OFFICIAL " Banco Mundial SCN Quadra MEf 61) 3329-1000 BANCO INTERNACIONAL PARA RECONSTRUQAO E DESENVOLVIMENTO Ed. Corporate c r 61) 3329-1010 70712-900 - P P April 30, 2013 His Excellency Mr. Eduardo Henrique Accioly Campos Governor State of Pernambuco Avenida Agamenon Magalhies, 200 - Salgadinho 53110-710, Olinda-PE Brazil Fax: (81)3181-2322 Excellency, BRAZIL: Education Results and Accountability Project - Loan No. LN-771 1-BR First Amendment to the Loan Agreement We refer to the Loan Agreement for the above-captioned Project between the State of Pernambuco (the "Borrower") and the International Bank for Reconstruction and Development (the "Bank"), with a guarantee from the Federative Republic of Brazil (the Guarantor), dated November 6, 2009 ("Loan Agreement"). Please note that capitalized terms used in this letter (the "Amendment Letter") and not defined herein have the meaning ascribed to them in the Loan Agreement. We also refer to the letter from COFIEX letter Recommendation GTEC/COFIEX No. 03/0234 dated March 13, 2013, wherein a request is made to: (a) revise the Project's Disbursement -Linked Indicators included in Schedule 5 to the Loan Agreement; (b) modify the list of Eligible Expenditures Programs due to changes in the respective lines and budget codes under the Borrower's new Multi-Year Plan 2012-2015; and (c) revise the minimum amount to be spent by the Borrower in 2012 for the Eligible Expenditure Programs included in Schedule 4 to the Loan Agreement. The Bank hereby agrees to amend the Loan Agreement as follows: 1. The table included in Part 1. (a) of Schedule 1 to the Loan Agreement is hereby amended to read in its entirety as follows: Program Budget Code Number Expansion and improvement of school network (Expansdo e Melhoria da 3314 Rede Escolar) Development of complementary actions for educational inclusion 3319 (Desenvolvimento de Aqes Complementares de Inclusdo Educacional) Strengthening of school management (Fortalecimento de Gestdo 3322 Escolar) Maintenance of infrastructure of the Borrower's education network 3324 (Manutenqdo dos Imdveis da Rede Estadual de Ensino) 2 Implementation of technological standards in the educational regional 3327 offices and in the schools within the Borrower's network (Implantaqdo de Padrdo Tecnol6gico nas Gerencias Regionais de Educaqdo e Escolas da Rede Estadual) Professional development for education staff (Qualificagdo Permanente 4327 dos Profissionais de Educaqdo) Provision of instructional resources (Disponibilizaqdo de Recursos 4118 Instrucionais) Extending support to educational activity (Ampliaqdo do Suporte a 4072 Atividade Educacional) Provision of school feeding (Fornecimento de Alimentaqdo Escolar) 4538 Provision of School Transport (Fornecimento de Transporte Escolar) 3262 2. The table included in Part 1. (b) of Schedule 1 to the Loan Agreement is hereby amended to read in its entirety as follows: Program Budget Code Improving the effectiveness of learning in fundamental education - 4051 standard performance (Melhoria da Eficdcia da Aprendizagem Ensino Fundamental - Padrdo de Desempenho) 3. The table included in Part 1. (c) of Schedule 1 to the Loan Agreement is hereby amended to read in its entirety as follows: Program Budget Code Improving the effectiveness of learning in fundamental education - 4051 standard performance (Melhoria da Eficdcia da Aprendizagem Ensino Fundamental - Padrdo de Desempenho) Improving the effectiveness of learning in secondary education - standard 4439 performance (Melhoria da Eficdcia da Aprendizagem do Ensino Midio - Padrdo de Desempenho) 4. The table included in Part 1.(d) of Schedule 1 to the Loan Agreement is hereby amended to read in its entirety as follows: Program Budget Code Improving the effectiveness of learning in fundamental education - 4051 standard performance (Melhoria da Efiedcia da Aprendizagem Ensino Fundamental - Padrdo de Desempenho) Improving the effectiveness of learning in secondary education - standard 4439 performance (Melhoria da Eficdcia da Aprendizagem do Ensino Mddio - Padrdo de Desempenho) 5. The table included in Schedule 4 to the Loan Agreement referring to "Eligible Expenditure Programs - 2009-2012" is hereby amended to include the new budget codes and 3 minimum amounts to be spent by the Borrower in 2012 and shall read in its entirety as set forth in Annex I to this Amendment Letter. 6. The table included in Schedule 5 to the Loan Agreement is hereby amended to read in its entirety as set forth in Annex II to this Amendment Letter. Please confirm your agreement with the foregoing amendment by signing and dating the two originals of this Amendment Letter in the spaces provided below. Henceforward, all the provisions of the Loan Agreement except as amended through this Amendment Letter shall remain in full force and effect. Upon confirmation, please return one fully executed original to us. The provisions set forth in this Amendment Letter shall become effective upon receipt by the Bank of one fully executed original of this Amendment Letter. Please also note that the approved Restructuring Paper dated April 30, 2013 will be disclosed on the Bank's external website. Very truly yours, INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Deborah L. Wetzel Director Brazil Latin America and the Caribbean Region AGREED: STATE OF PERNAMBUCO Authonzed Representative Name: ULiaAcw O-CC-4 Cow ?. Title: xd&IAocdlO CLe Date: Q''ID 3 4 cc: Mr. Roberto B. Tan, Executive Director for Brazil, The World Bank Mr. Rogdrio Studart, Alternate Executive Director for Brazil, The World Bank Mr. Jodo Guilherme Machado, Secretary of International Affairs, SEAIN/MP - Fax: 2020- 5006 Mr. Nelson Henrique Barbosa Filho, Executive Secretary, MF - Fax: 3412-1824 Mr. Marcelo Estrela Fiche, Chief of Staff, MF - Fax: 3412-2525 Ms. Adriana Queiroz de Carvalho, Attorney General, PGFN/MF - Fax: 3412-1740 Mr. Arno Augustin Filho, Secretary, National Treasury, STN/MF-Fax: 3412-1717 Mr. Carlos Mdrcio Bicalho Cozendey, Secretary, SAIN/MF - Fax: 3412-1722 Ms. Eva Maria Cella Dal Chiavon, Executive Secretary, MP - Fax: 2020-5003 Mr. Edilberto X. de Albuquerque Jnior, Executive Secretary, SEPLAG/PE - Fax: (81) 3182- 3858 5 Annex I Eligible Expenditure Programs - 2009-2012 Budget Minimum Minimum Minimum Minimum Code Amount to be Amount to be Amount to be Amount to be spent by the spent by the spent by the spent by the Borrower in Borrower in Borrower in Borrower in 2012 2009 in 2010 in 2011 in in Million Reais Million Reais Million Reais Million Reais 3314 41.900 45.250 48.870 78.439 3260 15.170 16.390 17.720 3322 103.480 111.760 120.700 108.494 3324 20.830 22.500 24.300 32.431 3325 1.840 1.990 2.140 3327 1.620 1.750 1.890 10.410 3328 1.950 2.100 2.270 3330 2.160 2.340 2.520 2788 5.470 24.720 31.960 2783 1.870 - - 2784 4.510 4.870 - 2786 15.340 - - 3533 1.720 1.850 2.000 3534 550 600 650 3249 17.000 - - 3255 3.260 3.520 3.800 3257 17.840 19.270 20.830 3262 9.600 10.370 11.220 27331 3319 1.170 1.260 1.370 727 4051 - - - 564.800 4072 - - - 111.782 4118 - - - 6.889 4327 - - - 22.918 4439 - - - 296.703 4538 - - 0 6 Annex II SCHEDULE 5 Disbursement-Linked Indicators Disbursement-linked Indicator Approximately 6 Approximately Approximately Approximately months after the 18 months after 30 months after 42 months after Effective Date the Effective the Effective the Effective Date Date Date 1. Number of the Borrower's system schools 21 121 159 221 meeting basic standards. 2. Share of students in the Borrower's system 59% 61% 63% 65% certified as literate at the end of the first cycle of basic education. 3. Number of overage illiterate students in 19,251 20,000 7,400 7,000 the lower fundamental education (grades I to 4) of Borrower's system certified as literate by the end of the school year. 4. Number of overage students in the lower 8,613 10,500 5,300 4,600 fundamental education of the Borrower's system (grades 1 to 4) that are certified as accelerated or promoted by the end of the school year. 5. Number of overage students in the later 9,000 6,000 6,000 years of fundamental education of the Borrower's system (grades 5 to 8), that are certified as accelerated or promoted by the end of the school year. 6. Number of overage students in the 27,000 24,000 7,200 12,000 secondary education of the Borrower's system that are certified as having completed the education cycle by the end of the school year. 7. SAEPE assessment is applied at grades 2, SAEPE SAEPE SAEPE SAEPE 4 and 8 in all Borrower's schools, and application on all application to all application to all application to all applied in an increasing share in municipal students of 2 students of 2 students of 2 students of 2 schools. 4th and 8th of 4'h and 8th of 4t and 81h of 4 and 8th of fundamental fundamental fundamental fundamental education and 3rd education and 3d education and 3rd education and P of secondary of secondary of secondary of secondary education in all education from education from education from Borrower's the Borrower's the Borrower's the Borrower's schools and in at schools and in at schools and in at schools and in at least 80% of least 90% of least 90% of least 90% of municipal municipal municipal municipal schools. schools. schools. schools. SAEPE0 7 Disbursement-linked Indicator Approximately 6 Approximately Approximately Approximately months after the 18 months after 30 months after 42 months after Effective Date the Effective the Effective the Effective Date Date Date 8. Dissemination of SAEPE information on Dissemination of Dissemination of Dissemination of Dissemination of school performance to parents. SAEPE results to SAEPE results to SAEPE results to SAEPE results to all State-level all State-level all State-level all State-level school parents, school parents, school parents, school parents, and 80% of and 80% of and 90% of and 90% of municipal-level municipal-level municipal-level municipal-level schools. schools. schools. schools. 9. Development and monitoring of an Action 50% of schools 60% of schools 80% of schools 80% of schools Plan of remedial measures (PDE) to improve with PDE, with PDE, with PDE, with PDE, teaching practices and other impediments to including including including including learning in the Borrower's system schools, remedial remedial remedial remedial satisfactory to the Bank, in response to measures under measures under measures under measures under results of students assessments. implementation implementation implementation implementation and being and being and being and being monitored. monitored. monitored. monitored. 10. Development and monitoring of the (1) Formal (1) Substitution (1) Formal implementation of a strategic plan and written review of of the Program written review of derived action plans (updated yearly) for the education for education education sector, satisfactory to the Bank, progress against Modernization of progress, identifying priority activities and a hierarchy indicators Public including the of management indicators to be incorporated included in the Management and implementation into the budget cycle. Programa de Education for the of the Action Modernizaqdo da Pact for Plan of the PPE; Gestdo Pblica Education (PPE); (2) upgrading of em Educaqdo (2) Action Plan action plan (PMGPE); (2) for the education including updating of sector including funding; (3) action plan funding, as per presentation and including the PPE; (3) publication of funding; (3) presentation and results in publication and publication of meetings with the wide results in Government's dissemination of meetings with the Management results. Government's Committee Management (Nficleo de Committee Gestdo). (Nzcleo de Gestdo). 11. Development and implementation of an . Interim report on E-fisco Results of E-fisco action plan for the strengthening of financial E-fisco consultancy is consultancy management, satisfactory to the Bank, consultancy is completed. evaluate n 8 Disbursement-linked Indicator Approximately 6 Approximately Approximately Approximately months after the 18 months after 30 months after 42 months after Effective Date the Effective the Effective the Effective Date Date Date resulting from the application of PEFA prepared. disseminated. Framework. (Implementation of the Borrower's e-fisco project management module will be used as a proxy of the implementation of the action plan). 12. Development and implementation of an Interim report on Bidding process Integrated and action plan for the strengthening of E-procurement concluded and computerized procurement function, including its consultancy is contract assigned. solution for management, E-procurement system and prepared. public other procurement procedures through the management, Web, resulting from the application of the including OECD Indicators diagnostic. procurement, bidding, assets and stocks is in _ _place. 9 Cleared w & bcc.: Messrs./Mmes; LC5Clearance (LCC5C); T. de Abreu (CTRLN); C. Portelo (LEGLE). Bcc.: Messrs./Mmes.: D. Wetzel, F. Vasconcelos, T. Lettieri, L. Guaraciaba, M. Araujo W. Pedrosa (LCC5C); S. Hill (LCC5A); M. Oliveira (CTRFC); R. Pastor (LEGLE); M. Tambucho, T. de Abreu Souza (CTRLN); S. Aliram (LCSPT); S. Amaral (LCSFM); R. Nayar, M. Drabble, A. Musakova, G. Toral, J. Entwistle, J. GriffithsPalma (LCSHE); M. Lindelow (LCSHD); WBDocs; Project Files. Drafter: C. Portelo (LEGLE)