lacks experience in handling procurement independently (i.e. without mentoring froman intemational procurement consultant). To further strengthen procurement capacity in the PMU, it isagreed that: (i) a full time procurement assistant be recruited to help the procurement specialist with thefiling, monitoring, logistics, coordination of training events for the municipalities and schools, and (ii)Procurement Specialist will need additional training in community-based procurement, includingrecommended on-the-job training at the implementation unit of the Community Development Fund(CDF) project that is being successfully implemented in Kosovo. A series of workshops, initiated by theProject Launch Seminar scheduled around August 2003, would be the vehicle for training municipalitiesand participating schools in community-based procurement procedures and accounting for the use of thereceived grants. As necessary, short term technical assistance (for up to 18 months) will be recruited toset up a training program for both PMU and selected staff of participating municipalities, and to assist inpreparation of the procurement plans and administration of all steps of procurement process under eachapproved grant proposal. of an intemational procurement advisor is planned and budgeted in the projectand will be contracted as/if needed. The PMU Director has a background of an experienced financialmanagement specialist and will assist the procurement specialist in ensuring that appropriate monitoring,reporting and contract administration processes are applied as outlined in Procurement Handbook on alllevels of the entities involved in procurement under the EPIP.

Procurement Arrangements

The procurement methods and arrangements applicable to the various expenditure categories under theProject are summarized below in Table A and described in more detail in the Procurement Handbook(Volume II of the Project Operating Manual). Procurement under the project would be undertaken inaccordance with the procurement arrangements shown in Table A and Al. Small works, goods andservice, and training under School Grants will be procured according to the provisions for CommunityParticipation in Procurement (paragraph 3.15 of the Procurement Guidelines) and according to theapplicable procedures described in the POM. All grants are demand-driven initiatives (aggregate amountUS$ 3.4 million equivalent) and will include small value items (not exceeding US$ 15,000 equivalent percontract). In the interest of social objectives of the project, it is desirable to call for the participation oflocal communities and NGOs, increase the utilization of local know-how and employ labor-intensive andother appropriate technologies as stated in paragraph 3.15 of the Procurement Guidelines. About 600proposals and school development plans are expected to be received from the 550 primary schools and110 secondary schools located in 30 municipalities. Of the proposals received, about 280 are expected tobe approved for grant funding. The criteria for the preparation, evaluation and award of the grants is

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described in Annex 2, and further spelled out in the Operating Manual. The grant amounts are estimatedat under US$ 10,000 for primary schools and under US$ 15,000 for secondary schools. Grant proposalsmay include small works, small quantities of goods (computer and lab equipment, software, schoolfumiture, printed materials and etc), contractual services (transportation services, for example), minortechnical assistance/training (for teachers skills upgrading, for example), or any combination of theseelements. The grants will be awarded in three annual tranches. The PMU will be responsible for aoverall coordination, monitoring, reporting and assistance to the municipalities and schools in carryingout procurement under awarded grants. The PMU will prepare an updated annual plan (aggregate for theproject and a detailed one for each municipality) shortly after each round of grant awards is completed.The composition, dispersed origin and implementation timing of the above grant proposals do not make itfeasible or practical to aggregate or consolidate the small procurement items in these grants into largepackages suitable for Intemational or National Competitive Bidding (ICB or NCB) by a centralizedprocurement unit.

Similar items requested in more than one approved proposal will be grouped to the extend possible intopackages procured under National or Intemational Shopping procedures to ensure economy of scale andobtaining the best prices. Updated procurement plans will be review by IDA prior to any procurementunder the School grants begins. The procurement schedule for the project is presented in Table B I. Themain procurement methods are highlighted below.

Goods

Goods (approximately. aggregate amount of US$ 0.15 million) include mmnor office equipment and onevehicle for the PMU, computer equipment and furniture for the EMIS (under Component 2 and 3). Suchprocurement would be undertaken as follows:

(a) International Shopping (IS) will be used for procurement of: (i) one vehicle for the PMU; (ii)computer and office equipment for the EMIS; and (iii) an aggregate goods package under SchoolGrants component in cases when estimated contract amount is below US$ 100,000 equivalent.The PMU will obtain quotations from at least three suppliers from two different countries;

(b) National Shopping (NS) will be used for (i) minor office equipment for the PMU and EMIS; and(ii) supplies and PMU operational expenditure items of less than US$ 50,000 per contract andwould require at least three quotations in response to a written invitation to quote. Forprocurement of small operational expenditure items with an estimated value below US$ 2,000equivalent per contract, to the extent feasible, at least three quotations from the local supplier'sprice lists will be obtained and compared.

Selection of Consulting Services

Contracts for Consulting Services (aggregate value US$ 0.6 million) for technical assistance and trainingwill be packaged to include a combination of related skills and services, in order to make them attractiveand increase competition as well as to reduce the number of contracts to be managed. No civil servantswill be financed under the Grant. The following selection methods will be followed:

(a) Selection Based on Consultant Qualifications (CQ) selection method will be used for threeconsulting services contracts (with an estimated aggregate value of US$ 0.1 million) for public

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information campaign for School Grants component, monitoring institutional aspects of accessand attaimnent, and for development and maintenance of the EMIS;

(b) Least Cost Selection (LCS) selection method will be used for the hiring of an audit firm for theproject (estimated at US$ 0.02 million);

(c) Individual Consultants (IC) services will be procured in accordance with the provisions ofparagraphs 5.1 through 5.3 of the Consultant Guidelines, and will include various TA services(aggregate value US$ 0.3 million) such as advisory services to review training materials for theSchool Grants component and Operating Manual/Procurement Handbook, local and internationalTA assisting the PMU in project implementation, as well as various small TA services. Also,several PMU staff contracted under the on-going Health and Education Project would stay on theimplementation team of the EPIP, to ensure continuity in project implementation and transfer ofknowledge and know-how accumulated under the first project in the education sector (Health andEducation Project), and whose performance has been satisfactory up to date. Such contractingwill be done in accordance with paragraph 5.4 of Consultant Guidelines;

(d) Single-Source Selection (SS) selection method (up an aggregate value of US$ 0.3 million) willbe used (subject to the prior agreement of IDA) for contracting a local NGO for delivery oftraining and outreach services to all schools in five regions as no other alternatives are availablefor delivenng this type of training. Estimated budget for this contract is about US$ 190,000 andincludes expenses of outreach consultants visit the schools and carry out training events. KFOSwill contribute additional US$ 100,000 towards the cost of this task (under separate contractbetween KFOS and KEC) to cover the NGO staff fees and overheads.

Community Participation under School Grants

Small School Grants (aggregate value US$ 3.4 million) expected to range up to US$ 10,000 equivalenteach for primary school and up to US$ 15,000 equivalent each for secondary schools, will includeprocurement of small works, goods and services such as teaching aids, library books, minor equipment,consultant fees for small training courses, costs of organizing/advertizing meetings to facilitateattendance by parents and community members, providing adequate facilities and subject content,contractual services to organize transportation to school for children from remote locations, minor worksfor classrooms improvements, and etc. Procurement of goods, works and services will be carried out bythe procurement units of municipalities and school's board, following an approved budget andprocurement plan and employing community-based procurement procedures, as indicated in paragraph3.15 of the Guidelines, and included in the Operating Manual (Volume II, Procurement Handbook).Records of the applied procedures and original of the receipts will be kept in the municipaliteis andschools for spot-check supervision by the PMU and audits. School Grant Coordinator, with support fromthe MEST/PMU, will prepare consolidated reports. The Association will, on a sample basis, review theprocedures followed by the municipalities and school boards as part of procurement post review.

Retroactive Financing

Procurement under retroactive financing for School Grants for schools that participated in the schoolgrant pilot and received funds from the MFE budget prior to EPIP effectiveness will be carried out inaccordance with para 1.9 of the Advance Contracting and Retroactive Financing of ProcurementGuidelines under IBRD Loans and IDA Credits. The procurement procedures should be in conformitywith the provisions of the Procurement Handbook of the Operational Manual (POM). The POM has to

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be formally cleared by the Bank prior to any steps for the procurement process begins. In this case only,the amount of grants that were provided to schools participating in the pilot will be reimbursedretroactively in one lumpsum payment amounting to a maximum of US$ 60,000 to the MFE followingproject effectiveness.

Incremental Operating Costs

The Grant will finance 100 percent of incremental operating costs (US$0.4 million) that include officesupplies, communications, maintenance and operation of equipment procured or used under EMIS andProject Management components of the project, and publication of notices in local newspapers.

Reiiew by the Association of Procurement Decisions

Scheduling ofProcurement. Full documentation should be submitted to IDA for prior review on thefollowing procurement contracts:

(a) first two goods contracts awarded under International Shopping procedure;(b) first two goods contracts awarded under National Shopping procedure;(c) all goods contracts awarded through Direct Contracting with an exception of the School Grants

component;(d) first two consulting firm contracts under CQ procedure;(e) first consulting contract under LCS procedure;(f) all consulting contracts with individual consultants and firrns awarded through Sole Source

selection method with an exception of the School Grants component;(g) all consulting contracts over $50,000 with firms;(h) all consulting contracts over $25,000 with individual consultants; and(i) Tenns of Reference of all consulting contracts.

All other contracts will be subject to selective post-award reviews carried out by IDA supervisionmissions. Table B summarizes applicable procedures and review requirements.

In addition, procurement plans for each round of awarded grants prepared by participatingschools/municipalities indicating packaging, procurement method, procurement responsibilities(i.e.procurement unit of the municipality or the school board) and time schedule should be reviewed byIDA prior to any procurement can start. Based on the results of the first year project review, IDA canrelease intensity of procurement supervision and review only selected procurement plans for thosemunicipalities that scored low on the self assessment capacity test. Ex-post reviews of procurementcarried out by the School grants recipients would be undertaken by PMU and IDA on a random basis butnot less than every fifth grant during the first year and every tenth grant during the second and the thirdyear of project implementation.

Annual operating budget of the PMU will be subject to prior review by IDA as well.

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Procurement methods (Table A)

Table A: Project Costs by Procurement Arrangements(US$ million equivalent)

, - r -_'1' -1. x t_ ProcP4Arement Wiethod ---; CB - NC1 Other TG.B.F. TotalCost

1. Works 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

2. Goods 0.00 0.00 0.15 0.00 0.15(0.00) (0.00) (0.15) (0.00) (0.15)

3. Services 0.00 0.00 0.65 0.00 0.65and Training (0.00) (0.00) (0.62) (0.00) (0.62)4. School Grants 0.00 0.00 3.39 0.00 3.39

(0.00) (0.00) (3.39) (0.00) (3.39)5. Incremental Operating 0.00 0.00 0.34 0.07 0.41

Cost (0.00) (0.00) (0.34) (0.00) (0.34)Total 0.00 0.00 4.53 0.07 4.60

(0.00) (0.00) (4.50) (0.00) (4.50)

"Figures in parentheses are the amounts to be financed by the Bank Grant. All costs include contingenctes.

Includes goods to be procured through international/nationial shopping, direct contracting, consulting services,training and study tours, school grants to be procured using Community-based procurement procedure, andincremental operating costs related to managing the project as described in this Annex.

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Table Al: Consultant Selection Arrangements (optional)(US$ million equivalent)

Con'suitant,Servic . i . * '-4~ '

Expend iturefCate or. -QCBS .- ' OBS-. . SF; B LCS C Q Other. N.B.F. Total CostuA. Firms 0.00 0.00 0.00 0.02 0.11 0.20 0.00 0.33

(0.00) (0.00) (0.00) (0.02) (0.1 1) (0.20) (0.00) (0.33)B. Individuals 0.00 0.00 0.00 0.00 0.00 0.32 0.00 0.32

(0.00) (0.00) (0.00) (0.00) (0.00) (0.29) (0.00) (0.29)Total 0.00 0.00 0.00 0.02 0.11 0.52 0.00 0.65

(0.00) (0.00) (0.00) (0.02) (0. I 1) (0.49) (0.00) (0.62)

Including contingencies

Note: QCBS = Quality- and Cost-Based SelectionQBS = Quality-based SelectionSFB = Selection under a Fixed BudgetLCS = Least-Cost SelectionCQ = Selection Based on Consultants' QualificationsOther = Selection of individual consultants (per Section V of Consultants Guidelines), Sole SourceN.B.F. = Not Bank-financedFigures in parentheses are the amounts to be financed by the Bank Grant.

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Prior review thresholds (Table B)

Table B: Thresholds for Procurement Methods and Prior Review'

Contract Value' * Contrac $Subjeib 6Threshold Procurement Prio, Re7iew

Expendit e.Caeng'y; (US$ thousarids) ' , ethod1. Works n/a

2. Goods <100,000 IS First two

<50,000 NS First two

3. Services Firms <100,000 CQ First two

Firms <$50,000 LCS First contract

All SS All

Individuals > US$25,000 IC All

Individulas<US$25,000 IC TORs

School Grants CBP Detailed procurement planfor each municipality.

Total value of contracts subject to prior review: 95% not including school grants.Overall Procurement Risk Assessment: High

Frequency of procurement supervision missions proposed: One every 6-8 months(includes special procurement supervisionfor post-review/audits)

(Since all expenses under School grants are going to be disbursed against SOEs and all contracts forworks, goods and services will be of a very small value and in Albanian language, it is recommended that(i) IDA will carry out joint procurement and SOE post-review missions; (ii) procurement assistant fromTirana office is included on the team to facilitate review of the documents in Albanian language.)

Section 1: Capacity of Implementing Agency in Procurement andTechnical Assistance Requirements

Country Procurement Assessment Report or Country Procurement Strategy Paper Status.

A CPAR for Kosovo has not been done.

Are the bidding documents for the first year ready by negotiations. Yes [X ] No [I

Section 2: Training, Information and Development on Procurement

Estimated date of Project Launch Workshop: August 2003

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Estimated date of publication of General Procurement Notice: May 2003

Indicate if there is procurement subject to mandatory SPN in Development Business: No

Domestic Preference for Goods: No

Retroactive financing: Yes (up to $60,000 for the first 10 School Grants)

Advance Procurement: Yes (under the first 10 School Grants)

Explain briefly the Procurement Monitoring System:

The PMU will mamtain complete procurement files which will be reviewed by IDA supervisionmissions. All procurement related documentation that requires IDA prior review will be cleared byProcurement Accredited Staff (PAS) and relevant technical staff. No packages above mandatory reviewthresholds by RPA are anticipated. The Procurement Plan for the project will be updated annually.Inaddition, consolidated procurement plan that includes a breakdown for each municipality would beprepared following the School Grants awards and will be reviewed by the PMU and IDA. Procurementinformation will be recorded by the PMU and submitted to UNMIK and IDA as part of the quarterly andannual progress reports. A simple management information system with a procurement module would beestablished to assist the PMU procurement specialist to monitor all procurement information, especiallyunder the School Grants component.

Co-financing: No

Section 3: Procurement Staffing

Indicate the name of Procurement staff or Bank's part of the Task Team responsible for theprocurement in the Project:

Name: Maria Vannari (ECSPS) (202) 458-4694

Explain briefly the expected role of the Field Office in Procurement:

There is no procurement staff based in the Field Office. Besides assistance of the Country Managerwhen/if any substantial procurement issues need to be discussed with UNMIK, the Field Office does nothave any role in procurement. Procurement assistant based in the Bank office in Tirana will assist withprocurement post-reviews under School Grants Component.

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TABLE B: Kovoso Education Participation Improvement Project (EPIP)Procurement Plan

Description Type No of slices/items/ Estimated Cost Proc. Method Tender Prep. Invitation Contract Contract

sub-packages WB financing to Bid Award Completion

(USS)

I School Development

Grants

I I School Grants Grants 3,384,000 Series of

(G,SW, CS) school grants

throughout the

life of the

project

11. Goods and Equipment

2 1 Equipment for SEOs G 1 40,000 NS/IS 06/04 07/04 08/04 10/04

22 Computer Equipment G I 50,000 IS 11/03 12/03 01/04 04/04

and furniture for MIS

2 2 Vehicle for PMU G 1 28,000 IS 09/03 10/03 11/03 12/03

23 Office equipment for G 2 33,100 NS 08/03 09/03 10/03 12/03

PMU and outreach training

Ill. Consultants' Services3 1 School Grant manual CS I 13,000 IC 10/03 11/03 11/04

design/advisory services

3 2 NGO serices for CS I 186,350 SS 08/03 08/03 08/05

outreach tain,ng (contract

with KEC)3 3 Pubhlic Information CS I 12,000 CQ 10/03 11/03 12/03 12/04

Campaign for School Grant

component

3 4 Short-term technical CS I 25,000 IC 09/03 10/03 11/03 06/04

assistance to review school

grants training materials

3 5 Monitoring institutional CS 1 25,000 CQ 01/04 02/04 03/04 04/30/03

aspects of access and

attainment

36 TA for EMIS CS 2 76,000 CQ 09/04 10/04 11/04 11/05

(outsourcing), national

37 TA for EMIS, CS I 65,000 IC 10/04 11/04 12/04 11/04

international

3 8 Training for MEST staff TR I 8.000 n/a- 04/04 06/04

on education policy and

pcrformance

3 9 PMU CS 18 178,000 IC/SS 07/03 08/03 08/03 06/06

consultants/experts (10) and

Outreach consultants (8)

3 10 Training for PMU TR 2 15,000 n/a0

06/04 06/05

national staff

3 11 Project Audit CS I 19,300 LCS 08/03 09/03 10/03 06/06

IV. Incremental

Operating Costs4 1 Supplies, Office rent, SOE Multiple 342,250 Small expenditures throughout the life ofthe project

telephone, Communication,

and Semices

TOTAL 4,500.000

Notes:(i) "n/a*` Training and Study Tours include related travel, lodging and boarding expenses and per diem allowances of theparticipants, course/conference fees, cost of training matenals. IDA prior review is required to the list of participants, estimated budget,choice of the training site, draft agenda and duration of the training

(n) CQ - Consultant Qualification , CS - Consultant Services ; IC - Individual Consultant ; IS - Intemational Shopping, LCS - LeastCost Selection; NS - National Shopping, SW - Small Works, SS - Sole Source, SOE - Statement of Expenditures; TR - Training

Thresholds generally differ by country and project. Consult "Assessment of Agency's Capacity to ImplementProcurement" and contact the Regional Procurement Adviser for guidance.

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Annex 6(B): Financial Management and Disbursement ArrangementsKOSOVO: Education Participation Improvement Project

Financial Management

1. Summary of the Financial Management Assessment

Country Issues

No Country Financial Accountability Assessment (CFAA) has been carried out for Kosovo, and noCFAA is planned for the near future, due to the uncertain status of Kosovo as an independent nation.The Ministry of Finance and Economy (MFE) under the auspices of the UINMIK carries out publicfinance management in Kosovo. These activities were formally carried out by the CFA. The CFA wasmerged with the MFE as of December 31, 2002. To ensure that expenditures are consistent with theamounts and purposes set out in the Kosovo Consolidated Budget Regulation approved by the SpecialRepresentative of the Secretary-General (SRSG), and to prevent abuse and fraud, explicit administTativeinstructions and procedures have been developed by the MFE, which have to be followed in thecommitment and expenditure of public money. Polices and procedures have been reviewed and foundacceptable to the Bank. Financial management review of the projects administered by the MFE has beensatisfactory and no issues have been identified. Experience gained so far has been factored into thedesign of the Education Participation Improvement Project financial management arrangements.

Strengths and Weaknesses

Significant strengths that provide a basis for reliance on the project financial management systeminclude: (a) the experience of implementing Bank financed Grants that the accounting team in the MFEhas, and (b) the unqualified audit reports and the positive management letters issued by the auditors onthe projects covered by the MFE. No significant weaknesses have been noted.

Implementing Entity

The project implementation arrangements established under the Education and Health Project areexpected to continue under the Education Participation Improvement Project. A Project Director and asmall team of national staff will continue to work in the PMU of the Ministry of Education, Science andTechnology (MEST). Project financial management will continue to be handled by an internationalfinancial manager and two assistants located in the MFE. The MFE will be responsible for the financialmanagement and reporting requirements of the project. The MFE has in place a financial managementsystem that is capable of producing project management reports as required by the Bank. This systemhas already been utilized for other Bank funded projects. A qualified financial management specialistlocated in the MFE was hired under the ongoing Bank financed Grant, whose primary responsibilities areto monitor and prepare project management reports for all IDA-financed projects. As part of itsresponsibilities, the MFE will be responsible for opening and maintaining the project's Special Account,as it has done for several other IDA-financed projects. Relations between the MFE and the MEST havebeen exemplary under the ongoing project. The national Project Director recruited for EPIP has abackground and experience in financial management

Funds Flow

A Special Account for the Bank Grant will be opened in a commercial bank acceptable to the Bank. Allpayments will be made by the MFE. All contracts (with the exception of the School Grants component)

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will be concluded and administered by the PMU. Contracts of small value under the School Grantscomponent will be signed and administered by the municipalities. The PMU established at the MESTwill prepare all the relevant documents and obtain the required clearances and coordinate very closelywith the MFE. Details of the funds flow can be found in the Project Operating Manual (POM).

Staffing

The accountant and disbursement officers are familiar with financial and accounting systems, as well aswith Bank requirements. The experience has been gained by implementing several IDA-financed GrantsThe accountant would be responsible for all aspects of financial management and accounting, includingmaintaining books of accounts, reporting day-to-day transactions. S/he will also be in charge of thespecial account and prepare SOEs and replenishment requests of the SA.

Accounting Policies and Procedures

The MFE will take all necessary steps to ensure that the project complies with the relevant Bank policies(OP/BP 10.02). The MFE procedures and policies have been reviewed by IDA and found acceptable

AuditReport Due DateProject June 30, 2004SOE June 30, 2004Special Account June 30, 2004

Reporting and Monitoring

The MFE will maintain accounts of the Project and will ensure appropriate accounting of the fundsprovided. The MFE has been preparing PMRs for several on-going IDA-financed projects. Thesereports have been timely and of good quality. The MFE will maintain the same reporting formats (forconsistency) for the EPIP, although the name would change to Financial Management Reporting (FMR).The MFE will be responsible for preparing FMRs on a quarterly basis. The FMRs will include:

o Project Sources and Uses of Fundso Uses of Funds by Project Activityo Special Account Statement Plus Local Bank Account Statemento Project Progress Reportingo Procurement Reporting

Information Systems

The MFE has in place a financial management system acceptable to IDA. The MFE consolidatepayments and receipts of all line ministries and municipalities, through its accounting system. The chartof accounts is based on the Government Financial Management Information System (GFMIS). As theparticipants under the project fall under the umbrella of the Kosovo Consolidated Budget (KCB), allproject related payments would be made via the Single Treasury Account (STA), and the accounts wouldbe maintained as part of the MFE's accounting system. The MFE is already producing PMRs for severalIDA-financed Grants.

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Action Plan

At negotiations,

* UNMIK/MFE to confirm that the Project chart of accounts has been entered into the FreeBalanceSystem.

* UNMIK/PMU to provide IDA with a Project Operating Manual (POM), satisfactory to IDA, that hasbeen adopted by UNMIK/MEST.

Ministry of Finance and Economy (MFE) to confirm that:

* the CFA has been abolished/merged with the MFE;* the staff and job responsibilities which were under the control of the CFA have been transferred to

the MFE;* the admunistrative instructions and procedures that the CFA was following for the commitment and

expenditure of public money have not changed and that these instructions are now being carried outby the MFE;

* the arrangements agreed with the IDA to maintain a unit to account for Bank Grants and to preparethe relevant reports will be kept intact.

Supervision Plan

The reports of the progress of the project implementation will be monitored in detail during supervisionmissions. FMRs will be reviewed on a quarterly basis by the field based FMS and the results or issuesfollowed up during the supervision missions. Audit reports of the Project will be reviewed and issuesidentified and followed up. The field based FMS would monitor the.agreed action plan to ensureappropriate actions have been implemented by the MFE.

Financial Covenants

Following are the covenants relating to financial matters:

The MFE to have the project records, accounts and financial statements audited each year, commencingwith the accounts for the year ending December 31, 2003.

2. Audit ArrangementsInternal Audit

Not applicable.

External Audit

The MFE will appoint independent auditors under terms of reference acceptable to IDA. The auditorsselected for the Project are required to be members of the International Federation of Accountants(IFAC). Audited Project Financial Statements will be submitted to IDA with the audit report four monthsafter end of each year audited. Costs of the audit will be financed through the project. The audit reportsfor IDA-financed Grants managed by the MFE have been timely and have received clean opinions. Noissues are anticipated.

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Audit of School Grants

Random special purpose audit of school grants will be carried on a yearly basis to ensure that the schoolgrants are being used for the purposes intended.

3. Disbursement ArrangementsDisbursements from the Grant will be made based on traditional disbursement methods (i.e., from theSpecial Account with reimbursements made based on Statements of Expenditures (SOEs) and fulldocumentation, and direct payments from the Grant Account). The proceeds of the IDA Grant will beallocated in accordance with Table C, Annex 6. To facilitate timely project implementation, the MFEwill establish, maintain and operate a special account under terms and conditions acceptable to IDA. Theoption to move to a FMR based disbursements will not be considered.

Allocation of grant proceeds (Table C)

Table C: Allocation of Grant Proceeds

Expenditure-Category Amount in US$milion Financing Percentag3eSchool grants 3.39 100%Goods 0.15 100%Consultants' services, training and audit 0.62 100% for foreign consultants, and 95%costs for local consultantsIncremental Operating Costs 0.34 100%

Total Project Costs 4.50

Total 4.50

Use of statements of expenditures (SOEs):

IDA may require withdrawals from the Grant Account to be made on the basis of statements ofexpenditure for expenditures for: (a) School Grants; (b) goods under contracts costing less than $100,000equivalent, with the exception of the contracts referred to in Schedule 3, Section I, Part C, paragraph 1(a)of the Development Grant Agreement; (c) services of individual consultants costing less than $25,000equivalent; (d) services of consulting firms costing less than $50,000 equivalent, with the exception ofthe contracts referred to in Schedule 3, Section II, Part B, paragraph 1 of the Development Grant

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Agreement; and (e) training and incremental operating costs; all under such terms and conditions as IDAshall specify by notice to the Recipient.

Disbursements against goods and services exceeding the above limits will be made against fulldocumentation and respective procurement guidelines. Statement of expenses will be first pre-screenedby the PMU and then certified locally by the MFE. Related documentation in support of statement ofexpenses will not be submitted to the IDA, but will be retained by the PMU and MFE for at least oneyear, after receipt by the IDA of the audit report for the year in which the last disbursement is made.This document will be made available for review by the auditors and supervision missions. If ineligibleexpenditures, including those not justified by evidence furnished, are financed from the Special Account(SA), the IDA will have the right to withhold further deposits in the SA. The IDA may exercise this rightuntil the Recipient has refunded the amount involved; or (if the IDA agrees) submitted evidence of othereligible expenditures that can be used to offset the ineligible amounts.

Special account:To facilitate timely project implementation, the MFE would establish, maintain and operate, underconditions acceptable to IDA, a special account in US dollars in a commercial bank. The selectionprocess and criteria for selection of the commercial bank will follow the Bank's Disbursement Handbookprocedures. The initial authorized allocation into the Special Account (SA) will be US$800,000.Applications for the replenishment of the SA will be submitted on a monthly basis or when 20 percent ofthe initial deposit has been utilized, whichever occurs earlier. The necessary documentation, the specialaccount bank statement, and a reconciliation of this bank statement will support the replenishmentapplication.

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Annex 7: Project Processing Schedule

KOSOVO: Education Participation Improvement Project

Project Schedule M -. Planned . ' -. ual. . .- Time taken to prepare the project (months) 5

First Bank mission (identification) 05/20/2002 05/20/2002

Appraisal mission departure 12/03/2002 12/03/2002

Negotiation s 12/02/2002 03/31/2003

Planned Date of Effectiveness 07/01/2003

Prepared by:UJNMIKJMEST and World Bank.

Preparation assistance:

Bank staff who worked on the project included:~5~-:__Nare -~ f _ -. . . .- - - .Speciality, -- - -,

Peter Darvas Task Team Leader

Peter Buckland Sr. Education Specialist

Jim Stevens Sr. Operations Officer

Shobhana Sosale Operations Officer

Jeanine Braithwaite Sr. Economist

Maria Vannari Sr.Procurement Specialist

Mark Walker Lead Counsel

Hiran Herat Sr. Finacial Analyst

Joe Formoso Sr. Finance OfficerAnna Goodman Program Assistant

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Annex 8: Documents in the Project File*KOSOVO: Education Participation Improvement Project

A. Project Implementation Plan

Project Management Unit (PMU), Ministry of Education, Science and Technology (MEST). DraftOperating Manual, Kosovo, March 2003.

B. Bank Staff Assessments

* Financial Management Assessment. Hiran Herat (FM Specialist, World Bank)* Procurement Assessment. Maria Vannari (Sr.Procurement Specialist, World Bank)* Institutional Assessment. Peter Buckland (Sr. Education Specialist, World Bank)* Social Assessment. Linda Salihu (Consultant, Kosovo)

C. Other

* Ministry of Education, Science and Technology, Provisional Institutions of Self-Government.Handbook on Municipal Education Governance. First Edition. 2002. Prishtina, Kosovo.

* The British Council. Education in Kosovo. Report to the British Council by Professor Lynn Davies.Center for International Education and Research. School of Education. University of Birmingham.August 1999.

* Statistical Office of Kosovo. Statistics on Education in Kosovb, 2001; Version 2. UNICEF andTransitional Administrative Department of Education, Science and Tehcnology.

* United Nations Interim Administration Mission in Kosovo (UNMIK). Education Statistics2000/2001. Transitional Administrative Department of Education, Science and Technology. WorldBank/Education Management Information System sub-component. Prishtina, Kosovo.

* United Nations Interim Administration Mission in Kosovo (UNMIK). Briefing Document for theMinistry of Education, Science and Technology. February 2002. Prishtina, Kosovo.

* UNMIK. Ministry Empowerment Project Training. Project funded by the World Bank. February 15- May 31, 2002. Prishtina, Kosovo.

* UNMIK. Teacher Training Review Board. MEST Policy 2002 - 001. Prishtina, Kosovo.* Vrenezi, Nait and Jehona Gjurgjeala. "Women's and Girls Education Project: Kosovo-wide Literacy

Survey. January 2002. Prishtina, Kosovo.* World Bank. Program in Support of Kosovo: Fiscal Years 2000-2001. Europe and Central Asia

Region. November 2000.* World Bank. Conflict and Change in Kosovo: Impact on Institutions and Society. ECSSD

Environmentally and Socially Sustainable Development Working Paper No. 31. June 2001.* World Bank. Kosovo: Poverty Assessment (Volumes I and II). December 2001. Washington, D.C.* World Bank. Medium-term Public Expenditure Priorities. October 2002. Washington, D.C.*Including electronic files

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Annex 9: Statement of Loans and CreditsKOSOVO: Education Participation Improvement Project

24-Mar-2003Difference between expected

and actualOriginal Amount in USS Millions disbursements

Project ID FY Purpose IBRD IDA SF Cancel. Undisb. Ong Frm Rev'dP072405 2002 SOC PROT (KOSOVO TF) 0 00 0 00 4 20 0 00 3 77 2 07 0 00

P072814 2001 COMM DEV FUND (KOSOVO TF) 0 00 0 00 5 00 0 00 181 -319 0 00

P071265 2001 PSD TA (KOSOVO TF) 0 00 0 00 3.00 0 00 0 76 0 66 0 00

P070365 2001 PILOT WS (KOSOVO TF) 0 00 0 00 4 60 000 3 54 -1 06 0 00

P070295 2001 URGROAD(KOSOVOTF) 00o 000 5.00 000 1 15 1 15 000

P069629 2001 SME CREDIT (KOSOVO TF) 0 00 0 00 6.00 0 00 0 36 5 44 0 00

P069325 2000 EMG FARM RECONSTRUCTION (KOSOVO TF) 0 00 0.00 10 00 0 00 0 41 -3 69 041

P069516 2000 EDUC/HEALTH (KOSOVO TF) 0 00 0 00 4 44 0 00 098 -019 0 00

Total: 000 000 4124 000 1279 1 19 041

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KOSOVOSTATEMENT OF IFC's

Held and Disbursed PortfolioMar 24 - 2003

In Millions US Dollars

Committed DisbursedIFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic

Total Portfolio: 0.00 0.00 0.00 0 00 0 00 0.00 0 00 0 00

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic

Total Pending Comnumtment: 0 00 0.00 0.00 0.00

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Annex 10: Country at a Glance

KOSOVO: Education Participation Improvement Project

Not Applicable.

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