LOAN NUMBER 9303-HR

LOAN AGREEMENT

AGREEMENT dated as of the Signature Date between REPUBLIC OF CROATIA («Borrower») and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT («Bank»). The Borrower and the Bank hereby agree as follows:

Article I
GENERAL CONDITIONS; DEFINITIONS

1.01. The General Conditions (as defined in the Appendix to this Agreement) apply to and form part of this Agreement.

1.02. Unless the context requires otherwise, the capitalized terms used in this Agreement have the meanings ascribed to them in the General Conditions or in the Appendix to this Agreement.

Article II
LOAN

2.01. The Bank agrees to lend to the Borrower the amount of twenty-five million Euros (€25,000,000), as such amount may be converted from time to time through a Currency Conversion («Loan»), to assist in financing the project described in Schedule 1 to this Agreement («Project»).

2.02. The Borrower may withdraw the proceeds of the Loan in accordance with Section III of Schedule 2 to this Agreement.

2.03. The Front-end Fee is one quarter of one percent (0.25%) of the Loan amount.

2.04. The Commitment Charge is one quarter of one percent (0.25%) per annum on the Unwithdrawn Loan Balance.

2.05. The interest rate is the Reference Rate plus the Variable Spread or such rate as may apply following a Conversion; subject to Section 3.02(e) of the General Conditions.

2.06. The Payment Dates are May 15 and November 15 in each year.

2.07. The principal amount of the Loan shall be repaid in accordance with Schedule 3 to this Agreement.

Article III
PROJECT

3.01. The Borrower declares its commitment to the objectives of the Project. To this end, the Borrower shall carry out the Project through the MSE in accordance with the provisions of Article V of the General Conditions and Schedule 2 to this Agreement.

Article IV
EFFECTIVENESS; TERMINATION

4.01. The Additional Conditions of Effectiveness consists of the following: namely that the Borrower has: (i) developed and adopted a POM, satisfactory to the Bank, and (ii) established the Working Group in a manner satisfactory to the Bank.

4.02. The Effectiveness Deadline is the date ninety (90) days after the Signature Date.

4.03. For purposes of Section 9.05(b) of the General Conditions, the date on which the obligations of the Borrower under this Agreement (other than those providing for payment obligations) shall terminate is twenty (20) years after the Signature Date.

Article V
REPRESENTATIVE; ADDRESSES

5.01. The Borrower’s Representative is the minister in charge of finance.

5.02. For purposes of Section 10.01 of the General Conditions: (a) the Borrower’s address is:

Ministry of Finance

Katanciceva 5

10000 Zagreb

Republic of Croatia

Facsimile: (385-1) 4922-598; and

(b) the Borrower’s Electronic Address is:

kabinet@mfin.hr

5.03. For purposes of Section 10.01 of the General Conditions: (a) the Bank’s address is:

International Bank for Reconstruction and Development

1818 H Street, N.W.

Washington, D.C. 20433

United States of America;

Facsimile: 1-202-477-6391; and

(b) the Bank’s Electronic Address is:

gvincelette@worldbank.org

AGREED as of the Signature Date.

REPUBLIC OF CROATIA

Authorized Representative

Name: Zdravko Marić

Title: Deputy Prime Minister and Minister of Finance

Date: December 16, 2021

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

Authorized Representative

Name: Jehan Arulpragasam

Title: Country Manager

Date: December 16, 2021

SCHEDULE 1

PROJECT DESCRIPTION

The objective of the Project is to improve the learning environment in selected schools under the WDS system and to strengthen the capacity of the MSE to scale up the WDS system and implement sector reforms.

The Project consists of the following parts:

Part 1: Ensure that more hours translate into more student learning

1. Technical assistance to MSE to design and support implementation and monitoring of the WDS system while learning from its rollout to inform the MSE’s future scale up of the reform, including through:

(a) The development of the WDS system and its adjustment following experience during the initial years of implementation by, inter alia, (i) developing guidelines to increase learning time for all students and incorporate additional extracurricular activities; (ii) defining pedagogical practices consistent with the new curriculum; (iii) designing training models for teachers; and (iv) contracting professors and experts from higher education institutions as learning counselors to train teachers in WDS implementation.

(b) The design and development of an advanced education database, utilizing administrative and student performance data by education sector stakeholders.

(c) (i) Design and establishment of a «peer-mentoring» program that would pair principals from Demonstration Schools with poor academic performance and located in high poverty areas, with principals from top-performing schools; and

(ii) provision of Small Grants to eligible Demonstration Schools participating in the «peer-mentoring» program, as set forth under the Small Grants Manual, to procure, inter alia, learning materials, minor information technology equipment for classrooms, and to build the capacity of teachers.

Part 2: Design and demonstrate infrastructure solutions for WDS

1. Technical assistance to MSE to transition schools into modern, climate-resilient and energy-efficient facilities by, inter alia: (i) adopting school infrastructure designs and standards following relevant international and European practices; (ii) developing guidelines to support national and subnational authorities in procurement, permits, and supervision; (iii) gathering data on existing infrastructure to inform prioritization of capital investments; (iv) carrying out preliminary analytical studies such as technical surveys and energy audits; and (v) developing learning and knowledge exchange mechanisms to exchange best practices and foster peer-to-peer learning around novel ways of using learning spaces.

2. Selecting, through a public call, the schools pioneering the implementation of the WDS system and serving as demonstration schools for the reform («Demonstration Schools») and implementing minor infrastructure investments in the Demonstration Schools, such as minor rehabilitation and refurbishment work, and procuring necessary school furniture and equipment for Demonstration Schools to facilitate their participation in the WDS.

Part 3: Strengthen MSE’s capacity to implement reforms

1. Provision of support for the implementation of the WDS system, including by: (i) strengthening MSE’s capacity to support key aspects of implementing the reform, including the establishment of the Reform Working Group; and (ii) support to the Reform Working Group in the overall day-to-day implementation of the Project, including procurement, financial management, monitoring and evaluation, carrying out of audits, communication and outreach strategy on the WDS, safeguards and implementation of grievance redress mechanisms.

2. Technical assistance, training and capacity-building to support MSE in the design, implementation and scale up of the WDS system, by inter alia (i) reviewing national regulations governing teachers, students with special needs, school autonomy, and organization of school day; (ii) reviewing the framework for human resources in the school sector; (iii) revising the WDS reform costing to ensure consistency with education policy reforms; (iv) conducting a needs assessment and training on school management; and (v) supporting local governments to adapt their local school network and promote their participation in the WDS system.

3. Technical assistance to support the MSE with the design of educational reforms beyond the WDS set forth under the NRRP, that seek to inter alia, (i) restructure the early childhood development financing model and enhance capacities of preschool teachers; (ii) optimize and adapt the vocational education school network to align with the needs of the economy and increase participation in general education programs; and (iii) restructure the higher education financing model and enhance the digital competencies of professors.

4. Support the establishment of a research program to monitor and analyze the impact of the WDS reform, including by conducting an impact evaluation of outcomes in Demonstration Schools vis-à-vis a statistically valid group of «control schools», as set forth in the POM, to (i) compare differences in average student learning outcomes and learning outcomes among disadvantaged students; (ii) inform future reform activities in a timely and evidence-based manner; and (iii) leverage the expertise of other national educational institutions for the benefit of students and teachers.

SCHEDULE 2

PROJECT EXECUTION

Section I.
IMPLEMENTATION ARRANGEMENTS

A. Institutional Arrangements

1. Without limitation to the provisions of Article V of the General Conditions, and except as the Bank shall otherwise agree, the Borrower shall maintain at all times during the implementation of the Project, a Working Group, withing MSE, with composition, resources, terms of reference and functions acceptable to the Bank, including, inter alia, an environmental specialist, social development specialist and communication specialist.

2. The Borrower shall ensure that the Reform Working Group is headed by a Project director and is responsible for the day-to-day implementation of the Project, including financial management, disbursement, procurement, monitoring and evaluation, consolidated reporting, and ensuring safeguards compliance under the Project, as further elaborated in the Project Operations Manual («POM»).

B. Project Operations Manual

1. The Borrower, through MSE, shall carry out the Project in accordance with the POM, satisfactory to the Bank.

2. The Borrower shall ensure that the POM includes the rules, methods, guidelines, standard documents and procedures for the carrying out of the Project, including: (a) a detailed description of the Project activities and the institutional arrangements of the Project; (b) a detailed description of prioritization and eligibility criteria for the Project activities; (c) the Project accounting, auditing, reporting, financial, procurement and disbursement procedures; (d) the monitoring indicators for the Project; and (e) the detailed Project costs and financing.

3. (a) The POM may not be assigned, amended, abrogated or waived, or permitted to be assigned, amended, abrogated or waived, or any provision thereof, in a manner which, in the opinion of the Bank, may materially and adversely affect the implementation of the Project.

(b) The POM may only be amended in consultation with, and after approval of, the Bank.

(c) In case of any conflict between the terms of the POM and those of this Agreement, the terms of this Agreement shall prevail.

C. Annual Work Plan and Budget

The Borrower, through the Reform Working Group, shall:

(a) unless otherwise agreed with the Bank, prepare and furnish to the Bank, not later than November 15 of each year during the implementation of the Project starting in 2022, a proposed Annual Work Plan and Budget for the next calendar year containing: (i) all activities to be carried out under the Project during that calendar year; and (ii) a proposed financing plan for expenditures required for such activities, setting forth the proposed amounts and sources of financing; and

(b) provide the Bank a reasonable opportunity to exchange views with the Borrower on each such proposed Annual Work Plan and Budget, and shall thereafter ensure that the Project is implemented with due diligence during said following year, in accordance with such Annual Work Plan and Budget as shall have been approved by the Bank; and not make or allow to be made any change to the approved Annual Work Plan and Budget without the Bank’s prior written approval.

D. Small Grants

1. To facilitate the carrying out of Part 1(1)(c) of the Project, the Borrower, through MSE, shall make part of the proceeds of the Loan available to Demonstration Schools under a grant agreement between the Borrower and the respective Demonstration School («Grant Agreement») for purposes of a Small Grant Sub-project, under terms and conditions approved by the Bank, which shall include the following:

(a) MSE shall make Small Grants to Demonstration Schools in accordance with eligibility criteria and procedures acceptable to the Bank, which shall be detailed in the Small Grants Manual.

(b) MSE shall make each Small Grant under a Grant Agreement with the respective Demonstration School on terms and conditions approved by the Bank, which shall include the following:

(i) MSE shall obtain rights adequate to protect its interests and those of the Bank, including the right to:

(1) suspend or terminate the right of the Demonstration School to use the proceeds of the Small Grant, or obtain a refund of all or any part of the amount of the Small Grant then withdrawn, upon the Demonstration School’s failure to perform any of its obligations under the Grant Agreement; and

(2) require each Demonstration School to:

(A) carry out its Small Grant Sub-project with due diligence and efficiency and in accordance with sound technical, economic, financial, managerial, environmental and social standards and practices satisfactory to the Bank, including in accordance with the provisions of the Anti-Corruption Guidelines applicable to recipients of loan proceeds other than the Borrower;

(B) provide, promptly as needed, the resources required for the purpose;

(C) procure the goods, works and services to be financed out of the Small Grant in accordance with the provisions of this Agreement;

(D) maintain policies and procedures adequate to enable it to monitor and evaluate, in accordance with indicators acceptable to the Bank, the progress of the Small Grant and the achievement of its objectives;

(E) maintain a financial management system and prepare financial statements in accordance with consistently applied accounting standards acceptable to the Bank, both in a manner adequate to reflect the operations, resources and expenditures related to the Small Grant Sub-project;

(F) at the Bank’s or the Borrower’s request, have such financial statements audited by independent auditors acceptable to the Bank, in accordance with consistently applied auditing standards acceptable to the Bank, and promptly furnish the statements as so audited to the Borrower and the Bank;

(G) enable the Borrower and the Bank to inspect the Small Grant Sub-project, its operation and any relevant records and documents; and

(H) prepare and furnish to the Borrower and the Bank all such information as the Borrower or the Bank shall reasonably request relating to the foregoing.

(ii) The Borrower, though MSE, shall exercise its rights under each Grant Agreement in such manner as to protect the interests of the Borrower, MSE and the Bank and to accomplish the purposes of the Loan and the Small Grant.

(iii) Except as the Bank shall otherwise agree, the Borrower, through MSE, shall not assign, amend, abrogate or waive any Grant Agreement or any of its provisions.

(iv) Unless otherwise agreed with the Bank, the maximum amount of the value of the Small Grant to a single Demonstration School shall not exceed twenty thousand Euros (€20,000).

E. Small Grants Manual

1. The Borrower, through the MSE, shall disburse the Small Grants in accordance with a Small Grants Manual, satisfactory to the Bank, which shall include the rules, methods, guidelines, standard documents and procedures for carrying out Small Grant Sub-projects, including the following: (a) a detailed description of the type of Small Grant Sub-project activities and the institutional arrangements for Small Grant Sub-projects; (b) a detailed description of prioritization and eligibility criteria for Small Grant Sub-project activities; (c) the Small Grant Sub-project accounting, auditing, reporting, financial, procurement and disbursement procedures; and (d) the monitoring indicators for Small Grant Sub-projects.

2. (a) The Borrower, through MSE, may not assign, amend, abrogate or waive, or permit to be assigned, amended, abrogated or waived, the Small Grants Manual or any provision thereof, in a manner which, in the opinion of the Bank, may materially and adversely affect the implementation of the Project.

(b) The Borrower, through MSE, may only amend the Small Grants Manual in consultation with, and after the approval of, the Bank.

(c) In case of any conflict between the terms of the Small Grants Manual and those of this Agreement, the terms of this Agreement shall prevail.

F. Environmental and Social Standards.

1. The Borrower, through MSE, shall ensure that the Project is carried out in accordance with the Environmental and Social Standards, in a manner acceptable to the Bank.

2. Without limitation upon paragraph 1 above, the Borrower, through MSE, shall ensure that the Project is implemented in accordance with the Environmental and Social Commitment Plan («ESCP»), in a manner acceptable to the Bank. To this end, the Borrower, through MSE, shall ensure that:

(a) the measures and actions specified in the ESCP are implemented with due diligence and efficiency, as provided in the ESCP;

(b) sufficient funds are available to cover the costs of implementing the ESCP;

(c) policies and procedures are maintained, and qualified and experienced staff in adequate numbers are retained to implement the ESCP, as provided in the ESCP; and

(d) the ESCP, or any provision thereof, is not amended, repealed, suspended or waived, except as the Bank shall otherwise agree in writing, as specified in the ESCP, and ensure that the revised ESCP is disclosed promptly thereafter.

3. In case of any inconsistencies between the ESCP and the provisions of this Agreement, the provisions of this Agreement shall prevail.

4. The Borrower, through MSE, shall ensure that:

(a) all measures necessary are taken to collect, compile, and furnish to the Bank through regular reports, with the frequency specified in the ESCP, and promptly in a separate report or reports, if so requested by the Bank, information on the status of compliance with the ESCP and the environmental and social instruments referred to therein, all such reports in form and substance acceptable to the Bank, setting out, inter alia: (i) the status of implementation of the ESCP; (ii) conditions, if any, which interfere or threaten to interfere with the implementation of the ESCP; and (iii) corrective and preventive measures taken or required to be taken to address such conditions; and

(b) the Bank is promptly notified of any incident or accident related to or having an impact on the Project which has, or is likely to have, a significant adverse effect on the environment, the affected communities, the public or workers, in accordance with the ESCP, the environmental and social instruments referenced therein and the Environmental and Social Standards.

5. The Borrower, through MSE, shall establish, publicize, maintain and operate an accessible grievance mechanism, to receive and facilitate resolution of concerns and grievances of Project-affected people, and take all measures necessary and appropriate to resolve, or facilitate the resolution of, such concerns and grievances, in a manner acceptable to the Bank.

6. The Borrower, through MSE, shall ensure that all bidding documents and contracts for civil works under the Project include the obligation of contractors, subcontractors and supervising entities to: (a) comply with the relevant aspects of ESCP and the environmental and social instruments referred to therein; and (b) adopt and enforce codes of conduct that should be provided to and signed by all workers, detailing measures to address environmental, social, health and safety risks, and the risks of sexual exploitation and abuse, sexual harassment and violence against children, all as applicable to such civil works commissioned or carried out pursuant to said contracts.

Section II.
PROJECT MONITORING REPORTING AND EVALUATION

The Borrower, through MSE, shall furnish to the Bank each Project Report not later than forty-five (45) days after the end of each calendar semester, covering the calendar semester.

Section III.
WITHDRAWAL OF LOAN PROCEEDS

A. General

Without limitation upon the provisions of Article II of the General Conditions and in accordance with the Disbursement and Financial Information Letter, the Borrower may withdraw the proceeds of the Loan to: finance Eligible Expenditures in the amount allocated and, if applicable, up to the percentage set forth against each Category of the following table:

B. Withdrawal Conditions; Withdrawal Period

1. Notwithstanding the provisions of Part A above, no withdrawal shall be made:

(a) for payments made prior to the Signature Date, except that withdrawals up to an aggregate amount not to exceed five million Euro (€5,000,000) may be made for payments made prior to this date but on or after one (1) year prior to the Signature Date, for Eligible Expenditures, subject to the Bank’s prior approval of the conclusions of an environmental and social audit conducted by the Reform Working Group of the activity or work proposed for financing; or

(b) under Category 2 until the Borrower has developed and adopted, to the Bank’s satisfaction, the Small Grants Manual.

2. The Closing Date is June 30, 2026.

SCHEDULE 3

COMMITMENT-LINKED AMORTIZATION REPAYMENT SCHEDULE

The following table sets forth the Principal Payment Dates of the Loan and the percentage of the total principal amount of the Loan payable on each Principal Payment Date («Installment Share»).

Level Principal Repayments

APPENDIX

DEFINITIONS

1. «Anti-Corruption Guidelines» means, for purposes of paragraph 6 of the Appendix to the General Conditions, the «Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants», dated October 15, 2006 and revised in January 2011 and as of July 1, 2016.

2. «Category» means a category set forth in the table in Section III.A of Schedule 2 to this Agreement.

3. «Demonstration Schools» means the approximately fifty (50) schools selected by the MSE to pioneer the implementation of the WDS system and serve as «model/demonstration» schools for the WDS reform and meeting the eligibility criteria set forth in the POM.

4. «Environmental and Social Commitment Plan» or «ESCP» means the environmental and social commitment plan for the Project, dated [insert date of negotiations], as the same may be amended from time to time in accordance with the provisions thereof, which sets out the material measures and actions that the Borrower, through MSE, shall carry out or cause to be carried out to address the potential environmental and social risks and impacts of the Project, including the timeframes of the actions and measures, institutional, staffing, training, monitoring and reporting arrangements, and any environmental and social instruments to be prepared thereunder.

5. «Environmental and Social Standards» or «ESSs» means, collectively: (i) «Environmental and Social Standard 1: Assessment and Management of Environmental and Social Risks and Impacts»; (ii) «Environmental and Social Standard 2: Labor and Working Conditions»; (iii) «Environmental and Social Standard 3: Resource Efficiency and Pollution Prevention and Management»; (iv) «Environmental and Social Standard 4: Community Health and Safety»; (v) «Environmental and Social Standard 5: Land Acquisition, Restrictions on Land Use and Involuntary Resettlement»; (vi) «Environmental and Social Standard 6: Biodiversity Conservation and Sustainable Management of Living Natural Resources»; (vii) «Environmental and Social Standard 7: Indigenous Peoples/Sub-Saharan Historically Underserved Traditional Local Communities»; (viii) «Environmental and Social Standard 8: Cultural Heritage»; (ix) «Environmental and Social Standard 9: Financial Intermediaries»; (x) «Environmental and Social Standard 10: Stakeholder Engagement and Information Disclosure»; effective on October 1, 2018, as published by the Bank.

6. «General Conditions» means the «International Bank for Reconstruction and Development General Conditions for IBRD Financing, Investment Project Financing», dated December 14, 2018 (revised on August 1, 2020, December 21, 2020, and April 1, 2021).

7. «Grant Agreement» refers to an agreement to be entered into between MSE and a Demonstration School and referred to in Schedule 2, Section D hereto.

8. «MSE» means the Borrower’s Ministry of Science and Education, or any legal successor thereto.

9. «NRRP» means the Borrower’s National Resilience and Recovery Plan and refers to a policy reform framework that seeks to achieve, inter alia, development, social (including education) and environmental objectives during the 2021-2026 period.

10. «Operating Costs» means reasonable costs for the incremental expenses incurred on account of Project implementation, consisting of, inter alia, communication costs, office supplies and maintenance, minor office refurbishing, and equipment maintenance, utilities, document duplication/printing, consumables, vehicle operation and maintenance, bank fees, travel cost and per diem for Project staff for travel linked to the implementation of the Project, (but excluding consulting services and salaries of officials of the Borrower’s civil service), all as approved by the Bank.»

11. «Procurement Regulations» means, for purposes of paragraph 87 of the Appendix to the General Conditions, the «World Bank Procurement Regulations for IPF Borrowers», dated November 2020.

12. «Program Operational Manual» and the acronym «POM» means the Borrower’s manual, acceptable to the Bank, guiding implementation of the Project and meeting the requirements set out in section I.B of Schedule 2 to this Agreement.

13. «Signature Date» means the later of the two dates on which the Borrower and the Bank signed this Agreement and such definition applies to all references to «the date of the Loan Agreement» in the General Conditions.

14. «Small Grants» means grants disbursed by the MSE to Demonstration Schools as set forth under Schedule 2, section I.D hereto and the Small Grants Manual.

15. «Small Grants Manual» means the MSE’s manual governing the disbursement of Small Grants to Demonstration Schools, as set forth under Schedule 2, section I.E hereto.

16. «Small Grant Sub-project» means a project to be carried out by a Demonstration School financed with a Small Grant under a Small Grant Agreement, as set forth in Schedule 2, section I.D hereto and the Small Grants Manual.

17. «Trainings» means the reasonable costs associated with training under the Project and attributable to study tours, training courses, seminars, workshops and other training activities, not included under service providers’ contracts, including costs of training materials, space and equipment rental, travel, accommodation and per diem costs of trainees and trainers, trainers’ fees, and other training related miscellaneous costs, all as approved by the Bank.

18. «Working Group» menas the team within the MSE, serving as Borrower’s implementation unit for the Project («PIU»), responsible, in cooperation with other MSE units (as identified in the POM), for the day-to-day implementation of the Project, including financial management, disbursement, procurement, monitoring and evaluation, consolidated reporting, and ensuring safeguards compliance under the Project.

19. The acronym «WDS» means Whole Day School, the Borrower’s program outlined in the NRRP, seeking to increase the quality of teaching and learning outcomes of primary and lower secondary students, especially students from lower socioeconomic backgrounds, by increasing the number of compulsory classes, continuous teacher training and systematic external evaluation of learning outcomes.