Document of The World Bank

Report No: ___

RESTRUCTURING PAPER

ON A

PROPOSED PROJECT RESTRUCTURING

OF

RENOVATING AND STRENGTHENING PUBLIC MANAGEMENT (PRÓ-GESTÃO) TECHNICAL ASSISTANCE LOAN

July 28, 2010

TO THE

STATE OF RIO DE JANEIRO, BRAZIL WITH THE GUARANTEE OF THE FEDERATIVE REPUBLIC OF BRAZIL

February 24, 2011

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

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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ABBREVIATIONS AND ACRONYMS

DRM Disaster Risk Management GORJ Government of Rio de Janeiro IDEB Basic Education Development Index INEA State Environment Institute MEC Ministry of Education RioPrevidência State of Rio de Janeiro Single Social Security Fund SEPLAG State Secretariat of Planning and Management SEEDUC State Secretariat of Education SESDEC State Secretariat of Health and Public Safety TAL Technical Assistance Loan TERV Waiting time for patients with “green” risk level classification (Tempo de espera do

paciente classificado como risco verde desde o acolhimento) UGP Project Management Unit UPA Urgent Care Facility (Unidade de Pronto Atendimento)

Regional Vice President: Pamela Cox Country Director: Makhtar Diop

Sector Manager / Acting Sector Director:Sector Leader:

Veronica Zavala / Louise Cord Pablo Fajnzylber

Task Team Leader: Tarsila Velloso

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BRAZIL RIO DE JANEIRO RENOVATING AND STRENGTHENING PUBLIC

MANAGEMENT TECHNICAL ASSISTANCE PROJECT P106768

CONTENTS

Page A. SUMMARY ........................................................................................................................... 6 B. PROJECT STATUS ............................................................................................................. 9 C. PROPOSED CHANGES ...................................................................................................... 9 D. APPRAISAL SUMMARY.................................................................................................. 11 ANNEX 1: RESULTS FRAMEWORK AND MONITORING............................................... 13

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RIO DE JANEIRO RENOVATING AND STRENGTHENING PUBLIC MANAGEMENT TECHNICAL ASSISTANCE PROJECT

RESTRUCTURING PAPER

SUMMARY 1. The proposed restructuring seeks to introduce new activities under Component 1 of the project aimed at strengthening the government’s systems for disaster risk prevention and reduction and to include an additional intermediate outcome indicator to measure the effects of the new activities. These modifications are proposed in response to a request by the Government of Rio de Janeiro (GORJ) to allocate funds under the existing project to its utmost priority of improving its capacity to prevent and respond to disasters. No additional changes are proposed and this restructuring would not entail changes to the legal agreement. 2. Background: The State of Rio de Janeiro is Brazil’s third largest state in terms of population (16 million people; roughly 8% of Brazil’s population), and is second only to São Paulo in terms of state Gross Domestic Product (GDP). After a period in which Rio’s share of the country’s population decreased from 7.9 percent in 1970 to 6.8 percent in 2001 and its share of the country’s GDP declined from 14.8 to 8.1 percent, growth has recovered significantly in recent years due to rapid growth in the petroleum, steel and other industries. Such renewed growth and increased urbanization is of special concern in Rio since the state’s territory is spatially constrained and environmentally fragile, implicating that future growth, if unplanned, could take place in an environment with high vulnerability to natural disasters such as flooding and landslides. The extensive urban occupation pattern in lowlands, floodplains, and river banks demands large investments in drainage and flood protection, and exposes residents to recurrent risks of floods in the rainy seasons. At the same time, the informal occupation of hills and mountains, and the subsequent deforestation of these areas, create an increase in rainwater run-off and the accumulation of water in the lowlands, aggravating floods and severe landslide risks.

3. These disaster risks can have negative impacts on the population as well as on the state economy. In the last four years alone, disasters displaced more than 100,000 families in the state of Rio de Janeiro, and had a direct impact on the livelihoods of the affected families and the deterioration of the housing deficit in the state. Disaster risks have yet to be clearly identified and mapped in many areas of the state of Rio de Janeiro. These inter-linked problems of environmental degradation, irregular urban occupation, and disaster risk affect poor residents most heavily.

4. Recent tragedies in the state of Rio de Janeiro have exposed the vulnerability of several regions of the state, especially the mountainous area Região Serrana. They have also exposed the weaknesses of prevention and reduction systems in the state and the lack

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of capacity to properly manage disasters. Located 100 Km away from the state capital, the Região Serrana encompasses eight municipalities within an area of approximately 3,100 km2 and a total population of close to 700,000 inhabitants. The region’s economy relies mostly on vegetable crops, cloth manufacturing and tourism. On the second week of January 2011, summer storms dumped more than a month's worth of rain on the mountain slopes north of Rio in a matter of hours, which resulted in large landslides, rivers overflows and floods that caused significant destruction in the region and especially to the cities of Petrópolis, Teresópolis and Nova Friburgo1. Roads of all sizes collapsed and left communities in complete isolation, while hundreds of thousands of households were without energy and drinkable water for days. A week after the disasters, several communities could still only be reached by helicopter or off-road automobiles. The total death count at the present time surpassed 900 people in six cities and another 405 are missing. Around 30,000 people had to leave their homes and half of them completely lost their houses. Table 1 below shows the number of deaths by affected city.

Table 1 - Affected Cities and Key Data

City Deaths Population Area (km2)

GDP (thousand R$)

GDP per capita (R$)

Nova Friburgo 426 182,016 933 2,266,242 12,710

Teresópolis 382 163,805 771 1,596,477 13,029

Petropolis 71 296,044 796 3,126,961 17,370

Sumidouro 21 14,920 396 186,999 12,287

São José do Vale do Rio Preto 4 20,252 220 130,966 7,964

Bom Jardim 1 25,398 385 271,925 10,376

5. Total economic impacts have not yet been estimated, but they are expected to be significant. Agriculture production, which supports 17,000 families and generates R$850 million per year (US$485.71 million), was devastated and at least 50% of the crops were destroyed. Manufacturing industries were also deeply harmed, and the state’s industries federation estimates around R$150 million (US$85 million) in losses. Families have sheltered in stadiums and in some public schools that were less damaged. From 31 state schools inspected by the Department of Education, 70 percent were moderately or heavily damaged and will need repairs before school year starts. The municipality of Teresópolis alone has estimated total cost of reconstruction around R$500 million (US$285 million). Moreover, additional expenditures in support of families who have lost their homes in an estimate of R$1 million per month will also be made until families have been resettled. Food shortage, caused by decreased supply and collapse of the transport system, has made food prices sky-rocket, further affecting population’s welfare. 6. In terms of comparing the costs of prevention and reconstruction, a recent World Bank publication entitled Natural Hazards, UnNatural Disasters: The Economics of Effective Prevention (2010) which examined four case studies in depth, has revealed that the estimated benefit-cost ratio varies from 1.5 to 5.7 (with rates above 1.0 indicating that prevention pays). Similarly, literature from the United Nations has demonstrated that

1 The State Environment Institute (INEA) calculated that such a heavy rain probably occurs each 350 years in the city.

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each additional dollar invested in prevention and mitigation activities is equivalent to seven dollars of expenditures in post-disaster activities. 7. The Government of Rio de Janeiro has recognized the severity of the challenge imposed by these disasters and is undertaking actions to address them proactively. The first issue is the institutional framework of disaster risk management (DRM)2, which tends to be better structured (and often more focused on) for disaster response than it is for risk prevention and mitigation. In Rio de Janeiro, the state’s civil defense supports municipal entities when they become overwhelmed by the needs of responding to an emergency. There is no coordinating agency for risk reduction and prevention at the state level, and efforts in this regard are scattered among five state secretariats, which carry out independent DRM functions.3 These piecemeal efforts need an institutional framework for improvement and continuity. The municipality of Rio de Janeiro has taken the largest steps forward with the establishment of two leading agencies: GeoRio and Rio Aguas. These institutions have provided technical assistance to other municipalities though an agreement with the state. GeoRio champions DRM at the municipal level in the city of Rio de Janeiro and has mapped the entire municipality. Other municipalities have not gotten this far and some have no experience in DRM.

8. A second aspect to be addresses is that although the government has institutions in place for disaster risk prevention and reduction, they have not been as effective as needed. Notwithstanding having an advanced disaster response system, the State Civil Defense System (Sistema Estadual de Defesa Civil, SIEDEC), the state has experience significant difficulty in dealing with the recent disaster. While coordination between state agencies and their counterparts at the municipal level is good, the ability of each municipality to respond to a disaster differs. Today, only the municipality of Rio de Janeiro has the capacity to respond to disasters, while nearly all other municipalities rely on the financial and operational support of the state when a disaster occurs. As a response, the state is moving toward a more proactive approach in the area of disaster risk management,4 establishing an inter-institutional disaster risk management working group formed by state organizations.

2 On the federal level, the Ministry of National Integration (Ministério da Integração Nacional) is in charge of response through the National Policy of Civil Defense (Política Nacional de Defesa Civil), while the Ministry of Cities (Ministério das Cidades) is responsible for policies, regulations and incentive programs related to housing, land use and urban development, which contribute to risk mitigation and reduction. As for municipalities, they are responsible for the implementation and enforcement of land use planning and urban development regulations/control. 3 The Secretariat of Works (Secretaria de Obras) is in charge of implementing risk reduction and mitigation projects. The Department of Mineral Resources (Departamento de Recursos Minerais) is in charge of mapping for landslides. The State Secretariat for Social Action (Secretaria de Estado de Ação Social) provides resettlement and social services support after a disaster has taken place. The Secretariat of Housing (Secretaria de Habitação) and its affiliated State Housing Company (Companhia Estadual de Habitação do Estado) are in charge of housing policy including facilitating supply post-disaster. INEA, the Environmental Institute (Instituto Estadual do Ambiente) affiliated with the State Secretariat of Environment (Secretaria de Meio Ambiente), is in charge of mapping and monitoring flood zones. 4 The difference between disaster management and disaster risk management is that disaster management focuses on the response to an event, while disaster risk management focuses on activities to prevent or minimize the negative effects of an event, in addition to preparedness and post-disaster response.

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9. The GORJ recognizes the existing fragilities and the need for swift action to improve the state’s capacity for disaster risk prevention and reduction. Therefore, the authorities have asked the Bank’s support to develop core systems and a performance based management system in DRM and to acquire needed equipment. This restructuring is proposed as a first response to this request. In the next few months, an additional financing will be prepared to provide further technical and financial support to the Government in this area. A large Development Policy Loan to the state (Rio de Janeiro Metropolitan Urban and Housing DPL), which is at an advanced stage of preparation, will also provide support to disaster prevention, response and mitigation in the state. The ultimate goal is to have functioning core DRM systems and capacity built to prevent and reduce disasters.

PROJECT STATUS 10. The Public Sector Modernization Project, also known as PRÓ-GESTÃO, is a Technical Assistance Loan (TAL) in the amount of US$18.673 million, aimed at providing critical support to theGovernment’s reform program, which is also supported through a Development Policy Loan of US$485 million (Fiscal Sustainability, Human Development and Competitiveness DPL). The project’s objective is to support the GORJ to introduce performance-based management and information technologies to drive service delivery improvements in key public services, including secondary education and hospital care. 11. The ongoing loan, in the total amount of US$ 18.673 million, became effective on December 27, 2010. Since then, the GORJ has already published the project’s general procurement notice and two requests for expression of interest for activities in a total amount of US$4.1 million. Several of the terms of reference for the project’s activities are being finalized and additional procurement process will start soon. Overall, the implementing team is very committed and prepared to conduct the project’s activities and implementation progress can be rated as satisfactory.

PROPOSED CHANGES 12. This restructuring aims to introduce new activities under Component 1 of the project, therefore reallocating funds amongst project components, as requested by the GORJ. Moreover, an additional intermediate outcome indicator will be added to measure the effect of the new activities. No changes are being proposed to the original Project Development Objectives, or to any other aspect of the project. Finally, no changes to the legal agreement are required.

13. Changes to Project Components. Currently, component 1 has a total allocation of US$7.65 million to support core government systems and management tools for improved performance and efficiency. With the proposed restructuring, activities to

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improve the performance of the disaster risk prevention system would be included in this component, leading to a reallocation of US$4.22 million from components 2 and 3 to component 1. Table 2 below presents the proposed reallocation.

Table 2: Proposed Reallocation of TAL financial resources to project components

Components/Activities Current

US$ millions Proposed

US$ millions 1. Core Government Systems and Management

Tools for Improved Performance and Efficiency

11.87

1.1 Design and Application of Public Sector Performance Indicators

1.72 5.94

1.2 Real Estate Property Management 3.50 3.501.3 Management Information System for Social Security

2.43

7.65

2.43

2. Strengthening Education Management Capacity, Teacher Instructional Practice and Incentives for School Effectiveness

2.77

2.1 Building SEEDUC Technical Capacity for Studies and Evidence-based Policy

1.83 1.0

2.2 School-level Performance Targets for State Schools

1.50 0.27

2.3 Developing Casa do Educador as an Effective In-Service Teacher Training Network 1.50

4.83

1.5

3. Health Management and Information Systems

3.21

3.1 Accreditation System for UPAs 1.50 0.753.2 Cost-Accounting Methodology for UPAs and Hospitals

1.70 0.5

3.3 Information System for Health Supply Chain Management

0.87 0.87

3.4 Evaluation of Financial Incentive Programs for Municipalities

1.30

5.37

1.09

4. Operating Costs 0.600 0.600Price Contingencies 0.176 0.176Front-end Fee 0.047 0.047Total 18.673 18.673

14. The current system for disaster risk prevention in place in the State of Rio de Janeiro is based on insufficient data and involves several agencies under different secretariats. The storm-tracking system uses two levels of data. Potential storms are identified through satellite imagery and ground data (network of pluviometers). The images do not have resolution to determine the intensity of the storm, precise location and the frequency of new images is not suitable to define speed and the direction of a

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moving storm. The pluviometers provide accurate data but once the rain has already started. Meanwhile, the meteorological and hydrological data is managed by INEA under the Secretariat of Environment; while the Civil Defense is under the Secretariat of Health and the geological agency is under the Secretariat of Economic Development. 15. The activities to be support by this project aims at significantly improving the early warning system through the use of meteorological radar. This hardware will enable the tracking of storms (volume, speed and direction) before it reaches potentially risky areas. In addition, the project will support a study to model the hydrological disaster warning system including basic protocols to be used by state and municipalities. This modeling will be complemented by a study to identify the best institutional arrangement at the state level to ensure synergies among different agencies avoiding overlaps and improving response time.

16. While the ultimate goal of the newly proposed activities would be to prevent and reduce the negative effects from disasters, these activities also contribute to improving critical service delivery and strengthening public financial management by the state.

17. Results and indicators. In order to measure the effects of the new activities under component 1, a new indicator will be added to the project’s results framework, as shown in Annex 1. The indicator will measure the time to release warning before the hydrological event occurs. It is expected that, as a result of the new activities, the time will increase from 1 to 5 hours by the end of project implementation.

APPRAISAL SUMMARY

18. Economic and financial analysis. As mentioned above, recent literature on natural disasters and risk prevention suggests that effective prevention pays, since pos-disaster spending on relief and reconstruction is higher and more volatile than pre-spending. Literature from the United Nations has demonstrated that expenditures in post-disaster activities may be up to seven times higher than prevention costs. By supporting the establishment of improved disaster risk prevention and management practices in the state, the newly proposed activities are expected to bring positive social and economic gains to the state population, especially to the most vulnerable groups. Moreover, a reduction in reconstruction expenditures is expected over time, as adequate measures are identified and taken to prevent the negative impacts currently observed. 19. Technical. The GORJ’s capacity in the area of disaster risk prevention and management is heterogeneous as mentioned above; however, the new activities proposed will provide the support to fill the capacity gap in this area. The Bank team has provided support to the government in identifying the priority actions to be taken in the short and medium term and individual consultants with the required technical expertise have been hired by the government to assist in developing technical specifications of the equipment to be acquired.

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20. Safeguards. The proposed new activities do not trigger any changes to the Project’s original safeguards classification. Therefore, the project will continue to trigger only the safeguard policy OP 4.01 and its environmental classification will remains as Category C.

21. Risk. The overall risk rating for the project is Moderate. Additional risks have been identified related to the new proposed activities and are presented in Table 3 with the proposed mitigation measures.

Table 3: Additional Project Risks and Mitigation Measures

Description of Risk Mitigating Actions Risk rating with mitigation measures

Insufficient coordination amongst government agencies involved in DRM in the State of Rio (Federal, State and Municipal)

While effective prevention and reduction of disaster risk requires coordination across government levels, the new activities supported by the project are under the responsibility of the state government. Nonetheless, in light of the recent disasters in the state, coordination efforts are expected to be supported by all levels of government. Finally, the Rio de Janeiro Metropolitan Urban and Housing DPL supports measures to incentive coordination between state and municipal governments.

M

Technical and capacity difficulties delay or prevent the proper installation and operation of the radars

The installation and initial operation of the radars is complex and several pre-requisites have been identified. Responsibility over each activity is being clearly defined. The bidding documents are being carefully prepared as to anticipate critical steps that may be delegated to the provider of the radars, including support for initial operation.

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Difficulties in managing expectations that the alert system will be fully operational and able to assist in disaster prevention in the short term. It will take over 18 months for the system to be become operational. In case of continued adverse natural disaster occurrence while the system is being installed, people may not be satisfied with the GORJ’s response.

The GORJ has recognized the severity of the challenges regarding disaster risk management and is undertaking actions to address them proactively and systematically, including through this operation. A communication strategy that clearly explains the time needed for the alert system to be fully operational will be developed to leverage expectations.

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ANNEX 1: Results Framework and MonitoringBRAZIL: RIO DE JANEIRO RENOVATING AND STRENGTHENING PUBLIC MANAGEMENT

Project Development Objective (PDO): Introduceperformance-based management and information technologies to driveservicedelivery improvements in key public services, including secondaryeducation and hospital care.

Cumulative Target Values

PDO Level Results IndicatorsC

ore

D=DroppedC=ContinueN= NewR=Revised

Unit ofMeasure Baseline

YR 1 YR 2 YR 3 YR4Frequency Data Source/

MethodologyResponsibility forData Collection

Real Property Management:Average time (working days) toproduceproperty appraisal

C workingdays

65 (2009) 65 65 30 15 Semi-annual Subsec. for RealPropertyadministrativesystems

SEPLAG(Subsecretariat forReal Property)

RioPrevidência averageelapsedtime (days) to collect SocialSecurity employment tax debts

C days 110 110 110 55 30 Semi-annual RioPrevidênciaadministrativesystems

RioPrevidência

RioPrevidência permanentpersonnel5

C 350 350 340 320 300 Semi-annual RioPrevidênciaadministrativesystems

RioPrevidência

Schools with “critical” IDEBscores (2.9 or lower)6

C schools 372(2009 IDEBresults)

n/a 300(2011IDEBresults)

n/a 200(2013IDEBresults)

Bi-annualIDEB results

Prova Brasilexam and studentflow data

Ministry ofEducation (MEC)

Secondary school completionrate7

C Completion rate

33.4(2008)

n/a 37%(2010)

41%(2011)

45% (2012) Annual Annual schoolcensus

SEEDUC

5 These staff reductions will occur through attrition as efficiency gains negate the need to replace personnel who retire or otherwise willingly leave RioPrevidência.There is to be no Voluntary Retirement Scheme or dismissals.6 The IDEB is a composite index developed by the Ministry of Education (MEC) that incorporates average student learning outcomes in math and Portuguese in the6th, 9th and 12th grades of basic education (as measured on the bi-annual national Prova Brazil exam) and the promotion rate for students across all grades in thesystem. The IDEB is scaled to produce scores from 1-10, with 10 being highest. MEC produces an IDEB score for each state and municipal education system every2 years. The national average score in 2009 for early years of fundamental education was 4.6, late years of fundamental education was 4.0, and secondary educationscored 3.6. Scores for schools or school systems of 2.9 or lower are considered “critical.”7 The “completion rate” is defined as the number of students graduating from secondary school in year t divided by the total number of enrolled students of year t-2.

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UPAs with at least ten “treatmentprotocols” adopted by health carestaff

C 2 2 4 7 9 Semi-annual SESDECevaluation

SESDEC

Waiting time for UPA patientswith “green” risk classification(TERV)

C 59.6 minutes8 58 minutes 56 minutes 54minutes

52 minutes Annual KLINIKOS ITSystem9, used bythe SESDEC inUPAs.

SESDECSuperintendent ofInformationTechnology

INTERMEDIATE RESULTS

Intermediate Results (Component One):1. Performance targets used as a management tool between government policy makers (“principals”) and line managers (“agents”)2. Management information systems contribute to increased administrative efficiency and responsiveness

Revised Intermediate Results (Component One): na.

“Results Agreements” betweenthe Governor and linedepartments or other governmentbodies

C 0 0 0 4 8 Semi-annual Governor’soffice/SEPLAG

SEPLAG

Real Property Management:Responses provided to requestsfrom public bodies concerning theavailability for use of a GORJproperty10

C 8.3%(2009; N=60per month)

9% 9% 50% 90% Semi-annual Subsecretariatfor RealPropertyadministrativesystems

SEPLAG(Subsecretariat forReal Property)

RioPrevidência: Averagenumberof working days to prepareanddeliver information demanded forjudicial proceedings

C 20 20 20 20 10 Semi-annual RioPrevidênciaadministrativesystems

RioPrevidência

RioPrevidência: Averageelapsedtime (working days) to transferfinancial data to SIAFEM-RJ(Sistema Integrado deAdministração Financeira paraEstados e Municípios)

C 15 15 15 15 7 Semi-annual SIAFEM-RJ RioPrevidência

8 Baseline is the 2009 annual average calculated from data collected daily by electronic records in 11 UPAs.9 Data collection begins with UPA patient registration at the host system KLINIKOS. The outputs from one process (e.g., registration) are inputs of subsequentprocesses (e.g., risk classification). The information obtained serves as input to all subsequent processes to arrive at time elapsed during medical care. TheKLINIKOS IT system records the time that each processstartsand endsas well as the professional who recorded the information.10 Note: A response may be based on imprecise information, but “we don’t have enough information to answer your question” is not counted here as a “response.”

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Time to release warning beforethehydrological (floods) eventoccurs

N hours 1 1 1 5 5 Annual INEA –Time of FloodAlert fromhydrological andmeteorologicalnetwork andmonitoringsystem

INEA

Intermediate Results (Component Two):1. Increased information and accountability for learning results at the school level2. Strengthened teacher capacity to drive learning improvements in the classroom

Revised Intermediate Results (Component Two): NA.

Schools that use SAERJ results inschool-level Improvement Plans

C 0 0 100 300 600 Annual SEEDUCadministrativesystems

SEEDUC

Schools with annual targets forlearning improvement establishedwith SEEDUC

C 0 0 50 200 400 Annual SEEDUCadministrativesystems

SEEDUC

Casa do Educador:a) website downloads (e.g.,sample lesson plans)b) teachers who have taken anonline training coursec) teachers who have taken a face-to-face course

C a: 0b: 0c: 0

a: 0b: 0c: 50

a: 100b: 20c: 100

a: 200b: 50c: 400

a: 500b: 300c: 800

Semi-annual Casa doEducador Webserver statisticsandadministrativedata

SEEDUC

Intermediate Results (Component Three):1. Increased attention to the quality of health services delivery2. Data available for evidence-based decision making to improve the cost efficiency of healthcare services

Revised Intermediate Results (Component Three): NA.

UPAs with completed qualityaccreditation by JointCommission Methodology(Number of UPAs in 2009=22)

C 0 0 2 5 8 Annual QualityAccrediationteams

SESDEC

UPAs reporting the full cost ofmedical services by Cost Centerin their Annual Reports (alsoreported on SESDEC website)

C 0 0 0 0 4 Annual SESDECadministrativesystems

SESDEC

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