The World Bank
BR State of Ceará Sustainable DPF (P180497)
Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No: PGD435
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
PROGRAM DOCUMENT FOR A
PROPOSED LOAN
IN THE AMOUNT OF JPY 80,114,895,584 (US$ 541,884,375 EQUIVALENT) TO
THE STATE OF CEARÁ
WITH A GUARANTEE OF THE FEDERATIVE REPUBLIC OF BRAZIL
FOR THE
BR STATE OF CEARÁ SUSTAINABLE DPF
February 29, 2024
Macroeconomics, Trade And Investment Global Practice
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.
The World Bank
BR State of Ceará Sustainable DPF (P180497)
State of Ceará
GOVERNMENT FISCAL YEAR
January 1 – December 31
CURRENCY EQUIVALENTS
(Exchange Rate Effective as of February 23, 2024)
Currency Unit
US$ 1.00: R$ 4.98
ABBREVIATIONS AND ACRONYMS
BCB Banco Central do Brasil (Brazilian Central Bank) IMF International Monetary Fund
Instituto Nacional de Estudos e Pesquisas Educacionais
Capacidade de pagamento (credit worthiness scoring
CAPAG INEP Anísio Teixeira (Anisio Teixeira National Institute for
system)
Educational Research and Studies)
Conselho Administrativo de Recursos Fiscais (Tax
CARF IPSAS International Public Sector Accounting Standards
Appeals Administration Council)
CBA Cost-Benefit Analysis LDO Lei de Diretrizes Orçamentárias (Budget Guidelines Law)
CBAM Carbon Based Adjustment Mechanism LDP Letter of Development Policy
Companhia de Participação e Gestão de Ativos do Ceará
CearaPar MAPP Monitoring of Priority Actions and Projects
(Ceará Participation and Asset Management Company)
Controladoria Geral do Estado (State General
CGE NCR Net Current Revenues
Comptroller)
Complexo Industrial e Portuário do Pecém (Industrial
CIPP NPV Net Present Value
Complex of Pecém)
Conselho Estadual de Meio Ambiente (State’s
COEMA PDO Project Development Objective
Environmental Council)
COSO Committee of Sponsoring Organizations PER Brazil Public Expenditure Review
CPF Country Partnership Framework PFM Public Financial Management
Procuradoria Geral do Estado (State Attorney General’s
CPI Consumer Price Index PGE
Office)
CPIA Country Policy and Institutional Assessments PIM Public Investment Management
Pesquisa Nacional por Amostra de Domicílios Contínua
DG Distributed Generation PNADC
(Continuous National Household Sample Survey)
DPF Development Policy Financing PPA Plano Plurianual (Multiannual Plan)
CPIA Country Policy and Institutional Assessments PPP Purchasing Power Parity
DPF Development Policy Financing RE Renewable Energy
Regime Próprio de Previdência Social (Civil Servant Pension
EC Emenda Constitucional (Constitutional Amendment) RPPS
Regime)
Environmental Impact Study and Environmental Impact
EI/EIR SDR Special Drawing Rights
Report
FDI Foreign Direct Investment SEDUC Secretaria de Educação (State Secretariat of Education)
Fundo de Participação dos Estado (State Participation
FPE SEFAZ Secretaria da Fazenda (Secretariat of Finance)
Fund)
Fundo de Participação dos Municípios (Municipal Secretaria Estadual de Infraestrutura (State Secretariat of
FPM SEINFRA
Participation Fund) Infrastructure)
Secretaria do Meio Ambiente e Mudança do Clima (State
FRL Fiscal Responsibility Law SEMA
Secretariat for the Environment and Climate Change)
Superintendência Estadual do Meio Ambiente (State
FSAP Financial Sector Assessment Program SEMACE
Superintendence of the Environment)
Secretaria do Planejamento e Gestão (Secretariat for
GoC Governo do Ceará (Government of Ceará) SEPLAG
Planning and Management)
GDP Gross Domestic Product SER Simplified Environmental Report
The World Bank
BR State of Ceará Sustainable DPF (P180497)
Sistema Integrado de Planejamento e Administração
GHG Greenhouse Gas SIAFE-CE Financeira do Estado do Ceará (Integrated Planning and
Financial Administration System of the State of Ceará)
GNFS Goods and Non-factor Services STEM Science, Technology, Engineering and Math
Secretaria do Tesouro Nacional (National Treasury
GRID Green, Resilient and Inclusive Development STN
Secretariat)
GTI Investments Technical Group TCE Tribunal de Contas do Estados do Ceará (State Audit Court)
HCI Human Capital Index TCU Tribunal de Contas da União (Federal Court of Accounts)
IA-CM Internal Audit Capability Model TFP Total Factor Productivity
Instituto Brasileiro de Geografia e Estatística (Brazilian
IBGE TVET Technical and Vocational Education and Training
Institute of Geography and Statistics)
International Bank for Reconstruction and
IBRD VAT Value-Added Tax
Development
Imposto sobre Circulação de Mercadorias e Serviços
ICMS WASH Water, Sanitation, and Hygiene
(Tax on the Circulation of Goods and Services)
Índice de Desenvolvimento da Educação Básica (Basic
IDEB WB World Bank
Education Development Index)
IFC International Finance Corporation WBG World Bank Group
Instituição Fiscal Independente (Independent Fiscal
IFI
Institute)
.
Regional Vice President: Carlos Felipe Jaramillo
Country Director: Johannes C.M. Zutt
Regional Director: Oscar Calvo-Gonzalez and Maria Marcela Silva
Practice Manager (s): Doerte Doemeland and Gabriela Elizondo Azuela
Task Team Leader (s): Fabiano Silvio Colbano and Megan Meyer
The World Bank
BR State of Ceará Sustainable DPF (P180497)
FEDERATIVE REPUBLIC OF BRAZIL
BR State of Ceará Sustainable DPF
TABLE OF CONTENTS
SUMMARY OF PROPOSED FINANCING AND PROGRAM ..................................................................... 1
1. INTRODUCTION ........................................................................................................................ 3
2. MACROECONOMIC POLICY FRAMEWORK.................................................................................. 4
2.1. RECENT ECONOMIC DEVELOPMENTS ...........................................................................................4
2.2. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY..........................................................5
2.3. RECENT ECONOMIC DEVELOPMENTS AND FISCAL SUSTAINABILITY IN THE STATE OF CEARÁ ....9
2.3. IMF RELATIONS ...........................................................................................................................10
3. GOVERNMENT PROGRAM ...................................................................................................... 10
4. PROPOSED OPERATION .......................................................................................................... 11
4.1. LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION .........................................12
4.2. PRIOR ACTIONS AND RESULTS ....................................................................................................12
4.3. LINK TO CPF, OTHER BANK OPERATIONS AND THE WBG STRATEGY .........................................22
4.4. CONSULTATIONS AND COLLABORATION WITH DEVELOPMENT PARTNERS ..............................22
5. OTHER DESIGN AND APPRAISAL ISSUES .................................................................................. 22
5.1. POVERTY AND SOCIAL IMPACT ...................................................................................................22
5.2. ENVIRONMENTAL, FORESTS, AND OTHER NATURAL RESOURCE ASPECTS ................................24
5.3. PFM, DISBURSEMENT AND AUDITING ASPECTS .........................................................................24
5.4. MONITORING, EVALUATION AND ACCOUNTABILITY .................................................................25
6. SUMMARY OF RISKS AND MITIGATION ................................................................................... 26
ANNEX 1: POLICY AND RESULTS MATRIX ........................................................................................ 29
ANNEX 2: FUND RELATIONS ANNEX ................................................................................................ 33
ANNEX 3: LETTER OF DEVELOPMENT POLICY................................................................................... 36
ANNEX 4: ENVIRONMENT AND POVERTY/SOCIAL ANALYSIS TABLE ................................................ 43
ANNEX 5: PARIS ALIGNMENT ASSESSMENT TABLE .......................................................................... 45
ANNEX 6: ESTIMATED IMPACTS OF THE REVENUE MEASURES PROPOSED BY THE BRAZIL’S FEDERAL
GOVERNMENT ............................................................................................................................... 52
ANNEX 7: BRAZIL DEBT SUSTAINABILITY ANALYSIS.......................................................................... 53
ANNEX 8: INTERGOVERNMENTAL FISCAL ARRANGEMENTS IN BRAZIL ............................................. 55
ANNEX 9: DPF PRIOR ACTIONS AND ANALYTICAL UNDERPINNINGS ................................................. 57
The World Bank
BR State of Ceará Sustainable DPF (P180497)
This Sustainable DPF for the Brazilian State of Ceará (P180497) was prepared by an IBRD team led by Fabiano Silvio Colbano,
Senior Economist and TTL (ELCMU) and Megan Meyer, Senior Energy Specialist and co-TTL (IEEES), and comprised of (in
alphabetical order): Alberto Coelho Gomes Costa, Senior Social Development Specialist (SLCSO); Ana Carolina Rodrigues Velloso
Cordeiro, Consultant (SLCUR); Carlos Antonio Costa, Senior Energy Economist (ILCE1); Carolina Luisa Vaira, Senior Governance
Specialist (ELCG2); Daniela Gayraud, Operations Analyst (SLCEN); Daria Yurlova, ET Consultant (IPGPP); Eric Shayer, Senior
Environmental Specialist (SLCEN); Fátima Alves, Consultant (HLCED); Flavia Nahmias da Silva Gomes, Program Assistant (LCC5C);
Gabriel Lara Ibarra, Senior Economist (ELCPV); Guido Couto Penido Guimarães, Consultant (SLCEN); Gustavo Covolan Bozzetti,
ET Consultant (ELCG2); Heron Marcos Teixeira Rios, ET Consultant (ELCMU); João Guilherme Morais de Queiroz, Senior
Procurement Specialist (ELCRU); Julio Velasco, Senior Economist, (ELCMU); Leandro Costa, Senior Economist (HLCED); Luigi
Butron Calderon, Economist (ELCMU); Luis Alberto Andrés, Sector Leader (ILCDR); Maja Murisic, Senior Environmental Specialist
(SLCEN); Michael Peter Wilson, Young Professional (ILCE1); Paola Buitrago Hernandez, Economist (ELCPV); Pierre Audinet, Lead
Energy Specialist (IEEGK); Priscilla Nunes Cardoso de Sá, Program Assistant (LCC5C); Raphael Pinto Fernandes, Consultant
(ELCMU); Sadia Afobali, Governance Specialist (ELCG2); Shyamala Shukla, Senior Public Private Partnerships Specialist (IPGPP);
Shireen Mahdi, Lead Country Economist (ELCRD); and Susana Amaral, Senior Financial Management Specialist (ELCG1).
The team is grateful for the comments received from Rafael Muñoz Moreno, Lead Country Economist (ELCDR), Silvia Martinez
Romero, Lead Energy Specialist (IECE1), Michael Geiger, Economic Adviser (OPCS), Joaquim Diogo Ribeiro Tavarez, Counsel
(LEGLE), Stephanie Gil, Practice Manager (IECE1) and Evelyn Awittor, Senior Operations Officer (LCROS).
The team is grateful for the guidance provided by Johannes Zutt, Country Director (LCC5C), Oscar Calvo-Gonzalez, Regional
Director (ELCDR), Maria Marcela Silva, Regional Director (ILCDR), Doerte Doemeland, Practice Manager (ELCMU) and Gabriela
Elizondo Azuela, Practice Manager (ILCE1).
The World Bank
BR State of Ceará Sustainable DPF (P180497)
@#&OPS~Doctype~OPS^dynamics@paddpfbasicinformation#doctemplate
SUMMARY OF PROPOSED FINANCING AND PROGRAM
BASIC INFORMATION
Operation ID Programmatic
P180497 No
Proposed Development Objective(s)
The proposed DPF supports reforms of the state of Ceará to: (i) improve public financial management; and (ii)
strengthen the enabling environment to scale up clean energy production.
@#&OPS~Doctype~OPS^dynamics@padborrower#doctemplate
Organizations
Borrower: State of Ceará
Implementing Agency: State Secretariat of Civil House, State Secretariat of Finance
@#&OPS~Doctype~OPS^dynamics@padfinancingsummary#doctemplate
PROJECT FINANCING DATA (US$, Millions)
Maximizing Finance for Development
Is this an MFD-Enabling Project (MFD-EP)? Yes
Is this project Private Capital Enabling (PCE)? No
SUMMARY
Total Financing 541.88
DETAILS
World Bank Group Financing
International Bank for Reconstruction and Development (IBRD) 541.88
@#&OPS~Doctype~OPS^dynamics@padclimatechange#doctemplate
PRACTICE AREA(S)
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The World Bank
BR State of Ceará Sustainable DPF (P180497)
Practice Area (Lead) Contributing Practice Areas
Education; Governance; Infrastructure, PPP's &
Macroeconomics, Trade and Investment
Guarantees
CLIMATE
Climate Change and Disaster Screening
Yes, it has been screened and the results are discussed in the Concept Document
@#&OPS~Doctype~OPS^dynamics@padoverallrisk#doctemplate
OVERALL RISK RATING
Overall Risk Moderate
RESULTS
Indicator Name Baseline Target
Pillar I – Improving public financial management
RI1. Number of public investment projects screened, appraised, and
prioritized according to the methodology criteria set forth on the new 2022 = 0 2025 = 5
legal framework
RI2. Real estate assets vacancy rate 2022 = 18.5 percent 2025 = 8 percent
RI3. Increased deployment of the Integrity Program in five units of the
State's key sectoral budgets secretariats to assess its internal control
2022 = 54 percent 2025 = 75 percent
structure according to the methodology criteria set forth on the “Integrity
Diagnostics Framework”
Pillar II – Strengthening the enabling environment to scale up clean energy production
2022 = no emission 2025 = emission reduction
RI4. Publication of targets for greenhouse gas emission reduction for the
reduction targets published targets published for the CIPP
CIPP, utilizing the emissions inventory and energy balance
for the CIPP for 2030, 2040 and 2050
RI5. Funds transferred to the FIEE Fund to Support the Renda do Sol
Program, utilizing energy cost savings from the State’s public building 2022 = R$ 0m 2025 = R$ 19m
renewable energy program
RI6. Locational environmental licensing assessments completed 2022 = 0 2025 = 4
RI7. Number of TVET courses on clean energy 2022 = 1 2025 = 8
RI8. Number of girls (aged 14 to 19) participating on STEM career
2022 = 0 2025 = 20,000
orientation program
RI9. Number of full-time schools’ facilities rehabilitated or constructed
2022 = 257 2025 = 400
following the criteria laid out in the regulations.
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The World Bank
BR State of Ceará Sustainable DPF (P180497)
IBRD PROGRAM DOCUMENT FOR A PROPOSED LOAN IN THE AMOUNT OF JPY 80,114,895,584 (US$ 541,884,375
EQUIVALENT) TO THE STATE OF CEARÁ FOR THE BR STATE OF CEARÁ SUSTAINABLE DPF
1. INTRODUCTION
1. This proposed DPF supports reforms of the State of Ceará to: (i) improve public financial management; and (ii)
strengthen the enabling environment to scale up clean energy production. The proposed JPY 80,114,895,584.34 (US$
541,884,375 equivalent) International Bank for Reconstruction and Development (IBRD) loan supports critical reforms in
areas related to two key pillars. The first pillar seeks to strengthen public finance systems through improved in public
investment management, public assets management and internal control. The second pillar supports policies and
regulations that promote a just and clean energy transition and better labor skills. This operation is part of a broader
package of support by the World Bank (WB) to improve fiscal and environmental sustainability and resilience at the sub-
national level in Brazil and is fully aligned with the Green, Resilient and Inclusive Development (GRID) approach.
2. The Northeastern Sstate of Ceará faces important development challenges. Ceará is the State with the fourth
lowest income in Brazil (GDP per capita of BRL 3,522). More than half of Ceará’s work force is informal, compared to 39.0
percent for Brazil, and its poverty rate is high at 44.2 percent (US$6.85/day; PPP 2017). While the State has been known
for its educational achievements, holding the second-best position in the national Basic Education Development Index
(IDEB) ranking, the share of literate children aged 7 and 8 fell from 82.7 percent in 2019 to 69.4 percent in 2021 (PNADC).
Ceará is also vulnerable to the effects of climate change, specifically the threat of drought and desertification, with
implications for its water systems and agriculture. But the State has significant potential to generate renewable energy,
which could be leveraged as a source of investment and growth.
3. Supported by this DPF, the Government of Ceará (GoC) is enhancing public financial management by
strengthening public investment, public asset management and internal audits (Pillar 1). Despite the presence of large-
scale projects such as the Green Hydrogen Hub that is being develop within State’s Port and Industrial Complex of Pecém
(Complexo Industrial e Portuário do Pecém, CIPP), there remain important public investment gaps in healthcare, education,
and transport. The new public investment management system will improve the quality and efficiency of public investment
spending. The reform of the real estate asset management system will promote a more efficient management of public
assets, generating additional revenue, optimizing the return of the assets, and facilitating their use by the private sector.
The internal audit system will contribute to strengthening the effectiveness of internal auditing in the Executive Branch,
promoting accountability, better use of public resources and reducing fraud.
4. The GoC also seeks to accelerate a just and clean energy transition, as set out in the Ceará Verde Plan (Pillar 2).
Ceará has an estimated renewable energy potential of 854 GW, nearly five times greater than the current size of the
existing national power system. Approximately 5.2 GW of renewable energy have been developed in the State as of 2022.
Scaling-up clean energy in Brazil can be part of a least cost power expansion plan that supports economic growth as well
as climate change mitigation and adaptation.1 Nonetheless, fossil fuel-based energy supply is responsible for 42 percent
of the State’s greenhouse gas (GHG) emissions (above the national average of 18 percent)2, the majority of which are
generated by power generation and industrial production in the CIPP . Ceará’s high electricity tariffs, which have increased
by 117 percent in the last 6 years, hamper economic competitiveness. This DPF supports the implementation of the Ceará
Verde Plan, establishing limits to the expansion of fossil fuels in the CIPP. The new Renda do Sol (Sun Income) program will
1
Brazil Country Climate and Development Report (CCDR) https://openknowledge.worldbank.org/server/api/core/bitstreams/fd36997e-3890-456b-b6f0-
d0cee5fc191e/content
2
Anuário Estatístico de Energia Elétrica 2022: https://www.epe.gov.br/pt/publicacoes-dados-abertos/publicacoes/anuario-estatistico-de-energia-eletrica.
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BR State of Ceará Sustainable DPF (P180497)
enable vulnerable communities access renewable energy. Improving the regulatory framework for the licensing of green
hydrogen projects will facilitate private investment and increase the supply of green energy.
5. More skilled workers will help scale up clean energy. The GoC has recently implemented full-time schooling in
public schools, which will strengthen the State’s overall educational outcomes. Educational programs that offer specialized
knowledge and skills related to clean energy, particularly for offshore wind and green hydrogen production3, offer an
opportunity to expand and diversify Ceará’s workforce, create jobs and improve innovation and competitiveness, critical
for sustainable and inclusive growth.
6. The reforms under this DPF are expected to contribute to a more efficient public administration and support a
just energy transition in Ceará. Enhancing public financial management is expected to improve the quality and efficiency
of public investment spending (PA1), promote a more agile business environment to facilitate the use of public assets,
generate additional revenue and optimize the returns from the assets (PA2), and to strengthen the effectiveness of
internal auditing, promoting accountability, better use of public resources and reducing fraud (PA3). Actions to support
the energy transition in CIPP will help the GoC to reach its objective of statewide net zero emission by 2050, including
limiting the expansion of fossil fuels and establishing GHG emission reductions targets (PA4). They will also allow
vulnerable communities to access income from the State’s abundant renewable energy potential (PA5), reduce barriers
for private investments in green hydrogen projects (PA6), increase the availability of skilled workers for the just energy
transition through focused education opportunities (PA7), and support education learning recovery following the COVID-
19 pandemic (PA8).
2. MACROECONOMIC POLICY FRAMEWORK
2.1. RECENT ECONOMIC DEVELOPMENTS
7. Brazil’s economy grew 3.7 percent in the first semester of 2023, as inflation moderated, and the financial sector
remains sound. Growth was driven by the agriculture sector’s strong performance and a fiscal stimulus and social income
transfers-boosted consumption. CPI-inflation moderated to 5.2 percent in September 2023 from 12.1 percent in April
2022, above the Central Bank’s inflation target interval. Food, fuels, and energy prices declined, but annual core and
services inflation remained persistent at 5.0 percent and 5.5 percent respectively. Brazil’s Central Bank (BCB) lowered the
policy interest rate to 12.75 percent in September 2023 (down from the 13.75 percent peak up to July). The financial
sector in Brazil remained stable and liquid, with strong buffers, as the capital-asset ratio reached 15.8 percent in June
2023, comfortably exceeding the regulatory minimum (8 percent international and 10.5 percent in Brazil).
8. Brazil’s external position strengthened further. The 12-month current account deficit fell to 2.2 percent of GDP
in August 2023 (US$ 45.3 billion) and 12-month net FDI inflows reached 2.2 percent of GDP (US$ 45.2 billion). International
reserves increased to 16.6 percent of GDP (US$ 341.8 billion) in August 2023. The Central Bank’s net FX position was
partially offset by currency swap operations of US$ 98.4 billion, resulting in a net FX long position of US$ 243.4 billion
(111.8 percent of GDP) in August. External financing needs in 2022 were moderate at 10.6 percent of GDP, 3.4 percentage
points below their 2020 peak. The exchange rate appreciated from R$/US$ 5.6 in December 2021 to R$/US$ 5.0 in the
end of September 2023 supported by high domestic interest rate and strong export performance.
9. Fiscal balances deteriorated in 2023 as one-off revenues vanished, and social transfers increased. Higher
economic growth, persistent inflation, and elevated commodities prices boosted primary surplus in 2022 to 1.3 percent
of GDP. However, from January to August 2023, Central Government net revenues shrank by 5.8 percent due to lower
commodity prices whilst spending grew by 4.5 percent in real terms, largely due to an increase in social transfers and the
3
Green hydrogen is produced by using renewable energy sources to split water into hydrogen and oxygen. It is considered a promising technology for decarbonizing
the energy sector.
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BR State of Ceará Sustainable DPF (P180497)
effect of a higher minimum wage on pensions payments. Nominal interest payments reached 6.6 percent of GDP in July
2023, up from 6.0 percent in 2022. As a result, the overall fiscal deficit grew to 7.3 percent of GDP in August 2023 (from
4.6 percent in 2022) and General Government’s Gross Debt increased to 74.4 in August 2023, following the reduction to
72.9 percent in 2022.
2.2. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY
10. GDP is expected to grow by 2.6 percent in 2023, 1.3 percent in 2024, and 2.2 percent in 2025. Growth in 2023
is expected to be supported by agriculture and on the demand side, by exports and private consumption, due to a strong
labor market and income transfers from Bolsa Família program (Brazil’s flagship social safety net program). Inflation is on
a downward trend towards 4.5 percent in 2023 and 3.5 percent by 2025, slightly above the Central Bank's target of 3
percent, and allowing for a gradual easing of monetary policy. The current account is projected to remain below 2.6
percent of GDP over the medium term as external conditions adjust and growth returns to its pre-pandemic trend, fully
financed by FDI. Baseline growth beyond 2025 is assumed to stay at around 2.0 percent due to structurally low total factor
productivity (TFP) growth, lower national savings that limit the investment rate, and decreasing population growth.
Progress in implementing growth-enhancing structural reforms, including those related to trade openness, market
competition, and the business environment will be critical to boost potential growth.
11. Poverty is projected to decline. Labor market gains combined with larger payments from the Bolsa Família
transfers program are expected to reduce the poverty rate (US$ 6.85 per day) to 22.1 percent in 2023. The poverty rate is
projected to decrease further in 2024 and 2025 to 21.5 percent and 20.8 percent, respectively.
12. Fiscal projections assume the implementation of the new fiscal framework. The new framework was approved
on August 30, 2023, and combines a spending rule with a primary balance rule. The spending rule will limit federal real
primary spending growth to 70 percent of the real primary recurrent revenue growth (i.e., excluding one-off revenues).
Real growth of expenditures should be within 0.6 and 2.5 percent. The primary balance targets will be defined for four
years in the annual budget guidelines law, with a 0.25 tolerance interval. The annual budget guidelines law will also include
a medium-term fiscal framework, with emphasis on the expected effect of the fiscal targets on the public debt trajectory.
With the new fiscal framework, Brazil’s Federal Government foresees zeroing the federal primary deficit in 2024, obtaining
primary surpluses of 0.5 and 1.0 percent of GDP in 2025 and 2026, respectively, while stabilizing the debt/GDP ratio by
2026. An important feature of the framework is the need for 0.7 – 1.0 percent of GDP in additional revenues between
2023 and 2026. According to the Independent Fiscal Institute (IFI) of Brazil estimates, the package of revenue measures
announced by the Federal Government of Brazil is sufficient to meet this gap (see Annex 6 for a summary of the announced
measures).4
13. The primary deficit is expected to turn into a surplus over the medium term. The projected primary deficit of
0.9 percent of GDP in 2023 for the General Government reflects the effects of higher social transfers for the year and the
reduction of revenues due to lower one-off revenues and lower inflation. The primary balance is expected to gradually
increase until it achieves a surplus of 1.1 percent of GDP by 2026. The overall fiscal deficit is projected to increase to 7.3
percent in 2023 (from 4.6 percent in 2022) before gradually declining to 3.3 percent of GDP by 2026, in line with lower
interest payments and financing needs. The deficit will largely be financed through domestic debt issuances, in line with
the National Treasury Annual Borrowing Plan (87.5 percent of federal debt is domestic and over 90 percent is in local
currency).
14. Public debt is projected to peak at 76.3 percent of GDP by 2024 before trending downward to 69.4 percent by
2030. The main macroeconomic shocks that pose risks to debt sustainability (see Annex 7) include lower than projected
4
According to estimates from the Independent Fiscal Institute (IFI) of Brazil, primary revenues would need to grow by at least 0.8 percent of GDP for the government
to be able to comply with the primary balance target in 2024.
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BR State of Ceará Sustainable DPF (P180497)
primary balances, lower GDP growth and real interest rates increase. A combined shock would have the largest impact on
public debt. Public gross financing needs are expected to decrease from 25.8 percent of GDP in 2024 to 20.6 percent in
2025 and 13.4 percent in 2026, on the back of lower interest payments and improving primary balances. Brazil’s Federal
Government debt exposure to exchange rate risks is low and rollover risks are mitigated by sizeable federal cash balances
(16.2 percent of GDP in June 2023) and a deep domestic public bond market.
15. Key macroeconomic risks are mainly driven by concerns with the pace of fiscal consolidation, low productivity
growth, and deteriorated external conditions. Public debt sustainability is vulnerable to the pace of the fiscal adjustment
(that depends on the Federal Government to comply with the new federal fiscal framework) as well as growth and real
interest rate shocks. On the external side, persistent inflationary pressures in advanced economies can keep high global
interest rates and reduce global economic activity, triggering higher investor risk aversion and reducing capital inflows,
weakening the Brazilian currency, putting additional pressures on domestic inflation, as well as limiting investments and
exports growth.
16. Brazil’s macroeconomic policy framework is deemed adequate for this proposed operation. Brazil has a high
Federal Government cash balance position, low public debt exposure to exchange rate fluctuations, strong external
accounts, strong financial sector regulations that support a solid financial system, a consolidated inflation target system
and an independent Central Bank and a flexible exchange rate regime that can anchor inflation expectations. Brazil’s
external position is buffered by the low share of foreign currency-denominated public debt and high gross reserves. The
new fiscal framework reduces uncertainty around fiscal policy, provides predictability for the fiscal accounts, and aims to
stabilize debt over the medium-term. The VAT tax reform is expected to improve the business environment through tax
simplification and boost productivity. The recently approved financial sector reforms helped to boost competition in the
financial markets, financial inclusion, and market access. The labor market reform enacted in 2017 and recent reforms
approved in 2020 and 2021 have supported market entry and private sector participation in key infrastructure sectors
(water and sanitation, telecom, and energy). This scenario of reforms and the reduction of political uncertainty after the
general elections in 2022 have reflected in the country’s risk performance and upgraded ratings, that has been reduced
to 206 basis points in September 2023 (the lowest level since January 2020).
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BR State of Ceará Sustainable DPF (P180497)
Table 1: Key Macroeconomic Indicators
2020 2021 2022 2023e 2024f 2025f 2026f
Real economy Annual percentage change, unless otherwise indicated
GDP (nominal - R$ billion) 7,610 8,899 9,915 10,621 11,321 12,150 12,919
Real GDP -3.3 5.0 2.9 2.6 1.3 2.2 2.0
Per Capita GDP (In real US$) 8,228 8,593 8,802 8,984 9,053 9,203 9,337
Contributions (supply side):
Agriculture 0.3 0.0 -0.1 0.9 0.2 0.1 0.1
Industry -0.5 0.9 0.3 0.1 0.2 0.3 0.3
Services -2.3 3.2 2.5 1.3 0.7 1.5 1.6
Indirect taxes -0.7 0.9 0.2 0.4 0.2 0.3 0.0
Contributions (demand side):
Consumption -3.8 3.1 3.1 1.9 1.1 1.7 1.5
Investment -0.3 3.0 0.2 0.0 0.3 0.4 0.4
Net exports 1.0 -0.8 0.7 0.7 0.0 0.0 0.0
Statistical discrepancy and change in inventories -0.2 -0.4 -1.1 0.0 0.0 0.0 0.0
Imports, GNFS -9.5 12.0 0.8 0.0 2.0 2.0 2.0
Exports, GNFS -2.3 5.9 5.5 5.0 2.0 2.0 2.0
Unemployment rate (ILO definition) 13.1 12.5 8.4 7.8 8.4 8.8 8.7
CPI (end of period) 4.5 10.1 5.8 4.8 3.8 3.5 3.5
CPI (average period) 3.8 8.3 9.3 4.7 4.0 3.8 3.5
Fiscal Accounts Percent of GDP, unless otherwise indicated
Expenditures 45.7 40.1 40.8 41.5 40.2 38.8 38.1
Revenues 33.8 35.3 37.1 34.8 34.8 34.8 34.9
Overall Balance -13.3 -4.3 -4.6 -7.3 -5.2 -3.9 -3.3
Primary Balance -9.3 0.7 1.3 -0.9 0.2 0.7 1.1
General Government Gross Debt (Authorities' definition) 1/ 86.9 78.3 72.9 75.6 76.3 75.3 74.2
Selected Monetary Accounts Annual percentage change, unless otherwise indicated
Base Money 36.3 -5.2 2.6 - - - -
Credit to non-government 15.6 17.8 14.5 - - - -
Interest rate - Selic (period average) 2.8 4.8 12.6 - - - -
Balance of Payments Percent of GDP, unless otherwise indicated
Current Account Deficit 1.9 2.8 2.9 2.0 2.2 2.6 2.6
Imports, GNFS 15.6 18.6 19.4 17.7 16.9 16.3 15.6
Exports, GNFS 16.1 19.1 19.6 18.7 17.9 17.2 16.5
Net Foreign Direct Investment 2.8 1.8 3.1 3.0 3.0 3.0 3.0
Gross Reserves (in US$, eop) 355.6 362.2 324.7 327.8 343.6 353.0 363.0
In months of next year’s imports 15.8 18.9 12.7 10.5 10.8 10.6 10.6
As % of short-term external debt 2/, 3/ 179.2 208.4 193.7 194.0 197.9 199.2 200.6
External Debt (in US$, eop) 3/ 639.3 670.3 681.1 686.2 705.5 719.9 735.0
External Debt 3/ 43.3 40.6 35.2 31.7 29.7 28.5 27.6
Terms of Trade (% change) 0.6 7.1 -5.5 -0.3 -0.3 -0.1 0.0
Exchange Rate (average) 5.2 5.4 5.1 - - - -
1/ Brazilian Central Bank definition (2008 methodology), that excludes the Federal securities in the BCB portfolio and includes the stock of BCB repo operations.
2/ It includes the long-term debt repayments due in the next 12 months as short-term debt.
3/ It includes securities issued in Brazil held by foreign residents and intercompany loans.
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Table 2: Balance of Payments (percent of GDP)
2020 2021 2022 2023e 2024f 2025f 2026f
Financing Requirements 1.4 3.1 3.0 2.0 2.2 2.6 2.6
Current Account Deficit 1.9 2.8 2.9 2.0 2.2 2.6 2.6
Trade Balance (GNFS) 1/ 2/ -0.5 -0.6 -0.2 -1.0 -0.9 -0.9 -0.9
Primary and Secondary Incomes 2.4 3.4 3.2 3.0 3.2 3.5 3.5
Net Errors and Omissions -0.5 0.2 0.1 0.0 0.0 0.0 0.0
Financing Sources 1.4 3.1 3.0 2.0 2.2 2.6 2.6
Capital Account Balance 0.3 0.0 0.0 0.0 0.0 0.0 0.0
Net Foreign Direct Investment 2.8 1.8 3.1 3.0 3.0 3.0 3.0
Net Portfolio Investment -0.9 0.5 -0.2 -0.3 0.2 0.3 0.3
Net All Other Flows -1.8 1.6 -0.3 -0.6 -0.3 -0.3 -0.3
Change in reserve assets 1.0 -0.8 0.4 -0.1 -0.7 -0.4 -0.4
External Financing Gap 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Nominal GDP (USD billion) 1,475.5 1,649.5 1,935.2 2,167.6 2,373.4 2,526.0 2,666.9
1/ GNFS: Goods and Non-factor Services.
2/ A negative sign in Financial Requirements means a reduction of Financing needs, i.e., a surplus in the account, and vice versa.
Table 3: General Government Fiscal Indicators (percent of GDP)
2020 2021 2022 2023e 2024f 2025f 2026f
General Government Overall Balance (13.3) (4.3) (4.6) (7.3) (5.2) (3.9) (3.3)
General Government Primary balance (9.3) 0.7 1.3 (0.9) 0.2 0.7 1.1
of which: Central Government (9.8) (0.4) 0.6 (0.9) 0.1 0.7 1.1
Total Revenues (and grants) 33.8 35.3 37.1 34.8 34.8 34.8 34.9
Total Primary Revenues (and grants) 33.8 35.3 37.1 34.8 34.8 34.8 34.9
Tax revenues 32.7 32.7 32.7 32.7 32.7 32.8 32.8
Taxes on goods and services 14.3 14.3 14.3 14.3 14.3 14.3 14.3
Direct Taxes 8.5 8.5 8.5 8.5 8.5 8.5 8.5
Social insurance contributions 7.3 7.3 7.3 7.3 7.3 7.3 7.3
Taxes on international trade 0.6 0.6 0.6 0.6 0.6 0.6 0.6
Non-tax revenues 1.1 2.6 4.4 2.1 2.0 2.0 2.1
Total Expenditures 45.7 40.1 40.8 41.5 40.2 38.8 38.1
Total Primary Expenditures 41.7 35.1 34.9 35.0 34.8 34.2 33.7
Current expenditures 44.4 38.8 39.5 40.0 38.8 37.4 36.7
Wages and compensation 12.9 11.6 11.3 11.3 11.3 11.0 10.8
Goods and services 5.1 5.0 5.1 4.9 4.9 4.8 4.7
Interest payments 4.0 5.0 5.9 6.4 5.4 4.6 4.4
Current Transfers 22.3 17.3 17.2 17.4 17.2 17.0 16.8
Pensions to the private sector workers 8.1 7.3 7.4 7.5 7.5 7.4 7.3
Pensions to the public servants 5.3 4.6 4.5 4.5 4.4 4.3 4.3
Social Assistance 7.2 3.3 3.4 3.7 3.7 3.5 3.5
Other Current Transfers 1.8 2.1 2.0 1.8 1.7 1.7 1.8
Investments (net) 1.4 1.3 1.3 1.5 1.4 1.4 1.3
General Government Gross Debt (Authorities' definition) 1/ 86.9 78.3 72.9 75.6 76.3 75.3 74.2
Domestic Debt 76.1 67.4 63.7 66.1 66.8 65.8 64.9
External Debt 10.8 10.9 9.1 9.5 9.6 9.4 9.3
1/ Brazilian Central Bank definition (2008 methodology), that excludes the Federal securities in the BCB portfolio and includes the stock of BCB repo operations.
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2.3. RECENT ECONOMIC DEVELOPMENTS AND FISCAL SUSTAINABILITY IN THE STATE OF CEARÁ
17. Ceará’s economy grew by 5.5 percent and 1.0 percent in 2021 and 2022, respectively . Deceleration in 2022 was
largely driven by a sharp downturn in manufacturing (-6.4 percent) and utilities (-19.2 percent). However, despite the
lower economic growth in 2022, unemployment fell to 7.8 percent in December 2022 (the lowest rate since 2015). The
share of extremely poor people living under US$2.15/day (PPP 2017) was 11.0 percent (World Bank calculations using
PNADC 2021).
18. The GoC’s fiscal performance has been sound. Rapidly rising civil servant expenditure pushed the GoC into
approving a State spending cap rule in 2016, a pension reform in 2019 and a salary freeze in 2020 and 2021. As a result,
the wage bill remained below the limit set under the Fiscal Responsibility Law, growing by a moderate 2.0 percent per
year, on average, in real terms, whilst pensions spending rose by 2.2 percent per year between 2014 and 2020. Spending
growth remained below Net Current Revenues (NCR) growth in real terms. This created space for the State to increase
investments by 4.7 percent in real terms per year between 2016 and 2022, on average. It also enabled the GoC to
effectively respond to the COVID-19 pandemic. The GoC achieved recurrent primary surpluses over the last ten years and
maintained its debt repayment capacity rating (Capacity of Payment - CAPAG) of B (Brazil’s Federal Government generally
requires Subnational Governments to have a CAPAG rating of A or B before supporting credit operations) between 2018
to 2022. Net debt declined from 62 percent of the NCR in 2015 to 33.9 percent in 2022. However, debt service (7.6 percent
of the NCR) and the share of the debt in foreign currency (53.6 percent of the total debt) are relatively high.
19. National macroeconomic decisions are the key source of risks for the State . Fiscal decisions at the federal level
(such as the increase of the national minimum wage, increases in national civil service salary ceilings, changes in tax rates
that impact the sharing of federal tax collections with the States, or judicial decisions that can increase expenses or reduce
State revenues) pose fiscal risks to the State. The State’s foreign-currency denominated debt is high (53.6 percent of the
total debt), making it vulnerable to exchange rate shocks. Consequently, an adverse scenario with lower revenue, higher
expenditures and an exchange rate depreciation could increase gross financing needs, threatening the budget allocations
required to implement the reforms supported by this DPF. Given the high share of mandatory expenditures (mainly, wage
bill, pensions, interests, and the minimum constitutional spending limits for health and education), public investments are
the first line of expenditures to be reduced in case of a fiscal distress. Yet, Ceará is subject to drought and desertification.
The GoC has taken steps to mitigate these climate risks, like to pilot the ABC+ Program5 and to develop an adaptation plan
(Plano de Adaptação) for the capital city of Fortaleza (See Annex 8 for intergovernmental fiscal arrangements in Brazil).
20. The GoC’s fiscal framework is adequate for the proposed operation. Ceará’s economic activity is expected to
grow 1.9 percent, 1.5 percent, and 2.7 percent in 2023, 2024 and 2025, respectively. The State has established a strong
record of prudent fiscal management, which is expected to continue, supporting sizeable public investments (Table 4). A
small primary deficit is expected for 2023, aligned to a higher fiscal space that will allow for increased investments. Own
revenues are expected to increase by 1.2 percent per year on average in the forecast period compared to 1.8 percent
average growth of current expenditures per year. Interest payments are projected to increase sharply in 2023 by 67.1
percent y/y, before declining. Public investment will increase to US$ 840 million (2023-2026 average), up from US$ 561
million (2020-2022). A debt reprofiling is expected to take place in 2024 raising amortizations in that year and maintaining
them at 2022 level thereafter. State debt is expected to decrease from 43.5 percent of total revenues in 2023 to 35.4
percent in 2026.
5
Low carbon emission Agriculture (Agricultura de Baixa Emissão de Carbono)
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Table 4: Government of Ceará Projected Fiscal Balances (Constant 2022 US$ Million)
Estimates Includes IBRD’s Debt Restructure Loan
2020 2021 2022 2023f 2024f 2025f 2026f
I. Revenues 6.094 6.373 7.159 7.185 7.252 7.335 7.474
Own Revenues 3.717 4.041 4.352 4.415 4.446 4.484 4.564
of which: interests 52 93 239 241 200 156 151
Transfers 2.378 2.331 2.807 2.770 2.806 2.850 2.911
II. Total Expenditures 5.583 5.766 6.690 7.242 7.153 7.171 7.283
% of revenues 91,6% 90,5% 93,4% 100,8% 98,6% 97,8% 97,4%
Current Expenditures 5.123 5.247 5.988 6.282 6.353 6.417 6.436
Active Personnel Spending 1.851 1.774 2.072 2.193 2.236 2.279 2.324
Pensions 840 781 868 925 949 974 999
Interests 98 106 166 278 264 239 186
Other Current Expenditures 2.334 2.586 2.882 2.886 2.904 2.926 2.927
Investment 460 519 702 961 799 754 847
III. Primary Balance (I-II- Interests, net) 558 620 396 -21 164 246 226
% of revenues 9,1% 9,7% 5,5% -0,3% 2,3% 3,4% 3,0%
IV. Overall Balance (I-II) 511 607 469 -58 99 164 191
% of revenues 8,4% 9,5% 6,6% -0,8% 1,4% 2,2% 2,6%
V. Net Financing 97 50 -163 58 -99 -164 -191
Loans 331 289 115 276 709 100 75
of which: World Bank Operation 542
Amortizations, net -234 -248 -279 -220 -808 -265 -268
Asset Sales 0 10 0 2 2 2 2
VI. Gross Financing Needs (IV + Amortizations, net + pension fund) -277 -358 -191 778 169 102 77
% of revenues -4,5% -5,6% -2,7% 12,0% 2,3% 1,4% 1,0%
VII. Financing Surplus/Gap (IV+V) 608 657 306 0 0 0 0
% of revenues 10,0% 10,3% 4,3% 0,0% 0,0% 0,0% 0,0%
VIII. Stock of Arrears 0 0 0 0 0 0 0
% of revenues 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0%
IX. Net Cash Balance 1.218 1.577 931 592 570 553 537
% of revenues 20,0% 24,7% 13,0% 8,2% 7,9% 7,5% 7,2%
X. Stock of Debt (Gross) 3.836 3.719 3.202 3.129 3.002 2.836 2.644
% of revenues 62,9% 58,4% 44,7% 43,5% 41,4% 38,7% 35,4%
Source: Ceará State Secretary of Finance and World Bank calculations.
Notes: Revenues are net of the FUNDEB deductions.
2.3. IMF RELATIONS
21. Federal authorities maintain an ongoing dialogue with the International Monetary Fund (IMF) on Brazil’s
macroeconomic policy. On July 31, 2023, the Executive Board of the IMF concluded the Article IV consultation with Brazil.
The Bank and the IMF have collaborated closely with Brazil’s Federal Government in the last years, including on public
financial management, public investment management, and a Financial Sector Assessment Program. The IMF has also
provided technical assistance to Brazilian authorities in other areas, such as fiscal transparency and fiscal frameworks for
Subnational Governments.
3. GOVERNMENT PROGRAM
22. Ceará’s 2050 Plan (Ceará 2050) guides the State’s sustainable and inclusive development. It seeks to meet
society’s expectations regarding the provision of essential services such as health, education, water, public security, and
jobs. It is the result of broad-based consultations and structured around three key areas: (i) productive industries, (ii)
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human capital development and (iii) public service delivery, with a focus on the green economy and innovation. The Plan’s
implementation will be supported through the 2020–23 Multiannual Plan ( PPA—Plano Plurianual) which - after public
consultations - seeks to improve public services, especially in Education, Health, Public Safety, Work and Entrepreneurship,
Infrastructure and Mobility, Water Resources and Environment. Ceara’s State Plan for the Just Energy Transition ( Plano
Estadual de Transição Energética Justa do Ceará), also called Ceará Verde Plan, is focused on scaling up renewable energy,
biofuels and green hydrogen production in the State. This is aligned with the State’s Climate Change Policy (2016) 6 and
Brazil’s Federal Government’s National Hydrogen Program (PNH2), which sets out the strategic vision for the development
of the Brazilian hydrogen industry and market with the objective of decarbonizing the economy, promoting national
technological development, and developing a globally competitive hydrogen market. The GoC program also includes
commitments to adherence to the UN Sustainable Development Goals. The proposed DPF is aligned with the State’s PPA,
Ceará 2050 Plan and Ceará Verde Plan and promotes policy actions that support their implementation.
4. PROPOSED OPERATION
23. The Development Objective of this DPF is to support reforms of the State of Ceará to: (i) improve public financial
management; and (ii) strengthen the enabling environment to scale up clean energy production. The proposed DPF is
articulated around two pillars:
Pillar 1 of the DPF supports reforms that improve public financial management through the adoption of: (i) an
improved Public Assets Management System; (ii) a new Public Investment Management framework; and (iii) an
Internal Control System of the Executive Branch.
Pillar 2 of the DPF promotes inclusive and sustainable development through a package of reforms to: (i) stop the
expansion of coal-based energy generation and establish an emissions inventory within the CIPP; (ii) advance the
implementation defining the parameters of the Renda do Sol program to advance its implementation; (iii) improve
the enabling environment for private investment in the just energy transition through implementation of
environmental regulations for green hydrogen as well as training programs in the clean energy sector; (iv) adopt
Technical and Vocational Education Training (TVET) focused on clean energy; and (v) expansion of full-time education
in public schools.
24. This DPF also seeks to help the State improve its debt service profile. The GoC plans to use the proceeds of this
IBRD loan to restructure approximately JPY 80,114,895,584 (US$ 541,884,375) in domestic debt with high financing costs,
thus lowering its debt service and debt costs. The State is expected to achieve significant savings in debt services payments
in the first years because of the lengthening of debt maturities.
25. This operation is aligned with the goals of the Paris Agreement. First, based on the initial screening on complexity
and assessment of risks, the DPF PDO is consistent with the country’s climate commitments (Nationally Determined
Contributions – NDC –and National Adaptation Plan - NAP), the goals of the Paris Agreement, Brazil’s CCDR and the State
Climate Change Policy (2016). Second, on mitigation goals, PA4, PA5 and PA6 are universally aligned and are expected to
reduce greenhouse gas lifecycle emissions by limiting expansion of coal, increasing renewable energy, and promoting the
development of green hydrogen, which can be used to decarbonize hard-to-abate sectors. Reforms included in PA1 and
PA8 may lead to some GHG emission increase (stemming from increase in public investments and construction of new
schools, respectively), but these will likely be negligible and do not pose a risk of locking the country into carbon-intense
technology pathway or creating barriers to future decarbonization efforts. The remaining prior actions (PA2, PA3 and PA7)
https://www.sema.ce.gov.br/wp-content/uploads/sites/36/2021/09/Lei-Estadual-no-16.146-de-14-de-dezembro-de-2016-Instituiu-a-Politica-Estadual-de-
6
Mudancas-Climaticas.pdf
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are not likely to have an impact on GHG emissions or create persistent barriers to transition to low-GHG emissions.
Therefore, all PAs of the proposed DPF program are expected to be aligned with the mitigation goals of the Paris
Agreement. Third, on adaptation and resilience goals, PA5 and PA8 may face some climate risks in terms of their
implementation and contribution to achieving the PDO – mainly in terms of observed and anticipated climate change
impacts on infrastructure investments or buildings management. However, all PAs will include specific resilience measures
that reduce identified risks, including through measures for the response to extreme weather events to minimize service
disruptions and protect the safety of beneficiaries (PA2), climate risks considerations during the project appraisal and
implementation (PA1) and standards for public facilities with requirements for climate resilience (PA5 and PA8). Climate
hazards are not likely to have an adverse effect on PA1, PA2, PA3, PA4, PA6 and PA7 contribution to the PDO. Therefore,
all prior actions of the proposed DPF program are expected to be aligned with the adaptation and resilience goals of the
Paris Agreement (A detailed review is presented in Annex 5).
26. This project is compliant with the Maximizing Finance for Development (MFD) approach. To promote efficient
use of public resources and develop the State’s comparative advantages on clean energy production, the GoC is seeking
to actively crowd in private sector investments into public investments, public real estate, and green energy. By
implementing a new Public Investment Management framework, which incorporates Public-Private Partnership (PPP)
projects into the overall PIM process, the GoC created a level playing field for private investors, instilling confidence, and
reducing perceived risks for parties in both public and private sector, leading to more funding opportunities and better-
quality PPPs (PA1). By improving the regulatory framework for public real estate asset management, including
requirements for a comprehensive inventory of public properties and procedures for real estate asset valuation, among
others, the GoC has reduced uncertainty and built a solid foundation for future private sector investment in public real
estate, including through asset sales. This framework also authorizes the sale of public real estate assets and the
establishment of a Real Estate Investment Fund (REIF), whose shares are expected to trade on capital market in imminent
the future (PA2). Finally, to facilitate private sector investment in green hydrogen production, GoC is strengthening the
regulatory framework through the issuance of specific green hydrogen environmental licensing regulations, thereby
improving the transparency and predictability for investors (PA6).
4.1. LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION
27. The two pillars of the proposed DPF are closely aligned with the guiding themes of Ceará 2050 Plan and
Multiannual Plan (Plano Plurianual – PPA). Pillar 1 is linked to the Inova Governo (Innovate Government) Program part
of the Ceará 2050 Plan and the planning and management modernization section of the PPA. Pillar 2 supports
implementation of both the Ceará Verde Plan and Ceará 2050 Plan, specifically the Energy and Business and Transforming
Education Programs. Pillar 2 also links to other PPA areas, including: sustainable energy, environment, industry,
knowledge, education, and public service delivery.
4.2. PRIOR ACTIONS AND RESULTS
Pillar 1: Improving public financial management
28. Pillar 1 of this DPF supports Ceará to consolidate fiscal sustainability gains by advancing its public management
reform agenda. The State is seeking to implement reforms that build on the important progress made in consolidating its
public finances by focusing on efficiency and transparency in public spending. This Pillar promotes these objectives by
strengthening public investment management asset management, and internal control systems.
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Prior Action #1: To improve the governance of its public investment projects, the Borrower adopted a new framework
for public investment management that (i) redefines the roles and responsibilities of the agencies in charge of the
project cycle, (ii) provides for the improved management of capital expenditures by mandating project risk assessment
and prioritization based on a cost-benefit analysis, as well as a robust capital and operating costs estimation, and (iii)
integrates climate change considerations through the fast-track of emergency projects.
29. Rationale. The GoC invested R$ 2,301 million (equivalent to US$ 449 million, 7.4 percent of the State’s total
expenditure) in infrastructure in 2021. Yet, like many other States in Brazil, Ceará lacks an integrated Public Investment
Management (PIM) framework that aligns project selection with the GoC’s PPA. Without a structured portfolio of projects,
the annual budget assigned to projects is driven by the availability of funds, with little attention to prioritization criteria
and inadequate preparation time. In 2017, Ceará issued PIM guidelines establishing an Investment Technical Group ( GTI),
a Committee for Results and Fiscal Management (COGERF), and a web-based tool for strategic planning ( Monitoramento
de Ações e Projetos Prioritários, MAPP) as a single-entry point for the State’s public investment portfolio. However, these
guidelines did not provide the necessary framework and governance structure for a well-performing PIM system.
Misaligned incentives, capacity constraints, and weaknesses in planning, selection, and (economic, social, and climate-
related) appraisal procedures contribute to delays in design and completion of projects, significant risks in procurement,
cost overruns, incomplete projects, poor-quality infrastructure, and inefficient operation and maintenance of assets.
These inefficiencies negatively impact the economic and social returns of the public investments. In addition, the current
procedure does not consider the impact of climate change in public investments. Ceará is vulnerable to the effects of
climate change (drought and desertification), as it receives little rainfall during the dry period. Consequently, 11.5 percent
of the area of the State (Iraucuba, Inhamuns and Médio Iaguaribe) is already suffering from desertification, whilst the
entire State is considered vulnerable to desertification. There are concerns that rising temperatures will reduce
biodiversity and vegetation (in particular, in the Caatinga Biome7), which helps protect the soil from bad weather. Public
infrastructure investment should play a crucial role in enhancing resilience to climate change.
30. Prior Action. Decree 35.504/2023 introduced a new PIM framework that provides a comprehensive methodology
for managing the entire project cycle, from planning to implementation and evaluation. Article 8 of the Decree makes it
mandatory for all new public investments proposals in Ceará to comply with the new PIM methodology and adhere to the
guidelines set forth in the PIM Manual. The framework introduces: (i) an improved governance structure that redefines
the roles and responsibilities of the GTI, COGERF, and sector agencies during project preparation and appraisal; (ii)
provisions for project risk assessment and prioritization based on cost-benefit analysis (CBA); (iii) a comprehensive and
robust approach to project demand forecasting, capital and operating cost estimation; (iv) feasibility studies to be
conducted with varying degrees of robustness, based on the features and risk profile of the investment project; (v) the
establishment of a "bank of projects" to serve as a pipeline for major and strategic projects; (vi) fast-track provisions to
evaluate and approve investments addressing State emergency needs, including responses to climate disasters; (vii)
introduction of new requirements for environmental and climate change risk assessments; and (viii) the disclosure of
major project appraisal results to the public, accessible in real-time by citizens. The implementation of the framework will
count with dedicated technical and capacity-building assistance throughout the Ceará Water Security and Governance
Project (P165055) and a dedicated WB’s trust fund on 'Strengthening Public Investment Systems to Advance Climate Smart
Infrastructure in Brazil', that will support the Committee of State Secretaries of Planning (CONSEPLAN).
31. Expected Results. Five public projects will be screened, appraised, and prioritized according to the new PIM
framework by 2025. The new PIM Manual, which will be applicable also to Public-Private Partnership (PPP) projects, will
ensure proper integration into the overall PIM system, enforcing rigorous checks and procedures for prioritization and
selection. This creates a level playing field for private investors, instilling confidence, and reducing perceived risks, leading
7
A xeric shrubland and thorn forest found in semi-arid regions.
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to more financing opportunities, and accelerating economic growth in Ceará. The new requirement for environmental and
climate change risk assessments will improve infrastructure resilience and support the State’s climate change adaptation
and mitigation efforts.
32. Climate Change. Aligned with the Brazilian NAP, the new PIM framework introduces provisions for assessing the
climate and environmental risks of projects and incorporates adaptation and mitigation measures throughout all stages
of the project cycle. It also allows the GoC to “fast track” investment projects in response to climate-related disasters,
strengthening the State’s Disaster Risk Management capacity.
Prior Action #2: To improve the management of its real estate assets, the Borrower adopted a new framework for
public real estate asset management that (i) provides for a comprehensive inventory of public properties within its
territory, (ii) establishes procedures for public real estate asset valuation to maximize returns on sales, and (iii) allows
for the consolidation of the ownership and management of its public real estate under a single agency (CearáPar).
33. Rationale. The GoC lacks an adequate management system for more than 5,000 publicly owned buildings. At least
half of them are not properly documented and do not have an accurate valuation. Some may be used for different
purposes than those authorized or have been abandoned. From 2017 to 2021, the State spent an average of R$ 49.5
million (US$ 9.6 million) acquiring new properties but earned only R$ 11.3 million (US$ 2.2 million) annually from property
sales. Data on State rent expenditures and property maintenance is incomplete: property revenues (mainly rental income)
in 2022 amounted to R$ 13.4 million (US$ 2.6 million), lagging other States such as São Paulo (R$ 265.6 million, US$ 51,5
million), Rio Grande do Sul (R$ 103.5 million, US$ 20,1 million) and Bahia (R$ 77.4 million, US$ 15 million). Using a
conservative valuation of State real estate assets of R$ 23.9 billion (US$ 4.7 billion) in 2022, the rate of return on assets
was just 0.056 percent.
34. Prior Action. Complementary Law 296, of December 16, 2022, and the Decree 35.505, of June 15, 2023. The Law
provided a framework for real estate asset management policy, encompassing: (i) requirements for a comprehensive
inventory of public properties; (ii) provisions allowing for the consolidation of the ownership and management of public
real estate under a single agency (CearaPar); (iii) procedures for real estate asset valuation to maximize returns on sales,
(iv) incentives for the Municipalities to participate in the rationalization of the usage of the real estate assets owned by
the State through revenue sharing arrangements; (v) provisions promoting the social use of public properties through
donations and non-onerous concessions, (vi) procedures to facilitate the conversion of non-onerous concessions of real
estate assets into increased assets revenues; and (vii) provisions allowing for the establishment of a Real Estate Investment
Fund (FII) to be managed by CearáPar. The Decree 35,505 introduced a provision that allows for the onerous concession
of public real estate in Ceará, specifically for the purpose of promoting the development of renewable energy projects.
This initiative will not only create new opportunities for private sector investment and innovation but will also contribute
to the growth of sustainable energy sources in the region. Additionally, Resolution No. 2, of May 25, 2023, of the State
Committee on Asset Management (CONAG) authorized the transaction of real estate assets from an initial list of public
properties for sale or for the establishment of a Real Estate Investment Fund (REIF). This reform empowered the GoC to
trade shares of the future REIF in the capital market, provided that the GoC maintains its majority shareholder status.
Lastly, the reform fosters incentives for the donation or concession of public real estate assets to support housing
programs and land regularization initiatives targeting vulnerable populations.
35. Expected Results. Revenue from the exploitation of real estate assets in the State will increase from R$ 13.4 million
(US$ 2.6 million) in 2022 to at least R$ 118 million (US$ 23 million) annually, representing 0.5 percent of the total value of
Ceará’s real estate assets. The reform will generate additional revenue, improve asset returns, and facilitate the private
sector’s use of public assets without a social function. The reform will increase the number of real estate assets registered
in Ceará’s Unified Registry Database and reduce the vacancy rate of State properties from 18.5 to 8 percent by 2025,
increasing the proportion of assets sold or concessioned. The reform will allow the GoC to access the private capital market
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of FII shares, supporting a dynamic local real estate market capable of attracting financial investors and those interested
in acquiring State assets.
36. Climate Change. The real estate asset framework assists the State in introducing climate-smart considerations.
Specially, it introduced significant reforms to incentivize the use of real estate properties by third parties for the purpose
of fostering the production of renewable energies. It allows the State to issue market notices which will provide a
transparent and competitive process for interested parties to bid on projects related to the generation of energy from
renewable sources. The new legal framework will involve the issuance of future guidelines to be applied to the inventory
and regularization process of Ceará’s real estate assets, which will foresee the identification critical resilient infrastructure
and climate-change related risks in the updated registry.
Prior Action #3: To improve its fiscal accountability and increase the transparency, effectiveness, and efficiency of its
policies and programs, the Borrower adopted the 3-Lines of Defense Model developed by the Institute of Internal Audit
(IIA) as a means to strengthen the internal control system of its government.
37. Rationale. Brazil has a lower level of compliance on internal controls than other middle-income economies. Nearly
90 percent of Brazilian institutions did not have sustainable internal audit capability in 2020 according to the Internal
Audit-Capability Model (IA-CM) report.8 In Ceará, the State Constitution Amendment no. 75, of December 20, 2012,
established the internal control activities as an essential government activity and assured that internal control activities
would be carried out by agencies of permanent nature and exercised by civil servants organized in specific careers. Ceará
achieved level 2 of the IA-CM in July 2023. To attain level 3 of IA-CM (evidence of performance in accordance with
international standards), it was necessary to set internal controls in each line secretariats and to structure an adequate
function of the 2nd line of defense, the Sectorial Units of Internal Control.
38. Prior Action. Ceará’s Complementary Law No. 309 implements the internal audit 3-Lines of Defense Model
developed by the Global Institute of Internal Auditors (IIA) across the State’s administration. 9 The changes introduced by
the Complementary Law included the establishment of the 2nd line functions of the Sectoral Units of Internal Control,
including supervision, monitoring, stablishing regularity, and advice on aspects related to risk management. The Units act
as facilitators of the implementation of effective practices of the risk management implemented by the 1 st line of defense.
A challenge is the structuring of the 2nd line of defense with the necessary resources (including human resources and
dedicated budget).
39. Expected results. To strengthen the effectiveness of internal auditing in the State’s administration, including the
State Secretariat of Environment and Climate Change (SEMA) and the State Superintendence of the Environment
(SEMACE), promote accountability, better use of public resources, and reduce fraud. Its successful implementation will
allow the State to increase the implementation of the Integrity Program10 in five units of the State's key sectoral budgets
secretariats11 to assess its internal control structure according to the methodology criteria set forth on the “Integrity
Diagnostics Framework from 54 percent in 2022 to 75 percent in 2025. Achievement of this target will contribute to
increase Ceará’s IA-CM score (third line of COSO) from level 2 in 2022 to level 3 in the future.
8
https://documentsinternal.worldbank.org/search/33253600
9
The first-line roles (executed by the line secretariats) are aligned with delivering products and/or services to the organization’s customers, including support functions.
Individuals in the first line own and manage risk directly. Second-tier roles (executed by Sectorial Units of Internal Control of the line secretariat) oversee the 1st line,
setting policies, defining risk tolerances, and ensuring they are met. And the 3rd line (executed by the Central Agency of the Internal Control System of the Executive
Branch - CGE) constitutes the government’s internal audit, that provides independent and objective assessment and advice on the adequacy and effectiveness of
governance and risk management for the first two lines. The Bank is supporting (Ceará Water Security and Governance - P165055 - and Fortaleza Sustainable Urban
Development Project - P153012) the implementation of the above model in some sectoral units.
10
Integrity programs are the structured set of actions, carried out at public, social or private organizations, directed at the prevention, detection, punishment and
remediation of fraud and corruption.
11
Secretariat of Education (SEDUC); SEFAZ; SEMA; SEMACE; and Secretariat of Water Resources (SRH).
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Pillar 2: Strengthening the enabling environment to scale up clean energy production
40. The energy sector in Ceará contributes 42 percent of the State’s GHG emissions, compared to the national
average (18 percent)12. These sector emissions are driven by transport (41 percent), power generation (40 percent), and
industry (9 percent)13. Fossil fuel-based power plants account for 2.1 GW, more than 50 percent of total installed capacity
in the State, and approximately half of them is coal-fired powered plants. All coal-fired power plants are located within
the CIPP, where most emissions from industry are generated (large emitters include cement, steel and iron, and power
generation).14 As of 2022, the Institute of Research and Economic Strategy of Ceará (IPECE) estimates 50 percent of the
State GDP was related to activities located in CIPP.
41. Ceará has an opportunity to utilize its abundance of renewable energy potential to drive sustainable
development, including its most vulnerable citizens. In addition to the recent scale-up of utility-scale renewables in the
State, favorable solar resources and regulations have created an opportunity for low-voltage consumers to reduce their
cost of electricity through Distributed Generation (DG) of solar PV. DG is thriving in Brazil, accounting for over 19 GW of
installed capacity since its development began in 201515. This growth has been driven by private sector investment
because of favorable regulations to incentive DG in the residential and commercial sectors. Recently, Brazil’s Federal
Government issued regulations calling on the public sector (at federal, State, and Municipal levels) to reduce public
building costs16, which can be supported through DG and energy efficiency. States in the Northeast region of Brazil have
seen relatively slower growth in DG when compared to the wealthier Southeast region, despite having better solar
resources17. SEINFRA is mandated to promote efficient use of energy in the State’s public buildings18, and Ceará has
recently implemented new regulations so that all existing public buildings obtain the National Label for Energy
Conservation by 202519. In the private sector, over 500 MW of DG capacity have been installed across 100 Municipalities 20.
The GoC is seeking to develop models that will allow vulnerable populations to have access to solar resources.
42. Capitalizing on its abundant renewable resources and international port, Ceará is developing a Green Hydrogen
Hub in CIPP. Green hydrogen is considered critical to global decarbonization efforts due to its potential application in
hard-to-abate sectors such as heavy industry, transportation, and heating. Demand for green hydrogen is expected to
grow by 25 times between 2030 and 205021. Consequently, green hydrogen and its derivatives (e.g., green ammonia and
green methanol) are attracting significant interest from countries that are seeking to import green hydrogen to support
their emission reduction commitments. Given Brazil’s abundant renewable energy resources, the country has the
potential to be globally competitive in the production and export of green hydrogen and its derivatives 22. Aligning with
Brazil’s Federal Government’s National Hydrogen Program (PNH2), Ceará is positioning itself to become a world-leading
green hydrogen and energy hub, taking advantage of its strategic location and deep-water port with links to Europe,
favorable tax laws, and proximity to renewable resources. To date, CIPP has signed over 30 memorandums of
understanding and 4 pre-contracts with large multinational firms who are pursuing opportunities for the production and
12
SEEG database. Available at https://plataforma.seeg.eco.br/territories/ceara/card?year=2021&cities=false
13
Ibid, 2021 figures.
14
Currently there is no energy balance nor emissions inventory for the CIPP. An energy balance and emissions inventory will be prepared as part of PA4 of this DPF.
15
Source: Agência Nacional de Energia Elétrica (ANEEL)
16
Decree 11.719 of September 28, 2023.
17
Approximately 20 percent of Brazil’s micro (up to 75kW) and mini generation (75kW to 3 MW) are in the Northeast (source: ANEEL), whereas this region makes up
25 percent of the country’s total population.
18
Decree 33.264 of September 9, 2019.
19
Instrução Normativa N°001 published on October 31, 2023.
20
As of November 2022. Associação Brasileira de Geração Distribuída (ABGD). https://diariodonordeste.verdesmares.com.br/opiniao/colunistas/egidio-serpa/ceara-
passa-de-500-mw-de-potencia-instalada-em-geracao-distribuida-1.3298314
21
https://www.mckinsey.com/capabilities/sustainability/our-insights/five-charts-on-hydrogens-role-in-a-net-zero-future
22
Brazil CCDR: Brazil - Country Climate and Development Report (English). Washington, D.C.: World Bank Group.
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exportation of green hydrogen (estimated at over US$ 8 billion in private capital investment)23. The WB and CIPP have
initiated the preparation of an IPF (Ceará Green Hydrogen Hub, P181511) to support the financing of critical shared
infrastructure and green hydrogen innovation, including co-financing from the Climate Investment Fund (CIF-REI). IFC is
also actively collaborating with CIPP through a technical assistance program funded by the Dutch Government to support
studies on the bankability of green hydrogen projects in the CIPP. In addition to these efforts, Ceará must strengthen the
enabling environment for private investment, including elements such as environmental licensing processing for green
hydrogen, developing incentives for green hydrogen off-take, developing certification schemes, among others.
43. The success of Ceará’s ambitious plans for developing clean energy sources will also require skilled labor. To
this end, Ceará has enacted a program to develop key skills in green energy and sustainable development through TVET.
It has also expanded full-time schooling in public schools, which will strengthen the overall educational outcomes. These
programs are aligned with the GoC’s goal to mitigate the impact of COVID-19 on Human Capital accumulation and build a
more sustainable, resilient, and inclusive education system.24 The GoC is willing to integrate a focus on the environment
into the education sector’s policies and reforms. Investments in resilient infrastructure are also highly cost-effective: US$1
invested in resilient assets generates US$4 in benefits since they are less costly to maintain. 25
Prior Action #4: To limit further greenhouse gas emissions, the Borrower (i) prohibited new ventures in the CIPP that
involve the burning of coal in any step of their production process, and (ii) committed to develop an emissions inventory
regarding socioeconomic activities developed in its territory, which shall comprise the CIPP’s energy balance, within 24
months from June 15, 2023.
44. Rationale: CIPP, the largest industrial complex in Ceará, is positioning itself as a globally recognized clean energy
hub, with the potential to attract massive private sector investment and become a catalyst for energy transition. However,
in recent years, there has been large scale-up of thermal power generation in CIPP, including two coal-powered thermal
units with a combined installed capacity of 1,085 MW, with a further 1.6 GW gas-fired power plant currently under
construction and scheduled to reach operation in 2026. Coal is the primary fuel for the industries located in CIPP, with an
average annual consumption of 3.56 million tons (2020-2022)26 for steel production and power generation. To meet the
GoC’s goal of carbon neutrality by 2050, it will be critical to limit further expansion of fossil fuels and to establish specific
GHG emissions reductions targets for CIPP. The first step to accomplish this will be preparation of an energy balance 27 and
GHG emissions inventory to set realistic emission reductions targets. Such tools will also be of commercial importance to
exporters, as international commodity buyers seek to reduce carbon emissions within their supply chain. This is
particularly pertinent in Europe, which recently began implementing the Carbon Border Adjustment Mechanism (CBAM)
for imported goods28.
45. Prior Action. Through the implementation of State Decree No. 35.503, the GoC has committed to limit further
greenhouse gas emissions by prohibiting any new venture in CIPP from burning coal in its productive processes. Hence, all
23
Based on estimates provided by the CIPP.
24
In 2019, the Human Capital Index (HCI) for CE was 0.61 and ranked 10 out of 27 states in Brazil, representing an exception among the Northeast states. These
outcomes result from the Government of Ceará's strong commitment to enhancing educational outcomes over the last decade. However, Ceará had a setback in HCI
levels because of COVID-19, and the learning losses due to the school closure are mainly associated with 60 percent of the estimated HCI decline.
25
Hallegatte, Stephane, Jun Rentschler, and Julie Rozenberg. 2019. Lifelines: The Resilient Infrastructure Opportunity. Sustainable Infrastructure. Washington, DC:
World Bank.
26
Data provided by CIPP.
27
An energy balance presents all data in a common energy unit allowing users to see the total amount of energy used and the relative contribution of each different
source. In addition, an energy balance allows users to compute the various energy transformation efficiencies; to develop several aggregated indicators and estimate
CO2 emissions from fuel combustion. Implementation of an energy balance identifies the core sources of greenhouse gas emissions, which can be used to inform and
create targeted policy that helps to accelerate the reduction in emissions.
28
The CBAM will place import duties linked to the carbon emitted to produce the product, intended to incentivize cleaner industrial production in non-EU countries.
The EU CBAM regulation entered into force on May 17, 2023, and its application began on October 1, 2023. https://taxation-customs.ec.europa.eu/carbon-border-
adjustment-mechanism_en
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future energy expansion through new ventures will need to be produced from less carbon-intensive sources. The Decree
mandates that CIPP develops an energy balance and emissions inventory within 24 months of the publication of the
decree, which will enable the publication of specific emission reductions targets. Responsibility for the development of
the emissions inventory is under the coordination of the SEMA, which will also be responsible for periodically reporting
on the progress against these targets.
46. Expected results. The expected outcome from the Decree is the publication by the GoC of emissions reductions
targets for CIPP to ensure it is on track to meet its target of carbon neutrality by 2050, based on the development of an
energy balance and GHG emissions inventory, and considering its commitment to ban further expansion of coal use in
CIPP.
47. Climate Change. This prior action is fully aligned with the mitigation of climate change through the prevention of
an expansion in installed coal-based electricity and industrial production in CIPP, and through the establishment of data-
driven GHG emission targets to be developed and monitored to support policies that reduce greenhouse gas emissions,
in line with the objectives of Ceará Verde Plan to reach net zero emissions by 2050.
Prior Action #5: To stimulate the expansion of distributed solar generation within its territory, in particular within low
income and vulnerable communities, the Borrower approved the “Renda do Sol” program, which establishes the
institutional arrangements and mechanisms by which (i) funding sources will be secured to provide financial support for
the roll-out of distributed solar generation to the target beneficiaries, and (ii) local capacity will be created for systems
operation and maintenance.
48. Rationale. In Ceará, low-income and vulnerable communities have struggled to access the benefits of the State’s
abundant renewable energy, due to: (i) inability to obtain financing (e.g., lack of creditworthiness); (ii) limited awareness
and technical capacity; and (iii) a lack of adequate building infrastructure to support rooftop solar installation. Ceará 2050
Plan sets out the development of Renda do Sol program, which seeks to expand the State’s abundant renewable energy
resources through the deployment of DG, while also addressing critical issues facing these groups, including energy
poverty and desertification29. The State will implement its nascent renewable energy program for public buildings –
including a solar rooftop program for schools30 and a program to purchase renewable energy from the ‘free market’ for
medium-voltage buildings31 and channel the associated savings to fund renewable energy projects that benefit the State’s
vulnerable populations.
49. Prior Action: Through the enactment of the Complementary Law No. 314, the GoC has established the Renda do
Sol program, which will be implemented by the State’s Secretariat of Infrastructure ( SEINFRA) – through a new Project
Management Unit – and governed by a new Renda do Sol Intersectoral Governance Committee. The law establishes that
the State may channel the financial savings from its public building renewable energy program into the State’s Energy
Efficiency Incentive Fund32 (FIEE). These savings will be combined with other resources33 to fund the Renda do Sol program,
29
As of 2018, at least 11 percent of the area of the State was in the process of desertification (Funceme: http://www.funceme.br/?p=5113).
30
As of July 2023, the State of Ceará had installed rooftop solar DG on 32 public schools, and the State plans to expand it over time.
31
In Brazil, medium and high voltage consumers (Group A) can negotiate power purchase agreements in the Free Market. Ceará has awarded a contract to purchase
renewable energy from the Free Market for 144 of its medium-voltage buildings (~ 107 GWh/year); the contract is expected to enter into force in January 2024.
32
The FIEE was created in 2016 (Complementary Law 170, December 28, 2016) with the objective of encouraging the development and financing of energy efficiency
and micro and mini renewable DG in the State Government of Ceará. It has been capitalized to date by the State’s Industrial Development Fund and had a balance of
US$ 2.7 million (R$ 13 million) as of August 2023. The FIEE has been used to fund the State’s program to install solar DG on 32 public schools (cost to date of US$1.8
million, or R$8.8 million).
33
The Law lists several other existing public financial instruments within the State that can be used to fund the Renda do Sol program, which alongside the FIEE, can
provide complementary credit and/or make direct investments in DG systems and associated infrastructure. Details of how these financial instruments will work
together will be included in secondary legislation.
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which will provide financial assistance and capacity building to vulnerable communities in rural areas 34 to increase their
access to the benefits of solar DG. Given the public buildings program is well underway, it is expected that this new funding
source will begin to flow into the FIEE by mid-202435. The law lists several possible modalities to channel these benefits to
the targeted beneficiaries; the final business model(s) will be determined via secondary legislation (expected to be
complete by late 2024), which will incorporate the findings of planned economic and financial analysis of the business
models under consideration, in addition to consultations with stakeholders in the sector and the targeted beneficiaries.
50. Expected Results. The expected impact of this prior action will be the capitalization of the FIEE with savings,
generated from renewable energy generation, to fund the implementation of the Renda do Sol program. The public
buildings renewable energy program will generate savings of R$ 19 million by 2025 (from 188 GWh of renewable energy
generated by 2025), which will be transferred to the FIEE36 and then used to finance the Renda do Sol program. The
expected medium-term impact of the program will be to improve the livelihoods of the targeted program beneficiaries by
increasing their access to the benefits of DG.
51. Climate Change. This prior action is fully aligned with the mitigation and adaptation of climate change through
the adoption of low-cost renewable energy to promote economic growth, with a focus on supporting communities
experiencing the impacts of climate change.
Prior Action #6: To promote investment in green hydrogen within its territory, the Borrower set up a process of
environmental licensing for green hydrogen production projects, which provides for (i) the procedures, criteria and
parameters applicable to the environmental licensing and authorization for the production of green hydrogen, and (ii)
enhanced protections for vulnerable communities during the licensing process.
52. Rationale. Attracting private sector investment will be critical to achieving the GoC’s green hydrogen ambitions.
This will require a strong legal and regulatory framework to reduce perceived risks from the private sector, including clear
environmental licensing processes. Since 2016 the WB has been supporting several initiatives for improving the
environmental licensing process in Ceará, including regulatory and institutional reforms. Bank’s assistance included the
internal process mapping and development of Key Performance Indicators for SEMACE 37, an operational pilot program to
reduce inefficiency and uncertainty of environmental licensing processes,38 advice to conduct annual surveys and establish
monthly data analytics report through capacity building,39 and the preparation of a report with recommendations to
improve the environmental licensing and inspection processes. In April 2019, the Environment State Council of Ceará
(COEMA) issued Resolution No. 2/2019, establishing the procedures for environmental licensing in the State, introducing
a risk-based approach to streamline the process for activities of relatively low environmental impact, and extending the
validity of the environmental licenses to the length allowed by federal legislation. However, until 2022, there were no
environmental licensing procedures specific for green hydrogen projects in Ceará or anywhere else in Brazil, which was a
barrier for making investment decisions. Developing the regulatory framework to support private investment will be
critical for Ceará to develop its Green Hydrogen Hub in CIPP.
34
The precise beneficiary eligibility criteria will be defined by the Renda do Sol Intersectoral Governance Committee.
35
The public buildings program is expected to generate savings of approximately R$10.8 million (US$ 2.2 million) per year, starting in Q2 2024.
36
The savings from the State’s purchase of renewable energy from the Free Market is expected to save approximately R$10.5 million / year beginning in 2024 Q2. The
savings from the State’s DG program in public schools is expected to save approximately R$210,000 / year as of 2023.
37
Strengthening Service Delivery for Growth, Poverty Reduction and Environmental Sustainability in the State of Ceará Program-for-Results (P127463).
38
Beneficiary Feedback and Data Analytics for Business Licensing in Ceará Program, supported by the Good Regulatory Practices Program: Closing the Implementation
Gap and Uncertainty of G2B Services.
39
Improving Business Environment for Prosperity (IBEP) Program, supported by the UK Prosperity Fund (IFC project # 602136).
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53. Prior Action. Ceará has defined the process40 for environmental licensing for green hydrogen production within the
State through COEMA Resolution No. 03/2022, which was legally reinforced by Decree 35,506, of June 15, 2023. Such
instruments set the first environmental licensing for green hydrogen projects in Brazil, which will help to attract private
sector investment by reducing risks around procedures, criteria, and parameters to be used in the licensing process.
Through this license, SEMACE analyzes the environmental feasibility of locating, installing, expanding, and operating green
hydrogen production projects, in line with the principles of sustainable development. This led to the first environmental
license being approved in the State for the company EDP (Energias de Portugal), which produced its first green hydrogen
molecule in Ceará in December 2022. To date, four private investors have signed pre-investment agreements.
54. Expected Results. The definition of the environmental licensing process is a key step to develop a clear regulatory
framework for green hydrogen production. In the short-term, this prior action is expected to result in processing of at
least four additional environmental licenses for green hydrogen projects by 2025. In the medium-term, it will support the
State’s goal of installing six GW of electrolyzer capacity by 2030. To support achievement of these medium-term outcomes,
the WB is providing technical assistance41 to CIPP and Brazil’s Federal Government and has initiated preparation of an IPF
(Ceará Green Hydrogen Hub, P181511) to support financing of critical shared infrastructure and green hydrogen
innovation.
55. Climate Change. This prior action is fully aligned with the mitigation of climate change through supporting the
development of green hydrogen and its derivatives to support decarbonization of hard-to-abate sectors in Brazil and
worldwide.
Prior Action #7: To promote the development of skills linked to the low-carbon economy, the Borrower mandated the
adoption of technical and vocational education and training curricula in secondary (Ensino Médio) and professional
(Ensino Profissional) schools focusing on clean energy that supports inclusive and sustainable job creation.
56. Rationale. Despite substantial progress in education policies, the school curriculum in Ceará is not adequate to
support a clean energy transition and a low carbon economy. Low learning results in Mathematics and high school dropout
rates do not prepare students for employment. To ensure a quality and diverse expansion of technical and vocational
secondary education aligned with low carbon development, investments in the development of multiple and varied
curricula to acquire skills on renewable energy are critical. Examples include the fundaments of electrical engineering and
designing and for installing equipment for clean energy production, as well as knowledge of PPP. In addition, there is
opportunity to promote Science, Technology, Engineering and Math (STEM) oriented programs and encourage girls’
participation in such programs.
57. Prior Action. The State enacted legislation that mandates the update of the technical and vocational education
and training (TVET) program to foster the development of skills on clean energy transition and low carbon economy
through: (i) the design of a set of TVET courses on clean energy; (ii) the fostering of PPP in the education sector, that
expand TVET offer of courses focused on renewable energy; (iii) the structuring of curricular contents with theoretical and
practical knowledge about technologies, legislation, socio-environmental impacts and sustainable practices related to the
generation, distribution and consumption of renewable energies; (iv) encouraging partnerships with companies in the
renewable energy sector, that offer internships, technical visits, to facilitate the insertion of students in the job market;
(v) the promotion of teacher training in the field of renewable energy; (vi) the promotion of diversity and social inclusion;
40
The environmental licensing procedures will take place through three-phase environmental licensing, namely: (i) locational or preliminary license; (ii) installation
license; and (iii) operating license. The requirements to complete the environmental license application varies according to the size of the enterprise.
41
Under the PASA Accelerating Clean Energy Transition and Strengthening Water Security in Brazil (P179030), the Bank is providing TA to support to the CIPP on the
development of port masterplans, governance of shared infrastructure, and an assessment of the hydrogen value chain and of the competitiveness of the CIPP in the
global export markets, as well as forecasting demand across the potential end-users. The PASA is also supporting the Chamber of Power Trade to develop its voluntary
green hydrogen certification standards.
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and (vii) gender parity in science and technology. Efforts to promote a diverse skilled workforce are expected to benefit
female students through eased STEM career orientation programs, mainly on TVET courses in clean energy.
58. Expected results. The number of TVET courses on clean energy would increase from 1 in 2022 and reach 8 by
2025. The reform will help promote STEM fields among young girls which will ultimately foster a diverse local workforce
on clean energy. SEDUC is designing a STEM career orientation program for boys and girls that will raise awareness on the
importance of girls’ participation. And, in the lower secondary schools close to the TVET schools, school managers will
disseminate the TVET courses among the ninth-year students, with an emphasis on girls. The GoC expects 20,000 girls
(aged 14 to 19) to participate in the STEM orientation programs by 2025.
59. Climate Change. The increase of TVET courses on clean energy will not lead to GHG emissions. It will contribute
to the adaptation of climate change by developing high-skilled local labor and increase the awareness of the importance
of clean energy through teachers training and pedagogical materials to support the clean energy transition.
Prior Action #8: To support learning recovery following the COVID-19 pandemic, the Borrower approved a plan to expand
secondary (Ensino Médio) and professional (Ensino Profissional) full-time education in public schools within its territory.
60. Rationale. Expansion of full-time education in Ceará is constrained by the lack of school infrastructure. Limited
number of facilities and inappropriate learning environments negatively impact education access, retention and learning
outcomes, especially for vulnerable students in rural areas. Evidence indicates that the learning environment is critical for
developing critical thinking, socioemotional and digital skills, and that well-designed facilities (e.g., encouraging group
work and efficient use of Information and Communications Technology solutions) have the potential to increase both
attendance and quality of education. Physical learning environments can contribute to improve education outcomes when
they provide certain characteristics, such as addressing the needs of male and female students, offering sufficient WASH
(water, sanitation, and hygiene) facilities, offering accessibility for students and teachers with disabilities, being child
centered (nature based, individualized, providing appropriate stimulation), and providing indoor environment qualities to
promote learning. In Ceará, most public schools were built several decades ago, and some facilities were not designed for
full-time educational activities. Old devices and outdated power transformers contribute to high electricity usage in
schools, and the use of alternative energy sources and efficient equipment is scarce.
61. Prior Action. The State Law No. 17,995 and the Decree No. 35,499 enacted a Universalization of Full-time School
Plan for Ceará. This plan is aligned with the goals of the National Education Plan (PNE) and is associated with Brazil’s
Federal Government’s Full-time School Program (Escolas de Ensino Médio em Tempo Integral, instituted by Federal Law
No. 14,640/2023), which will provide technical and financial support to the States. The plan supports the development of
schools’ quality standards through (i) expansion and improvement of school infrastructure; (ii) promotion of PPP for the
development of programs and projects that strengthen full-time education; (iii) in-service training of teachers; (iv)
updating schools' pedagogical guidelines and principles of full-time education; (v) learning strategies linked to the labor
market; (vi) recovery and acceleration learning strategies; (vii) monitoring and evaluation of the process of
implementation of full-time education; (viii) development of incentives to promote students’ permanence and success;
(ix) implementation of low-cost renewable energy solutions in schools. The pedagogical proposals of the full-time schools
will meet the following criteria: (i) offer diversified training itineraries, articulated with the development of socio-
emotional skills; (ii) implementation of learning methods based on cooperation; (iii) greater involvement of the community
and the students' families in school activities; and (iv) development of an environmental conscience for sustainability. The
schools’ infrastructure will observe rules to ensure mobility for people with disabilities. It will also promote sustainability
and energy efficiency, with the adoption of clean and renewable technologies and systems for the selective collection and
reuse of rainwater. The GoC allocated resources to support the plan implementation from the State Treasury and from
the Fund for Maintenance and Development of Basic Education and Valorization of Education Professionals (Fundeb), for
the years 2022 to 2026.
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62. Expected results. The implementation of the universalization of the Full-time School Program is expected to
promote a quality expansion of full-time school aligned with resilient, inclusive, and sustainable principles. A total of 400
full-time school facilities rehabilitated or constructed will adopt a design following the criteria laid out in the regulations
by 2025 (from 257 in 2022).
63. Climate Change. The rehabilitation of school infrastructure to promote a safer, inclusive, greener, and more
climate-resilient may increase GHG emissions. However, these risks will be reduced by including energy and environmental
efficiency requirements for the schools, including following green building codes to reduce energy consumption for project
facilities that are already connected to a grid that is mostly supplied by renewable sources. Mitigation measures will also
include: i) reduction of the thermal transmittance of roofs and walls of schools, hence reducing the need for air
conditioning; ii) improvement of schools’ waste management systems, and iii) purchase of energy-efficient equipment.
On the adaptation side, the schools’ physical infrastructure can be affected by extreme heat, droughts, and flooding (rural
and urban), in addition to landslides and wildfires, as such, adaptation measures to increase resilience will be included in
the school quality standards.
4.3. LINK TO CPF, OTHER BANK OPERATIONS AND THE WBG STRATEGY
64. The proposed DPF is fully aligned with Brazil’s Country Partnership Framework (CPF) FY2024–28. 42 The CPF is
built on three High Level Outcomes: (i) greater productivity and employment; (ii) greater inclusion of the poor and
underserved populations; and (iii) a greener economy with reduced vulnerability to climate shocks. This operation is fully
aligned with Objectives 1.1 (Strengthen fiscal management) and 1.3 (Improve labor market preparedness among the
current and future workforce) under Pillar 1, which supports fiscal consolidation and government effectiveness. The
operation is also aligned with Objectives 3.1 (Improve management of natural resources), 3.2 (Expand the clean energy
matrix) and 3.3 (Promote green and resilient cities and communities) under Pillar 3, which supports inclusive and
sustainable development. Pillar 3 is also consistent with the WBG Climate Change Action Plan 2021-2025 43 and 2050
targets to step up climate action to support countries in delivering and exceeding their Paris commitments.
4.4. CONSULTATIONS AND COLLABORATION WITH DEVELOPMENT PARTNERS
65. Public consultations on the proposed reforms took place both during the design of the policies, and during
discussions at the State Legislative Assembly. In the case of State laws, these consultations follow the procedures laid
out in the Federal’s and State’s Constitutions and other rules governing legislative procedures. The consultation process
increases the legitimacy of policies, while allowing authorities to benefit from advice and technical knowledge. The State
confirmed that the program supported by this DPF operation is based on a broad consultation process with a variety of
stakeholders, including civil society and business chambers.
5. OTHER DESIGN AND APPRAISAL ISSUES
5.1. POVERTY AND SOCIAL IMPACT
66. This operation will have positive equity and social impacts. Policy changes and prior actions under Pillar 1
improving the State’s Public Management systems and are expected to have a medium-term impact on poverty. Ceará’s
new PIM guidelines (PA1) require that a) socioeconomic impacts and benefits for citizens are assessed at two stages (the
ex-ante assessment of project proposals and the in-depth ex-post evaluation of all strategic projects) 44 and b) the major
42
The new CPF FY24-28 will be discussed at the Board on April 9, 2024.
43
https://openknowledge.worldbank.org/handle/10986/35799
44
These assessments aim to compare the ex-ante and ex-post impacts of the investment, by verifying the installed capacity, the level of use, the benefits to the assisted
population and the contribution to socioeconomic indicators.
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project appraisal results are disclosed to the public and made accessible in real-time to citizens. These guidelines may
promote equity depending on how the grade point system of the new PIM guidelines weights socioeconomic criteria.
Impacts on poverty are expected to come from PA2 due to the possibility of donations of real estate that is used on low-
income housing and social interest land regularization programs.45 PA3 is expected to foster accountability, promote
better use of public resources, and reduce fraud. Ultimately, these policy changes may open space for broader and better
provision of basic public services, benefiting social groups in the bottom of the socioeconomic scale. 46
67. Prior actions under Pillar 2 are expected to have positive impacts on poverty both directly and indirectly through
different transmission channels. PA4, PA5, PA6 and PA7 are instrumental for the GoC’s Policy for Climate Change (State
Law 16,146/2016). They are expected to lead to income and job generation, reduce the expenditures of poor urban
families and family farmers, and green the State’s energy matrix. Clean energy is known for having a much higher labor
intensity than brown energy.47 PA4 is expected to have significant social impacts, as it can increase the creation of quality
jobs, reducing unemployment and expanding labor income in the State. PA5 48 will indirectly yield benefits for low-income
households in at least two dimensions: (i) it will contribute to expand the access of low -income households to more
reliable energy; (ii) it will increase the welfare of low-income families in urban and rural areas through both a reduction in
their energy expenditures49 and the generation of credits for excess energy produced from micro/mini solar generation
that can be used to offset energy bills during periods where the generation is below consumption. 50 PA6 requires for the
full assessment of environmental and social impacts on traditional communities and their livelihoods as well as for
meaningful consultation with them as required under ILO 169 Convention.51 It is expected to minimize and mitigate the
adverse impacts associated with the clean-up of the energy matrix on the fragile coastal ecosystems and the livelihood
and distinct sociocultural organization of traditional communities (particularly the artisanal fishery communities)
distributed across the State’s coastline.52 PA7 can help meet the demand for technical and job skill qualifications in the
local communities impacted by green hydrogen production projects and it is expected to increase the incomes of
beneficiaries who obtain their certificate, especially among the youth.53 In turn, these reforms will contribute to avert
45
This prior action is not expected to harm the interest of anyone that may be occupying or using the public properties to be auctioned because the current assignee
of real or personal right, or the lessee, or the renter have preference for the acquisition of auctioned public properties over the winner of the auction.
46
In Ceará, about 94.6 percent of the children aged 4 to 14 in poor households (US$6.85 2017 PPP per day poverty line) attend public schools, compared to 56.7 percent
among the non-poor (PNAD 2021). Meanwhile, 9 out of 10 households in the bottom 40 percent of the distribution use the public health system when they get sick, in
comparison to only 6 out of 10 in the top 60 (PNS 2019).
47
Estimates suggest that for every $1 million spending shifted from brown to green energy, 5 net jobs would be created. See: Garrett-Peltier, 2021, Green versus brown:
Comparing the employment impacts of energy efficiency, renewable energy, and fossil fuels using an input-output model, Economic Modelling.
48
The DPF will not be financing the procurement of solar panels but supporting the development of the business model that would enable a large-scale roll out of low-
cost renewable energy to low-income consumers, to be funded by other public and private sources.
49
On average, households in the bottom fifth population commit to electricity 9.1 percent of their monetary income, while households in the top 5th population commit
only 1.6 percent of theirs. IBGE, Síntese de Indicadores Sociais 2021.
50
Brook, Penelope J.; Smith, Suzanne [editors], Energy and development report 2000: energy services for the world's poor (English). Washington, D.C. : World Bank
Group, available at http://documents.worldbank.org/curated/en/443371468764055824/Energy-and-development-report-2000-energy-services-for-the-worlds-poor.
51
This potential will be fully potentialized as far as the new environmental licensing process abides to the Standard Term of Reference for the environmental impact
assessment of offshore wind farms recently issued by IBAMA (Termo de Referência DENEF 8432181 SEI 02007.003499/2019-91, available at
https://www.ibama.gov.br/phocadownload/licenciamento/publicacoes/2020-11-TR_CEM.pdf). This ToR properly covers aspects related with (a) the mapping of all
traditional communities and social groups that use coastal and marine areas and may be affected by the wind farms in their livelihoods, culture, land/marine uses, (b)
the consultation of these communities and relevant federal and state agencies, and (c) propose measures to avoid, minimize and/or mitigate the adverse impacts
(following this mitigation hierarchy) and compensatory measures for the remaining adverse impacts.
52
There are 294 self-declared traditional communities present in the coastal region of Ceará. The livelihoods of most of these communities combines artisanal fishery
(which accounts for 60 percent of the state's entire marine fisheries production) with subsistence agriculture. These communities have included the presence of onshore
wind farms and the installation of offshore wind farms among the main conflicts and threats they face, which also involve violence related to organized crime, irregular
real estate speculation in mangroves, dunes and beaches, and predatory fishing. [Adryane Gorayeb et al., Cartografia social e a produção de dados participativos para
o zoneamento ecológico-econômico costeiro do Ceará, available at
https://www.researchgate.net/publication/356942761_Cartografia_Social_e_a_Producao_de_Dados_Participativos_para_o_Zoneamento_Ecologico-
Economico_Costeiro_do_Ceara?enrichId=rgreq-f1e8f00f17dd9b510aee7ffa1dc7116d-
XXX&enrichSource=Y292ZXJQYWdlOzM1Njk0Mjc2MTtBUzoxMDk5NTU1MjU2OTY3MTY4QDE2MzkxNjU4MTAwNjk%3D&el=1_x_3&_esc=publicationCoverPdf
53
Vocational education is estimated to have a 9.7 percent wage premium when compared to students with only high school (Almeida et al. 2015).
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medium- and long-term adverse social effects from climate change (such as droughts, floods and landslides) on irregular
settlements and traditional communities. PA8 on education is expected to have positive impacts on poverty and equity in
the medium- and long-term due to improvements in human capital.
5.2. ENVIRONMENTAL, FORESTS, AND OTHER NATURAL RESOURCE ASPECTS
68. Actions supported by Pillar 1 are unlikely to have a negative impact on the environment, forests, or other
natural resources. The public investment management (PA1) system will integrate climate considerations in the project
cycle (PA1), enabling the adoption of effective climate adaptation and mitigation measures. The new legal framework for
public real estate assets management (PA2) will promote a more rigorous inventory of assets, including georeferencing,
assessment of degree of occupancy and assessment of environmental and climate risks, which are essential information
for effective and satisfactory environmental management in the State. Finally, the strengthening of State Internal Control
System (PA3) will not have environmental impacts, but its implementation in SEMA and SEMACE could bring benefits to
the consistent planning and implementation of environmental public policies.
69. The policy actions under Pillar 2 have the potential to generate positive effects in advancing the State's
sustainable development. Limiting any further expansion of coal for power generation and industrial production in the
CIPP (PA4) implies, at very least, a stagnation of current GHG emissions. In addition, preparing CIPP's energy balance and
the emissions inventory are particularly important for creating baselines and increasing local scientific knowledge.
Environmental impact from solar energy microgeneration systems for low-income families participating in the Renda do
Sol Program (PA5) are expected to be of low magnitude, punctual and temporary. Instead, the positive environmental
impacts over GHG emissions arising from the transition to solar energy systems are substantial and will have lasting
impact. The implementation of the environmental licensing process for green hydrogen production projects (PA6) will
have positive environmental impacts since projects only will be licensed and authorized in accordance with the principles
of sustainable development. No environmental impact is expected from the development of skills for the renewable
energy sector (PA7). Finally, with the regulation of full-time education, low-magnitude environmental impacts are
expected from the construction, renovation, and rehabilitation of school infrastructure (PA8).
5.3. PFM, DISBURSEMENT AND AUDITING ASPECTS
70. The overall integrated fiduciary risk of this operation arising from public financial management (PFM), public
procurement system, and FOREX control environment is moderate. The GoC is committed to implementing important
PFM reforms to improve the quality and relevance of financial information available for decision-making and to enhance
transparency, accountability, and efficiency in PFM, including: (i) implementing the International Public Sector Accounting
Standards (IPSAS). Following the adoption of IPSAS, the State should request that State Court of Accounts (TCE) presents
to Parliament, a financial audit report of its 2024 annual financial statements, confirming compliance with the Standards,
and (ii) enhancing internal audit standards. Improvements are noted in many areas, including implementing the new
integrated Planning and Financial Administration System of the State of Ceará (SIAFE-CE), which is considered adequate.
A well-developed legal framework—including the Federal Constitution, the Fiscal Responsibility Law (LRF), and other laws
and regulations—underpins the GoC PFM. Institutional PFM arrangements are established at the State Secretariat of
Finance's departments. Budget preparation and monitoring processes are considered appropriate and are available for
public access on an external website54. There are continued improvements in the external oversight mechanisms, including
participation of key stakeholders and sector agencies and following Brazil’s federal rules consistent with international
standards. The GoC’s PFM environment features strong internal rules and commitment controls. The use of the single
treasury account (STA) model of cash management and a clear allocation of responsibility for managing facilitates the
54
https://www.seplag.ce.gov.br/wp-content/uploads/sites/14/2023/01/LOA-2023_Lei-n.-18.275-de-22_12_22.pdf
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performance of bank reconciliations on a regular and timely basis. The State's Financial Statements are of reasonable
quality; timely prepared and audited by the State's Supreme Audit Institution. Based on the above review, no additional
fiduciary arrangements will be implemented for the operation.
71. Procurement. Procurement processes in Ceará are competitive and transparent and have been improving over
time. Secretariat for Planning and Management (SEPLAG) has a section on its website that gathers information on Public
Procurement, offering federal and State legislation, instructional material, and more information on implementing the
new Federal Procurement and Contract Law55. SEPLAG provides access to procurement notices and results of the contracts
to public officials, managers, suppliers, and society, through the Licitaweb (online) system. Furthermore, access to
standard terms of reference and notices are made available, as well as information on the progress and minutes of bidding
processes under the responsibility of the Centralized Bidding Agency, an agency linked to the State Attorney General’s
Office (PGE), who is responsible for centrally processing the external phase of bids. The procurements carried out by the
GoC, resulting in contracts to micro and small businesses throughout 2021, reached R$ 3.5 billion, demonstrating the
importance of this segment to the State’s economy and the potential growth of their participation in future government
contracts. In view of the end of the validity period of Laws No. 8,666/1993, No. 10,520/2002, and part of Law No.
12,462/2011, the procurement systems, as of March 2023, were appropriated to implement bidding processes, according
to the new Federal Procurement and Contract Law No. 14,133 of 2021 and other specific State regulations. As set forth by
this new Law, SEPLAG is developing a digital procurement system, to render procedures more standardized and increase
agility and provide a permanent point of guidance for all hiring units.
72. The Loan proceeds will be disbursed against satisfactory implementation of the DPF program and will not be
tied to any specific purchases. Once the loan is effective, the borrower will request the WB the disbursement of the loan
proceeds in local currency, the equivalent amount of the loan proceeds into a local currency denominated-bank account
opened by the State Government at the Caixa Econômica Federal (CEF) branch in Ceará, Brazil. The CEF is a commercial
bank, financially sound, audited regularly, that performs a wide range of banking services, provides detailed bank
statements and is part of a satisfactory banking network, and charges reasonable bank fees. Within 30 days after receipt
of loan proceeds, the GoC will confirm to the WB that (i) the loan proceeds were received in the local currency-
denominated account, and (ii) an equivalent amount was credited to the account that finances GoC’s commitments. If
loan proceeds are used to finance excluded expenditures as defined in the Loan Agreement, the WB will require the GoC
to refund the amount. Based on the analysis of the adequacy of the State’s PFM environment, no additional fiduciary
arrangements will be put in place.
5.4. MONITORING, EVALUATION AND ACCOUNTABILITY
73. The Ceará State Secretariat of Finance (SEFAZ) is responsible for collecting and monitoring information related
to program implementation and progress toward the achievement of the results. SEFAZ is responsible for coordinating
all necessary actions among the agencies involved in the reform program supported by this DPF. SEFAZ will be directly
responsible for Pillar 1 in coordination with other State agencies (SEPLAG, CGE and CearáPar). The State Secretariat for
the Environment (SEMA), SEINFRA and SEDUC oversee policies and coordinates different institutions under the second
pillar of the program. The WB team has worked closely with the above agencies as well as Brazil’s Federal Government to
define results indicators that are clearly spelled out and measurable, giving preference to those that are already collected
by the GoC on a regular basis to avoid duplication.
55 https://www.seplag.ce.gov.br/gestao/portal-compras/
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74. Grievance Redress. Communities and individuals who believe that they are adversely affected by specific country
policies supported as Prior Actions or tranche release conditions under a WB Development Policy Financing may submit
complaints to the responsible country authorities, appropriate local/national grievance mechanisms, or the Bank’s
Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed to address pertinent
concerns. Project affected communities and individuals may submit their complaint to the WB’s independent
Accountability Mechanism (AM). The AM houses the Inspection Panel, which determines whether harm occurred, or could
occur, because of WB non-compliance with its policies and procedures, and the Dispute Resolution Service, which provides
communities and borrowers with the opportunity to address complaints through dispute resolution. Complaints may be
submitted at any time after concerns have been brought directly to the WB’s attention, and Bank Management has been
given an opportunity to respond. For information on how to submit complaints to the WB’s corporate Grievance Redress
Service (GRS), please visit http://www.worldbank.org/GRS. For information on how to submit complaints to the Bank’s
Accountability Mechanism, please visit https://accountability.worldbank.org.
75. Brazil has a robust legislation on access to information and grievance redressing .56 The 1988 Federal Constitution
(Art. 103 and Art. 130) and Constitutional Amendment 45/2004 also provide for the creation of Ombudsmen at all levels
of government and major advances have been made in this area. Hundreds of Ombudsman offices in the federal, State
and Municipal bodies and agencies operate in the country and are integrated into two systems: the governmental
ombudsman system (e-Ouve) and the governmental system of access to information (e-Sic), which have been recently
integrated in the Fala.BR web system developed for the National Ombudsman Network. This platform allows citizens to
make requests for public information and manifestations to the ombudsman. To use Fala.BR, it is not necessary to register.
The system works 24 hours a day, allows to follow up the progress of a registered event and has the option to report
anonymously https://www.gov.br/cgu/pt-br/assuntos/ouvidoria. Finally, data on the performance of the network of
Ombudsman Offices is publicly available at the website “Painel Resolveu?”
(http://paineis.cgu.gov.br/resolveu/index.htm). The State General Ombudsman Office of Ceará can be accessed by a Call
Center (Telephone 155), in presence, phone, e-mail (ouvidoria.geral@cge.ce.gov.br), internet
(https://cearatransparente.ce.gov.br/portal-da-transparencia/ouvidoria?locale=pt-BR). Ceará Transparente was set up to
facilitate communication between citizens and government institutions. The system makes it possible to post suggestions,
compliments and complaints, that can be tracked through service channels, such as Telephone 155, (Social Networks:
Facebook: /cgeceara and Instagram: @cgeceara), and the website
https://cearatransparente.ce.gov.br/ticket/sign_in?locale=pt-BR. Complaints can also be registered anonymously.
Citizens have access to reports on the ombudsman performance through the digital platform
https://cearatransparente.ce.gov.br/portal-da-transparencia/paginas/relatorios-de-gestao-de-ouvidoria?__=__.
6. SUMMARY OF RISKS AND MITIGATION
76. The overall risk of this operation is assessed as moderate. The main risks to the objectives of this operation
include institutional capacity constraints, the environment, and stakeholders.
77. Risks related to institutional capacity in some policy areas are assessed as substantial. The GoC has technically
sound, tenured public officials in key management positions. However, there are capacity gaps at lower ranks. The PIM
framework and guidelines (PA1) requires the engagement of multiple agencies and public officials in project preparation
and evaluation. The State is mitigating this risk with the ongoing development of a PIM system with a backlog of user
stories and complete documentation for testing, standardization, and production of the IT solution. It will also conduct
capacity-building activities for at least 300 participants on the revamped PIM methodology, guidelines, and system usage.
56
Including: Constitutional Amendment 19/1988, Federal Law 12,527/2011, Federal Law 13,460/2017, Federal Decree 9,492/2018, and Normative Instruction Ministry
of Transparency and Federal Comptroller General (CGE)/Union General Ombudsman Office (OGU) 5/2018.
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The new legal framework to strengthen the management of the State’s real estate assets (PA2) requires building a reliable
database for properties, and the harmonization of the legislation to attract non-local investors, which entails a task force
to guarantee the reform implementation. The State will mitigate this risk by mapping and updating the registry of all its
real estate assets, including the hiring of specialized firms and georeferencing property’ areas, and providing training at
all management levels at CearaPar. The internal control system reform (PA3) will require the implementation of Sector
Units of Internal Control in the line secretariats. These units will require trained professionals to operate and dedicated
budget resources to support them. Mitigation measures include the GoC’s shown commitment to implement the internal
control system. It will also have about four years to complete the reform. Ceará’s sound fiscal condition guarantees that
sufficient budget resources can be allocated to the program. Institutional capacity is considered limited and reliant on key
individuals within the GoC to prepare the energy balance and GHG emissions inventory for the CIPP, as well as to develop
secondary legislation required to ensure there is no expansion of coal production in CIPP (PA4). The business model for
the implementation of the Renda do Sol program (PA5) is not defined yet, and passing regulations will be required for its
roll-out. The State has requested technical support from the WB for the implementation of PA4 and PA5, which can help
mitigate these institutional capacity risks. The implementation of TVET courses on clean energy (PA7) and the full-time
secondary education (PA8) will require trained teachers and dedicated budget resources. Mitigation measures include the
GoC’s strong ownership to implement the programs.
78. Risks related to environment are assessed as substantial.57 The energy transition to renewable energy sources
and clean fuels will require substantial new investments to build infrastructure. Green hydrogen production is at the
technological frontier. This makes it harder to assess the risks linked with investment, and the State may face gaps in
capacity to properly assess the potential environmental and social impacts of new projects, which could lead to inadequate
mitigation measures and increased risks to the environment and local communities. The new environmental licensing
regulations for green hydrogen provides enhanced protections for vulnerable communities during the licensing process.
Since 2016 the WB has been supporting several initiatives58 for improving the environmental licensing process in Ceará,
including regulatory and institutional reforms and capacity building which have resulted in the Green Hydrogen licensing
model. In addition, the WB is currently providing technical assistance to Brazil’s Federal Government to develop the low-
carbon hydrogen market through an ASA (Accelerating Clean Energy Transition and Strengthening Water Security in Brazil
(P179030) and is also preparing the Ceará Green Hydrogen Hub IPF (P181511).
79. Stakeholder risks are assessed as substantial. These risks relate to sensitivities in the reform agenda that intends
to limit the emission of greenhouse gases at CIPP. This reform could affect the business operators’ interests and undermine
its implementation. To mitigate these risks, authorities are engaged in close consultations with several stakeholder groups.
In addition, the WB is providing technical assistance to the GoC to prepare the energy balance and GHG emissions
inventory for CIPP, which will involve engagement with the State and key stakeholder groups, including the possibility to
conduct pre-feasibility studies for innovative technologies that can be deployed by high emitters in the CIPP to support
the energy transition. The WB is also preparing an IPF (P181511) with the GoC to support the development of the Green
Hydrogen Hub in CIPP that will require consultations with different stakeholders in CIPP.
57
There are allegations of forced labor in the production of solar panels and components. This DPF focuses on policies and institutional reforms. DPF proceeds are not
earmarked to any specific purpose, including the manufacture or procurement of solar panels or components.
58
Initiatives supported by the Bank in Ceará: (i) Strengthening Service Delivery for Growth, Poverty Reduction and Environmental Sustainability in the State of Ceará
Program-for-Results (P127463); (ii) Beneficiary Feedback and Data Analytics for Business Licensing in Ceará Program, supported by the Good Regulatory Practices
Program: Closing the Implementation Gap and Uncertainty of G2B Services; (iii) Improving Business Environment for Prosperity (IBEP) Program, supported by the UK
Prosperity Fund (IFC project # 602136).
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Table 7: Summary Risk Ratings
@#&OPS~Doctype~OPS^dynamics@padrisk#doctemplate
Risk Categories Rating
1. Political and Governance Moderate
2. Macroeconomic Moderate
3. Sector Strategies and Policies Moderate
4. Technical Design of Project or Program Moderate
5. Institutional Capacity for Implementation and Sustainability Substantial
6. Fiduciary Moderate
7. Environment and Social Substantial
8. Stakeholders Substantial
9. Other
Overall Moderate
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ANNEX 1: POLICY AND RESULTS MATRIX
DETAILED RESULTS FRAMEWORK
Prior actions Results
Indicator Name Baseline Target
Pillar 1: Improving public financial management
Prior Action #1: To improve the governance of its public investment projects, the Borrower
adopted a new framework for public investment management that (i) redefines the roles and
RI1. Number of public
responsibilities of the agencies in charge of the project cycle, (ii) provides for the improved
investment projects screened,
management of capital expenditures by mandating project risk assessment and prioritization
appraised, and prioritized
based on a cost-benefit analysis, as well as a robust capital and operating costs estimation, and (iii) 2022 = 0 2025 = 5
according to the methodology
integrates climate change considerations through the fast-track of emergency projects; as
criteria set forth on the new
evidenced by (i) the Borrower’s Decree no. 35.504, dated June 15, 2023, published in the
legal framework
Borrower’s Official Gazette on June 15, 2023, and (ii) the Borrower’s Public Investment
Management Framework, dated February 23, 2023, available at https://www.seplag.ce.gov.br/.
Prior Action #2: To improve the management of its real estate assets, the Borrower adopted a new
framework for public real estate asset management that (i) provides for a comprehensive
inventory of public properties within its territory, (ii) establishes procedures for public real estate
asset valuation to maximize returns on sales, and (iii) allows for the consolidation of the ownership
and management of its public real estate under a single agency (CearáPar); as evidenced by: (i) the RI2. Real estate assets vacancy 2022 = 18.5 2025 = 8
Borrower’s Complementary Law no. 296, dated December 16, 2022, published in the Borrower’s rate percent percent
Official Gazette on December 19, 2022, (ii) the Borrower’s Decree no. 35.505, dated June 15, 2023,
published in the Borrower’s Official Gazette on June 15, 2023, (iii) the Borrower’s Decree no.
34.723, dated May 2, 2022, published in the Borrower’s Official Gazette on May 2, 2022, as
amended by Decree no. 34.985, dated October 17, 2022, published in the Borrower’s Official
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Prior actions Results
Gazette on October 17, 2022, (iv) CONAG Resolution 01/2023, published in the Borrower’s Official
Gazette on July 10, 2023, and (v) CONAG Resolution 02/2023, published in the Borrower’s Official
Gazette on July 10, 2023.
RI3. Increased deployment of
the Integrity Program in five the
Prior Action #3: To improve its fiscal accountability and increase the transparency, effectiveness,
State’s key sectoral budgets
and efficiency of its policies and programs, the Borrower adopted the 3-Lines of Defense Model
secretariats59 to assess its 2022 = 54 2025 = 75
developed by the Institute of Internal Audit (IIA) as a means to strengthen the internal control
internal control structure percent percent
system of its government; as evidenced by the Borrower’s Complementary Law no. 309, dated July
according to the methodology
11, 2023, published in the Borrower’s Official Gazette on July 11, 2023.
criteria set forth on the Integrity
Diagnostics Framework60.
Pillar 2: Strengthening the enabling environment to scale-up clean energy production
2025 =
2022 = no
Prior Action #4: To limit further greenhouse gas emissions, the Borrower (i) prohibited new emission
RI4. Publication of targets for emission
ventures in the CIPP that involve the burning of coal in any step of their production process, reduction
greenhouse gas emission reduction
and (ii) committed to develop an emissions inventory regarding socioeconomic activities targets
reduction for the CIPP, utilizing targets
developed in its territory, which shall comprise the CIPP’s energy balance, within 24 months published
the emissions inventory and published
from June 15, 2023; as evidenced by the Borrower’s Decree no. 35.503, dated June 15, 2023, for the
energy balance. for the CIPP
published in the Borrower’s Official Gazette on June 15, 2023. CIPP for
2030, 2040
and 2050
Prior Action #5: To stimulate the expansion of distributed solar generation within its RI5. Funds transferred to the
2022 = R$ 202561 =
territory, in particular within low income and vulnerable communities, the Borrower FIEE Fund to Support the Renda
0m R$ 19m
approved the “Renda do Sol” program, which establishes the institutional arrangements do Sol Program, utilizing energy
59 Secretariat of Education (SEDUC); Secretariat of Finance (SEFAZ); Secretariat for the Environment and Climate Change (SEMA); State Environment Superintendence – SEMACE; and Secretariat of Water Resources
(SRH).
60 Issued by Ordinance 74/2020 in State’s Official Gazette as of September 15, 2020.
61 RE savings transferred to FIEE.
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Prior actions Results
and mechanisms by which (i) funding sources will be secured to provide financial support cost savings from the State’s
for the roll-out of distributed solar generation to the target beneficiaries, and (ii) local public building renewable
capacity will be created for systems operation and maintenance; as evidenced by the energy program.
Borrower’s Complementary Law no. 314, dated September 7, 2023, published in the
Borrower’s Official Gazette on September 11, 2023.
Prior Action #6: To promote investment in green hydrogen within its territory, the
Borrower set up a process of environmental licensing for green hydrogen production
projects, which provides for (i) the procedures, criteria and parameters applicable to the
RI6. Locational environmental
environmental licensing and authorization for the production of green hydrogen, and (ii)
licensing assessments 2022 = 0 2025 = 4
enhanced protections for vulnerable communities during the licensing process; as
completed
evidenced by (i) the Borrower’s Decree no. 35.506, dated June 15, 2023, published in the
Borrower’s Official Gazette on June 15, 2023, and (ii) COEMA Resolution no. 03, dated 10
February 2022, published in the Borrower’s Official Gazette on February 14, 2022.
Prior Action #7: To promote the development of skills linked to the low-carbon economy,
RI7. Number of TVET courses on
the Borrower mandated the adoption of technical and vocational education and training 2022 = 1 2025 = 8
clean energy.
curricula in secondary (Ensino Médio) and professional (Ensino Profissional) schools
focusing on clean energy that supports inclusive and sustainable job creation; as
RI8. Number of girls (aged 14 to
evidenced by (i) the Borrower’s Law no. 18.194, dated August 31, 2022, published in the 2025 =
19) participating on STEM career
Borrower’s Official Gazette on August 31, 2022, and (ii) the Borrower’s Decree no. 35.499, 2022 = 0 20,000
orientation program
dated June 15, 2023, published in the Borrower’s Official Gazette on June 15, 2023.
Prior Action #8: To support learning recovery following the COVID-19 pandemic, the
RI9. Number of full-time schools’
Borrower approved a plan to expand secondary (Ensino Médio) and professional (Ensino 2022 = 257 2025 = 400
facilities rehabilitated or
Profissional) full-time education in public schools within its territory; as evidenced by (i)
constructed following the criteria
the Borrower’s Law no. 17.995, dated March 29, 2022, published in the Borrower’s Official
laid out in the regulations.
Gazette on March 29, 2022, and (ii) the Borrower’s Decree no. 35.499. dated June 15,
2023, published in the Borrower’s Official Gazette on June 15, 2023.
@#&OPS~Doctype~OPS^dynamics@paddpfannexpolicyandresult#doctemplate
RESULTS INDICATORS BY PILLAR
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Baseline Closing Period
To improve efficiency in the public resource management
Number of public investment projects screened, appraised, and prioritized according to the methodology criteria set forth on the new legal framework (Number)
Dec/2022 Dec/2025
0 5
Real estate assets vacancy rate (Percentage)
Dec/2022 Dec/2025
18.5 8
Increased deployment of the Integrity Program in five units of the state's key sectoral budgets secretariats to assess its internal control structure (Percentage)
Dec/2022 Dec/2025
54 75
To improve the enabling environment to scale-up clean energy
Publication of targets (for 2030, 2040 and 2050) for greenhouse gas emission reduction for the CIPP, utilizing the emissions inventory and energy balance (Yes/No)
Dec/2022 Dec/2025
No Yes
Funds transferred to the FIEE Fund to Support the Renda do Sol Program, utilizing energy cost savings from the State’s public building renewable energy program (Text)
Dec/2022 Dec/2025
R$ 0 million R$ 19 million
Locational environmental licensing assessments completed (Number)
Dec/2022 Dec/2025
0 4
Number of TVET courses on clean energy (Number)
Dec/2022 Dec/2025
1 8
Number of girls participating on STEM career orientation program (Number)
Dec/2022 Dec/2025
0 20,000
Number of full-time schools facilities rehabilitated or constructed following the criteria laid out in the regulations (Number)
Dec/2022 Dec/2025
257 400
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ANNEX 2: FUND RELATIONS ANNEX
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ANNEX 3: LETTER OF DEVELOPMENT POLICY
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[Unofficial translation]
LETTER OF DEVELOPMENT POLICY
CG Letter No. 201/2023
Fortaleza, October 11th, 2023.
Dear Mr.
Johannes Zutt
Director – Brazil
Latin America and the Caribbean Region
The World Bank
Subject: Credit Operation Contracting
Development Policy Financing (DPF)
Mr. Director,
This document comprises a set of policy measures to improve efficiency in the management of public resources
and promote sustainable development through clean energy and skills development. It aims to integrate public policies
for socioeconomic development and environmental sustainability, improve the quality of life of the citizens of Ceará and
reduce regional inequalities within the State.
The Government of Ceará understands that the technical and financial support of the International Bank for
Reconstruction and Development – IBRD, through Development Policy Financing (DPF) instrument, will be key to the
success of the Economic and Fiscal Sustainability Program of the State of Ceará ( Ceará Sustentável). It is important to
point out that this program seeks to increase the State's saving capacity and investments with its own resources, in the
medium term. Thereupon, the State of Ceará will have significant gains in the implementation of this Program, that
involves three pillars: fiscal, environmental, and socio-educational, which will boost its sustainable development and the
maintenance of the balance of its public accounts.
Overview of State’s public finances:
The State of Ceará has maintained a sustainable fiscal path, generating savings and raising funds to support
investment. On the revenue side, the growth in State collection is due to the implementation of measures that make the
collection of State taxes within its competence more effective. Continued revenue growth has been an important reason
for maintaining the State's fiscal sustainability.
The Government of Ceará has shown a strong commitment to sound fiscal management in recent years, which
reflects greater control of expenditure growth compared to revenue growth. On the expenditure side, expenditures have
been under control without reducing public services supply or jeopardizing their quality. Previous rapid growth in
personnel spending led Ceará to pass a State spending cap rule in 2016, a pension reform in 2019, and to freeze civil
servant salaries in 2020 and 2021 to improve its public accounts, in anticipation of future pressures and fiscal problems
that could arise from the lack of fiscal control. As a result of these reforms, total expenses grew only 1.23 percent per year
between 2014 and 2022, in real terms, well below the real growth of Net Current Revenue (NCR) in the same period (3.57
percent in the period), despite the 2015/2016 recession and the plummeting in Ceará’s GDP in 2020 due to the pandemic.
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Ceará's strong fiscal position culminated in recurring primary surpluses over the last ten years and in the maintenance of
its debt-paying capacity index (CAPAG) at B from 2018 to 2022. Personnel expenses represented only 42.83 percent of
Adjusted NCR in 2022, remaining below the alert limit established by the Fiscal Responsibility Law – LRF – (44.1 percent).
In turn, this strict control of the main categories of current expenditures allowed Ceará to increase investments by 4.67
percent per year, in real terms, between 2016 (the year of implementation of the expenditure rule) and 2022. Therefore,
the State has been capable of expanding its public investments, which are financed both with its own resources and with
new credit operations, without losing control of the public debt.
Although Ceará's public debt stock is under control, its profile requires careful monitoring. Fiscal measures
adopted since 2016 have allowed Ceará to reduce its net debt from 43.6 percent of net current revenue in 2015 to 33.63
percent in 2022. However, its debt profile presents challenges, as debt service (7,91 percent of NCR) and the share of debt
in foreign currency (53.6 percent of total debt) is high. Nevertheless, solid fiscal balances have allowed the State to
navigate periods of currency stress and heightened borrowing needs without delaying expenditure payments or
generating arrears.
Even in the face of a relatively beneficial fiscal scenario and having implemented important reforms to ensure the
sustainability of its public finances, the State of Ceará still faces several development challenges. According to the
Continuous Annual National Household Survey – “PNAD Contínua” – by IBGE, income inequality grew continuously in
Ceará between 2014 and 2019. Inequality growth peaked in 2016 when it increased by 2.9 percent. In the same year,
inequality also increased by 2.5 percent in Brazil and 2.0 percent in the Northeast. Overall inequality increased by 7.7
percent in Ceará between 2014 and 2019, while increasing 3.4 percent in Brazil and 5.2 percent in the Northeast. In 2020,
inequality sharply declined during the Covid-19 pandemic. However, while the Gini Index of income distribution
plummeted 6.0 percent in the Northeast, it fell only 3.7 percent in Brazil and 3.2 percent in Ceará. Finally, in 2021, the
Gini index showed a strong increase in all geographic dimensions of comparison. For Brazil and the Northeast region, Gini
levels were very similar to those observed in 2019. In turn, Ceará’s Gini index (0.549) reflected lower income inequality
than in 2019 level, but still higher than the index in 201462.
Besides poverty, there are other significant inequalities affecting the State's population. Between 2014 and 2019,
the literacy rate of children aged 6 to 9 years grew from 76.6 percent to 79.1 percent in the State, this performance being
slightly below the national growth rate, which jumped from 77.3 percent to 79.8 percent but higher than the rate for the
Northeast, which increased from 68.6 percent to 73.7 percent. However, the effects caused by the pandemic on the
literacy process of children aged 6 to 9 years old are still worrying. In 2021, the literacy rate among this group was 71
percent in Brazil, 69 percent in Ceará and 64.2 percent in the Northeast. Conversely, 29 percent, 35.8 percent and 31
percent of children in this age group in Brazil, Northeast and Ceará, respectively, were not able to read and write,
according to their guardians. In absolute terms, it is estimated that more than 636 thousand children aged 6 to 9 years
were illiterate in the State of Ceará in 202163.
Bank support via DPF:
In view of the above, the Government of the State of Ceará is requesting a loan from the International Bank for
Reconstruction and Development - IBRD in the amount of up to €440,000,000.00 (four hundred and forty million), in the
DPF modality - Development Policy Financing. Through the DPF, the World Bank will support the State in implementing
policies that contribute to increasing the State's fiscal sustainability – improving its debt profile, exchanging shorter and
more expensive debts for cheaper and longer equivalent debts. – and to continue its efforts to promote sustainable
62
Evidências Socioeconômicas Recentes no Ceará: Choque Adversos, Avanços e Desafios. Barreto, Flávio Ataliba Flexa Daltro (org.). Instituto de Pesquisa e Estratégia
Econômica do Estado do Ceará – IPECE, Ceará, 2022. p.267 Disponível em https://www.ipece.ce.gov.br/wp-
content/uploads/sites/45/2022/12/EVIDENCIAS_SOCIOECONOMICAS_RECENTES_NO_CEARA.pdf p.315
63
Evidências Socioeconômicas Recentes no Ceará: Choque Adversos, Avanços e Desafios. Barreto, Flávio Ataliba Flexa Daltro (org.). Instituto de Pesquisa e Estratégia
Econômica do Estado do Ceará – IPECE, Ceará, 2022. p.267 Disponível em https://www.ipece.ce.gov.br/wp-
content/uploads/sites/45/2022/12/EVIDENCIAS_SOCIOECONOMICAS_RECENTES_NO_CEARA.pdf p.267
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development through better public management practices. In addition to the savings resulting from the reduction in the
cost of debt, the new debt will make it possible to smooth debt payments over time, facilitating financial programming,
and to make new investments and social policies to serve the population of Ceará.
This DPF is related to the long-term Development Plan “Ceará 2050” and to the area of planning and
modernization of PPA management, insofar as it supports public management initiatives for greater efficiency in the
management of public resources, resulting in greater savings for the Government, less tax evasion, less waste of resources
and fraud and better delivery of public services, in addition to strengthening fiscal discipline. Implementing a new Public
Investment Management (PIM) framework is an effective way to improve governance of infrastructure projects at the
State level, while also considering climate-smart solutions in the project cycle to ensure infrastructure projects are
sustainable and resilient. The new legal framework designed to strengthen the management of the State's real estate
assets provides clear guidelines on the acquisition, management and selling of real estate, as well as establishing
mechanisms for regular monitoring and evaluation of real estate portfolios. The implementation of an Internal Control
System of the Executive Branch according to the 3-line model (Complementary Law No. 309, of July 10 th, 2023) will
strengthen the Government's transparency and accountability.
Furthermore, this DPF also aligns with the strategic objectives of the Ceará 2050 Plan and with the PPA by
supporting reforms to boost the transition to a cleaner energy matrix in Ceará and focusing on sustainable development
and human capital in Ceará. It is proposed to achieve these objectives through: (i) the promotion of the State plan for fair
energy transition, which incorporates the prohibition of new production stages that use mineral coal in the Industrial
Complex of the Port of Pecém (CIPP), in addition to the development of an energy balance and inventory of greenhouse
gas emissions in the CIPP in order to facilitate the State in achieving its decarbonization objectives; (ii) establishment of
the Renda do Sol Program (Complementary Law No. 314, of July 9, 2023), which will use, among other sources, the savings
generated by investments in renewable energy and energy efficiency in State public buildings to support the generation
of income for Ceará families and their family farming workers, with an impact on reducing poverty, encouraging the use
of renewable energy in rural production and sustainable social development, in addition to enabling the integration of
energy produced by the Program's photovoltaic plants and the energy demand for the production of green hydrogen; (iii)
the granting of environmental licensing for green hydrogen production projects, making the State of Ceará the pioneer in
this energy source and a reference for other Brazilian States; (iv) adoption of professional education and training focused
on clean energy; and (v) implementation of full-time education in State schools.
The development policy credit operation sought from the World Bank is an integral part of this set of measures,
which aims to redefine the profile of the State's indebtedness, allowing for the curtailment of debt service payments in
the short term. This reduction will open fiscal space to finance the energy transition, the improvement of governance and
the provision of public services for the most disadvantageous population of the State, especially in education.
I believe this operation will contribute to maintaining a balanced trajectory of the State public accounts without
losing focus on public investment and the promotion of sustainable development.
Yours sincerely,
Elmano de Freitas da Costa
Governor of the State of Ceará
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ANNEX 4: ENVIRONMENT AND POVERTY/SOCIAL ANALYSIS TABLE
Significant poverty, social or
Significant positive or negative
Prior Actions distributional effects positive or
environment effects
negative
Pillar 1: Improving public financial management
Potentially positive equity impact
Positive - It will bring positive through increased investments in public
PA#1: Public Investment Management environmental impacts as it will enable service provision and improved social
(PIM) framework the adoption of effective climate accountability through public disclosure
adaptation and mitigation measures of assessments of socioeconomic
outcomes of investments.
Positive - will introduce a set of
procedures for carrying out a more Potentially positive equity impact
rigorous inventory of public assets, through increased investments in public
PA#2: Strengthen the management of
including georeferencing, assessment service provision and poverty reduction
the State’s real estate assets
of degree of occupancy and resulting from donations of real estate
assessment of environmental and assets and land regularization projects.
climate risks
PA#3: Internal Control System of the
No No expected negative poverty impact.
Executive Branch
Pillar 2: Strengthening the enabling environment to scale-up clean energy production
Positive - Limiting further expansion of
the use of coal in CIPP will result in the
Potentially positive and indirect impact
stagnation of GHG emissions.
PA#4: Industrial Complex of Pecém on poverty. Impacts could come from
Preparing CIPP's energy balance and
(CIPP) the creation of jobs from the
emissions inventory creates baselines
investments in the innovation hub.
and increases local scientific
knowledge.
Negative and Positive - environmental
impacts common to small works are
Households benefiting from the Renda
expected and may be considered of
do Sol Program will have significant
low magnitude, punctual and
savings on energy expenses.
PA#5: Renda do Sol program temporary. On the other hand, the
A key element to maximize impact of
environmental impacts arising from
new source of income will be the
the transition of the energy system are
provision of financial education to
substantial and lasting impact, such as
program’s recipients.
the reduction of greenhouse gas (GHG)
emissions
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Potential positive impacts in the
Negative and positive. Potential
medium term as it is expected to
negative impacts to be considered
minimize and mitigate the adverse
with the expansion of green hydrogen
impacts on the fragile coastal
include water usage and treatment of
ecosystems and the livelihood and
brine, particularly as the region of
distinct sociocultural organization of
Ceará is prone to desertification, and
traditional communities (particularly
PA#6: Environmental licensing for risks related to safety in the storage
the artisanal fishery communities)
green hydrogen production projects and handling of green hydrogen and
distributed across the State’s coastline
its derivatives, including ammonia. On
of the early State policy that simplified
the other hand, the environmental
the environmental licensing process for
impacts arising from the transition of
energy projects considered small
the energy system are anticipated to
potential environmental impact
be substantial, such as the reduction
(including wind power plants and other
of greenhouse gas (GHG) emissions.
renewable matrix developments).
Potential positive poverty impacts in
the medium- or long-term as
beneficiaries accumulate human
PA#7: Vocational Education and capital. Ensuring low-income (or most
Training (TVET) to support inclusive No vulnerable) individuals are benefitting
and sustainable employment from the new offer will require
interventions to maximize take-up and
support insertion into the labor market
(especially women and the youth).
Potential positive poverty impacts in
the medium- or long-term as
Negative - low-magnitude beneficiaries accumulate human
environmental impacts are expected, capital. Ensuring low-income (or most
PA#8: Full-time education in State
common to the construction, vulnerable) individuals are benefitting
schools of Ceará
renovation and rehabilitation of school from the new offer will require
infrastructure. interventions to maximize take-up and
support insertion into the labor market
(especially women and the youth).
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ANNEX 5: PARIS ALIGNMENT ASSESSMENT TABLE
Program Development Objective(s): To support reforms of the State of Ceará to: (i) improve public financial
management; and (ii) strengthen the enabling environment to scale-up clean energy production.
Step 1: Taking into account our climate analysis Answer: Yes
(e.g., Country Climate and Development Reports or Explanation: The operation is directly aligned with Brazil’s Update of
CCDRs), is the operation consistent with the the First Nationally Determined Contribution (NDC) submission
country climate commitments, including for (December 2020) and the climate action policy documents published
instance, the NDC, NAP, LTS, and other relevant by the GoC, such as the Ceará Verde Plan (Green Ceará Plan).
strategies?
Mitigation goals: assessing and reducing the risks
Prior Action 1. To improve the governance of its public investment projects, the Borrower adopted a new framework for
public investment management that (i) redefines the roles and responsibilities of the agencies in charge of the project
cycle, (ii) provides for the improved management of capital expenditures by mandating project risk assessment and
prioritization based on a cost-benefit analysis, as well as a robust capital and operating costs estimation, and (iii)
integrates climate change considerations through the fast-track of emergency projects.
Pillar Objective: Improving public financial management.
Step M2.1: Is the prior action likely to cause a Answer: No. Explanation: This prior action is not likely to cause a
significant increase in GHG emissions? significant increase in GHG emissions. The policy also promotes the
reduction of GHG emissions by incorporating climate-smart
parameters in the investment project cycle. This includes conclusive
assessments of climate, economic, and environmental risks to ensure
that only environmentally sustainable and economically viable
projects are selected for implementation.
Step M2.2: Is the prior action likely to introduce or Answer: NA
reinforce significant and persistent barriers to
transition to the country’s low-GHG emissions
development pathways?
Step M3: Is the risk of the prior action introducing Answer: NA
or reinforcing significant and persistent barriers
being reduced to low after mitigation measures
have been implemented?
Conclusion for PA 1: The measure supported by the prior action is not likely to have any direct mitigation or emissions
generating impact, consequently, it can be considered aligned on mitigation.
Prior Action 2. To improve the management of its real estate assets, the Borrower adopted a new framework for public
real estate asset management that (i) provides for a comprehensive inventory of public properties within its territory, (ii)
establishes procedures for public real estate asset valuation to maximize returns on sales, and (iii) allows for the
consolidation of the ownership and management of its public real estate under a single agency (CearáPar).
Pillar Objective: Improving public financial management.
Step M2.1: Is the prior action likely to cause a Answer: No. Explanation: This prior action is not likely to cause a
significant increase in GHG emissions? significant increase in GHG emissions. It introduces provisions to
incentivize the use of Ceará real estate properties by third parties for
the purpose of fostering the production of renewable energies that
can support reduction in GHG emissions. Moreover, it enables
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CONAG to issue future guidelines for the implementation of climate
risk assessments, as part of the asset inventory and regularization
assessment of public buildings to be performed.
Step M2.2: Is the prior action likely to introduce or Answer: NA
reinforce significant and persistent barriers to
transition to the country’s low-GHG emissions
development pathways?
Step M3: Is the risk of the prior action introducing Answer: NA
or reinforcing significant and persistent barriers
being reduced to low after mitigation measures
have been implemented?
Conclusion for PA 2: The measure supported by the prior action is not likely to have any direct mitigation or emissions
generating impact, consequently, it can be considered aligned on mitigation.
Prior Action 3. To improve its fiscal accountability and increase the transparency, effectiveness, and efficiency of its
policies and programs, the Borrower adopted the 3-Lines of Defense Model developed by the Institute of Internal Audit
(IIA) as a means to strengthen the internal control system of its government.
Pillar Objective: Improving public financial management.
Step M2.1: Is the prior action likely to cause a Answer No. Explanation: This prior action strengthens the State’s
significant increase in GHG emissions? internal audit system through the implementation of the 3-Lines of
Defense Model developed by the Global Institute of Internal Auditors
(IIA). It is not likely to cause a significant increase in GHG emissions.
Step M2.2: Is the prior action likely to introduce or Answer NA
reinforce significant and persistent barriers to
transition to the country’s low-GHG emissions
development pathways?
Step M3: Is the risk of the prior action introducing Answer NA
or reinforcing significant and persistent barriers
being reduced to low after mitigation measures
have been implemented?
Conclusion for PA 3: The measure supported by the prior action is not likely to have any direct mitigation or emissions
generating impacts, consequently, it can be considered aligned on mitigation.
Prior Action 4. To limit further greenhouse gas emissions, the Borrower (i) prohibited new ventures in the CIPP that
involve the burning of coal in any step of their production process, and (ii) committed to develop an emissions inventory
regarding socioeconomic activities developed in its territory, which shall comprise the CIPP’s energy balance, within 24
months from June 15, 2023.
Pillar Objective: Strengthening the enabling environment to scale up clean energy production.
Step M2.1: Is the prior action likely to cause a Answer No. Explanation: This prior action intends to reduce GHG
significant increase in GHG emissions? emissions through the prevention of an expansion of an increase in
installed coal-based electricity and industrial production.
Step M2.2: Is the prior action likely to introduce or Answer NA
reinforce significant and persistent barriers to
transition to the country’s low-GHG emissions
development pathways?
Step M3: Is the risk of the prior action introducing Answer NA
or reinforcing significant and persistent barriers
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being reduced to low after mitigation measures
have been implemented?
Conclusion for PA 4: The measures supported by the prior action are intended to reduce GHG emissions, consequently, it
can be considered aligned on mitigation.
Prior Action 5. To stimulate the expansion of distributed solar generation within its territory, in particular within low
income and vulnerable communities, the Borrower approved the “Renda do Sol” program, which establishes the
institutional arrangements and mechanisms by which (i) funding sources will be secured to provide financial support for
the roll-out of distributed solar generation to the target beneficiaries, and (ii) local capacity will be created for systems
operation and maintenance.
Pillar Objective: Strengthening the enabling environment to scale up clean energy production.
Step M2.1: Is the prior action likely to cause a Answer No. Explanation: This prior action intends to support GHG
significant increase in GHG emissions? emission reductions through the adoption renewable energy (with
negligible lifecycle GHG emissions) to displace grid supplied
electricity64.
Step M2.2: Is the prior action likely to introduce or Answer NA
reinforce significant and persistent barriers to
transition to the country’s low-GHG emissions
development pathways?
Step M3: Is the risk of the prior action introducing Answer NA
or reinforcing significant and persistent barriers
being reduced to low after mitigation measures
have been implemented?
Conclusion for PA 5: The measures supported by the prior action are intended to reduce GHG emissions, consequently, it
can be considered aligned on mitigation.
Prior Action 6. To promote investment in green hydrogen within its territory, the Borrower set up a process of
environmental licensing for green hydrogen production projects, which provides for (i) the procedures, criteria and
parameters applicable to the environmental licensing and authorization for the production of green hydrogen, and (ii)
enhanced protections for vulnerable communities during the licensing process.
Pillar Objective: Strengthening the enabling environment to scale up clean energy production.
Step M2.1: Is the prior action likely to cause a Answer No. Explanation: This prior action is intended to support a
significant increase in GHG emissions? reduction of GHG emissions by supporting the development of green
hydrogen, which can support decarbonization of hard-to-abate
sectors, both within Brazil and globally.
Step M2.2: Is the prior action likely to introduce or Answer NA
reinforce significant and persistent barriers to
transition to the country’s low-GHG emissions
development pathways?
Step M3: Is the risk of the prior action introducing Answer NA
or reinforcing significant and persistent barriers
64
Grid electricity is supplied by the Brazilian Interconnected System (SIN), a relatively clean grid, with renewables accounting for over 80 percent of installed capacity,
compared to a world average of approximately 27 percent (Plano Decenal de Expansão de Energia 2031 and IEA, World energy matrix 2019). However, recent policies
and legislation have set the country on track to increase emissions from the power sector (Brazil - Country Climate and Development Report (English). Washington,
D.C.: World Bank Group.).
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being reduced to low after mitigation measures
have been implemented?
Conclusion for PA 6: The measures supported by the prior action are intended to reduce GHG emissions, consequently, it
can be considered aligned on mitigation.
Prior Action 7. To promote the development of skills linked to the low-carbon economy, the Borrower mandated the
adoption of technical and vocational education and training curricula in secondary ( Ensino Médio) and professional
(Ensino Profissional) schools focusing on clean energy that supports inclusive and sustainable job creation.
Pillar Objective: Strengthening the enabling environment to scale up clean energy production.
Step M2.1: Is the prior action likely to cause a Answer No. Explanation: This prior action aims to support a lower
significant increase in GHG emissions? carbon transition through TVET on clean energy and is not likely to
cause a significant increase in GHG emissions.
Step M2.2: Is the prior action likely to introduce or Answer NA
reinforce significant and persistent barriers to
transition to the country’s low-GHG emissions
development pathways?
Step M3: Is the risk of the prior action introducing Answer NA
or reinforcing significant and persistent barriers
being reduced to low after mitigation measures
have been implemented?
Conclusion for PA 7: The measure supported by the prior action is not likely to have any direct mitigation or emissions
generating impacts, consequently, it can be considered aligned on mitigation.
Prior Action 8. To support learning recovery following the COVID-19 pandemic, the Borrower approved a plan to expand
secondary (Ensino Médio) and professional (Ensino Profissional) full-time education in public schools within its territory.
Pillar Objective: Strengthening the enabling environment to scale up clean energy production.
Step M2.1: Is the prior action likely to cause a Answer Yes. Explanation: This PA8 promotes the expansion and
significant increase in GHG emissions? improvement of about 400 schools’ infrastructure, which may lead
to an increase in GHG emissions.
Step M2.2: Is the prior action likely to introduce or Answer No. Explanation: Infrastructure to be built and/or
reinforce significant and persistent barriers to rehabilitated will promote energy efficiency and renewable energy,
transition to the country’s low-GHG emissions follow green building codes, enhance waste management, and be
development pathways? compliant with the PIM (PA1) and the new framework for public real
estate asset management (PA2) which include provisions for climate
change mitigation.
Step M3: Is the risk of the prior action introducing Answer NA
or reinforcing significant and persistent barriers
being reduced to low after mitigation measures
have been implemented?
Conclusion for PA 8: Considering the mitigation risks measures, the measure supported by the prior action is not likely to
have any direct mitigation or emissions generating impacts, consequently, it can be considered aligned on mitigation.
Mitigation goals: All prior actions are aligned on mitigation.
Adaptation and resilience goals: assessing and managing the risks
Prior Action 1. To improve the governance of its public investment projects, the Borrower adopted a new framework for
public investment management that (i) redefines the roles and responsibilities of the agencies in charge of the project
cycle, (ii) provides for the improved management of capital expenditures by mandating project risk assessment and
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prioritization based on a cost-benefit analysis, as well as a robust capital and operating costs estimation, and (iii)
integrates climate change considerations through the fast-track of emergency projects.
Pillar Objective: Improving public financial management.
Step A2: Are risks from climate hazards likely to Answer No. Explanation: This prior action’s development impact is
have an adverse effect on the prior action’s not expected to be threatened by climate risks. The State's new
contribution to the Development Objective(s)? public investment system mandates thorough risk assessments and
integrates risk reduction strategies, including those addressing
climate change, into all projects. It includes specific provisions for
key sectors like energy, water, sanitation, and transport. By
rigorously evaluating projects in these sectors, the system will help
provide another layer to screen the associated climate risks within
the investment portfolio.
Step A3: Does the design of the prior action reduce Answer NA
the risk from climate hazards to an acceptable level,
considering climate adaptation good practices
applicable to the country context?
Conclusion for Prior Action 1. This prior action’s development impact is not expected to be threatened by climate risks.
The adaptation risks are low.
Prior Action 2. To improve the management of its real estate assets, the Borrower adopted a new framework for public
real estate asset management that (i) provides for a comprehensive inventory of public properties within its territory, (ii)
establishes procedures for public real estate asset valuation to maximize returns on sales, and (iii) allows for the
consolidation of the ownership and management of its public real estate under a single agency (CearáPar).
Pillar Objective: Improving public financial management.
Step A2: Are risks from climate hazards likely to Answer No. Explanation: This prior action’s development impact is
have an adverse effect on the prior action’s not expected to be threatened by climate risks. The new policy
contribution to the Development Objective(s)? provides the basis for Ceará to issue additional guidelines regarding
governance policies and socio-environmental measures to be used
during the process of updating the inventory and regularization.
Step A3: Does the design of the prior action reduce Answer NA
the risk from climate hazards to an acceptable level,
considering climate adaptation good practices
applicable to the country context?
Conclusion for Prior Action 2. This prior action’s development impact is not expected to be threatened by climate risks.
The adaptation risks are low.
Prior Action 3. To improve its fiscal accountability and increase the transparency, effectiveness, and efficiency of its
policies and programs, the Borrower adopted the 3-Lines of Defense Model developed by the Institute of Internal Audit
(IIA) as a means to strengthen the internal control system of its government.
Pillar Objective: Improving public financial management.
Step A2: Are risks from climate hazards likely to Answer No. Explanation: This prior action’s development impact is
have an adverse effect on the prior action’s not expected to be threatened by climate risks. The policy reform
contribution to the Development Objective(s)? strengthens the State’s internal audit system through the
implementation of the 3-Lines of Defense Model developed by the
Global Institute of Internal Auditors (IIA).
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Step A3: Does the design of the prior action reduce Answer NA
the risk from climate hazards to an acceptable level,
considering climate adaptation good practices
applicable to the country context?
Conclusion for Prior Action 3. This prior action’s development impact is not expected to be threatened by climate risks.
The adaptation risks are low.
Prior Action 4. To limit further greenhouse gas emissions, the Borrower (i) prohibited new ventures in the CIPP that
involve the burning of coal in any step of their production process, and (ii) committed to develop an emissions inventory
regarding socioeconomic activities developed in its territory, which shall comprise the CIPP’s energy balance, within 24
months from June 15, 2023.
Pillar Objective: Strengthening the enabling environment to scale up clean energy production.
Step A2: Are risks from climate hazards likely to Answer No. Explanation: Risks from climate hazards are not
have an adverse effect on the prior action’s material to the substance of the Prior Action.
contribution to the Development Objective(s)?
Step A3: Does the design of the prior action reduce Answer N/A.
the risk from climate hazards to an acceptable level,
considering climate adaptation good practices
applicable to the country context?
Conclusion for Prior Action 4. This prior action’s development impact is not expected to be threatened by climate risks.
The adaptation risks are low.
Prior Action 5. To stimulate the expansion of distributed solar generation within its territory, in particular within low
income and vulnerable communities, the Borrower approved the “Renda do Sol” program, which establishes the
institutional arrangements and mechanisms by which (i) funding sources will be secured to provide financial support for
the roll-out of distributed solar generation to the target beneficiaries, and (ii) local capacity will be created for systems
operation and maintenance.
Pillar Objective: Strengthening the enabling environment to scale up clean energy production.
Step A2: Are risks from climate hazards likely to Answer Yes. Explanation: Ceará has high vulnerability to flooding
have an adverse effect on the prior action’s and moderate vulnerability to extreme heat65, both of which have
contribution to the Development Objective(s)? the potential to impact the performance and durability of solar PV
systems.
Step A3: Does the design of the prior action reduce Answer Yes. Explanation: Solar PV systems will be designed to
the risk from climate hazards to an acceptable level, consider resilience measures necessary to mitigate against climate-
considering climate adaptation good practices related risks in Ceará.
applicable to the country context?
Conclusion for Prior Action 5 This prior action’s development impact is not expected to be threatened by climate risks.
The adaptation risks are low.
Prior Action 6. To promote investment in green hydrogen within its territory, the Borrower set up a process of
environmental licensing for green hydrogen production projects, which provides for (i) the procedures, criteria and
parameters applicable to the environmental licensing and authorization for the production of green hydrogen, and (ii)
enhanced protections for vulnerable communities during the licensing process.
Pillar Objective: Strengthening the enabling environment to scale up clean energy production.
65
According to the ThinkHazard climate tool designed by the World Bank’s GFDRR, available at: https://thinkhazard.org/en/report/670-brazil-ceara.
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Step A2: Are risks from climate hazards likely to Answer No. Explanation: The Green Hydrogen Hub, located in the
have an adverse effect on the prior action’s city of São Goncalo Do Amarante, is not expected to face significant
contribution to the Development Objective(s)? climate risks that would impact green hydrogen development66.
Thus, this prior action’s development impact is not expected to be
threatened by climate risks.
Step A3: Does the design of the prior action reduce Answer NA
the risk from climate hazards to an acceptable level,
considering climate adaptation good practices
applicable to the country context?
Conclusion for Prior Action 6 This prior action’s development impact is not expected to be threatened by climate risks.
The adaptation risks are low.
Prior Action 7. To promote the development of skills linked to the low-carbon economy, the Borrower mandated the
adoption of technical and vocational education and training curricula in secondary ( Ensino Médio) and professional (Ensino
Profissional) schools focusing on clean energy that supports inclusive and sustainable job creation.
Pillar Objective: Strengthening the enabling environment to scale up clean energy production.
Step A2: Are risks from climate hazards likely to Answer No. Explanation: This prior action’s development impact is
have an adverse effect on the prior action’s not expected to be threatened by climate risks. Indeed, it is likely to
contribution to the Development Objective(s)? contribute to the adaptation of climate change by developing high-
skilled local labor and increase the awareness of the importance of
clean energy through teachers training and pedagogical materials to
support the clean energy transition.
Step A3: Does the design of the prior action reduce Answer NA
the risk from climate hazards to an acceptable level,
considering climate adaptation good practices
applicable to the country context?
Conclusion for Prior Action 7. This prior action’s development impact is not expected to be threatened by climate risks.
The adaptation risks are low.
Prior Action 8. To support learning recovery following the COVID-19 pandemic, the Borrower approved a plan to expand
secondary (Ensino Médio) and professional (Ensino Profissional) full-time education in public schools within its territory.
Pillar Objective: Strengthening the enabling environment to scale up clean energy production.
Step A2: Are risks from climate hazards likely to Answer Yes. Explanation: The main climate and disaster risks likely
have an adverse effect on the prior action’s to affect the prior action are extreme heat, drought, and flooding
contribution to the Development Objective(s)? (river and urban), in addition to landslides and wildfires.
Step A3: Does the design of the prior action reduce Answer Yes. Explanation: Risks will be reduced to low with the
the risk from climate hazards to an acceptable level, adoption of mitigation measures that will include: (i) PA#1 and PA#2
considering climate adaptation good practices incorporate climate resilience criteria that benefit the design and
applicable to the country context? rehabilitation of educational infrastructure; (ii) training materials for
teachers and students, integrating climate change adaptation and
resilience, particularly focused on local impacts of the climate
change; (iii) State’s alert systems can help the population to
66
According to the ThinkHazard climate tool, the city of São Goncalo Do Amarante has a high risk for wildfires and a medium risk for flooding and extreme heat.
Renewable energy and green hydrogen developers can take into account these risks in designing their investments. Water is necessary for the production of hydrogen,
and the risk of water scarcity is considered low in the city; furthermore, a number of potential green hydrogen developers are considering investments in desalinization
plants. The environmental licensing process will allow developers and the State to have a clearer view of possible environmental hazards and mitigate them accordingly.
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anticipate negative climate events; and (iv) skills development in
higher education teaching and skills development interventions.
Conclusion for Prior Action 8. This prior action’s development impact is not expected to be threatened by climate risks
considering the risk mitigation measures in place. The adaptation risks have been reduced to low.
Adaptation and resilience: All prior actions are aligned on adaptation and resilience. The adaptation risks are low.
OVERALL CONCLUSION OF PARIS ALIGNMENT ASSESSEMENT: The operation is aligned with the goals of the Paris
Agreement.
ANNEX 6: ESTIMATED IMPACTS OF THE REVENUE MEASURES PROPOSED BY THE BRAZIL’S FEDERAL GOVERNMENT
Table 5: Measures announced by the Government to recover revenues, impacts estimated by the Government and
impacts considered by IFI in their projections*
Gov. Estimates (BRL bn) IFI Estimates (BRL bn)**
Policy Measure
2023 2024 2025 2023 2024 2025
Revenue from the transfer of PIS/PASEP 67 resources to
23.0 - - 23.0 - -
the Treasury
Return of PIS/COFINS68 on financial revenue 4.4 6.0 6.0 4.4 6.0 6.4
Return of PIS/COFINS on gasoline and alcohol, including
28.9 54.5 54.5 28.9 34.7 58.2
tax on the export of crude oil
Return of PIS/COFINS on diesel, cooking gas and
1.5 18.6 18.6 1.5 19.8 21.2
aviation kerosene
Collection of PIS/COFINS on ICMS credits within the
31.9 58.0 61.2 - - -
scope of States and the DF
Collection of IRPJ and CSLL on tax benefits under ICMS 47.0 47.0 47.0 7.1 12.5 18.8
Taxation on income earned abroad 3.3 3.6 6.8 3.3 3.6 6.8
Updating the exemption range value of the monthly
-3.2 -5.9 -6.3 -3.2 -5.9 -6.3
income tax
Multinationals Taxation Review regarding transfer
- 70.0 70.0 - 20.0 26.2
pricing
Total 136.8 251.8 257.8 65.0 90.7 131.3
% of GDP 1.3% 2.2% 2.4% 0.6% 0.8% 1.2%
Source: IFI, Finance Minister
* (BRL billion adjusted by the change in nominal GDP)
** According to the IFI Fiscal Follow-up Report of June 2023, there are uncertainties regarding the materialization of tax collections, especially the Collection of IRPJ
and CSLL on tax benefits under ICMS and transfer pricing.
67
PIS/PASEP - Social Integration Program (Programa de Integração Social).
68
COFINS – Contribution for Social Security Financing (Contribuição para o Financiamento da Seguridade Social)
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ANNEX 7: BRAZIL DEBT SUSTAINABILITY ANALYSIS
The medium-term fiscal consolidation is expected to stabilize debt slightly below 80 percent of GDP up to the end of
this decade. Public debt declined from a historic peak of 87 percent of GDP in 2020 to 73 percent in 2022 due to the
recovery from the pandemic-induced recession, high commodity export prices, and diminishing emergency fiscal stimulus.
However, public debt is expected to increase to peak at 76.3 percent by 2024, 6.3 percentage points above the indicative
threshold for emerging countries of 70 percent, due to higher social and capital expenditure commitments by the new
administration and more onerous refinancing costs. After that, however, debt is expected to decline 69.4 percent in the
second half of this decade due to a medium-term consolidation effort to prevent an unsustainable increase in public debt.
This fragile debt sustainability is vulnerable to most downside risks set by the standardized stress tests. A drop of 2.9
percentage points in GDP growth between 2024 and 2025, the standard deviation between 2012 and 2022, would lead to
a sharp increase in public debt to slightly above 80 percent of GDP by the end of this decade, 11 percentage points higher
than the baseline scenario. This scenario also assumes that every percentage point of less economic growth reduces
inflation by 0.25 basis points and increased the real interest rate by 0.25 basis points. An accumulated deterioration in the
primary balance of about 3.1 percentage points of GDP between 2024 and 2025 would increase debt to 73 percent by the
end of the decade, 3.6 percentage points above the base case scenario. This scenario also assumes that every percentage
point of GDP of less primary balance increases the interest rate by 0.25 basis points. A permanent increase in the average
interest rate of 200 basis points would steadily increase public debt to 76.7 percent in 2030. Finally, if all these shocks
affect the economy simultaneously, public debt would steadily increase to 103 percent of GDP by 2030, 33 percentage
points higher than the baseline.
Although public debt is high and would only stabilize in the medium term, moderate country risk and low external debt
would ease its management. The debt and the financing need to GDP ratios stay above their indicative thresholds for
emerging countries of 70 percent and 15 percent over the projections period in the base case scenario and all standardized
tests. However, the country's risk is under control, remaining at around 211 basis points in the last three months until
September 2023. Additionally, while the indexation of a significant part of public debt to inflation and the monetary policy
interest rate exposes it to macroeconomic volatility, public debt exposure to exchange risk is low, as external and foreign-
currency-denominated debt accounts for a tiny part of total debt.
Figure 1: Public Debt Sustainability Analysis, Macro-Fiscal Stress Tests
Debt would stabilize in the second half of this decade… … on the back of economic growth and primary surpluses.
Debt to GDP ratio under the base case scenario 20
Perrcent of GDP Debt-Creating Flows
15
100 (in percent of GDP)
10
90 5
0
80
-5
70 -10
-15
60
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Residual Real interest rate
50 Real GDP growth Primary deficit
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Change in gross public sector debt
However, this pattern is vulnerable to downside risks, … … in particular to the standardized combined stress test.
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Debt to GDP ratio under the standarized stress tests Debt to GDP ratio under the combined stress tests
Perrcent of GDP Perrcent of GDP
100
100
90
90
80
80
70
70
60
60
50
50
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Baseline Primary Balance Shock Baseline Combined shock
Real GDP Growth Shock Real Interest Rate Shock
Real Exchange Rate Shock
However, debt management is eased by moderate low country risk and low external debt.
Public DSA Assessment: Heat Map
Debt level 1/ Real GDP Primary Real Interest Exchange Rate Contingent
Growth Shock Balance Shock Rate Shock Shock Liability shock
2/
Real GDP Primary Real Interest Exchange Rate Contingent
Gross financing needs
Growth Shock Balance Shock Rate Shock Shock Liability Shock
External Change in the Public Debt Foreign
3/
Market
Debt profile Financing Share of Short- Held by Non- Currency
Perception
Requirements Term Debt Residents Debt
Source: WB staff.
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ANNEX 8: INTERGOVERNMENTAL FISCAL ARRANGEMENTS IN BRAZIL
Brazil is a highly decentralized federation, with Subnational Governments being responsible for the delivery of most
public services. The Brazilian Constitution gives State and Municipal Governments substantive fiscal autonomy and large
spending responsibilities. Municipalities provide primary education and health care, and States fund most secondary
schools and hospitals. Public universities are mostly federal, but many States also maintain public universities of their own.
States are the primary providers of policing and public security. State and Municipal Governments are also in charge of
building and maintaining local and regional infrastructure and delivering social protection programs.
States and municipalities also raise significant tax revenues of their own. The Brazilian Constitution assigns taxation
powers to different levels of government. Brazil’s largest tax by revenue, the ICMS ( Imposto sobre Circulação de
Mercadorias e Serviços), is an indirect tax levied by States on goods and selected services (intermunicipal transport and
communication). The States also tax motor vehicles (IPVA), and inheritances and donations (ITCMD). Municipalities levy a
service tax (ISS) on services not covered by the ICMS, and tax urban properties (IPTU) and real estate transactions (ITBI).
State and Municipal Governments have full autonomy to define their tax bases and rates. States also share 25 percent of
the ICMS and 50 percent of the IPVA with Municipalities.
To provide public services, Subnational Governments receive intergovernmental transfers. Brazil’s Federal Government
shares its tax revenues with States and Municipalities through two general-purpose unconditional transfer funds,
respectively the FPE (Fundo de Participação dos Estados e do Distrito Federal) and the FPM (Fundo de Participação dos
Municípios). These are constitutionally mandated, and their allocation is based on demographic factors, with less
developed States and Municipalities receiving higher per capita allocations. As a result, these funds are the predominant
source of revenue for poorer States, and poor rural Municipalities. Brazil’s Federal Government also provides specific
transfers for education (FUNDEB) and health care (SUS), as well as capital transfers for specific programs.
Fiscal rules for Subnational Governments are enshrined in the 2000 Fiscal Responsibility Law (LRF— Lei de
Responsabilidade Fiscal). With a view to reducing moral hazards in intergovernmental fiscal relations, the LRF explicitly
prohibits debt refinancing operations between different levels of government. Complementary Senate resolutions also
prohibit subnational borrowing if certain fiscal thresholds are not respected. The recent subnational fiscal crisis made it
evident that the LRF and State-federal fiscal adjustment programs (PAFs) need strengthening. In response, Brazil’s Federal
Government approved: (i) a Fiscal Recuperation Regime for bankrupt States (LC 159/2017); and (ii) debt amortization
extensions for States facing liquidity problems (LC 156/2016), conditional on fiscal adjustment measures. Following the
tendency of improvement of the intergovernmental fiscal relations, Congress modified and approved fiscal rules to
support fiscal adjustment at Subnational Governments (LC 178/2021). The main innovations of this law are: (i) the
improvement of the FRR by changing LC 159/2017; (ii) creation of the Fiscal Equilibrium Plan (FEP), which was designed to
support the adjustment of Subnational Governments with limited debt, but that were facing liquidity problems; (iii)
clarified the definition of some limits of the Fiscal Responsibility Law, such as the one for personnel spending.
Subnational Governments’ borrowing capacity is tightly regulated, and States and Municipalities cannot issue debt
securities. Much of the stock of subnational debt is in the form of long-maturity debt with Brazil’s Federal Government as
part of a 1997 bailout and is governed by State-federal fiscal adjustment programs (PAFs). Since 2016, the repayment
conditions for these loans have been restructured, lowering near-term payments required from States. Subnational
Governments also have significant debts with public banks (BNDES, Banco do Brasil, and CEF), multilateral lenders (mostly
IBRD and IADB), bilateral development partners, and, occasionally, commercial banks. Brazil’s Federal Government’s
system for authorizing federally guaranteed subnational debts (CAPAG) was reviewed in 2017, with technical assistance
from the WB, limiting federal discretion and requiring adequate fiscal space (measured by the current savings rate) from
Subnational Governments to qualify for federal guarantees.
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States and Municipalities cannot issue debt securities directly, they require federal guarantees. The creditworthiness
scoring system (CAPAG) is conducted by the Federal Treasury (STN) for federally guaranteed subnational borrowing. The
STN assesses three different indicators: (i) indebtedness; (ii) current savings; and (iii) liquidity. Depending on the
combination of the evaluation of these indicators, each Subnational Government will receive a score between A and D. To
have borrowing access with federal guarantees, the SNG must have a CAPAG A or B score (those are the creditworthy
SNGs).
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ANNEX 9: DPF PRIOR ACTIONS AND ANALYTICAL UNDERPINNINGS
Table 6: DPF Prior Actions and Analytical Underpinnings
Prior
Analytical Underpinnings
Actions
Pillar 1: To improve efficiency in public resource management
World Bank. Reference Guide for Climate-Smart Public Investment, 2022.
https://elibrary.worldbank.org/doi/abs/10.1596/38390
The report assesses the current PIM adaption and mitigation measures adopted in different degrees of maturity throughout
the world, including preparation, appraisal, and project execution potential activities with CCB.
Ministério da Economia. Estruturação de Propostas de Investimentos em Infraestrutura – Modelo de Cinco Dimensões,
2022. https://www.gov.br/produtividade-e-comercio-exterior/pt-br/choque-de-investimento-privado/modelo-de-cinco-
dimensoes/guia-modelo-de-cinco-dimensoes.pdf/view
The framework encompasses the adaptation of the UK PIM methodology to the Brazilian Federal Government, detailing the
PA#1 project cycle and toolkits that can be adapted to subnational entities.
Ministério da Economia. Secretaria Especial de Produtividade e Competitividade. Secretaria de Desenvolvimento da
Infraestrutura. Guia Geral de análise socioeconômica de custo-benefício de projetos de investimento em infraestrutura,
2021.
https://www.gov.br/casacivil/pt-br/assuntos/governanca/comite-interministerial-de-governanca/arquivos/guia-geral-de-
analise-socioeconomica-de-custo-beneficio.pdf
The cited reports proved valuable in facilitating the intuitive and visually coherent organization of key points pertaining to
climate smart PIM. It also played a pivotal role in aiding the adaptation of international best practices to the specific context
of subnational governments in Brazil, considering their attributions and limited budget flexibility.
IMF. Unlocking Public Wealth, 2018.
https://www.imf.org/en/Publications/fandd/issues/2018/03/detterhttps://www.imf.org/en/Publications/fandd/issues/2018
/03/ eter
The publication illustrates the guidance for an updated asset map, including the stages of mapping, cataloguing, and
effectively registering real estate assets, as reflected in Ceará new legal framework.
World Bank. Case Study – FONSIS: Pursuing a Tripple Bottom Line of Economic Impact, Financial Returns, and Private Capital
Mobilization
PA#2 https://elibrary.worldbank.org/doi/10.1596/978-1-4648-1870-7_ch9https://elibrary.worldbank.org/doi/10.1596/978-1-
4648-1870-7_ch9
The case study helped the State to enhance CearaPar mandate, by describing a step-by-step process to strategically turn real
estate assets into increased State’s revenue.
World Bank. Real Estate Registration Project – Additional Financing (P169463).
The referenced project was very significant in informing the provisions specified in the State decree. It also contributed to
the validation of the outlined State’s asset management strategy, as well as its dissemination among other subnational
governments.
World Bank. National Internal Control Assessment based on COSO and IA-CM, 2020.
https://documentsinternal.worldbank.org/search/33253600
The report assesses the current internal control capacities and arrangements in place thought out Brazil, based on compliance
PA#3
with international accounting and auditing standards, to set a Baseline and identify specific action plans reforms for each of
the state and municipalities participating, including potential political, social, and economic factors associated to an effective
internal control system.
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The Institute of Internal Auditors. The IIA’s three-line model an update of the three lines of Defense.
https://www.theiia.org/globalassets/documents/resources/the-iias-three-lines-model-an-update-of-the-three-lines-of-
defense-july-2020/three-lines-model-updated-english.pdf and Leveraging COSO across the three lines of Defense.
https://riskcue.id/uploads/ebook/20211013105542-2021-10-13ebook105459.pdf
The references help the State to enhance their overall governance structures by providing guidance on how to articulate and
assign specific roles and responsibilities regarding internal control by relating the COSO Internal Control — Integrated
Framework1 to the Three Lines of Defense.
Pillar 2: Strengthening the enabling environment to scale up clean energy production
International Energy Agency. Net Zero by 2050 – A Roadmap for the Global Energy Sector.
https://iea.blob.core.windows.net/assets/deebef5d-0c34-4539-9d0c-10b13d840027/NetZeroby2050-
ARoadmapfortheGlobalEnergySector_CORR.pdf
This report provides analytical evidence and guidance about the urgency and challenges for decarbonizing the energy sector,
including the transition from fossil fuels to renewable energy.
Center for American progress. The Pathway to Industrial Decarbonization. https://www.americanprogress.org/article/the-
PA#4
pathway-to-industrial-decarbonization/
This report serves a reference for the urgent need to develop and energy balance and GHG emissions in the CIPP in order the
State of Ceará to meet its decarbonization goals.
These reports provide analytical evidence to support a just transition away from fossil fuels towards cleaner fuels.
Brazil CCDR: Brazil - Country Climate and Development Report (English). Washington, D.C.: World Bank Group. This report
provides evidence of the unique economic benefits that Brazil can reap by decarbonizing its energy sector.
World Resources Institute. How Community Solar Can Benefit Low- and Moderate-Income Customers, 2022.
https://www.wri.org/insights/community-solar-low-income-customers
Using Distributable Renewable Energy to Create a Just Energy Transition: https://www.esi-africa.com/energy-
efficiency/using-distributed-renewable-energy-to-create-a-just-energy-transition/
PA#5 These two reports serve as a reference to the State in the designing of the Renda do Sol program to bring the benefits of the
State’s abundant renewable energy resource to its low income and vulnerable citizens.
How Distributed Energy Resources Can Improve Resilience in Public Buildings:
https://www.energy.gov/sites/prod/files/2019/09/f66/distributed-energy-resilience-public-buildings.pdf
This report serves as a reference to the State in the designing the DG systems on its public buildings.
Enabling Framework for Renewables: https://energy.ec.europa.eu/topics/renewable-energy/enabling-framework-
renewables_en
This report demonstrates the importance of streamlined permitting in the overall enabling environment for scaling up of
renewable energy.
PA#6 World Economic Forum. Speeding up renewable energy – bottlenecks and how you resolve them.
https://www.weforum.org/agenda/2023/01/speeding-up-sustainable-energy-bottlenecks-and-how-you-resolve-them-
davos2023/
This paper provides lessons learned from Europe and India on effectively streamlining permitting processes for renewable
energy to enable the scale-up required to meet global decarbonization objectives.
World Bank. 2022. Building a Responsive and Resilient Vocational Education and Training System in Benin. Washington, DC.
https://openknowledge.worldbank.org/entities/publication/b1e9fe6d-ca8f-53da-8e00-ab1b80207802 License: CC BY 3.0
IGO
PA#7
The policy note provides a broader analysis on TVET global trends, including technological advances, climate change,
structural challenges, and gender inequality based on Benin TEVT system example. The policy note provides key
recommendations on how to design TVET reform considering governance, financing, and quality assurance factors.
Hallegatte, Stephane; Rentschler, Jun; Rozenberg, Julie. 2019. Lifelines: The Resilient Infrastructure Opportunity. Sustainable
Infrastructure. Washington, DC: World Bank. © World Bank.
PA#8
https://documents1.worldbank.org/curated/en/111181560974989791/pdf/Lifelines-The-Resilient-Infrastructure-
Opportunity.pdf
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The World Bank
BR State of Ceará Sustainable DPF (P180497)
The report provides a broader analysis on the design and improvement of school environments to support learning recovery
and acceleration and aims at increasing resilience to future crises and climate change impacts, including information on
disaster risk and climate vulnerability. The report also provides recommendations on support green, climate-resilient,
inclusive, and safe school interventions with the construction of energy-efficient solutions, access to water supply and waste
management systems. Alfaro, P., Evans, D. & Holland, P. (2015). Extending the School Day in Latin America and the Caribbean.
Policy Research Working Paper; Washington DC: World Bank. https://elibrary.worldbank.org/doi/abs/10.1596/1813-9450-
7309
The paper reviews 15 studies measuring the effects of longer school days examines and provides one detailed case study
and cost-effectiveness exercise (for Uruguay) and provides an evidence-based discussion of the implications for policy
makers and practitioners considering an extension of the school day.
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