Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING Report No: -ID OF INDONESIA - BOS KNOWLEDGE IMPROVEMENT FOR TRANSPARENCY AND ACCOUNTABILITY PROJECT LOAN 7906-ID April 23, 2010 TO THE REPUBLIC OF INDONESIA November 1, 2011 Human Development Sector Unit East Asia and Pacific Region
CURRENCY EQUIVALENTS (Exchange Rate Effective November 1, 2011) Currency Unit = Indonesian Rupiah (IDR) US$ 1 = IDR 8,869 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS BOS BOS-KITA GoI IG ISR MoF MoNE SBM Bantuan Operasional Sekolah (School Operational Assistance) School Operational Assistance - Knowledge Improvement for Transparency and Accountability Government of Indonesia Inspectorate General - (Internal Auditor) Implementation Status and Results Report Ministry of Finance Ministry of National Education School Based Management Vice President: Country Manager/Director: Sector Director: Sector Manager: Task Team Leader: James W. Adams Stefan G. Koeberle Emmanuel Y. Jimenez Luis Benveniste Ratna Kesuma
INDONESIA INDONESIA - BOS KNOWLEDGE IMPROVEMENT FOR TRANSPARENCY AND ACCOUNTABILITY P107661 CONTENTS Page I. Introductory Statement... 3 II. Background and Reasons for Restructuring... 3 III. Proposed Change to the Grant Agreement and Rationale... 5 IV. Analysis... 5 V. Expected Outcomes... 6 VI. Benefits and Risks... 6 1
DATA SHEET Date: November 1, 2011 Country: Republic of Indonesia Project Name: BOS Knowledge Improvement for Transparency and Accountability Project ID: P107661 Recipient: Republic of Indonesia Responsible agency: Ministry of National Education, Directorate General Management of Basic Education, Jl. Jend. Sudirman, Senayan E Bldg. 5 th Floor, Indonesia Phone: (62-21)572-5057; Fax (62-21) 572-5606 Revised estimated disbursements (Bank FY/USD) Task Team Leader: Ratna Kesuma Sector Director: Emmanuel Y. Jimenez Sector Manager: Luis Benveniste Country Director: Stefan G. Koeberle Environmental Category: C FY 2010 2011 2012 Annual 177,897,468 322,102,532 0 Cumulative 177,897,468 500,000,000 500,000,000 Current closing date: 12/31/2012 Revised closing date: 12/31/2012 Indicate if the restructuring is: CD approved X Does the restructured project require any exceptions to Bank policies? Yes X No Revised project development objective/outcomes: No revision is proposed to the project development objectives and outcome indicators. Does the restructured project trigger any new safeguard policies? No Revised Financing Plan (USD) Source Local Foreign Total Recipient 500,000,000-500,000,000 2
I. Introductory Statement a. This Project Restructuring Paper seeks the approval of the Country Director for a Level 2 amendment to the Indonesia: BOS-KITA AF. b. The amendment proposed by MoF is to Section IV. A2 of the Loan Agreement to reflect changes in the Bank portion resulting in the Bank disbursing 100% of BOS grants financed in 2011 instead of the currently specified 40%. c. The proposed amendment does not change Project Development Objectives, Outcome Indicators or Safeguard status and falls under the category of minor restructuring. II. Background and Reasons for Restructuring a. Background: The original US$600 million specific investment loan for BOS- KITA became effective on November 11, 2008. It was supplemented with Additional Financing through another specific investment loan of US$500 million, which became effective on October 21, 2010. The second loan was designed to facilitate activities to help scale-up the project s development effectiveness. Both loans are designed to further strengthen the fiduciary arrangements of the GoI s BOS Program procedures for (i) financial management; (ii) procurement; and (iii) governance. They enable the reimbursement of a portion of the GoI s 2010, 2011 and 2012 BOS grants to public and private, primary and junior secondary schools under the auspices of MoNE. Both loans are scheduled to close on December 31, 2012. b. Original Project Development Objective: The objective of the Project is to improve access to quality education in Indonesia for all children of ages 7 to 15 by strengthening school-based management and community participation, improving existing fiduciary arrangements for greater transparency and accountability of the BOS program and, consequently bringing about better utilization of BOS funds. c. Intermediate Outcomes: (i) Improved management of BOS funds (schools to improve their management of BOS funds); (ii) Increased Public Information and Dissemination regarding BOS (improved accountability through communities and parents receiving more information about the BOS program; and, (iii) Improved Monitoring and Evaluation (BOS program managers, schools and communities increase their monitoring and evaluation of the program in order to increase effectiveness. d. Project performance related to project development objectives, outputs and implementation: (i) Supervision activities confirm that the BOS-KITA support has contributed in important ways to a strengthened BOS program in terms of GoI monitoring and the complementary and highly effective oversight provided through formal institutional structures such as policy to strengthen the role of School Committees. (ii) The BOS program has played a vital role in mainstreaming SBM practices to facilitate an enabling environment for resource allocation. However, since the GoI decision to decentralize the BOS program in December 2010 there 3
has been a marked delay in onward transfer of funds to schools by districts/cities, and the different treatment of private and public schools is an additional concern. (iii) MoF and MoNE have been quick to recognize problems associated with decentralizing BOS and are planning to make significant changes to disbursement and reporting mechanisms for 2012 with a return to Provincial disbursement mechanisms (similar to those in 2010). This is expected to reduce delays in disbursement and improve required reporting to MoF. (iv) The ISR Ratings table below shows that performance ratings have been constant over the last year with the exception of: (a) Financial Management where the rating was downgraded from MS to MU. Districts and schools were ill-prepared to implement BOS 2011: transfers were delayed; there was confusion at district level over which regulations should be applied school financial management was poor and insufficiently supervised. It is expected that this status will change as a result of: Increased District BOS Management Team competence as a result of participation as School Management Team Trainers for the nationwide BOS training. Nominated DEO BOS Management Team members (including Supervisors) have been trained to conduct the modularized training (under the guidance of Master Trainers). The training has a strong emphasis on school plans, budgets and financial management (the Principal/Head Teacher, Treasurer and a School Committee member or Parent Representative are the targeted participants). The planned change to the 2012 disbursement mechanism which reverts to one similar to that in 2010 (refer 3 d. ii above). (b) Project Management where the rating was downgraded from S to MS. Under decentralized BOS management experienced Provincial BOS Management teams ceased to exist with BOS-related work designated to Basic Education staff. District team membership increased, staffed by 30 people (approximately) from across the local government. School BOS Management Teams exist at school level and are meant to be comprised of the Principal/Head Teacher, the School Treasurer and a Non-School Committee Member Parent Representative. Review findings indicate that only 30% (approx.) of schools visited had a Non-School Committee Member Parent Representative, highlighting the need to better describe the role of the School Committee. ISR Ratings 06/26/2010 05/26/2011 Project Development Objective S S Implementation Progress MS MS Financial Management MS MU Project Management S MS 4
Counterpart Funding S S Procurement MS MS Monitoring and Evaluation S S III. Proposed Change to the Grant Agreement and Rationale MoF has proposed the following amendment: Category (1) BOS Grants under part 1 of the Project for the BOS 2010 Program. (2) BOS Grants under part 2 of the Project for the BOS 2011 and Later Program. ORIGINAL ORIGINAL Amount of Loan Allocated Percentage of (expressed in Expenditures to be USD) Financed (inclusive of Taxes) 175,000,000 40% of BOS Grants disbursed by the Borrower. 325,000,000 40% of BOS Grants disbursed by the Borrower. PROPOSED AMENDMENT Amount of Loan Allocated (expressed in USD) PROPOSED AMENDMENT Percentage of Expenditures to be Financed (inclusive of Taxes) 177,897,468 40% of BOS Grants disbursed by the Borrower. 322,102,532 100% of BOS Grants disbursed by the Borrower. The restructuring is required to accelerate the disbursement of the Loan to meet the GoI s fiscal gap for this budget year. This will mean that the Bank will disburse 100% of BOS Grants financed in 2011 in lieu of the currently agreed 40%. IV. Analysis The Bank Team agrees with this proposed amendment request finding that: a. The proposed change has occurred as a result of (i) decentralizing BOS and associated changes which negatively affected disbursement; and (ii) slow submission of required MoF reports by districts. b. The proposed amendment does not affect project implementation. The loan refinances an ongoing GOI project and overall resources for the project remain the same with or without the increased financing proposed under the amendment. c. Under the conditions of the loan, the BOS manual must at all times be acceptable to the Bank. The 2011 BOS Manual was reviewed as required by the disbursement condition for Category 2. The 2011 BOS Manual was determined to be acceptable to the Bank, and the Bank notified GOI on October 14, 2011 that the condition had been met. The 2011 BOS Manual will continue to apply to all withdrawals based on government BOS expenditure in FY 2011. It is expected that all remaining reimbursement will be against government BOS expenditure in FY2011. d. In 2011, the GoI and the Bank agreed that the withdrawal application for refinancing would be based on individual district reports which stated (i) the total amount of BOS funds received from MoF; (ii) the number of schools receiving grants; and (iii) the total BOS resources transferred to schools. Despite efforts by MoF and MoNE to speed up district reporting only 287 out of 497 (58%) had 5
submitted the necessary reports by the first week in October 2011. This resulted in a smaller proportion of total GoI BOS spending eligible for refinancing. e. BOS program implementation and district disbursement of BOS grants has been acceptable, although district reporting slow: (i) all BOS grants for the first half of 2011 and 76% of grants in the third quarter are already disbursed; (ii) schools are using funds for intended purpose; (iii) transparency at school level is improving; and (iv) School Committees are playing a more active role in developing and approving school development plans and BOS related expenditure reports. f. BOS monitoring is now institutionalized with districts integrating these activities into routine district operations and local IG. g. Disbursement delays will be reduced and MoF reporting improved as a result of MoNE and MoF s plans to return to pre-2010 Provincial disbursement mechanisms. The proposed Level 2 restructuring: (i) does not affect the original economic, financial, technical, institutional, or social aspects of the project as appraised; (ii) does not raise the environmental category of the project; (iii) does not trigger new safeguard policies; and (iv) does not involve any exceptions to Bank policies. h. Analyses and studies on project file in support of the proposed amendment include: ISR May 26, 2011; Aide Memoire: BOS-KITA Second World Bank Implementation Support Review (January 18 May 13, 2011); ISR June 29, 2010; Project Paper April 23, 2010. V. Expected Outcomes a. The proposed change will enable GoI to meet its fiscal gap this budget year. Under the amended refinancing criteria, project indicators and outcome targets will not change. There is no adjustment to the yearly achievement target in the monitoring framework since some disbursement, against government spending on BOS in FY 2011, may occur in early 2012. VI. Benefits and Risks a. This amendment will accelerate loan disbursement and enable GoI to meet the fiscal gap this financial year. b. No additional risks are introduced by the proposed amendment, in itself a risk management strategy. 6