Colombia - Third Telecommunications Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 3697 PROJECT PERFORMANCE AUDIT REPORT COLOMBIA: THIRD TELECOMMUNICATIONS PROJECT (LOAN 1073-CO) November 25, 1981 Operations Evaluation Department 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. 奮 FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT COLONIIA: THIRD TELECOMMUNICATIONS PROJECT (LOAN 1073-CO) Table of Contents Page No. Preface ........................................................ Project Performance Audit Basic Data Sheet ..................... ii Highlights ..................................................... iv PROJECT PERFORMANCE AUDIT MEMORANDUM I. Project Summary .......................................... 1 11. Supplementary Comments ................................... 3 Demand Forecasting ............................... 3 Financial Performance ............................ 4 Project Cost ........................................... 5 Supervision ............................................ 6 III. Conclusions ........................... o .................. 6 Appendix: Comments received from the Borrower ................ 7 ATTACHMENT: PROJECT COMPLETION REPORT 1. Introduction .................................. o ............. 9 2. Project Preparation and Appraisal.....- ................... 10 3. Project Implementation .............. o ....................... 12 4. Operating Performance ..................................... o. 16 5. Financial Performance .............. oo ........ o .............. 16 6. Institutional Performance ..................... o ............. 21 7. Economic Reevaluation ................... o ................... 22 8. Bank Performance. .......... o ................................ 24 9. Conclusions ................................................. 25 Annexes 1. Procurement Review .......................................... 26 2. Physical Program (1975-80) ................................. o 27 Changes in Project Items ................................... 42 Long Distance Exchanges .................................... 43 3. Appraisal/Actual Costs .................................... o. 46 4. Income Statements ............................... oo .......... 47 5. Computation of Revalued Asset Value and Depreciation ........ 48 6. Balance Sheets .............................................. 49 7. Funds Flow Statements ....................................... 50 8. Accounts Receivable Position ................................ 51 9. Return on Investment ........................................ 52 10. Compliance with Covenants ................... o ............ - 54 This document has a restricted distribution and may be used by recipients only in the performance of on. their official duties. Its contents may not otherwise be disclosed without World Bank authorizati d 괘 - i - PROJECT PERFORMANCE AUDIT REPORT COLOMBIA. THIRD TELECOMMUNICATIONS PROJECT (LOAN 1073-CO) PREFACE This report presents the results of a performance audit of Colom- bia's Third Telecommunications Project, for which a loan of US 15.0 million was made to Empresa Nacional de Telecomunicaciones (TELECOM)l . The loan was signed in January 1975, became effective in April 1975 and was closed in June 1980. The Project Performance Audit Report (PPAR) consists of a Project Performance Audit Memorandum (PPAM) prepared by the Operations Evaluation Department (OED), and a Project Completion Report (PCR) prepared by the Central Projects Staff (TWT Department). The PCR was based upon a project completion mission, which visited Colombia in December, 1980. OED staff have reviewed the PCR against the Appraisal Report, President's Report, the loan documents, the Minutes of the Board discussions and other documents in Bank files, and discussed the project with Bank staff. The PPAM is in agreement with the general analysis and conclusions of the PCR although, in addition to providing a brief summary of the project experience, supplementary comments are made on the following points of interest: demand forecasting, financial performance, project cost and supervision. Following normal OED procedures, a draft copy of this report was sent to the Government and TELECOM for comments. The comments which were received have been taken into account in finalizing the report and are re- produced as an appendix to the PPAM. l/ Project Performance Audit Reports have been prepared for the two previous telecommunications projects, financed by Loan 499-CO and Loan 740-CO (see Report No. 1232, dated July 19, 1976 and Report No. 2524, dated May 29, 1979, respectively). j 徊 PROJECT PERFORMANCE AUDIT BASIC DATA SHEET COLOMBIA: THIRD TELECOMMUNICATIONS PROJECT (LOAN 1073-CO) KEY PROJECT DATA Appraisal Actual or Item Estimate Current Estimate Total Project Cost: Local Component (Col$ million) 566.5 616.8 _a Foreign Component (US$ million) 33.5 41.2 Cost Overrun Local Component 9.0 Foreign Component 23.0 Loan Amount (US$ million) 15.0 15.0 Disbursed 15.0 15.0 Cancelled - - Date Physical Components Completed 03/78 12/82-/-b Proportion Completed by Apppraisal Target Date M 100 4CLC Proportion of Time Overrun - 127 Incremental Financial Rate of Return 27.0 19.6 Financial Performance - Good Institutional Performance Fair d /a Since TELECOM has no accurate records of local expenditure and the time of its occurrence, and since the Col$ vs. US$ exchange rate has changed regularly, a meaningful conversion of local expenditure to US$ is not possible. Hence, total actual cost in US$ cannot be computed. However, for the purpose of obtaining an approximate estimate of the total project cos't in US$, if the estimated actual local costs are converted at the average exchange rate prevailing over the project period, the total project cost would be about US$57.8 million compared to US$52.1 million estimated at appraisal, i.e. an overrun of 11%. /b The project started in June 1974 and most of the physical components were completed and earning revenues by December 1979. However, some of the UHF and VHF systems in the rural areas are expected to be completed only in December 1982 (PPAM para. 3 and PCR para. 3.03 and Annex 2, pages 6 and 13). Hence, the total construction period (June 1974-December 1982) is expected to be 102 months compared with 45 months expected at apprai- sal, i.e. an overrun of 127%. It is not clear how the Borrower calcu- lated a time overrun of about 40% (see Appendix), but presumably refers only to the date (December 1979) when all the subscribers connections were made (PPAM para. 3). /c The proportion cannot be mathematically worked out in telecommunications projects because of the large number of component works. This figure is /d The Borrower has expressed the view that a "fair" rating on institutional performance would not have permitted a 19.6% incremental financial rate of return (IFRR) instead of the 11% stipulated in the Loan Agreement (Appendix). While the IFRR calculation refers to the costs and revenues attributable to the project -- or at least a relevant time slice of the total investment program of which the project forms a part -- and Section 5.05(a) of the Loan Agreement refers to TELECOM's rate of return on revalued net fixed assets, it is indeed true that TELECOM's financial performance was good over the project period, as the audit recognizes (PPAM paras. 5 and 12), and the rate of return on revalued net fixed assets consistently exceeded the covenanted 11%, usually by a substantial margin (PCR paras. 5.01-5.04). However, in view of the construction delays and the disappointing progress made in regard to the decentaliza- tion of authorities to regional headquarters and the budget and cost accounting system, it was judged that the overall institutional per- formance was not as good as expected at appraisal (PPAM paras. 7, 21 and PCR paras. 6.01-6.05). - iii - Cumulative and Actual Disbursements (US$ million) As of June 30 1975 1976 1977 1978 1979 1980 (i) Appraisal Estimate 0.9 4.9 11.3 14.4 15.0 15.0 (ii) Actual 0.2 4.0 8.9 13.0 14.0 15.0 (ii) as % of (i) 22 82 79 90 93 100 OTHER PROJECT DATA Original Plan Revisions Actual First Mention in Files or Timetable - - 09/14/73 Government's Application - - 12/13/73 Negotiations - - 10/12/74 Board Approval Date - - 01/14/75 Loan Agreement Date - - 01/16/75 Effectiveness Date - - 04/14/75 Closing Date 12/31/78 06/30/79 06/30/80 Borrower Empresa Nacional de Telecomunicaciones (TELECOM) Executing Agency Empresa Nacional de Telecomunicaciones (TELECOM) Fiscal Year of Borrower January 1 - December 31 Follow-on Project Name Telecommunications Development Loan Number 1450-CO Amount (US$ million) 60.0 Loan Agreement Date 07/07/77 MISSION DATA Month/ No. of No. of Man- Date of Item Year Weeks Persons w2eks Report Appraisal 11/73 4.1 2 8.2 Update I 02/74 0.9 2 1.8 Update II 11/74 1.1 ) 1 ) 0.7 1 ) 1.8 12/27/74 0.7 )1) Total 11.8 Supervision I 08/75 2.0 2 4.0 09/08/75 Supervision II 11/75 2.0 2 4.0 04/01/76 Supervision III 06/76 0.7 1 0.7 07/02/76 Supervision IV 06/78 2.7 2 5.4 06/22/78 Supervision V 03/79 2.1 2 4.2 03/21/79 Supervision VI 06/80 1.6 2 3.2 06/20/80 Completion 12/80 1.0 2 2.0 01/30/80 Total 23.5 COUNTRY EXCHANGE RATES Name of Currency (Abbreviation) Colombian Peso (Col$) Year: Appraisal 1974 Exchange Rate: US$1 = Col$26.00 1975 US$1 = Col$31.20 1976 US$1 = Col$34.90 1977 US$1 = Col$36.59 1978 US$1 = Col$38.99 1979 US$1 = Col$42.70 Completion 1980 (December 1, 1980) US$1 = Col$50.37 - iv - PROJECT PERFORMANCE AUDIT REPORT COLOMBIA: THIRD TELECOMMUNICATIONS PROJECT (LOAN 1073-CO) HIGHLIGHTS The project formed the first phase of the 1974-1980 development program of Empresa Nacional de Telecomunicaciones (TELECOM). Some revisions of the project were necessary during the implementation period due to changes in demand and in traffic flow on long distance routes, and due to the develop- ment of electronic exchanges. The objectives of the project were largely met through the provision of an extended long distance network, telex facilities and expanded service into rural areas and also through institutional im- provements within TELECOM. In addition, the Bank has continued to encourage integration of the sector, which eventually should result in improved effi- ciency, elimination of standardization problems, reduced cost and improved standards of service. In its function as the long distance carrier, TELECOM is sub- stantially dependent on the independent telephone entities who operate the local services and collect the long distance call charges on behalf of TELECOM. The difficulties experienced by TELECOM in collecting revenues from these local entities as well as from the Government remain a matter of major concern. The following points are of special interest: - the underestimation of demand points to the need for improved forecasts (PPAM paras. 10-11 and PCR para. 9.01); - difficulties involved in estimating final project costs reflect the lack of an effective project budget system and point to the need for an improved accounting and internal control system for the recording of project-related financial transactions (PPAM paras. 4, 18-19 and PCR para. 3.05); - to resolve the problem of high accounts receivable, the Bank should seek a commitment from the Government to provide TELECOM with the necessary authority to collect any outstanding revenues from the local companies and to disconnect Government subscribers for nonpayment of service (PPAM paras. 13-17 and PCR paras. 5.09-5.10); - more frequent supervision to advise the Borrower on speeding up project implementation and in financial matters would have been valuable (PPAM para. 20 and PCR para. 8.02); and - the objective of continuing to integrate and consolidate the sector has been met under this project (PPAM paras. 7 and 21, and PCR paras. 1.01 and 9.04).  PROJECT PERFORMANCE AUDIT MEMORANDUM COLOMBIA: THIRD TELECOMMUNICATIONS PROJECT (LOAN 1073-CO) I. PROJECT SUMMARY 1. Loan 1073-CO of US$15.0 million was made to assist in financing the first phase (1974-1978) of TELECOM's 1974-1980 telecommunications develop- ment program. The project consisted of: the installation of 17,825 additional lines of switching equipment, cables and subscribers plant to add about 16,000 new subscribers; telephone facilities for about 200 rural areas; long distance systems and equipment for 5,400 additional circuits; and installation of six teleprinter exchanges with a total of 2,150 subscriber lines (PCR para. 2.03). The project was scheduled for completion in March 1978. 2. The estimated cost of the project was US$52.1 million with a foreign exchange component of US$33.5 million equivalent. The Bank loan was intended to cover about 45% of the foreign exchange component while the balance, US$18.5 million, was to be financed through TELECOM's own resources. 3. The project was implemented as designed, except for some changes in exchange capacities and locations due to changes in demand (PCR para. 3.02 and Annex 2, Attachment 1, paras. 1-7). About 14,200 lines of exchange equipment (80% of target) were commissioned by March 1978, the original completion date, an additional 3,225 lines by December 1979, and the installation of the remaining 400 lines is expected to be completed by July 1981. The delays were largely due to difficulty in acquiring land and in building construction (PCR Annex 2, Attachment 2, para. 8). By December 1979, about 16,000 additional subscribers connections were made, the same as estimated for March 1978, the original completion date, but at the same time the recorded unmet demand increased to about 38,000 (PPAM paras. 10-11 and PCR para. 4.01). The expan- sion of service into rural areas exceeded that provided for at appraisal and by December 1980, 297 locations were provided service (PCR Annex 2, pages 26-33 and page 34, para. 7). Additionally, about 5,200 long distance circuits were commissioned. Only one teleprinter exchange was installed under the project, but this was designed to provide service at the five other cities utilizing VFT channels (the number of the latter was consequently increased). It was found that, with the development of electronic exchanges, the provision of one central telex exchange became the least cost solution. 4. The final cost of the project, according to figures furnished by TELECOM, was Col$616.8 million for the local component of the project as compared to Col$566.8 million estimated at appraisal, and US$41.2 million equivalent for the foreign component of the project as compared to the original estimate of US$33.5 million equivalent. Reasons for variations - 2 - between actual and estimated foreign costs are analyzed in the PCR (para. 3.06). Since TELECOM has no separate records of local expenditure for the project, it is not possible to analyze the difference between actual and estimated local costs (PCR para. 3.05 and PPAM paras. 18-19).1/ 5. The financial operating results were good. The rate of return on average net revalued assets consistently exceeded the covenanted figure (11%) -- usually by a substantial margin -- and the operating ratio during the project period averaged about 81% compared with 84% estimated at appraisal.2! Over the 1974-80 period, although the value of net fixed assets quadrupled, TELECOM was able to meet about 76% of its requirements of funds through internal cash generation compared with 69% forecast (PPAM para. 12 and PCR paras. 5.01-5.08). The good financial performance was largely due to adequate tariff increases, to cover increases in operating costs under conditions of rapid inflation, and to the increase in traffic which resulted from the expanded investment. 6. The financial covenants were met except those relating to timely submission of audited accounts (PCR para. 5.14) and the settlement of tele- phone bills by the Government (PCR para. 5.09 and Annex 10). TELECOM's poor collection performance has persisted since the Bank's first involve- ment in the sector in spite of numerous efforts by the Bank to encourage TELECOM and the Government to correct the position. The problem does not lend itself to easy resolution, for the reasons outlined in paras. 13-17. 7. An important objective in lending to TELECOM was to continue the integration and consolidation of the sector (which had started under the previous loans), with consequent improved efficiency resulting from stan- dardization, reduced cost and improved standards of service. Telecommunica- tions service in Colombia is presently provided by 32 entities compared to 54 at appraisal. Integration of the sector is proceeding further, with Bank encouragement, although more slowly than expected at appraisal. While there was steady improvement on the institutional side of TELECOM during the earlier years of the project period, there is a need for accelerating the decentral- ization of authorities to regional headquarters which began under the second project (PCR para. 6.05). There is also a need for further advice and as- sistance in developing a budget and cost accounting system. These matters need close attention and should be remedied under the on-going fourth project. 8. The Bank's handling of the project has been satisfactory. It has provided useful advice and assistance to TELECOM during project execution, although more frequent supervision toward the latter part of the implemen- tation period would have been desirable (PPAM para. 20). The performance of TELECOM and the working relationship with the Bank have been good (PCR para. 8.03). TELECOM has developed a capacity to carry out projects without the help of consultants (PCR para. 3.11) and has had no problems in recruiting staff (PCR para. 6.08). 1/ The total actual cost is roughly estimated at US$57.8 million, i.e. 11% more than the appraisal estimate. See Basic Data Sheet. 2/ Under the fourth project, the rate of return requirement was raised to 16% up to 1980; this too has been met. - 3 - 9. The major objectives of this project have been met and the project design satisfied least-cost technical criteria. Local facilities in rural areas were successfully expanded while long distance and telex facilities were extended and improved. Growth in demand was, however, underestimated -- a frequent tendency where there is supressed demand. The incremental financial rate of return on the project has been recalculated at about 20% compared to 27% at appraisal (PCR para. 7.04). The lower rate of return is due to in- creased construction costs over a longer construction period and some delay in obtaining the financial benefits. II. SUPPLEMENTARY COMMENTS Demand Forecasting 10. During the Bank's involvement in Colombia's telecommunications sector, the demand for connections has always exceeded expectations. When the second Bank project was appraised in 1970, the unfilled demand was about 3,500 and future total demandl/ was expected to grow at a rate of about 12% annually; in the event, the growth in demand was about 14%, so that by the time the third project was appraised in 1974, the unfilled demand was estimated at about 17,000. For the period of the third project, TELECOM forecast a 10% annual growth in total demand up to 1978, and an 8% growth thereafter up to 1980. The forecast was based on the existing sub- scribers lines, unfilled demand, the past growth and the commercial importance of the areas in which each exchange was located. The project was however not expected to meet the current unfilled demand in some exchange areas during the estimated project period (1974-78). The unfilled and future demands up to 1980 were only expected to be met when the second phase (1978-80) of TELECOM's development program (1974-80) was completed. By the end of 1979, equipment and cables for about 17,400 lines in new and existing exchanges had been installed under this project and about 16,000 subscribers connections had been made, but the recorded unfilled demand had increased to about 38,000 (PCR para. 4.01). TELECOM's inability to meet the demand for new connections has resulted in excessive traffic on some of the connected lines, leading to congestion and a deterioration of service quality in some areas. 11. It is difficult to forecast demand in areas where inadequate or no service is available. However, the large unfilled demand, which is detrimental to both standards of service and economic efficiency, raises the question whether, at the time of project preparation, the survey of telephone demand and growth trends should have been made more thoroughly. The PCR properly concludes that when estimating demand for connections, considera- tion should be given to supressed and unrecorded demands in new areas and growth trends adopted should be higher than those based on past experience (PCR para. 9.01). It may be added that planned development aimed at reducing the large gap between supply and demand within a reasonable period of time would offer a potential for economies of scale in the procurement and instal- lation of equipment. 1/ Subscribers plus waiting list. 2/ See PPAR on Second Telecommunications Project (Loan 740-CO), Report No. 2524, dated May 29, 1979. -4- Financial Performance 12. TELECOM's financial performance has been good during the imple- mentation of this project. The rate of return covenant of 11% on revalued assets was easily met each year, reflecting adequate tariff increases to cover the rapid increases in operating costs due to inflation in the country. The operating ratio averaged about 81% compared with the appraisal estimate of 84% and TELECOM was able to finance about 76% of its capital expenditure from net internal cash generation as compared to the original estimate of 69%. The debt/equity ratio and debt service coverage were satisfactory and TELECOM complied with the covenant requiring it to establish accounting procedures to reflect its pension liabilities and the funds allocated to acquire new companies (PCR paras. 5.01-5.08 and Annex 10). 13. A serious problem which does not lend itself to an easy reso- lution is TELECOM-s high accounts receivable position.1/ This has been a constant source of concern since the Bank first started lending to the sector. At the time of appraisal of the third project, the outstanding accounts represented about 3.7 months of revenues and increased to about 5 months by the end of 1980. 14. In addition to its own local telephone services, TELECOM has the exclusive license to provide national telegraph, telex and long distance services and all international telecommunications services. Its billing arrangements for these services are complex. The company bills subscribers directly for telex and telegraph traffic. In the case of automatic long- distance telephone traffic, TELECOM bills the connecting local enterprises monthly for the total of the traffic originated by their subscribers. In the case of operator-dialed long distance telephone traffic, TELECOM bills the lo- cal enterprise monthly by submitting details of the calls for each subscriber. 15. TELECOM has had difficulties in collecting from the public sector and the connecting local telephone enterprises, the latter group using the funds in hand to help themselves out of a tight cash situation. Although TELECOM follows normal disconnection procedures for its local service to private subscribers, the company has been reluctant to disconnect the government subscribers. Furthermore, TELECOM would face difficulties in discontinuing long-distance services for the local companies as such suspen- sion of service would affect all subscribers, including essential services. It would also be inequitable as the individual subscibers will generally have paid the local company for their long distance calls. 16. The Bank has made numerous representations to TELECOM about resolving the accounts receivable problem and discussed the subject at the highest levels of Government. During the negotiations for this loan, it was agreed that the Government would use its best efforts to make due and punctual payments with regard to its own agencies and ensure that the local telephone 1/ This was also discussed in the PPAR on the Second Telecommunications Project (Loan 740-CO), Report No. 2524 dated May 29, 1979. - 5 - enterprises also paid their bills promptly. This covenant was repeated under the fourth loan to TELECOM; furthermore, a detailed plan was to be prepared by November 1977 and agreed upon with the Government and the Bank, whereby timely collection of past arrears and all future accounts for servi- ces rendered would be ensured. An initial draft of the plan was submitted to the Bank for review in October 1977 but has yet to be finalized by the Govern- ment. The problem has since been the subject of discussion and correspondence with TELECOM and is still being pursued. 17. Although TELECOM has been able, in cases where they are taking over local services, to adjust the purchasing price of the local companies against their outstanding balances with TELECOM, no significant improvements in TELECOM-s accounts receivable position have been achieved (PCR para. 5.09). The Bank should seek to obtain a commitment from the Government that it would take the required action to provide TELECOM with the necessary authority to (i) collect any outstanding revenues from the local companies, and (ii) disconnect Government subscribers (with few exceptions) for non- payment of service. Furthermore, payment of arrears of Government accounts and those of local companies should be effected prior to the consideration of any future loan to TELECOM. Project Cost 18. The final cost of the project is difficult to analyze as TELECOM did not maintain separate expenditure accounts for project and non-project works in its 1974-80 development program. However, the PCR has been able to examine the variations in the foreign costs of the project based on con- tracts signed with the suppliers. With regard to the local costs, an attempt was made to estimate the actual expenditures for the project at the time of completion, but the figures could not be relied upon (PCR para. 3.05). 19. Article 3.03(b) of the Loan Agreement requires the Borrower to maintain records adequate to record the progress of the project, including the cost thereof. Progress reports of the project were regularly sent to the Bank, although with some delay, but did not include reliable figures for the local expenditures. During the implementation of this project, TELECOM has been handicapped by the lack of an effective project budget system to enable it to monitor project costs against estimated costs. Since expenditure control on each project component is desirable, it would have been useful if the Bank at the very beginning of the project -- preferably at appraisal but certainly not later than the first supervision mission -- could have discussed with the Borrower the importance of maintaining records which would indicate, at any time, the actual expenditures and any reasons for variations from estimated costs. If this work is not carried out when the expenditure is incurred, it becomes increasingly difficult, as was the case in this project, to obtain correct actual expenditure figures on completion of the work. In fact, with effect from FY82, Bank staff are required in all projects to confirm, at the time of appraisal, that an adequate acccounting and in- ternal control system exists for the recording and reporting of project- related financial transactions or will exist by the time that project ex- penditures commence. -6- Supervision 20. The supervision effort exerted under the loan may not have been as adequate as the PCR appears to indicate (PCR para. 8.02). Prior to the appraisal of the fourth telecommunications project in early 1977, supervi- sion missions took place with an average interval of about six months. This appears to have been adequate considering the efficient start-up of the project (PCR para. 3.01). However, after the fourth project was approved, supervision missions averaged only one per year. Given the problems facing the entity during the latter part of the project implementation period, it appears that more frequent supervision to advise the Borrower on speeding up the implementation of the project1/ and on financial matters (PCR paras. 6.01 and 9.02) would have been extremely valuable.-2 Although there was a lack of continuity of the Bank's financial analysts associated with the project, due to staff and organization changes, additional financial super- vision could have helped TELECOM to improve its cost and expenditure control. III. CONCLUSIONS 21. The project has made a major contribution to the economy of Colombia by providing extended long distance network and telex facilities. It has also greatly expanded service into rural areas. The quality of service has, however, deteriorated in some areas due to a large demand that could not be met. The project has been important in continuing to move the sector towards a more integrated structure. While there was significant institutional development within TELECOM during the earlier years of the project period, further organizational improvements are needed. The diffi- culties in collecting revenues for services'rendered still remain a matter for serious concern. 1/ In the view of the region, more frequent supervision would not have helped to reduce that part of the implementation delay which was due to dif- ficulties with procurement. 2/ The PPAR for the Second Telecommunications Project (Loan 740-CO) also concluded that more frequent supervision would have been desirable. - 7 - APPENDIX PROJECT PERFORMANCE AUDIT REPORT COLOMBIA: THIRD TELECOMMUNICATIONS PROJECT (LOAN 1073-CO) COMMENTS FROM BORROWER EMPRESA NACIONAL DE TELECOMUNICACIONES The President bogeta, Celembia 001000-alge Mr. Shiv S. Kapur I3oBets, Septesber 23, 191 Director, ODerations Evaluation Department World Bpnk Washington, D.C. Ref: Performance Audit Report Colombia - Third Telecommunications Project (Loan 1073-CO) Dear Mr. Kapur: In reply to your kind letter of August 4, 1981, informing us of your department's functions and renuesting our views on the subject draft report, please be advised as follows: 1. Annex 2, Attachment 1 explains changes in the project items, with which we concur. However, we do not see why a "Proportion of Time Overrun (0/o of 127 o/o is shown on page ii of the PPAR. We would put the figure at about 40 0/0. 2. We also believe that a management rated "FAIR" in "Institutional Pefomrance" could not have achieved an "Incremental Financial Rate of Return (o/o)" of 19.6 o/o, which exceeds the 11 O/o stipulated in Section 5.05 (a) of Loan Agreement 1073-00. We hope that the foregoing comments will be taken into account when the final version of the report is prepared. Sincerely yours, L.S. /s/ GUILBERM SAGRA SERRANO Empresa Nacional President de Telecomunicaciones President CC: Office of International Credits General Files  ATTACHMENT COLOMBIA, DPRESA NACIONAL'DE TELECOMUNICACIONES (TELECOM) LOAN 1073-CO COMPLETION REPORT 1. INTRODUCTION 1.01 Telecommunications service in Colombia is provided by 32 entities, of which 31 are responsible for local telephone operations in different places; and one, Empresa Nacional de Telecomunicaciones (TELECOM) is res- ponsible for the operation of national long distance telephone, telegraph and telex services, international telecommunications services, and some local telephone services. The 31 local telephone entities are operated by municipal and state governments, while TELECOM (the Borrower) is an autonomous entity operated under the overall supervision of the Colombian Government, 1.02 The Bank has been continuously associated since 1967 with TELECOM's operations within the telecommunications sector in Colombia. In June 1967, the Bank approved a US$16 million loan (499-CO) to help finance a project to establish a modern long distance network and to expand and improve the national and international network. The project has been satisfactorily completed. In May 1971, a second Bank loan (740-CO) for US$15 million was approved to help finance a project for the installation of new local net- works; for the extension of long distance facilities; and for retention of accounting consultants for improvement of budgeting, costing and plant accounting. The second project continued the institution building efforts initiated under the first loan. The project was estimated to cost US$32.4 million including a foreign exchange expenditure of about US$18.2 million equivalent. The project has been satisfactorily completed. 1.03 In January 1975, a third Bank loan (1073-CO) for US$15 million was approved to help finance a project for the installation of local ex- changes, extension of long distance services, and the installation of teleprinter exchanges and subscriber equipment. This project also con- tinued the institution building efforts initiated in the first and continued in the second loan. The project was estimated to cost US$52.1 million includ- ing a foreign exchange expenditure of US$33.5 million equivalent. This pro- ject is the subject of this completion report. 1.04 In June 1977, Bank approved a fourth Bank loan (1450-CO) for US$60 million to help finance a project for further improvement in the quality of ser- vices, and extension of service to more areas without service. Additionally, the project aimed at expansion and improvement of services in local telephone companies after their acquisition by, and their association with TELECOM, i.e., after TELECOM obtained a major controlling interest in these companies. The project was estimated to cost US$167.7 million including a foreign exchange expenditure of US$101.3 million equivalent. This project is expected to be completed in mid 1984. - 10 - 2. PROJECT PREPARATION AND APPRAISAL Preparation, Appraisal and Negotiations 2.01 In September 1973, TELECOM prepared a feasibility study for the development of telecommunications facilities for the period 1974-80. An appraisal mission visited Colombia in November 1973. Two subsequent visits were made in February and November 1974 to update and complete the appraisal. Negotiations for the loan between the Bank, TELECOM and Colombian Government representatives were held in Bogota during October-December 1974. The Bank's Board of Directors approved the loan on January 14, 1975. The Loan and Guarantee Agreements were signed on January 16, 1975. Project's Objectives in Long-Term Plan 2.02 The project was part of a long-term plan of telecommunications development and was a continuation of the earlier Bank financed projects. Its aim was to meet demands for service in local areas not served by muni- cipalities and state governments, and to provide adequate long distance services. The telex network was planned to be extended and improved. The project also aimed at improving and strengthening the institution to enable it to cope with heavier responsibilities of an expanded future network. Project Description 2.03 The Bank financed project which formed part of TELECOM's (1974-80) telecommunications development program comprised the following: (a) installation of about 43 new local automatic exchanges with a total of about 14,150 lines, and about 3,675 additional lines in 21 existing exchanges; (b) installation of local distribution cables and subscribers' equipment to connect a total of about 16,000 additional sub- scribers; (c) installation of microwave, UHF/VHF radio terminals and mul- tiplex equipment to provide about 5,400 additional long distance circuits; about 10 HF radio systems; and about 30 VHF radio systems to provide telephone services in about 200 rural towns; (d) installation of three new long distance automatic exchanges and additions to existing equipment, with a total of about 17,600 additional terminations; (e) installation of six new teleprinter exchanges with a total of about 2,150 subscriber lines and about 1,350 channel ter- minations; and VFT equipment for about 1,440 channels and about 500 teleprinters; and (f) construction of buildings to house equipment. - 11 - The project was expected to be completed by March 31, 1978. Covenants 2.04 The Loan Agreement provided that the Borrower shall: (a) have its accounts and financial statements for each fiscal year audited in accordance with sound auditing principles consistently applied by independent auditors acceptable to the Bank; and to furnish to the Bank not later than four months after the end of each year (1) certified copies of its financial statements for each year as so audited; and (2) report of such audit (Section 5.02); (b) not incur any debt unless its net revenues for the fiscal year next preceding such incurrence or for a later 12-month period ended prior to such incurrence whichever amount is the greater shall not be less than 1.5 times the maximum debt service requirement for any succeeding fiscal year on all debt including the debt to be incurred (Section 5.04); (c) establish and maintain rates for its services which will provide an annual rate of return of at least 11% on the average current net value of its fixed assets in operation (Section 5.05); (d) until the project is completed, obtain the concurrence of the Bank before committing itself to any capital expenditure not required for the project if the aggregate of such capital expenditure made or to be made in any one fiscal year should exceed an amount equivalent to one million dollars or an amount equivalent to 10% of the aggregate amount of all its capital expenditures made during the preceding fiscal year whichever amount is greater (Section 5.07); and (e) not later than March 31, 1975, establish accounting procedures to reflect in its balance sheet (i) the Borrower's pension liabilities; and (ii) funds allocated by the Borrower for the acquisition of Local Telephone Enterprises (Section 5.08). 2.05 The Guarantee Agreement provided that the Guarantor shall continue to use its best efforts (i) to make and cause each of its agencies and instrumentalities to make due and punctual payment of all its present and future debts to the Borrower; and (ii) to ensure that the Local Telephone Enterprises will make due and punctual payment of all their present and future debts to the Borrower (Section 3.02). 2.06 The covenants were suggested by the Bank to ensure TELECOM's institutional and financial viability during the project period and were accepted by TELECOM with minor modifications. - 12 - 3. PROJECT IMPLEMENTATION Loan Effectiveness and Project Start-up 3.01 The loan became effective on April 14, 1975, about three months after loan signature. Procurement action was initiated during the project processing period, all bid awards reviewed by mid December 1975 and contracts signed at various periods (see Annex 1). The last contract was signed on October 22, 1976. A feature of procurement of this project was that by the time the loan was presented for Board approval, TELECOM had already received offers for 42 new local exchanges, additions to local exchanges, coin box telephones, and VFT equipment. The cost in these offers was used in the estimated costs of the project. The total foreign exchange costs for Bank financed project was about US$41.2 million of which the Bank financed US$15.0 million. Revision of the Project 3.02 Some changes in exchange capacities and locations, and in the number of long distance circuits and the termination locations necessitated by changes in demand and in the traffic flow on long distance routes were made. The changes made in the original project have been incorporated in the final project set out at Annex 2, and the principal changes have been outlined in Attachment 1 to Annex 2. The changes did not cause any sub- stantial difference in project objectives. Implementation Schedule 3.03 The project's completion date was scheduled at appraisal as March 31, 1978. By that date, about 14,200 lines (out of about 17,825) of local exchange equipment; all power plant; all teleprinter equipment; the Bogota long distance exchange; and six (out of the 11) microwave radio equipment, were installed. By the end of 1979, nearly all of the remainder of the project equipment was installed. A few equipment installations were carried over to 1980 and beyond. Annex 2 sets out the installation status as of June 30, 1980. A note on the most important installation delays is set out at Attachment 2 to Annex 2. Procurement 3.04 TELECOM encountered no difficulties in procurement of equipment in accordance with the Bank's guidelines. Costs and Disbursements 3.05 The estimated costs at appraisal time and actual costs as of June 30, 1980 (the loan's closing date) are set out at Annex 3, and are summarized as follows: - 13 - Appraisal Actual ('000) ('000) Loca Forei Le CQli- - USF 0I Forgrn 1. Local exchanges 17,255 5,636 42,701 6,432 2. Cables 62,524 - 143,354 341 3. Telephones 3,240 360 15,000 - 4. Coin boxes 3,646 335 1,148 332 5. Long distance exchanges 59,346 8,716 189,907 16,433 6. Manual boards 540 120 1,950 156 7. Microwave radio 26,340 7,132 89,975 310929 8. Multiplex 10,462 3,280 9. Rural systems 38.116 2,000 19,396 3,087 10. Lands and buildings 133,978 - 74,430 21 11. Telex and teleprinters 1,012 3,344 26,368 2,611 12. VFT equipment - 860 12,543 844 13. Contingencies 210,069 1,697 - - 14. Total project cost 566,528 33,480 616,772 41,186 TELECOM did not maintain separate expenditure accounts for the project and non-project items for works carried out during the project period. TELECOM attempted to work out actual local costs for project works at the time of preparation of the completion report. The mission after discussions with the staff concerned with the preparation of actual cost figures concluded that these figures cannot be relied on. Foreign costs can however be es- tablished fairly accurately because these were taken from individual contracts signed with the suppliers. An in depth analysis of local cost variations cannot, therefore, be accurately made. Overall the increase in actual foreign costs over appraised costs was about 23% higher. Foreign Costs 3.06 The increase of US$796,000 (or 14%) in local exchanges was due to (a) a new exchange of 2,500 lines being installed against one of 1,800 lines; and (b) for procurement of additional standby power plant necessitated after a reappraisal of electric power reliability in some towns. The decrease of US$360,000 (or 100%) for telephones was due to purchase of these units from a local telephone company which owed TELECOM an amount of money for services rendered by TELECOM. The expenditure is shown as part of total local expen- diture. The higher expenditure of US$741,000 (or 45%) in new long distance exchanges was due to higher unit costs (US$743 vs. US$635) and larger number (23%) of terminations ordered. The higher expenditure of US$370,000 (or 14%) for additions to long distance exchanges was due to dollar-Kroner variations. The higher cost of US$6,605,000 (or 247%) for other long distance additions was due to new and higher capacity exchanges being ordered where originally extensions only were proposed. The higher cost of US$1,0 7,000 (or 54%) in rural service equipment was due to higher than anticipated equipment costs - 14 - and about 30 more installations being carried out than proposed. The lower cost of US$733,000 (or 22%) was due to TELECOM utilizing teleprinters in stock and not purchasing any under this project. Disbursements 3.07 The estimated and actual total annual disbursements year by year of the Bank loan were as follows: Accummulated Disbursement Actual Bank (US$ '000) as % of Fiscal Year Appraisal Actual Appraisal 1975 873 241 28 1976 4,854 4,000 82 1977 11,322 8,861 78 1978 14,435 13,000 90 1979 15,000 13,970 93 1980 - 15,000 100 3.08 The slippage in disbursement was cue to celay in finalizing some of the contracts, even though all bid awards were approved by Bank within a year of Board approval. About 90% of the total loan was disbursed by original loan closing date. This compares favorably with 85% of loan disbursements by closing date of the second loan (740-CO). Loan Allocation 3.09 The original and final allocation of the loan proceeds was as follows: - 15 - Loan Allocation (US$) Category Original Final 1/ 1 Exchange equipment 2,100,000 2,226,800 Subscribers plant 700,000 332,700 2 Microwave system 4,200,000 5,472,800 Multiplex 1,700,000 1,836,000 Rural systems 2,000,000 1,225,800 VFT systems 900,000 844,200 Extension switching equipment 1,700,000 1,890,000 New switching equipment 800,000 1,171,300 3 Unallocated 900,000 - Total 15,000,000 15,000,000 1/ There are variations in figures between Bank and TELECOM due to wrong allocation of debits. The figures in this column significantly reflect the actual position. While there are variations in original and final loan allocations, these were largely due to reallocation of loan proceeds between Bank and TELECOM. TELECOM financed the balance of the project's foreign exchange requirements which amounted to US$26.2 million against the appraised amount of US$18.5 million. Operations 3.10 TELECOM is fully satisfied with the quality and the efficiency of the plant obtained through contractors. The equipment was supplied in accordance with the technical specifications which were reviewed in the Bank, and its performance has met, according to TELECOM, all the specified requirements. Performance of Consultants, Contractors, Suppliers and Borrower 3.11 TELECOM did not retain any consultants under the project. The suppliers and contractors have performed well and in accordance with their contractual obligations. TELECOM has good technical personnel, fully capable of designing and operating all types of telecommunications equip- ment. Cable installations are carried out fully by TELECOM, except cable laying which is done under contract and supervised by TELECOM personnel. TELECOM, however, entrusted some local and all long distance exchange equipment installations to the equipment suppliers but attached its own staff to assist contractors staff so as to enable its staff to continue on these installations as maintenance personnel as soon as the installations wre commissioned. TELECOM has also decided to build up local exchange - 16 - installation expertise by contracting for the installation work with local contractors, and expects that all such installations (except of new and sophisticated equipment where suppliers would instal) would be carried out progressively by local firms in future. TELECOM would as at present continue to attach its staff to the installation staff for utilization in future maintenance of installed equipment. TELECOM kept the Bank informed about the project's progress through the quarterly progress reports which were regularly received but with considerable delay. TELECOM's project per- formance except in relation to local and long distance exchange equipment installations (see Annex 2, Attachment 2) has been generally satisfactory. 4. OPERATING PERFORMANCE Market Forces 4.01 TELECOM planned the installation of a total of about 17,825 lines in new and existing TELECOM exchanges at time of appraisal of which 14,150 lines were to be installed in new exchanges. The recorded unfilled demand in the areas covered by the above at the time of appraisal was about 17,000. As of December 31, 1979, about 16,000 additional connections were made in the areas, but the recorded unfilled demand increased to about 38,000. While about 5,200 additional long distance circuits were commissioned, the spurt in long distance traffic caused by the availability of reliable and high quality circuits has caused some congestion on certain long distance routes. TELECOM is currently executing a fourth project which not only extends the long distance network but also provides for the installation of large modern electronic long distance exchanges at Bogota, Cali, and Medellin--these centers originate, transit and terminate nearly 75% of all traffic in Colombia. 4.02 Because of the lag in meeting the demand for connections and con- sequent higher per telephone usage, the quality of service deteriorated in some areas. However, with greater availability of toll ticketing in Bogota and in another three cities, subscriber satisfaction increased with more rapid transit of long distance calls and with itemised billing. 5. FINANCIAL PERFORMANCE 5.01 Performance indicators for TELECOM's operating results and finan- cial position during the six-year period of FYsl974-80 are summarized below; detailed financial statements are given in Annexes 4 to 8. - 17 - Fiscal Year Ending December 31 1974 1975 1976 1977 1978 1979 1980 0paerating Revenue (Col'$ Million) ctlMlon 1,537 2,100 2,823 3,732 4,828 7,006 10,280 Actual Forecast 1,465 1,716 2,089 2,557 3,123 3,789 4,591 Operating Income (Col $ Million) Actual 276 481 655 701 798 1,188 1,935 * Forecast 274 248 314 390 487 591 706 Operating Ratio (%)1/ Actual 82 77 77 83 85 83 81 Forecast 81 86 85 85 84 84 85 Rate of Return -/ Actual 13.7 16.0 17.5 16.8 17.7 24.9 32.2 Forecast 14.9 11.0 11.0 11.0 11.0 11.0 11.0 Current Ratio (times) Actual 1.2 1.8 1.6 1.7 1.6 2.6 2.9 Forecast 1.2 1.6 0.9 1.0 1.5 1.5 1.4 Debt/Equity Ratio (times) Actual 60/40 57/43 58/42 59/41 58/42 49/51 46/54 Forecast 59/41 60/40 60/40 60/40 59/41 58/42 59/41 Debt Service Coverage (times) Actual 1.3 2.3 2.9 2.6 2.8 4.2 4.6 Forecast 1.7 1.6 1.6 2.0 2.0 2.0 1.9 1/ Revaluation of assets as per IBRD formula (Schedule 5, Loan Agreement 1073-CO) Operating Results 5.02 TELECOM's operating results have been generally satisfactory. TELECOM has continually increased its tariffs to offset rapidly increasing operating expenses, which are significantly higher than forecast in the appraisal report. The revised tariffs of about 30% each in FY79 and FY80, together with the increase in traffic as a result of expanded investment and the acquisition of new companies, generated sufficient revenues to meet the increase in operating expenses; the operating ratio averaged about 81% over the period FY74-80, as compared with the appraisal estimate of 84%. 5.03 Section 5.05 of Loan Agreement 1073-CO requires TELECOM to establish and maintain rates for its services to achieve an annual rate of return of at least 11% on the average current value of its fixed assets in operation. The current value of the fixed assets is calculated according - 18 - to the method given in Schedule 5 of the Loan Agreement and is based on the assets' current peso value as determined by the current relationship between the Colombian peso and the US dollar. Annex 5 gives the computation of the rate base and the associated depreciation. 5.04 During FY74-80. TELECOM's operation showed higher rates of return on revalued assets than the covenanted 11%, 1/ due to higher revenues (see paragraph 5.02). In FY78 and FY79, the high rates of return were also partly due to the rate base being understated because the costs of some equipment already in service had not been transferred to the rate base. 2/ It is difficult to ascertain the exact value of such untransferred assets in operation, but the rate of return of the "actual" rate base is not likely to fall below 16%. As a result of the last supervision mission's suggestions, TELECOM has made necessary adjustments in its accounting procedure to reflect the transfer from works-in-progress to assets in operation as soon as the works are completed and assets brought to service. Financial Position 5.05 TELECOM's financial position during FY74-80 is reflected in the balance sheets given in Annex 6. As of December 31, 1980, the total net fixed assets including works-in-progress was estimated at Col$7,938 million, about 400% higher than in December 31, 1973. 5.06 TELECOM's current ratio and debt/equity ratio, including the provisions for pensions and severance liabilities, have been acceptable and are generally in line with the forecast in the appraisal report. However, TELECOM's accounts receivable position and its collection per- formance have not been satisfactory in recent years (see paragraphs 5.09- 5.10). Financing Plan 5.07 The statements of actual and forecast sources and applications of funds for the period FY74-80 are given in Annex 7 and are summarized below for the seven-year period as a whole. I1 In a subsequent Loan Agreement 1450-CO, the covenanted annual rate of return was raised to 16% upto FY80 and thereafter at 11%. 2/ For example, the international switching center (costing about Col$150 million or about three% of the rate base in FY79) was commissioned in FY78 but was not included in the FY79 rate base. - 19 - Actual Forecast Col$ % Col$ % For the Period FYs 74-80 (millions) (millions) Requirements Investments Constructionl/ 2/ 7,450 53.0 6,319 87.1 Association Program- 328 2.3 - - INTELSAT 163 1.2 76 1.1 Housing Social Welfare 334 2.4 187 2.6 Other 3/ 98 0.7 209 2.9 Subtotal 8,373 59.6 6,791 93.7 Increases in Working Capital 4,450 31.7 460 6.3 Other 1,221 8.7 - - Total 14,044 100.0 7,251 100.0 Sources Internal Generation Net Income Before Interest and Exchange Loans 12,906 91.9 7,154 98.7 Less Debt Service 2,227 15.9 2,156 29.7 Net Internal Generation 10,679 76.0 4,998 69.0 Borrowings IBRD 499-CO and 740-CO 329 2.3 196 2.7 IBRD 1073-CO 564 4.0 471 6.5 IBRD 1450-CO 395 2.8 - - Suppliers Credits and Commercial Banks 1,358 9.7 77 1.1 Other - - 401 5.5 Future - - 798 11.0 Subtotal 2,646 18.8 1,943 26.8 Subscriber Deposit 261 1.9 171 2.3 Other 458 3.3 139 1.9 Total 14,044 100.0 7z251 100.0 1/ Including acquisition of local telephone companies (i.e. 100% ownership by TELECOM). 2/ Association with local telephone companies (i.e. major controlling interest by TELECOM). 3/ Including adjustments and distributions. - 20 - 5.08 During FY74-80, TELECOM was able to generate about 76% of the fund requirements from its internal cash generation net of debt service; this compares favorable with the forecast 69% for the same period in the appraisal report. Borrowings from the Bank contributed less than 10% of TELECOM's total sources of funds. 5.09 A serious problem which TELECOM has not been able to resolve is its inability to collect timely payments for services billed to some Govern- ment users and local telephone-operating companies. This problem has been brought to the attention of TELECOM and the Government. TELECOM has taken certain remedial actions such as adjusting the purchase price of the local companies against the outstanding balance of its accounts receivable from these companies and, in some cases, entering contracts to refinance the payment to settle the overdue accounts, etc. However, no significant improvement has been achieved. This is mainly due to the lack of any effective Government and legal support of TELECOM's collective action to recover the delinquent accounts. Annex 8 shows the movement and the position of TELECOM's accounts receivable during FY74-80. 5.10 The collection problem has been addressed in all loan and guarantee agreements under this and a subsequent project, and has been the subject of considerable correspondence between the Bank and TELECOM and the Government. Accounting System 5.11 In January 1978, TELECOM considered computerizing its accounting system and unaccountably discontinued the old manual system before the com- puter system was fully operational. This decision caused long delays in the processing of accounts and resulted in a huge accumulation of accounting data. The situation was finally corrected and the backlog cleared in late 1978 and early 1979. The computerized system has since then been completed and is now in operation in all regions; the system is also being utilized as input to TELECOM's information system for its management's use. Pension Plan 5.12 TELECOM has a non-contributory pension scheme for its employees. In compliance with a previous loan agreement with the Bank (Loan Agreement 740-CO), an actuarial study was performed as of December 1970 and the pension liabilities were subsequently increased according to the finding of the study. Again in May/June 1980, TELECOM carried out a review of the adequacy of its pension reserve, based on the past data and the external auditor's opinions. The result of the review was submitted to the Bank in compliance with Loan Agreement 1450-CO and the results indicated that the provision for the pension liabilities is adequate. 5.13 As required in Loan Agreement 1073-CO, Section 5.08, TELECOM's pension liabilities, as well as the funds allocated for the association with and acquisition of local telephone companies, are properly reflected in its accounts under the new accounting system. - 21 - Annual Audit 5.14 TELECOM's accounts have been audited by an independent auditor and the audit has been acceptable. However, in recent years the final audited reports have been completed late (about six to eight months after the close of the fiscal year), although TELECOM's unaudited provisional accounts have been made available for the Bank's review within about four months of the end of fiscal year. The delays in the past were partly due to the delays in the implementation of the computerized accounting system and partly due to the delays in the reconciliation of accounts with foreign administrations and local telephone companies. Since the computer system is now in operation, TELECOM should be able to expedite the processing of accounting data and the finalization of the accounts. 6. INSTITUTIONAL PERFORMANCE 6.01 Though more attention could have been paid to the prompt instal- lation of some local and nearly all long distance automatic exchanges--the delay in the latter installation resulted in large blocks of long distance circuits remaining unutilized for long periods as a consequence of which congestion continued and loss of revenue occurred--the overall quality of management and organization effectiveness in the engineering section could be considered as fair, judged by the performance in the execution of other works in the program. Building construction was delayed as TELECOM encountered serious difficulties in land acquisition. Changes in top management caused setback in taking quick decisions as new staff had to get acquainted with their work. With the election of the president of the country, TELECOM's president was changed who in turn changed five of the six vicepresidents and other staff conversant with the Bank financed project. 6.02 TELECOM continued to develop an effective planning organization and has integrated this project with the following Bank financed project to develop a long-term network expansion plan designed to meet the demand for service. TELECOM has demonstrated an ability to procure goods through international competitive bidding, to prepare contracts, to supervise con- tractor installations, and to acceptance testing of such installations. 6.03 While there has been significant institutional improvements during the project period, TELECOM has still some weaknesses to overcome to enable it to function efficiently on commercial lines. There is a lack of a central authority to obtain and then disseminate information to various other sections which has resulted in considerable variation in basic information. 6.04 Management is handicapped by lack of an effective project budget system which would enable it to monitor project costs against estimated costs. This has been reflected by TELECOM not being able to identify costs of various items on the project (see paragraph 3.05). Monitoring systems designed to provide management with measures of service standards, unit costs and the like are additional organizational improvements which could assist the management to design strategies to meet previously laid down targets. - 22 - 6.05 With the growth of the system, decentralization of authority which was begun under the second project needs to be accelerated. While regions have been formed, the regional managers have to obtain headquarters approval on a number of issues best dealt with in the regions. Additionally, necessary decentralization should be accompanied by published procedures, instructions standards, and an adequate reporting system to enable monitoring of performance of delegated authority. Growth 6.06 In all aspects of its activity, TELECOM has shown a steady growth in the organization, plant installed, traffic carried and revenues. 6.07 Despite the considerable service expansion, TELECOM has not yet been able to meet the demand for service. TELECOM is, however, executing a following project, and proposes to prepare a further plan to meet service needs. Staff Recruitment, Training and Development 1/ 6.08 The number of staff increased from 12,163- at the end of 1973 to 14,307 at the end of 1979. A meaningful review of staff productivity cannot be made since TELECOM has in the past largely managed the long distance services and is additionally only now extending its services to provide local telephone service in a number of cities. Even so, the number of employees has dropped from 23 per 100 telephones at end 1973 to about 12 per 100 telephones at end 1979. TELECOM has had no problems in the recruit- ment of professional and non-professional staff. TELECOM operates a well-equipped training center which provides courses to middle-level technicians and non-professional staff. 7. ECONOMIC REEVALUATION Project Achievements 7.01 The project has generally achieved, though with delay, the physical growth targets, and the institutional improvements envisaged at the time of appraisal. The delay could have been minimized if (a) buildings were con- structed in time, and (b) TELECOM's top management did not undergo several personnel changes. Further, the relative slow action in project progressing during the time of the country's presidential campaign in 1978 added to the general project delays. 1/ The total figures include staff (about 3,500) employed for telegraph services. - 23 - Project Spin-off 7.02 The project's equipment requirements have stimulated the setting up of a telephone manufacturing factory. Prior to this project, local distribution and interexchange cables were manufactured in two private sector factories in Colombia. All cable requirements are filled from the output of these factories. Subscriber fitting material, wiring and and wiring accessories were fully produced locally. Posts and post materials are manufactured in several factories. A telephone manufacturer assembles crossbar exchange equipment, and has commenced electronic exchange manufac- ture. Except for microwave radio and associated equipment, most telecom- munications equipment is now made in Colombia. The project has given a fillip to the utilization of local construction expertise. Least Cost Solution 7.03 The system design of long distance equipment on various routes utilizing microwave radio and multiplex equipment, and the use of automatic exchange equipment in the larger local exchanges and in other local exchanges where adequate long distance facilities were available, together with manual exchanges where filtering of traffic was necessary were the most economical way of providing service. The type of local and long distance equipment selected for use in the various towns and areas was based on least cost technical criteria. Return on Investment 7.04 The internal financial return on the project estimated at the time of the appraisal was 27%, which was the discount rate that equalized the present worth (in 1974 prices) of the streams of operating revenues and capital and operating costs attributable to the project over the life of the installed equipment. In view of the difficulties in allocating actual operating revenues and costs to the project and other ongoing development, the internal rate of return has been recalculated on the 1974-80 time slice of the total investment program (1974 as the base year) with the assumption that the benefits of the program are representative of and proportional to the project. The new rate is estimated at 19.6%, which is calculated over a longer construction period with higher construc- tion and operating costs than originally anticipated during appraisal. During this period, TELECOM further undertook many invest- ment projects such as rural telephone development schemes, which would incur higher costs and lower revenues than other revenue producing projects. This rate of 19.6% is, however, an acceptable level of return, and is achieved mainly by the accompanying increase in revenues through increases in traffic and tariffs. Details relating to the calculation are given in Annex 9. - 24 - 8. BANK PERFORMANCE 8.01 The project identified for Bank financing aimed at the provision of facilities where they were required and at the least cost. The project was well conceived and justified. The Bank, has during its involvement in TELECOM's second and later projects, encouraged sector consolidation through TELECOM acquiring small, medium and inefficient local telephone entities. The sector consolidation with resultant economies in equipment costs through large scale purchases, standardization of equipment which could lead to the establishment of future local manufacture, lower administrative and operational costs and better utilization of trained manpower has continued in the following years. The local telephone companies which numbered 54 in 1973, is now 32, and at the end of the fourth project currently under execution could be reduced to less than 20. The Bank was instrumental in getting TELECOM to implement a commercial accounting system which provided the basis for sound managerial and financially viable expansion. Supervision 8.02 The Bank's project supervisory effort was adequate. TELECOM sent progress reports on the project at quarterly intervals. These reports which were prepared with care, and which were sent regularly although invariably late, were carefully scrutinized in the Bank and comments sent to TELECOM. Although Bank's appraisal supervision and completion report mission comprised five different financial analysts, this was unavoidable due to staff and organizational changes, but did not lead to problems due to lack of con- tinuity on the financial side. Working Relationship 8.03 The working relationship between the Bank, the Borrower and the Government in this project execution has been uniformly good. The Bank's supervision mission did not encounter any problems in obtaining information from TELECOM or the Government. TELECOM has allocated all Bank liaison duties to a senior staff member who specifically attends to Bank's project related work. However the staff member has to be more actively involved in TELECOM's various project progressing section to enable him to prepare the progress reports in time, and to analyze deficiencies in these reports where they arise for future correction. Compliance of Covenants 8.04 A statement setting out the compliance of covenants is given in Annex 10. - 25 - 9. CONCLUSIONS 9.01 Forecasting demand in areas with inadequate or no service is always difficult. Under conditions of past insufficient planning and rapid business development, demand does often exceed expectations. Hence consideration should be given to possible suppressed demand and unrecorded demand in new areas with a higher level of demand than is expected when based on past experience. Since considerable economies of scale accrue in the procurement of telecommunications equipment, equipment capacities should be planned on a more liberal basis than is indicated on past trends. However, in countries (this is currently not the case in Colombia) where problems have to be faced for obtaining foreign exchange financing, plan- ning cannot take place on the premise of scale economies alone. TELECOM can, however, plan exchange and system capacities to cater for full traffic and facilities demands. 9.02 Changes in organization and in personnel are very often inevitable. In the present project, after TELECOM's president was changed, all vice- presidents except one were replaced resulting in discontinuity of project and operation control. Additionally, a number of staff who dealt with Bank projects, and who were familiar with Bank procedures were transferred to posts wherein they had no responsibilities towards project execution. The delays in installation of long distance exchanges (see Annex 2, Attach- ment 2) were the direct result of discontinuity in project staff and unfamiliarity with the project. The Bank supervision mission had brought to the notice of the president the necessity of maintaining staff continuity, but this should be reiterated at every mission. 9.03 The position of accounts receivables in spite of several promises to improve the situation has deteriorated considerably. At the next Bank operation, the Bank should obtain from the Government (a) the legal steps it would authorize TELECOM to initiate to collect the dues from other local companies, and (b) to clearly hold one unit of the Government responsible for payment of all TELECOM Government dues. Government should also authorize TELECOM to deny service to all Government subscribers, with a few exceptions. Once a Government subscriber is disconnected and the Government unit responsible for the service is required to pay a reconnection fee, the chances of a second failure to pay bills in time, are remote. 9.04 Fragmentation has been in the past a major factor militating against efficient operation of the sector. Under Bank's encouragement integration is proceeding slowly but regularly. When all the smaller (under 10,000 lines) local companies are integrated within TELECOM, the problem relating to accounts receivables of these companies will disappear, and additionally the local company subscribers would obtain all the benefits of expansion, facilities improvement, and overall service improvement. COLOMBIA EMPRESA NACIONAL DE TELECOMUNICACIONES (TELECOM) LOAN 1073-CO Procurement Review Date of Bid Award Date of Contract Equipment Contractor Review by Bank Signature 1. Local exchanges Marubeni April 10, 1975 August 5, 1975 2. Subscriber plant Bell Telephone February 24, 1975 May 23, 1975 3. Microwave I Mitsui July 21, 1975 May 17, 1975 4. Microwave II Mitsui December 11, 1975 March 24, 1976 5. Multiplex Mitsui October 13, 1975 October22, 1976 6. VFT equipment Datavit February 24, 1975 August 26, 1975 7. Rural system I Japan radio September 10, 1975 March 9, 1976 8. Rural system II Motol radio November 13, 1975 March 24, 1976 9. Long distance switching I Ericsson Extensionof earlier contract July 31, 1973 (Loan 740-CO) I). Long distance switching II Mitsui July 21, 1975 March 12, 1976 - 27 - ^ mE 2- Page 1 of 15 pa <es COLCMSIA EM'PRESA NACIONAL DE TELECCMUNICACIONES (TELECOM) LOAN 1073-CO Physical Program (1975-80) Project Ite=s I. Local Facilities A. New ExchanLes Exchange Building Capacity Power Plant Actual/Antic Actual/Antic Loc.aIon Lines (KVA) Coupletion Coz,lztion 1976 1. Acacias 400 - October 77 November 77 A,: ice 4L00 20 Ju. 77 DEcer.ber 16 3. Barboza 300 - Dacember 76 Novembar 75 4. Chinlcota 200 - April 78 March 7o 5. Convcnci6n 400 - September 77 August 76 6. Fresno 400 - February 77 June 76 I. Granada 200 20 March 77 May 78 8. La Placa 300 - August 77 Marqh 76 9. La Virginia 700 - June 77 February 77 10. 'manzLnares 200 - April 77 Deccmber 76 l1. V-lgar 700 30 May 77 March 77 12. P-cora 400 - January 77 Novc:iber ;6 13. Pensilvania 300 - April 77 AuVust 76 14. Puente Nacional 200 - February 77 December 76 15. Puerto L6pez 200 20 January 77 MLy 77 16. Puerto Tejada 300 - August 77 Decembcr 76 17. Puerto ilches 200 20 July 77 January 77, 15. San Juan del C6sar 400 - September 77 Mzirch 77 19. San Marcos 300 - March 77 April 76 20. San Vicente de Chucuri - 400 20 January 77 Decenber 76 21. TibG 400 - April 77 July 76 22. Tuquerres 300 - July 77 February 76 23. Viterbo 300 - May 77 July 76 24. Zapatoca 300 20 March 77 Docenber 76 Subtotal 82200 1977 1. A:iachica 700 - October 77 November 76 2. Apia 250 - March 79 Nove:ber 78 3. .1r.1n.azu '.00 July 77 :- .:,cr 6 4. dlcu de UbrIa 300 - February 79 r 7 9 5. C.ompo A1 e 350 Dece.ber 78 October - 28 - ANNEX 2 Page 2 oi 15 pages Exchange Builing Capacity Power Plant Actual/.Ancic Actual/o.atic Location Lines (KVA) Comnletion C.tualetion 6. Charalf 200 - March 79 December 77 7. i Ez,rdo 200 - October 78 December 77 8. l>rcella 300 - February 78 July 78 9. EccoJ ' 200 10 April 81 December 79 10. Oz cga 200 - August 78 November 78 11. Pacho 200 - June 78 September 77 12. Piedecuesta 400 - April 77 December 76 13. Puerto Asis 200 10 July 81 March 80 14. Purificaci6n 400 - July 78 January 79 15. Rit:negro 200 - June 77 September 76 16. Supia 300 - January 79 March 78 17. Tarie 250 10 April 79 November 78 18. Venadillo 400 - 1oOctober 79 October 79 Subtotal 5,450 5 1. Bucnavontura 700 - July 78 July 77 B. Additions to Local Excnanfcs Exchange Building Capacity Extension Power Plant Actual/Antic Actual/Antic Location Lines Lines (KVA) Conoletion Comnle-t4on G 1. Alcali 50 25 - Febr.ary 78 2. Ar-elia 50 25 - February 73 - 3. Euenaventura 1,800 700 - March -73 - 4. El Aguila 50 25 - February 78 - 5. El Cairo 50 50 - February 78 6. La Uni6n (V) 50 350 - February 73 7. La Victoria 100 200 - February 73 October 74 8. 0 ando 50 50 - February 78 9. Roldanillo 400 100 - March 73 Nove!Yber 74 10. Toro 100 100 - February 7 11. Vrsalles 50 50 - February 78 Subtotal 1,675 77 1. A7.6alucia 50 150 - February 78 May 76 2. -uala1grande 50 250 - January 78 - 3. ±arien 50 100 - November 78 July 75 4. R2strepa 50 100 - November 78 July 75 5. Rio Frio 50 100 January 78 - 6. San edro 50 100 - November 78 - 7. Trujillo 100 300 - January 78 May 76 8. Yozoco 50 100 - Nove=ber 78 July 77 Subtotal 1,200 2 1. Sincejo 2,000 600 - May 78 0 t ai 31~ 29 ANNEX 2 Pa-e 3 of 15 paes C. Stan by ?cer ?P1 ~i- Station Capacity (VA) Comolction 1. New ex:changes - 4 sets 10 January 1978 6 rets 20 January 1978 1 sets 30 - January 1978 2. 1-obile sets - 7 sers 30 January 1978 3. HF links - 4 sets 10 January 1978 1 sets 15 January 1978 4. Primary centers - 11 s 2 January 1978 6 ss 30 January 1978 January 1978 II. Cables Comletion Date (a) Nev exchanges. November 1975 --June 1979 (b) Additions to exchanges July 1976 - November 1978 Ill. Substnticn Plant Capacity Comoletion Date (a) Telephone (nos) 18,000 Dece-bcr 1976 - October 1977 (b) Coin boxes (nos) 900 Janiary 1976 - November 1976 TV. Teleprinter Exchanges and Telegraphs Subscribers (a) New exchanzes Lines Channels Co=] etion Dat- 1. Bogota 2,558 1,000 March 1978 (b) VFT Equipment (Channels) 3,896 (TDM) May 1977 V. Lon Ditance Exchanges Termiations Exchange iui1ding Cit Total/Lon- Dfistnnce Collpotion Cc.,::- 1 - Latin 1. Ar=enia 1,345/ 758 October 1978 September 1977 2. C..;,agena 1,496/ 918 June 1981 June 1978 3. Valleiuar 379/' 227 October 1978 subcotzil 3,220/1,893 - 30 - P3ge 4 ~ 1_ý -,-ag,-s E. Ac-kitions to :chne Tern; fra Exchance auzdin Total/Lo n. . _e. Co1oIetin:.:n:I CC,n Ci ty irinal r-i:,:d 1. E Banco 28/12 16/8 December 77 - 2. Barrancabermeja 193184 154/79 November 78 August 1976 3. Bogoc 1663/747 1663/747 June 77 4. Bolivar 56/27 22/12 October 78 - 5. Bucaramanga 1434/652 3395/2217 June 81 - 6. Buen;ivencura 173/82 146/128 March 79 - 7. Buga - 18914 30/30 - December 78 - 8. Cali 763/395 763/395 Ju-ne 77 July 74 9. Carnien 12/12 12/12 June 81 10. Cartago 351/156 169/111 March 78 March 78 11. Cereté 12/12 12/12 June 81 12. Ch.parral 12'12 12/12 June 81 13. C,-'ta 3?4/144 3'5/233 December 78 - 14. F.acatacivå 31/36 128/83 April 79 15. Florencia 81/36 81/36 June 79 16. Fundaci6n 28/12 28/12 Depteber 78 - 17. Gamarra 12/12 12/12 June 81 13. Garz6n 81136 81/36 June 79 19. Cirardot 378/168 130/130 December 77 - 20. Cuz=o 56/56 56/56 June 81 21. Hleaida 18/6 24/18 Janucry 78 - 22. lpiales 138/60 138/60 April 79 - 23. M arangué 28/12 28/12 June 81 - 24. Maicao 28/12 28/12 May 79 - 25. Mlaga 24/24 24/24 June 81 26. M2nizales 864/384 2214/1323 June 81 Nove=ber 77 27. Mariquita 297/132 93/93 December 77 - 28. :iMedll n 856/1350 856/1350 Z;ove=ber 77 ADril 74 29. Mn-.pås 28/12 28/12 June 8. 30. Mo,teria 243/108 2221196 June 78 31. Neiva 378/168 176/131 M-larch 79 32. Gccz:a 133/72 - 467/293 June 81 - 33. ?ir.ira 300/94 163/150 Cetober 78 - 34. Pamplona 108/48 96/58 December 77 - 35. Pasto 603/276 1055/607 June 81 - 36. Pereira 1531/696 2740/1595 June 81 November 77 37. Plato 12/12 12/12 June 81 - 31 - ANNEX 2 Page 5 of 15 paLes Terminations Exchange Building Total/Lon; Discance" Completion Coplet ina city Ori&inal Revised 38. Popayin 324/144 659/381 June 81 - 39. Puerto L6pez 44/19 44/19 January 77 - 40. Quibd6 81/36 44/18 February 78 - 41. Riohacha 54/24 54/24 May 79 March 77 42. Riosucio 28/12 28/12 June 81 - 43. Salamina 28/12 30/18 November 78 April 74 44. San Gil 54/24 . 54/24 June 81 December 75 45. Santa Marta 675/300 312/242 August 78 July 74 46. Santander de Q. 66/38 66/38 April 79 - 47. Sincelejo 162/72 679/447 June 81 48. Sccorro 54/24 54/24 June 81 December 75 49. Tului 297/132 77/34 December. 78 - 50. Tu-..co 27/16 37/16 April 79 - 51. Tunj3 238/108 126/88 June 78 52. T6quer:es 55/24 55/24 December.77 - 53. Velez 110/48 110/48 June 81 - 54, VillaT.ucla 12/12 12/12 June 81 - 55. VfIlaic .ncio 556/274 939/478 August 81 - 56. zapa! oc. 54/24 54/24 June 81 - 57. Z,r .1 150/134 150/134 March 79 - 58. Zipaqui :d 216/96 21G/175 May 78 - Total 14.766/7854 19429/12578 C. Manual Boards 50 units 3.000 /600 June 78 VI. Long Distance Transmission A. Micrcwave Radio Capacity Comoletion Date 1. Armenia - Pereira 1RF/ 960 Sbptemher 1978 2. Bucaramanga-Barranca 1RF/ 300 March 197S 3. Buenaventura - Cali 1RF/ 960 October 1977 4. Bogoti - Ibagu6 IRF/ 960 1.over.ber 1973 5. BogoLi - La Cruz 2RF/2,400 February 1978 6. Bogoti - Tunia 1RF/ 960 August 1978 7. Cali - La Cruz 1RF/1,200 February 1978 8. Cali-?opayin-Pasto 1RF/ 960 October 1977 9. Cartago - Pereira 1RF/ 3100 Scotember 1978 10. Medalthn - La Cruz 1RF/1,200 February 1976 11. Vallcdupar - Barrancuilla 1RF/ 960 June 197 - 32 - ANNEX 2 Page 6 of 15 pa:es B. UIm? Systers Channel CoMoletii 0 :: 1. A'uachica - Eucaraana 24I April 79 2. Arauca - Tunja .24 December 79 3. B-ne - Barranquilla 48 April 81 4. EPcrdo - Pop:Iy hu 36 March 79 5. Car.en - Sizcelejo 24 April 78 6. c.6iaga - Santa %arta 36" June 78 7. Cedazzi - Vzilledupar 24 December 80 8. Fundzci5n - Santa M4arta 24 June 78 9. rusagasugA - Bogotg -48 December 78 10. Ipiales - Pasto 60 April 81 11. YlaganSue - Sincelejo 24 April 79 12. M.icao - Santa Marta 36 July 79 a/ 13. Mocoa - Pasto - 15 April 81 14. 2-10'pos - Sincelejo 24 April 78 15. Paz de Ariporo - Tunja 12 November 81 16. Plato - Sincelejo 24 April 78 a/ 17. Entro Anis - Neiva 24 April 81 38. Poo rto L6paz - Villavicencio 12 May 79 h/19. Pue ' ilches - Bucara=anga 60 April 79 b/20. PNrificaci6n Girardot 24 October 78 21. RIohacha - Santa Marta 36 July 79 22. S:band.,rga - Barrzuquilla 24 May 78 2'. San artin - Villavicencio 36 May 79 24. Tare - Tunja 12 December 82 25. Trinidad - Tunja 12 December 82 26. Tuqucrres - Pasto 24 kPril 81 27. 71opal - Tunja 24 December 82 28. Zapat?ca - BEcaramiaga April 79 807 C. Multiplex 1. Arenia - Bogoti 60 February 79 2. Ar.menia - Manizales 24 January 79 3. Arnenia - Medellin 48 November 78 4. Armenia - Pereira 180 September 78 5. Barranquilla - Cartagena 120 February 80 6. Barranquilla - Hadellin 24 February 79 7. Barranquilla - Cali .60 February 79 8. Barranquilla - Eogot5 300 January 79 9. bogod.: - Bucaraanga 120 _-December 80 10. ogot5 - Cartagena 60 February 79 1. Logod - Cali 300 March 78 32. E odt - C:cuta 60 February 79 a! C:noz be Install~d at Pasta due to prepaZaticn problems and has Q!in divtad to Neiva. b/ T :3 proposal has been revicwed and rrvised to serve Ocana in- ed of ?ucrto .:,1ches, and Guamo in,te,d of Purif1zacian. - 33 - ANN X 2 Page 7 of 15 pages Multiplex - Channel Completion sat- 13. Bogota - Cirardot 72 October 78 14. Bogota - IbaguE 240 November 78 15. Bogota - ILanizales 36 - February 79 16. Bogot5 - Medellin 324 June 78 17. Bogota - Pereira 108 February 79 18. Bogota - Pasto 60 March - 78 19. BogotK - Neiva 72 October 78 20. Bogota - Quito 60 March 78 21. Bogoti - Tunja 180 August 78 22. Bucaramanga - Barranquilla 120 December 80 23. Bucaramanga - Barranca 180 March 78 24. nucaramauga - CGcuta 60 February 79 25. Buenaventura - Cali 180 October 77 26. Cali - Armenia 60 November 78 27. Cali - Cartago 60 Novembw 78 28. Cali - Medellin 120 November 78 29. Cali-- Percira 192 November 78 30. c0li - Panto 180 october 77 31. Cali - Popayan 180 October 77 32. Cali - Quit6 36 February 79. 33. Cartagena - Medellin 60 December 78 34. Cartago - Pereira 180 ' September 78 35. Ccuta - San Cristoba 144 March 79 36. Florwncia - Neiva 24 Septem'.ber 78 37. Carz6n - Neiva 24 September 78 38. Girardot - Neiva 12 October 78 39. lba6u - Girardot 36 October 78 40. Rbagu& - Neiva 24 October 78 41. Manizales - Aguadas 12 September 78 42. Manizales - Medellin 24 January 79 43. Manizales - Pereira 60 January 79 44. Manizales - Riosucio 24 September 78 45. Manizales - Salamina 12 September 78 46. Medellin - Monteria 60 February 79 47. Medellia - Pereira 156 February 79 48. Medellin - Sincelejo 36 January 79 49. Monteria - Sincelejo 24 January 79 50. Pasto - Quito 24 February 79 51. Popay5n - Pasto 24 October 77 52. Santa Marta - Barranquilla 132 February 79 53. Valledupar - Barranquilla I80 June 79 54. Bucaramanga - Medellin 60 September 80 Total 5,20S - 34 - ANNX Page 8 of 15 pages Cowpleticn D. RurDI Services MliF) Channels Date i Bucaratnanga - Arenal (Bol) 1 Noverber 79 2 Bucaratranca - Badillo (Sant) 1 November 79 3 Bucara,anga - Barranca de Lebrija (Ces) 1 Novemrber 79 4 Bucararianga- Bocas del Rosario (Ant) 1 Novembar 79 5 B/oanga - Eodega Central (Bol) 1 Novembar 79 6 B/manga - Buenavista (Bol) 1 November 79 7 B/rianga - Cuesta Rica (Sant) 1 November 79 8 B/vnga - Chingala (Sant) 1 November 79' 9 B/manga - Chucurf (Sant) 1 November 79 10 B/canga - Chuspas (Sant) 1 Nove=ber 79 11 B/manga - El Pedregal (Sant) 1 - November 79 12 B/anga - La Cristalina (Sant) 1 November 79 13 B/manga - La Esperanza (NdeS) 1 November 79 14 B/manga - La Gloria (Ces) 1 November 79 15 B/manga - La Gåuez (Sant) 1 November 79 16 B/manga - La Tigra (Sant) 1 November 79 17 B/mnga - Limoncito (Sant) 1 November 79 17 B/mana - Loma de Corredor (Ces) 1 NVeL 79 19 B/mianga - Los Angeles (Ces) 1 November 79 20 B/manga - Palmas (Sant) 1 November 79 21 B/mx.anga - Papayal (Sant) 1 November-79 22 B/manga - Patiilo (Cc.s) 1 November 79 23 B/k.anga - Pita Lim6n (Sant) 1 November 79 24 B/manga - Provincia (Sant) 1 November 79 25 B/-anra - Pte Sogamoso (Sant) 1 November 79 26 B/rng - Pro Carare (Sant) 1 1ovember 79 27 B/m;aiga - Pto Mosquito (Ces) 1 November 79 28 B/man-a - Pto Szntos (Sant) 1 Nove:zber 79 29 B/maniga - R-gidir (15o1) 1 November 79 30 B/mnanga - Reser-a 7 November 79 31 B/manga - Río Viejo (Bol) 1 November 79 32 B/manga- Sabaneta (Sant) 1 Nover-ber 79 33 B/manga - San Pablo (Bol) 2 Novemiber 79 34 B/manga - San Rafael de R (Sant) 1 November 79 35 B/manga - Simnitf (Bol) . 1 November 79 36 B /manga - Totumnal (Ces) - 1 November 79 37 B/man-a - Vijagual (Sant) 1 November 79 38 Cúcuta - Agua Clara (NdeS) 1 November 79 39 cicuta Banco de Arena ('des) 1 November 79 40 Cúcuta Barco (NdvS) 1 November 79 41 Cucuta Casa de Zinc (NdeS) November 79 42 Cucuta LiIancito (,deS) 1 Nove=ber 79 43 Cucuta Puerto Santander 1 Nover.ber 79 4 C,cu:a L- Jarra ( NdeS ) 1 "ovember 79 5 .Cscuta Punta Brav. (NJeS) 1 o5vember 79 46 Cúcuta Pro Reyes ( NdeS) 1 November 79 - 35 - ANN Page 9 of 15 pages 47 Cdcuta - Pto Villarrizar (NdeS) 1 November 79 48 C{cuta - San Faustino ( NdeS) 1 November 79 49 Cúcuta San Martín de Loba (NdeS) 1 November 79 50 Cácuta - Tres Bocas (NdeS) 1 November 79 51 CÜcuta - Urimaco ( NdeS) 1 November 79 52 Cicuta - San Miguel 1 November 79 53 El Banco-Barranca de Loba (Bol) 1 May 79 54 El Banco Belén (Mag) 1 May 79 55 El Banco-Candelaria (Ces) 1 May 79 56 El Banco-Chimichagua (Ces) 2 May 79 57 El Banco-Cuamal (Mag) 2 - May 79 58 El Banco Costilla (Ces) 1 May 79 59 El Banco Pailitas (Ces) 2 May 79 60 El Banco-Pelayo (Ces) 1 May 79 61 El Banco Reserva 1 May 79 62 El Banco-San Martín de Loba 1 May 79 63 El Banco-Tamalameque (Ces) 1 May 79 64' El Banco-Zapatoca (Ces) 1 July 79 65 Girardot-Calz6n (Tol) 1 July 79 66 Girardot Castilla (Tol) 1 July 79 67 Girardot-Cerro Gordo (Tol) 1 July 79 68 Girardot-El Cairo (Tol) 1 July 79 69 Girardot-Cuaipa (Tol) 1 July 79 70 Girardot-Hato de Iglesias (Tol) 1 July 79 71 Girardot-Ilarco (Tol) 1 July 79 72 Girardot-La Palmita (Tol) 1 July 79 73 Girardot-La Palmita/Potosi (Tol) 1 July 79 74 Girardot La Palmita/San Alfonso 1 July 79 75 Girardot-Mesa de San Juán (Tol) 1 July 79 76 Girardot San José (Tol) 1 July 79 77 Cirardot-Santa Inds (Tnl) 1 July 79 78 Girardot-Santa Marta (Tol) 1 July 79 79 Girardot-Velú (Tol) 1 December 79 80 Guateque-Caliche (Boy) 1 December 79 81 Guateque-Ciavita (Boy) 1 December 79 82 Guateque-Chorro de Oro (Boy) 1 December 79 83 Guateque-Gaunza Arriba (Boy) 1 December 79 84 Guateque-Gaque (Boy) - 1 December 79 85 Guateque-Guaduas (BOY) 1 Deceriber 79 86 Guateque-Guayata (Boy) 1 December 79 87 Guateque-Labateca (Boy) 1 December 79 88 Guateque-La Mesa (Boy) 1 December 79 89 Guateque-Pýrameo (Boy) 1. December 79 90 Guateque Roserva 2 December 79 91 Guateque-Rinc6n Arriba (Boy) 1 December 79 92 GuatCque-Scchaquirá Arriba (Boy) 1 December 79 93 GuarequeWILbajuca (boy) ' 1 Deccmbcr 79 94 '~li Iga -Buenavista (Sant) 1 Novcmber 79 - 36 - ANNEX 2 Page 10 of 15 pageå 95 Målaga - Coravachica (Sant) 1 November 79 96 Målaga - Cru- de Piedra (Sant) 1 November 79 97 Málaga - Junco (Sant) 1 November 79 98 Målaga - Los Cinchos (Sant) 1 November 79 99 Mlaga - Ovejeras (Sant) 1 November 79 100 Målaga - La Playa (Sant) 1 November 79 101 Målaga'- Pantano- Grande (Sant) 1 Noveber 79 102 Målaga - Potrero Rodriguez (Sant) 1 November 79 103 Målaga - Piedra Larga (Sant) 1 November 79 104 Målaga - Robles (Sant) 1 November 79 105 Málaga - Tenerife (Sant) 1 November 79 106 Målaga - Teguia (Sant) 1 November 79 107 Målaga - San Ingnacio (Sant) 1 November 79 108 Málaga - San Pedro (Sant) 1 November 79 109 Måmp6s - Cansado (Bol) 1 December 79 110 MompUs - El Limån (Bol) 1 December 79 111 Mompós - El Retiro (Bol) 1 December 79 112 Mompós - Guasimal (Bol) 1 December 79 113 Momps- Guataca (Bol) December 79 114 Mompås - Margarita (Bol) 1 December 79 115 Mompås - Palomino (301) 1 December 79 116 Mompås - Peftoncito (Bol) 1 December 79 117 Mompås - Pijifno (Mag) 1 December 79 118 Mompås - San Fernando (Bol) 1 December 79 119 Mompås - San Fernando (Mag) 1 December 79 120 Mompós - San Sebastiån (Mag) 1 December 79 121 Mompås - San Zenån (Mag) 1 December 79 122 Mompås - Santa Ana (Mag) 1 December 79 123 Momp56s - Talaigua Nuevo (Mag) 1 December 79 124 Pasto - Por Asignar 1 August 79 125 Pasto - Cumbitara (Nar) 1 August 79 126 Pasto - Pzr Asignar 1 August 79 127 Pasto - Magui (Nar) 1 August 79 128 Pasto - Por Asignar 1 hugu 79 129 Pasto - Por Asignar 1 August 79 130 Pasto - Por'Asignar 1 August 79 131 Pasto - Por Asignar 1 August 79 132 Pasto - Pizarro (Nar) 1 August 79 133 Pasto - Por Asignar _ 1 August 79 134 Pasto - Roberto Payan (Nar) 1 August 79 135 Pasto - San Juan de la Costa (Nar) 1 Junc 79 136 Popayan - Guapi (Cca) 1 Jun, 79 13/ Popayan - Paisbamba (Cca) 1June 79 138 Popavan - Gorgona (Cca) 1 June 79 139 Popayan - Iscuande (Nar) 1 June 79 140 Popayin - Liniones (Cca) 1 Jun 79 - 37 - ANNEX 2 Page 11 of 15 pages 141 iopaydn - L6pez de Xicay (Cc2) i June 79 142 Popaydn - Noaaatl o (Cca) 1 June 79 143 Popayjzn - Pto hoerizalde (Valle> 1 June 79 144 Popayån - Quilcace ( Cea.) i June 79 145 Popayáin - Reserva 1 June 79 146 Popayán - Rio Blanca (Cca) 1 June 79 147 Popayån - Silva (Vil) i June 79 148 Popayån - Sotara (Cca) 1 June 79 149 Popayán - Timbiqu£ (Cca) June 79 150 Popayán - Veneral (Cca) i December 78 151 'Pto Tejada - Bocan del Palo (Ca) i December 78 152 Pto Tejada - Cuernavaca (Cca) i December 78 153 Pto..Tejada - Chococito (Cca) i December 78 154 Pto. Tejada - Guabal (Cca) I December 78 155 Pto. Tejada - Juau Ignacio (Cca) i December 78 156 ?to. Tejada - La Munda (Cca) i December 78 157 Pto. Tejada - La Sofia (Cca) December 78 158 Pto. Tejada - Ortigal (CeA) 2 DGcember 78 159 Pto. Tejada - Potraritos (Cca) 1 December 78 160 Pto. Tejada - Quintero (Cca) 1 December 78 161 Pto. Tejada - San Carlos (Cca) i December 78 162 Pto. Tejada . Santana (Cca) i December 78 163 Pto. Tejada - Tier-ra D4ra (Cca) 2 December 78 164 Pto. Tejada Yarunales (Cca) 3 December 78 165 ?to. Tejada Zanj6n Rico (Cca) i December 78 166 Riohacha - Auyama (Guaj) i March 80 167 Riohacha - Barbacoas (Guaj) I March 80 168 Riohacha - Camarones (Guaj) 2 March 80 169 Riohacha - Carrizal (Guaj) 1 March 80 170 Riohacha - Dioulla (Gpaj) March 80 171 Riohacha - La Enea (Guaj) March 80 -172 Riohacha - La Jagua (Guaj) March 80 123 Riohacha - Mingueo (Guaj> 1 March 80 174 Richacha - Monguf ( Guaj) i March 80 175 Riohacha - Påjaro (Guaj) l iarch 80 176 Riohacha - Reserva M. March 80 177 - Riohacha - Tomarraz6n (Gual) 1 March 80 178 Salanalarga - ArToyo Hondo (Bol) 1 May 79 179 Sabanalarga - Arroyo de Piedra (Bol) 1 May 79 180 ·Sabanalarga - Baranoa (Atl.) iiay 79 181 Sabanalarga - Campeche (AtI) . May 79 182 Sabanalarga - Candelaria (Atl) May 79 183 Sabanalarga - Caraco1 'Atl) 1 May 79 184 Sabanalarga - Cascajal (Atl) . May 79 185 Sabanalarga -Cerro de San Antonio (Mag) i MaY 79 186 Sabanaiarga - El PiN6n (Mag) i K-ay 79 - 38 - ANNEX 2 Page 12 of 15 pagc 187 S1aarä - C-lapa (Ati) i May 79 188 SKbnala -i Galera -auäa Atl) May 79 189 Sabanaar a - Tsabel Ljpez (Atl) 1 May 79 190 Sabanalar a - Juån d Acosta (AtL) 1 Iay 79 191 Sabanalarga - La Pcña (Atl) 1 May 79 192 Sabanalarca - Manat& (Atl) 1 May 79 193 Sabanalarga - Palmar de Candelaria 1 1 May 79 194 Sabanalarga - Pedraza (Mag) 1 May 79 195 Sabanalarga - Piojo - Pueblo (AtI) 1 May 79 196 Sabanalarga - Polo Nuevo (Atl) 1 May 79 197 Sabanalarga - Remolino (Mag) 1 May 79 198 Sabanalarga - Repelån (Atl) 1 May 79 199 Sabanalarga - Salamina (At1) . 1 May 79 200 Sabanalarga - San Estanislao (Bol) 1 May 79 201 Sabanalarga - Sta. Catalina (Bol) 1 May 79 202 Sabanalarga - Sta. Cruz iAtl) 1 May 79 203 Sabanalarxga - Sta. Rosa (Bol) 1 May 79 204 Sabanalarga - Sitio Nu2vo (Mag) 1 May 79 205 Sabanalarga - Sopla Viento (Bol) 1 May 79 206 Sabanalarga - Tubarå (Atl) 1 May 79 207 Santa Martä-- Bålsamo (Mag) 1 May 79 208 Santa Marta'- Bomba (Mg) 1 May 79 209 Santa Marta -- Conccrdia, (Mag) 1 May 79 210 Santa Marta chivolo ) Mag) 1 May 79 211 Santa Marta - Guacamayal (Mag) 1 May 79 212 Santa Marta - Guaimaro (Mag) 1 May 79 213 Santa Marta lieredia (Mag) 1 May 79 214 Santa Marta - Media Luna (Mag) 1 May 79 215 Santa Marta - Nueva Vcnecia (Mag) 1 May 79 216 Santa Marta - P'iluela (Mag) 1 May 79 217 Santa Marta - Pivijai (Mag) 1 May 79 215 Santa Marta - Pueblo Viejo (Mag) 1 May 79 219 Santa Marta - Punta de Piedra (Mag) 1 May 79 220 Santa Marta - Reserva 1 May. 79 221 Santa Marta - Sabanas (bag) 1 May 79 222 Sincelejo - Buenavista (Suc 1 May 79 2.23 Sincelejo - Colos6 (Suc) 1 May 79 224 Sincelejo - C6rdoba (Bol) 1 May 79 225 Sincelejo - Chocho (Suc) 1 Iay 79 226 Sincelejo - El Roble (Suc) 17ay 79 227 Sineelejo - El Salado (Bol) 1 May 79 228. Sincelejo - Granada (Suc) 1 Yay 79 229 Sincelejo - La Gallera (Suc) 1 May 79 230 Sincelejo -Librtad (Suc ) 1 v7 79 231 Sincelejo - (Ovejas (Suc) 2 My 79 - 39 - ANN x 2 Pabe 13 of 15 232 Si nce1ejo - Pajonal )Suc) 1 May 79 233 Sincelejo - PnIraira (Suc) 1 May 79 234 Sinceleio - ?lwito (Suc) 1 May 79 235 Siacelcjo - P;ao Alto (Suc) 1 May 79 236 Sincelejo - rtillal (Suc) 1 ay 79 237 Stucelejo I into (ag) 1 May 79 238 Sinzelej o - 1l,( del Cispo (Mag) 1 May 79 239 Sincelejo - Sau Benito A (Suc) 1 May 79 240 SLncelejo - Swn Juån ilpcuccno (301) 2 May 79 241 Sincelejo-- Sa.n Onofre (Suc) 1 2ay 79 242 Sincel jo - Saui Pedro (Suc) 1 May 79 243 Sincelejo - Sanmpues (Suc) 1 lay 79 244 Sincelejo - Sartikgo Apostol (Suc) 1 May 79 245 Sincelejo - Turbana ~ (Bol) 1 May 79 246 Sincelejo - Taca-T-ocho (Bol) 1 May 79 247 Sincelejo - Tacaloa (Bl) 1 May 79 242 Sinceleio - Tenerife (Mag) 1 May 79 249 Sinceleto - Zarmbrano (301) 1 May 79 250 Valledupar - Algarrobo (Mag) 1 July 79 251 Vallcdupar - Astrea (Ces) 1 July 79 252 Valledupar - Boccenia (Ces) 1 July 79 253 Valledupar -Bacarril (Ces) 1 July 79 254 Valledupar - Casacara (Ces) 1 July 79 255 Valledupar - El Paso (Ces) 1 July 79 256 Valledu?ar - La Jagua (Ces) 1 July 79 257 Valledupar - La Lora ;Mag) 1 July 79 258 Valledupar - Mdia Luna (Ces) 1 july 79 259 Valledupar - Nueva Granada (Mag) 1 July 79 200 Valledupar - Pjcblo Bello (C2s) 1 July 79 261 Valledupar - Reerva 2 July 79 262 Valledupar - Sau Angel (Mag) 1 July 80 263 Vllledupar - San Sebastiån (Mag) i Jla ,B 264 V/cencio - Barranca de Upfa (Meta ) 1 December 82 265 V/cencie ~ Dir,a:arca (Meta) 1 December 82 266 V!ccncio - E1 Cecuy (Meta> 1 DecWr 82 267 V!ccncio - El Viso )M'ýta) 1 Dec er 82 268 Vfcencio - Gu.;zbaI (M~ta) 1 December 82 269 V/cencio - La alsa (Meta) 1 December ^82 270 V/cc ncio - onterrey (Cas) 1 December 82 271 V/cencio - ?ajure (Meta) 1 December 82 272 V/cencio - Poc'peya (Mea ) 1 December 82 273 V/cencio - San Lorenzo (Meta) 1 December 82 274 V/cencio San Nicolis (Meta) 1 December 82 275 V/cencio - Sta. Elena de J (Meta) 1 December 82 276 V/cencio - Sta Rosa (Meta) 1 December 82 277 V/cencio - Surinana ,Meta) -1 December 82 278 V/cencio - 1cracruz (Meta) 1 December 82 - 40 - ANNEX 2 Page 14 of 13 pages Completion E. Rural Services -HF) Channels Date 1. Arauca - Cubard 1 December 80 2. Arauca - Saravena 1 Decmr.bor 80 3. Barranquilla - Acandf 1 December 80 4. Barranquilla - Riosucio 1 December 80 5. Barranquilla - Zapzurro 1 Dcember 80 6. BogotQ - Leticia 3 December 80 7. BogntS - MiN 2 March 81 8. Bogotd - Puerto Carreto 4 December 80 9. BogotA - Puerto Infrida 2 March 81 10. BogotA - Puerto Legufzamo 4 March 81 11. BogotA - San Vicente del Caguan 2 March 81 12. Buenaventura - Bahia Solano 2 December 80 13. Buenaventura - Jurado 1 December 80 14. Buenaventura - Nuquf 1 December ZO 15. Buenaventura - Pie de Pato 1 December 30 16. Leticia - Araracuara I December 80 17. Leticia - Arica 1 December 30 13. Leticia - ALacuaria 1 Decenber 30 19. Leticia- El Encanto 1 December 30 20. Leticia - La Chorrera 1 December 80 21. Letica - La Pedrera 1 December 80 22. Leticia - .iriti 1 December 80 23. Leticia - Puerto Narido 1 December 80 24. Leticia - Santa Soffa 1 Decenber 80 25. Leticia - Tarapaca 1 March 81 26. MItQ - Acaricuara 1 March 81 27. Mit - Carnru 1 March 81 28. MitW - Monfort 1 March 81 29. Mitd - Pacoa 1 Deccober 80 30. Mitd - Yavarate 1 December 80 31 Puerto Carreho - Amanaven 1 December 80 32. Puerto Carre.o - Casuarito 1 December 80 33. Puerto Carredo - Cumaribo 1 December 80 34. Puerto Carredo - La Primavera 1 December a0 35. Puerto Carreho - Nueva Antioquia 1 December 80 36. Puerto Carrco - Puerto Nariao 1 December 80 37. Puerto CarreAo - San JosW de Ocume 1 December 80 38. Puerto Carreho - Santa Barbara 1 December 60 39. Puerto Carreho - Santa Rita 1 December 80 40. Puerto Carreo - Santa Rosalia 1 March 81 41. Puerto Inirida - Barranco Mina 1 March 81 42. Puerto Inirida - La Guadalupe 1 March 81 43. Puerto Inirida - Maviso 1 March 81 44. Puerto Inirida - Pto. Colombia 1 March 81 45. Puerto Iairida - San Felipe 1 March 81 - 41 - Pagc 15 of 15 pages 46. Puerto Leguizamo - Bogotå . December 80 47, San José del Guaviare - Calamar 1 December 80 48. San José del Guaviare - Miraflores 1 Decembe,r 80 49. San Vicente del Caguån - Cartagena de Chairas 1 March 81 50, San Vicente del Caguån - La Macarena 1 March 81 - 42 - ANNEX 2 Attachment 1 COLOMBIA EMPRESA NACIONAL DE TELECOMUNICACIONES (TELECOM) LOAN 1073-CO Changes in Project Items Teleprinter Exchanges 1. Exchanges were not installed at Barranquilla, Bucaramanga, Cali, Medellin and Pereira. The exchange at Bogotg was expanded to permit the termination of additional subscribers at the five other cities on VFT channels, and the latter number was also consequently increased. Long Distance Exchanges 2. New Exchanges - The termination capacity was increased to cater to the heavier than earlier expected traffic. 3. Additic-s to Exchanges - The termination capacities were changed to suit the changed traffic situation. About 40% of these installations have been, however, delayed and are likely to be only completed by June/ August 1981. Manual Boards 4. Due to TELECOM's policy to automatise small exchanges, TELECOM has decided to minimise the installation of new manual exchanges as originally planned and to instal such exchanges only in areas where replace- ment to automatic exchange system would not take place for the next five years. UHF Systems 5. Insignificant modifications were made due to propagation problems in two cases, and traffic considerations in two others. Multiplex 6. The total number of channels was increased by about 600, to cater to changes in traffic pattern, and increased traffic in certain areas. Rural Services 7. These services were to be provided to a total of 200 localities through VHF and HF systems. Actually, a total of 328 locations were provided service, 278 of these through VHF systems and 50 through HF systems. TELECOM decided to replace open-wire service in some areas by VHF/HF service - a good decision. - 43 - ANNEX 2 Attachment 2 Page 1 of 3 pages COLOMBIA EMPRESA NACIONAL DE TELECOMUNICACIONES (TELECOM) LOAN 1073-CO Long Distance Exchanges Cali 1. Empresas Municipales de Cali (EMCALI) is responsible for the provi- sion of public local telephone services in Cali. TELECOM is responsible to provide long distance services to and from Cali, and to do so, TELECOM's long distance equipment interconnects with EMCALI's local exchange equipment. TELECOM and EMCALI agreed to introduce toll ticketting in Cali whereby Cali was to instal automatic number identification (ANI) equipment in all its local exchanges, and TELECOM would instal long distance automatic exchange and toll ticketing equipment in its system. 2. After Bank's review of the bid documents, technical specifications and bid award recommendations, TELECOM signed contracts under Loan 740-CO for the supply of long distance automatic exchange and toll ticketing equip- ment and requested EMCALI to place an order for ANI equipment (TELECOM had called for bids for ANI equipment, evaluated offers and obtained Bank's review report). After TELECOM had signed the contracts for its equipment, the selected suppliers of ANI equipment informed TELECOM (which passed on this information to EMCALI) that there would be an increase in the cost of the equipment due to the long delay in bid award. EMCALI then decided to call for fresh tenders for this equipment. In the meantime, TELECOM started receiving supplies of the equipment ordered by it. When EMCALI ultimately decided not to instal ANI equipment but to continue the present system,./ TELECOM had received all the equipment ordered. 3. When further correspondence and discussions between TELECOM and EMCALI ended, with no change in EMCALI's decision, TELECOM decided to transfer the equipment received for Cali to Bogota. The Bank was, however, not informed of TELECOM's decision until the equipment installation at Bogota was well advanced. 4. Since the traffic passing through Bogota was much higher than earlier anticipated, TELECOM took advantage of the availability of CALI equipment to carry out a much needed expansion of the equipment at Bogota. 1/ The present system uses individual call meters which receive a pulse every 180 seconds on local calls, and at shorter intervals depending on distance on long distance calls. The meter pulses, cannot differentiate between local and long distance calls. Subscribers are billed on the total number of pulses registered on the meter at the unit pulse rate. - - ANNEX-2 Attachment 2 Page 2 of 3 pages Further, TELECOM decided to use its own funds to place orders for replacement of the transferred Cali equipment but without toll ticketing equipment. 5. TELECOM installed a number of channels terminating at Cali under the project financed by Loan 740-CO. It was proposed because of the heavy traffic passing through, and to Cali, to terminate another about 1,300 channels under the present project. Cali's equipment proposed for installa- tion on the earlier project together with that to be installed under this project was designed to enable all these channels to be terminated and brought into use. All the channels have been ready for service since February 1979, but cannot be fully utilized for want of long distance ter- minating equipment. 6. A number of suggestions were offered by Bank supervision missions for the interim utilization, i.e., until TELECOM procured and installed the exchange but were not acted upon. TELECOM has only in early 1980 placed orders for the exchange. This equipment is unlikely to be commissioned until end 1981 at the earliest. Due to tardy action taken to procure the equipment, about 1,000 long distance high revenue earning channels were left unutilized. Other Cities 7. Of the 58 towns and cities where long distance exchanges were to be installed using TELECOM's own funds, nine were installed in 1977, 15 in 1978, 11 in 1979, none in 1980, and 23 are scheduled for installation in 1981. At many of these locations, additional long distance channels were proposed and have been installed, but utilization of these channels has been delayed for lack of long distance exchange terminating equipment. This has resulted in continuing congestion on long distance circuits, loss of potential revenue and subscriber dissatisfaction. Local Exchanges 8. Of the 43 exchanges with a total capacity of 14,350 lines, 41 with a total capacity of 13,950 lines have been installed. The local exchanges at Mocoa (200 lines) and Puerto Asis (200 lines) have not been brought into use. All equipment for Mocoa was received at Bogota in October 1976, checked by TELECOM and part payment made. The equipment building was, however, only completed in December 1979. When installation was commenced, it was noticed that several equipment parts were damaged through corrosion and had to be replaced. The replacement equipment is being received, and installation is expected to be completed by April 1981. In the case of Puerto Asis, the position was more or less similar. The original equipment was received in January 1977. The replacement equipment is expected to be fully received by December 1980, and the installation is scheduled for completion by July 1981. By and large, local exchange installations progressed satisfactorily, - 45 - ANNEX 2 Attachment 2 Page 3 of 3 pages though generally delayed by land acquisition proceeding and building construction. 'In two cases however (Puerto Asis and Mocoa), exchange installations were inordinately delayed. Equipment building construc- tion in these cases was so much delayed (due to difficulty in acquiring land) that when the equipment was opened for installation, several parts were found to be corroded and had to be re-ordered as replacements. These exchanges would only be completely installed in 1981. - 46 - ANNEX 3 COLOMBIA EMPRESA NACIONAL DE TELECOMUNICACIONES (TELECOM) LOAN 1073-CC Appraisal/Actual Costs Total Expenditure Up to Estimated Cost June 30, 1980 Local Foreign Local Foreign Local Exchanges 1. (a) New exchanges (42) 13,000 4,215 16,418 4,320 (b) Buenaventura exchanges - - 2,615 427 2. Additions to exchanges 4,005 1,211 18,062 1,217 3. Power plant 250 210 5,606 468 4. Cables 62,524 - 143,354 341 5. Telephones 3,240 360 15,000 - 6. Coin boxes 3,646 335 1,148 332 Subtotal 86,665 6,331 202,203 7,105 Long Distance Exchanges 1. New exchanges 9,524 1,653 26,787 2,394 2. Additions to exchanges 12,358 2,584 91,592 2,954 3. (a) Other add. (existing) 37,464 4,479 33,433 1,432 (b) Other add. (new) - - 38,095 9,653 4. Manual boards 540 120 1,950 156 Subtotal 59,886 8,836 191,857 16,589 Long Distance Transmission 1. (a) Microwave radio (main) 17,840 4,232 46,210 4,953 (b) Microwave radio (other) - - 1,556 709 2. VHF systems 8,500 2,900 27,147 3,493 3. (a) Multiplex (main) 10,462 3,280 - - (b) Multiplex (other) - - 15,062 1,774 4. (a) Rural system VF 38,116 2,000 10,488 1,353 (b) Rural systems VHF/UHF - - 8,906 1,734 (c) Civil works - - - - Subtotal 74,918 12,412 109,369 14,016 Telex and Telegraph 1. Central telex - 2,344 26,368 2,611 2. Teleprinters 1,012 1,000 - - 3. VFT equipment - 860 12,543 844 Subtotal 1,012 4,204 38,911 3,455 Buildings 133,978 - 74,430 21 Estimated Basic Costs 356,459 31,783 616,770 41,186 Contingencies (Physical) 6,698 - - - Contingencies (Price) 203,371 1,697 - - Freight and Insurance - - - TOTAL 566,528 3_, 4, 616,770 41.186 COLOMBIA THIRD TELECCMMUNICATIONS PROJECT EMPRESA NACIONAL DE TEL.COMUNICACIONES (TELECOM) Income Statemenrts (Col$ Millions) Fiscal Year Ending December 31: L974 1975 1976 1977 1978 1979 1980 Actual Appraised Actual Appraised Actual Appraised Actual Appraised Actual Appraised Actual Appraised Provisional Appraised Operating Revenues Telephone 1,081 996 1,516 1,161 2,052 1,367 2,794 1,584 3,712 1,866 5,436 2,161 8,174 2,553 Telegraph 267 280 317 286 377 302 456 303 537 313 695 316 912 328 Telex 189 189 267 225 365 258 465 344 579 469 875 577 1,194 640 Revenue from tariff increase - - - 44 - 162 - 326 - 475 - 735 - 1,071 Other 29 17 - 'Tetal 1,537 -1,461 2,100 1,716 2,823 2,089 3, 732 2,557 4,828 3,123 7,006 3, 789 10,288 4,591 Operating Expenses Staff expenses 940 921 1,177 1,124 1,624 1,371 2,225 1,672 2,683 2,040 4,375 2,489 6,125 3,037 Depreciation 106 109 114 139 143 172 162 216 183 261 209 307 260 366 Other expenses 215 162 328 205 401 233 644 279 1,164 335 1,234 402 1,960 482 Total 1,261 1,191 1,619 1,468 2,168 1,775 3,031 2,167 4,030 2,636 5,818 3,198 8,345 3,885 NeH Operating Income 276 274 481 248 655 314 701 390 798 487 1,188 591 1,935 706 Non Operating Income (Expenses) 49 Miscellaneous revenues 49 46 97 48 106 51 195 53 264 56 417 59 589 62 Foreign exchange loss (81) (63) (51) (70) (157) (83) (81) (98) 200 (107) 122 (147) (110) (192) Interest and financial charges (82) (85) (135) (108) (127) (140) (172) (147) (237) (175) (291) (220, (360) (320) Other expenses (39) (22) (97) (122) (118) (22) (95) (2) . (78) (22) (268) (22) (355) (22) Total 71-5-3 324) 7) (8T27) (263 q14) (253) (214) (261) (248) (20 (340) -C2-) (472) Net Income 123 150 295 96 251 20 448 136 239 19 234 Rate Bas1/ 1,884 1,782 2, 2,195 3,319 2,750 3,671 3,436 3,978 4,237 4,343 5,060 5,563 6,010 Net Operating Income 259 265 64 242 581 303 616 3j8 703 466 1,080 557 1,791 661 Rate of Returs (%) 13.7 14.9 16.0 11.0 17.5 11.0 16.8 11.0 17.7 11.0 24.9 11.0 32.2 11.0 operating Rato 1 2 81 77 86 77 85 83 85 85 84 83 84 81 85 1/ Per IBRD Loan Agreement 1073-CO formula (See Annex 15 for detailed computation) COLOMBIA THIRD TELECOMMUNICATIONS PROJECT EMPRESA NACIONAL DE TE1UCOMUNICACIONES (TELECOM) Computation of Revalued Asset Value and Depreciation Plant in Depreciation Addition Coverage Operation and to plant Lxchange balance Accumulated Net Plant in Operation (NFO) in operation rate and addition Depreciation Depreciation Average NFO (C$ Million) (CS per US$) (US$ Million) (US$ Million) (C$ Million) (US$ Million) US$ Million) ($ Million) Balance December 31, 1972 (Section 5.06 of 1073-CD) - 21.96 80 717 25,755 54.862 Addition 1973 354.6 23.73 1 Depreciation 1973 - Prior year's addition 3,632 - Current year's addition 336 +.,Total n 3,968* 94.2 Balance December 31, 1973 529 33 60.400 1,433.3 Addition 1974 441.2 26.16 16,865 Depreciation 1974 - Prior year's addition 4,305 - Current year's addition 379 - Total 4,684 122.5 Balance December 31, 1974. 112 525 34,407 78.18 72,028 1,884.3 Addition 1975 621.2 _36B5 Depreciation 1975 - Prior year's addition 5,064 - Current year's addition 450 - Total 5,514 171.2 Balance December 31, 1975 ,132531 IL= 92,610 8 2,650.6 Addition 1976 403.9 34.83 1,1,596 Depreciation 1976 - Prior year's addition 5,964 - Current year's addition 261 - Total 6,225 216.8 Balance December 31, 1976 144 127 469.98 95,296 36319.2 Addition 1977 355.0 36.92 9,615 Depreciation 1977 - Prior year's addition 6,486 - Current year's addition 216 - Total 6,702 247.4 Balance December 31, 1977 153 742 100,894 3,671.2 Addition 1978 343.8 39.10 8,793 Depreciation 1978 - Prior year's addition 6,918 - Current year's addition 198 - Total 278 3 Balance December 31, 1978 285.0 42.50 162 535 59 964 102.571 101.33 31977-7 Addition 1979 i4700 Depreciation 1979 - Prior year's addition 151 - Current year's addition 7,465 - Total Balance December 31, 1979 1,853.1 47.52 241 67 43 Addition 1988 38,996 7,616 Depreciation 1980 - Prior year's addition 877 - Current year's addition 8,493 - Total Balance December 31, 1980 75.922 403.6 132 315 117.064 Source: Estudio para el reajuste de lae tarifas de los servicios nacionales, Division Investigaciones Financieras, TELECOM. Note: Depreciation rate at 4 5% per annum. COLOMBIA THIRD TELECOMMUNICATIONS PROJECT EMPRESA NACIONAL DE TELECOMUNICACIONES (TELECOM) Balance Sheets (Col$ Millions) Fiscal Year Ending December 31: 1974 1975 1976 1977 1978 1979 1980 Actual Appraised Actual Appraised Actual Appraisad sAC"ual Appraised Actual Appraised Actual Apprai.ad ProvisionaL Appraised ASSETS Fixed Assets Plant in serdice 1,983 1,824 2,604 2,341 3,008 2,859 3,363 3,599 3,707 4,343 3,992 5,109 5,845 6,099 Less; Accumulated depreciation 570 574 682 713 823 885 981 1 101 1,160 1,362 1 365 1,669 1 2 Net plant in service 1,413 1,250 1,922 1,601 2,185 1,974 2,382 2,498 2,547 2,981 2,= 3,440 4,220 4,064 Plant under construction 566 769 365 1Q01 736 1 1 1 2 1,436 3 1,879 7 2,507 Total Net Fixed Assets 1,979 2,019 2,287 2,618 2,921 3,322 4,064 3,938 4,856 4,417 5,682 5,319 7,938 6,571 Othee Assets Investment in INTELSAT 43 59 60 76 55 84 89 92 95 100 158 109 205 118 Notes and accounts receivable 93 88 43 41 44 28 55 25 94 22 163 20 196 18 Housing and social welfare funds 72 72 111 88 131 109 159 136 216 168 304 205 395 248 Deferred charges 464 449 424 423 411 397 388 371 394 346 366 321 344 296 Associated companies investment - - - 212 - 243 287 - 355 - 358 - Total Other Assets 674 668 638 628 853 616 933 624 1,86 636 T7 Z3 iS665 1,498 680 Corrent Assets Cash 130 172 229 100 357 126 3L9 181 452 347 929 316 1,022 62 Accounts receivable 476 396 807 464 1, l91 582 1,541 700 2,102 838 3,283 1,027 4,268 1,291 ,Stores 127 68 130 86 209 107 350 135 754 161 1,102 186 1,543 220 Advances 25 13 44 15 56 17 82 20 77 23 24 26 81 30 Toa l Cmrent Assets 759 649 1665 .832 2,292 T 3385 1.369 TOTAL ASSiTS 3 410 31336 4 135 3 911 5 482 4,772 7 289 5A598 91329 6,422 12 416 16,350 8 854 LIABILITIES Equity At beginning of year 563 560 645 710 867 806 1,031 926 1,269 1,102 1,609 1,341 2,690 1,592 Adjustments and distributions (41) - (73) - (195) - (2i0) , - (197) - (87) - (418) - Net income fur year 123 150 295 96 120 176 537 239 1,168 251 234 Total Equity 645 710 862 806 1,031 926 1,269 1,102 1,609 1,341 2,690 1,592 3,991 1,826 Long-term Debt 960 1,015 1,148 1,207 1,412 1,404 1,839 1,639 2,211 1,938 2,610 2,198 3,420 2,604 Other Liabilities Subscriber deposits 62 53 73 73 120 88 131 173 176 155 240 190 312 20/ Reserve for pension and severance 1,102 1 1241, 1,315 1,323 1,691 1,573 2,307 1,863 2,952 2,215 4,473 2,640 5,702 3,158 Other 18 11 44 14 187 18 387 22 318 28 341 35 525 44 Total Other Liabilities 1,182 1,188 1,432 1,410 1,998 1,679 2,825 2,008 3,446 2,398 5,054 2,865 6,539 3,409 Current Liabilities 623 423 688 488 1046 763 1356 849 20 745 2,071 874 2,400 1015 TOTAL LIABILITIES 3 336 415 3,911 4 4 2 5422 2,416 7,529 L30 854 Debt/Equity Ratio 60/40 59/41 57/43 60/40 56/42 60/40 5b/4 60/40 58/42 59/41 49/51 58/42 46/54 59/41 Debt Pension and Severance/equity Ratio 76/24 75/25 74/26 76/24 75/25 76/24 77/23 76/24 76/24 76/24 72/28 75/25 70/30 76/24 Current Ratio 1.2 1.2 1.8 1.1 1.6 0.9 1.7 1.0 1.6 1.5 2.6 1.5 2.:9 1.4 THIRD TELECOMMUNICATIONS PROJECT EMPRESA NACIONAL DE TELECOMUNICACIONES (TELECOM) Fonds Flow Statemests (Col$ illons) Fistal Yea Ending December 31: 1974 1975 1976 l9/7 1978 1979 1980 Total (1974-1980) atua,l App-aised Actual Applaed Atual Appraied Actual Appraised Ac,tal Appraisd Actual Appraied P- oviooal Appraised Actul Appraiad SOURCES 0F FUNDS Internal Generation Net incen before intetest and exche ie on 286 298 481 274 643 343 801 421 974 521 1,459 678 2,189 746 6,833 3,231 Depreciation 106 109 114 139 143 172 162 216 183 261 709 307 260 366 1,177 1,570 Other non-cash expenses 164 187 235 221 398 272 638 312 667 374 1,543 447 1.251 541 4,896 2.353 Total Internal Generation 556 594 830 634 1,184 787 1,601 949 1,824 1,156 3,211 1,382 3,700 i,652 12,906 7,154 Borrowings IBRD 499/740-CO 194 130 59 44 37 22 39 - - - - - - _ 329 196 IBRD 1073-C0 - 11 35 90 128 165 263 140 70 65 25 - 43 - 564 471 IBRD 1450-C0 152 - - - - - - - 59 - 336 - - Suppliest and Comm. Bank, - 72 92 5 26 - 63 - I - 381 - 643 - 1,358 77 Othr - -- 94 - 52 79 - 36 - 70 - 70 - 401 Foturs - - - -- - - - 47 - 251 - 200 - 300 - 798 Total Borrowinga 346 213 186 233 191 239 365 266 71 352465 270 1,022 970 2,646 i,943 Subscriber Deposits 11 17 11 20 472! 15 11 35 45 32 64 35 72 17 261 171 Other 37 15 44 54 134 21 201 11 (97) 12 29 12 184 14 458 135 TOTAL SOURCES 871 839 1 071 941 1,556 1.062 2,178 1.261 1,843 1,552 3,769 I.699 4,928 6.271 9 407 USES OF FUNDS Investmants Conetruction4 - 523 491 374 570 770 806 1,291 733 884 682 1,035 1,115 2,683 1,521 7 5,918 Acqllsition ef telephoe ,companiea - - - 94 - 52 - 79 - 36 - 70 - 70 - 401 Astsiation ef telephoneompan.ieS - - - - 212 - 31 - 1 14 - 68 3 - 328 - I NTELSAT - 17 16 17 (5) 8 34 8 6 8 63 9 47 ,g 163 l Hosing and social welfare fonde 11 11 39 16 20 21 28 27 57 32 88 37 91 43 334 182 Other (5) 24 (50) 74 1 -18 11 - 39 -22 69 _24 33 -27 98 209 Total Isnstments 531 543 379 771 998 905 1,395 067 920 780 1,293 1,55 2,857 7 8,373 6,791 Debt Service Amiortization 150 113 98 111 ~ 91 125 132 129 101 160 105 157 146 156 823 951 Interet 87 85 135 108 127 140 172 14/ 237 175 291 230 360 320 1,404 1 205 Totol Debt Servic 232 29¯9 233 219 218 265 304 2ff 338 335 396 387 506 476 2,227 2,156 Cianges In -L w Copnttl Cash 51 93 99 472) 128 26 (38) 55 133 166 477 (31) 93 (254) 943 (17) Other that ca-h 21 5 287 23 17 (134) 307 63 255 271 1,516 88 1,104 161 3,507 477 Total Chasgea 72 98 386 -(9) 145 (108) 269 (0183 388 437 1,993 57 1,197 7935 4,450 460 Othe 6/ 41 - 73 - 195 - 210 - 197 - 87, - 418 - 1.21 TOTAL USES -M 839 941 556 1062 2178 6 1,843 1552 3,769 1,699 2 0 62 9,407 Debt Sroice Coveage Rato 1.3 1.7 2.3 1.6 2.9 1.6 2.6 2.0 7.8 2.0 4.2 2.0 4.6 1.9 3.2 1.9 17 Including inceases is penson and a.everance resaerves and anortized deferred charges for pension. 2/ Including inceass in other liabilitis and amorti.ed deferred charge. 3/ Inreais due to acquisitilo of new companies. 4/ Excludtng foreign exchange last in plant nder constructton. 5/ A figores including acquiaitio of telephone copanies. COLOMBIA THIRD TELECOMMUNICATIONS PROJECT EMPRESA NACIONAL DE TELECOMUNICACIONES (TELECOM) Accounts Receivable Position (Billed Accounts Only) (Col$ Millions) 1976 1977 1978 1979 1980 (Provisional at Septomber) Fiscal Year Ending December 31 Year's Balance at Overdue at Year's Balaice at Overdue at Year's Balance at Overdue at Year's Balance at Overdue at Yea's Boce ot Overdue ot Billings year end year end Billings year end year end Billings year end year end Billings year end Year end Billings year end Iear end NATIONAL GOVERNMENT: Senado de la Republica 14.836 17.172 16.094 6.903 14.560 13.679 7.195 10.522 9.821 21.526 23.986 17.688 13.010 30.896 25.623 C&mara de Representantes 17.842 16.286 14.776 12.504 20.415 19.286 13.423 21.088 20.420 84.042 98.249 77.680 16.658 97.174 91.973 Ministerio de Justicio 13.471 20.617 19.692 17.088 26.539 25.106 17.073 31.428 29.466 23.827 50.148 42.691 15.167 63.334 62.614 Ministerio de Rel.Exteriores 8.130 7.913 7.033 6.508 3.523 2.857 7.248 2.859 2.187 10.590 .114 - 16.335 574 - Ministerlo de Hacienda 5.390 3.370 3.106 4.014 478 007 3.898 742 329 6.059 3.613 1.729 4.277 681 - OTHERS 35,952 10.713 7.535 36.125 10.488 7.453 39.358 14.207 10.369 47.445 17.777 6.504 71.745 38.204 18.826 SUB-TOTAL 95.621 76.071 68.236 83.142 76.003 68.388 88.195 80.846 72.592 193.489 196.887 146.292 137.192 230.863 199.036 CONNECCTING COMPANIES: Bogotd 189.239 83.375 51.413 701.345 251.859 148.258 729.534 287.438 116,062 1,602.877 670.544 258.364 1,507.492 793.027 432.225 Cali 224.869 109.164 70.801 310.146 216.190 165.984 327.525 150.564 71.000 599.399 190.522 25.101 568.252 310.656 150.958 Baranquilla 139.779 49.752 25.520 180.477 111.436 82.710 185.560 225.948 192.817 329.895 116.417 51.113 368.915 210.394 114.131 Medellfo 189.507 18.127 1.165 252.082 24.207 1.175 298.427 35.980 1.175 501.496 42.195 1.175 568.428 54,180 1.175 OTHERS 394.724 120.735 62.390 487.840 231.355 137.617 536.012 359.217 245.034 1.043.475 424.547 285.503 1.099.081 552.349 347.338 SUB-TOTAL 1,138.118 381.153 211.289 1,931.890 835.407 535.744 2,077.058 1,059.147 626.088 4,077.142 11444.225 621.256 4,112.168 1,920.606 1045.827 PRIVATE BUSINESS 1,189.016 120.567 43.617 1,022.074 33.348 11.693 1,136.306 68.428 13.922 1,721.025 102.030 4,099 1,880.918 138.308 21.159 OTHERI/ 418.948 177.967 123.130 307.801 136. 167 129.455 3W7.349 139.781 111.861 1,081.273 560.948 92.262 83&.580 537.189 107.860 TOTAL 2,841. 723 755.758 446.272 3,344.910 1,090.565 745.280 3,658.908 1,348.208 824.463 7,072.929 2,304.090 863.909 6,962.858 2,826.966 1,373.885 1/ Including accounts other than oervice billed and accounts for overdue refinancing; the latter is estimated at about 30% of this item in 76, 77 and 78, and 80% in 79 and 80, respectively. -52- ANNEX 9 Page 1 of 2 pages COLOMBIA EMPRESA NACIONAL DE TELECOMUNICACIONES (TELECOM) THIRD TELECOMMUNICATIONS PROJECT LOAN 1073-CO Return on Investment 1. The Third Telecommunications Project was designed originally to cover part of the works in phase one of TELECOM's telecommunications develop- ment program (1974-1980) and expected to be carried out during the first five-year period (1974-78). Some revisions of the project, delays in execution and insufficient information on separate expenditure accounts for the project and other non-project items (paragraphs 3.02, 3.03, 3.05 and 3.08) plus the overlapping with the second and the fourth projects have made all attempts at allocating revenues and costs to the project totally arbitrary. Therefore, the internal rate of return has been calculated on the 1974-80 time slice of the total investment program with 1974 as the base year. The assumption is that the benefits of the program are representative of and proportional to the project. 2. The benefit period was estimated to be from 1974 to 2005, including 25-years estimated life of the instllled assets. 3. Net Benefits - Construction costs, incremental revenues and operating costs net of depreciation and interest were based on actual financial results. Preinvestments in 1972-73 for the 1974-80 programs were included in the construction costs, while preinvestments for future program in 1979-80 are excluded. All revenues and costs had been deflated to bring them to the 1974 price level. A summary of the program's cost and benefit streams at 1974 price level is given as follows in (in million Col$): - 53 - ANNEX 9 Page 2 of 2 pages Construction Incremental Net Year Deflator Costs Expenses Revenues Benefits 1972 1.538 85 - - (85) 1973 1.250 461 - - (461) 1974 1.000 523 217 396 (344) 1975 0.806 302 457 773 (14) 1976 0.676 520 734 1,136 (118) 1977 0.500 646 966 1,296 (316) 1978 0.427 344 1,243 1,576 (11) 1979 0.344 213 1,605 2,015 197 1980 0.272 73 1,947 2,490 470 1981-2005 0.245 0 2,140 2,740 600 4. Based on the above cost and benefit streams, the internal rate of return for the total program is estimated at 19.6%. COLOMBIA EMPRESA NACIONAL DE TELECOMUNICACIONES (TELECOM) LOAN 1073-CO Compliance with Covenants Section of the Agreement Brief,Description of Covenants Loan Guarantee Compliance Comments Provide Bank with a certified audit report within The reports for FY75, 76, 77 and 78 four months after the end of fiscal year 5.02(a) were sent to the Bank on 8/17/76, 9/26/77, 12/27/78 and 12/18/79/ The report for FY79 is expected to be ready by 12/31/80. See paragraph 5.14. Not incur debt unless net revenues next preceding or for a later 12 month period shall be not less 5.04 No such than 1.5 times minimum debt service incidence Maintain tariff which will provide at least 11% 5.05 Yes See paragraphs 5.03 and 5.04 rate of return on assets revalued in accordance with the method outlined in Schedule 5 of the Loan Agreement Obtain Bank concurrence before committing itself to additional capital expenditures exceeding US$1,000,000 or 10% of the aggregate amount 5.07 No such of all capital expenditure during the preceding incidence year Establishing accounting procedures to reflect the Borrowers pension liabilities and the 5.08 Yes See paragraph 5.13 funds allocated to acquire new companies Government entities shall make timely payments 3.02 No See paragraphs 5.09aand 5.10 and for services obtained from TELECOM Annex 8 Government shall pay, during FY74 to FY78, amount in pesos equivalent to TELECOM's severence pay 3.03 No such reserve if TELECOM is deprived by the Government incidence of the use of the funds in such reserve Note: Item 3 has been superseded in Loan Agreement (1450-CO), effective from FY1977. The covenanted rate of return for FYs77, 78, 79 and 80 is 16% and at least 11% thereafter. C)