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Document of The World Bank Public Disclosure Authorized Report No: 21782-RU Public Disclosure Authorized PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$50 million TO THE Public Disclosure Authorized RUSSIAN FEDERATION FOR AN EDUCATION REFORM PROJECT April 30, 2001 Human Development Sector Unit (ECSHD) Russia Country Unit Europe and Central Asia Region Public Disclosure Authorized CURRENCYEQUIVALENTS (ExchangeRate EffectiveApril 24, 2001) Currency Unit = Ruble RUR 1 RUR = US$.034 US$1 = 28.89 FISCALYEAR January 1 to December 31 ABBREVIATIONSAND ACRONYMS CAS - Country Assistance Strategy CSIP - CommunitySocial InfrastructureProject EIP - Education Innovation Project ERP - Education Reforn Project FMCA - FinancialManagement Capacity Assessment MOE - Ministry of Education MOF - Ministry of Finance NTF - National Training Foundation PIU - Project Implementation Unit PMR - Project Management Report SOE - Statement of Expenses TA - Technical Assistance Vice President: JohannesF. Linn CountryDirector: Julian F. Schweitzer SectorDirector: AnnetteDixon SectorManager: James Socknat Task Tearn Leader: Mary Canning RUSSIAN FEDERATION EDUCATION REFORM PROJECT CONTENTS A. Project Development Objective Page 1. Project development objective 2 2. Key performance indicators 2 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2 2. Main sector issues and Government strategy 4 3. Sector issues to be addressed by the project and strategic choices 6 C. Project Description Summary 1. Project components 8 2. Key policy and institutional reforms supported by the project 9 3. Benefits and target population 10 4. Institutional and implementation arrangements 11 D. Project Rationale 1. Project altematives considered and reasons for rejection 1 3 2. Major related projects financed by the Bank and other development agencies 14 3. Lessons leamed and reflected in proposed project design 14 4. Indications of borrower commitrnent and ownership 16 5. Value added of Bank support in this project 16 E. Summary Project Analysis 1. Economic 16 2. Financial 17 3. Technical 18 4. Institutional 19 5. Environmental 20 6. Social 20 7. Safeguard Policies 23 F. Sustainability and Risks 1. Sustainability 24 2. Critical risks 24 3. Possible controversial aspects 25 G. Main Loan Conditions 1. EffectivenessCondition 25 2. Other Conditions 26 H. Readinessfor Implementation 26 1. Compliancewith Bank Policies 26 Annexes Annex 1: ProjectDesign Summary 27 Annex2: DetailedProject Description 32 Annex 3: EstimatedProject Costs 45 Annex4: Cost BenefitAnalysis Summary,or Cost-EffectivenessAnalysis Summary 47 Annex5: Financial Summary 66 Annex 6: Procurementand DisbursementArrangements 68 Annex7: ProjectProcessing Schedule 81 Annex 8: Documentsin the ProjectFile 82 Annex 9: Statementof Loans and Credits 83 Annex 10:Country at a Glance 85 MAP(S) IBRD Map 31263 RUSSIAN FEDERATION Education Reform Project Project Appraisal Document Europe and Central Asia Region ECSHD Date: April 30, 2001 Team Leader: Mary Canning Country Manager/Director: Julian F. Schweitzer Sector Manager/Director: James A. Socknat Project ID: P050474 Sector(s): EY - Other Education Lending Instrument: Specific Investment Loan (SIL) Theme(s): Poverty Targeted Intervention: N Project FinancingData [XI Loan [ ] Credit [1 Grant [ Guarantee [1 Other: For LoanslCredits/Others: Amount (US$m): 50 Proposed Terms (IBRD):Variable Spread & Rate Single Currency Loan (VSCL) Grace period (years): 5 Years to maturity: 17 Commitmentfee: .75 Front end fee on Bank loan: 1.00% Financing Plan: Source- 'Local Foreign - .Total- BORROWER 12.30 8.00 20.30 IBRD 25.50 24.50 50.00 OTHER SOURCES (UNIDENTIFIED) 0.50 0.30 0.80 Total: 38.30 32.80 71.10 Borrower: GOVERNMENT OF RUSSIA Responsible agency: NATIONALTRAINING FOUNDATION National Training Foundation Address: 3/5 Smolensky Boulevard 119898 Moscow, Russia Contact Person: Ms. Elena Soboleva, Executive Director Tel: 7-095-246-1884 Fax: 7-095-246-9892 Email: [email protected] Other Agency(ies): Ministry of Education Address: Moscow, Russian Federation Contact Person: Mr. Vladimir Filipov, Minister Estimated disbursements (Bank FY/USSM): 'FY '2002 21003 2004 2005 '2006 Annual 8.80 13.20 16.10 9.60 2.30 Cumulative 8.80 22.00 38.10 47.70 50.00 Project implementation period: Five years Expected effectiveness date: 01/01/2002 Expected closing date: 12/31/2006 OCS PAD F-n, Re. Ma,R 21)0 A. Project DevelopmentObjective 1. Project development objective: (see Annex 1) The objectiveof this project is to provide assistanceto the Ministry of Education(MOE) and competiti'ely selectedregions of Russiato reform general and initial vocationaleducation in order to: * improvequality and standards; * promote the efficientand equitableuse of scarce public resourcesfor education; * modernizethe educationsystem (structureof networkand institutions); * improvethe flexibilityand market-relevanceof initial vocationaleducation. 2. Key performanceindicators: (see Annex 1) Progress towards achieving the development objectives will be evaluated through the following key performanceindicators: (i) improvedstandard education indicators; (ii) quality monitoringand educational statistics guidelinesdeveloped, implementedand disseminated;(iii) education policy capacity developed; (iv) improvedaccess for rural studentsin three pilot regions; and (v) improved labor market relevanc. of initial vocationaleducation system in three pilot regions. B. Strategic Context 1. Sector-relatedCountry Assistance Strategy (CAS) goal supportedby the project: (see Annex I Documentnumber: 21709-RU Dateof latestCAS discussion: 02/06/01 The CAS identifies eight areas in which the Bank intends to provide support to the Government:(i) economic management, (ii) public sector administration and financial management, (iii) fight against corruption, (iv) private sector development,(v) sector specific policy and institutionalimpediments, (vi) basic social services,(vii) social safety net, and (viii) environmentand natural resources. The CAS identified the need to "reform service delivery paradigms and financing arrangement; to ensure access to quality basic services in health and education". In the CAS Progress Report of Febr.,ary 2001, the key challenge of the Bank's strategy in the education sector is "to improve and moderiize service delivery,primarily through major but attainable increases in efficiency" The proposed Education Reform Project (ERP) would contribute to CAS objectives (ii) and (vi'i by improvingthe deliveryof educationservices, and the transparencyand accountabilityof the public sectr r. At the federal level, the ERP will build capacity for policy developmentand support improvementsiri the quality of education. At the regionallevel, the ERP will pilot a set of reformsin 3 regions:the introducion of a transparent and equitable mechanism to allocate budgetary resources for general education among schools; a strengtheningof the governanceand managementstructure; a modernizationof the general and initial vocationalschools networkand, enhancementof the market relevanceof vocationaleducation. 2. Main sectorissues and Governmentstrategy: Russian educationhas a proud tradition. Most school-agechildren have accessto school places; and nearly all adults in the populationare literate. Although enrollment rates at some levels have declined slightly, nearly all children attend general education, through the final year (grade 11). In the best of Russian schools,learning achievements are on a par with the best found anywherein the world. - 2 - In the early 1990s, a large part of the education sector was decentralized to the regional (oblast) level'. Decentralization of public spending can bring greater efficiency and accountability to the education system, as it creates new opportunities for the system to become more responsive to local needs. It can also lead to substantial improvement in learning achievements as it increases educational choice and opportunities. In Russia, the rapid devolution of responsibilities to the regions, together with a tight fiscal environment, radically changed the face of the education system: * Devolution of responsibility to the regions. In 1992, the responsibility for general education was transferred to the regions. Most regions benefit from federal transfers to finance general education. However, these transfers have fallen both in relative terms and relative to what the regions themselves spend. The responsibility for initial vocational education is progressively being shifted to the regions. * Tight budgetary environment. Fluctuating between 3.4 percent and 4.5 percent of GDP, public expenditure on education has fallen during the 1990s. In real terms, public spending on education fell at a rate of 6 percent per year. In 1998, consolidated public education expenditures amounted to 3.6 percent of GDP, compared to 5.4 percent in OECD countries (with a much larger GDP). As decentralization was often carried out without commensurate transfer of resources, regions were often left with substantial responsibilities, but no financial means to sustain the pace of reforms and operate the education system satisfactorily. Overall, the decentralization reform process coincided with (i) growing regional inequality; and (ii) emerging inequality of access in education. * Growing regional inequality. Russia's transition to a market economy has led to a greater divergence of incomes across regions. A few of Russia's regions have been able to capitalize on their
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